Business context and reporting period
This filing covers the quarter and six months ended June 30, 2019. Important issuer mismatch: the supplied filing is for MoSys, Inc. (Nasdaq: MOSY), not Peraso Inc. MoSys describes itself as an IP-focused fabless semiconductor company; its Bandwidth Engine IC family generated most revenue.
Financial results
Amounts are in millions of dollars except per-share data and percentages; comparison periods are 2018.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $3.066 | $4.598 | $6.586 | $8.806 |
| Gross profit / margin | $1.838 / 60% | $2.765 / 60% | $4.004 / 61% | $5.372 / 61% |
| Operating income (loss) | ($0.075) | $0.525 | ($0.034) | $1.092 |
| Net income (loss) | ($0.103) | $0.315 | ($0.093) | $0.663 |
| Operating cash flow | Not separately provided for Q2 | $0.391 | ($0.198) |
Q2 product revenue was $2.810 million, down 31%; royalty and other revenue was $0.256 million, down 53%. Six-month product revenue fell 20% to $6.196 million, while royalty and other revenue fell 63% to $0.390 million. The filing attributes declines to lower Bandwidth Engine shipments, reduced licensee shipment volumes, and the absence of a prior-year nonrecurring licensing and engineering project.
At June 30, cash and cash equivalents were $6.372 million and short-term investments were $1.072 million, for $7.444 million in combined cash and investments. Working capital was $8.8 million. Total liabilities were $4.318 million, including $2.749 million of secured convertible notes; the notes mature August 2023. The company reported an accumulated deficit of $235.960 million. Six-month cash decreased by $0.732 million to $6.372 million; operating cash flow was positive, while investing activities used $1.122 million, primarily reflecting purchases of short-term investments.
Changes versus prior period
- Revenue and gross profit declined in both the quarter and first half; gross margin remained 60% for Q2 and 61% for the six-month period.
- MoSys moved from operating and net income in the 2018 comparisons to operating and net losses in 2019.
- Interest expense fell to $0.056 million in Q2 and $0.110 million for six months, from $0.206 million and $0.427 million, respectively, following the 2018 note amendment and principal repayment.
- Operating cash flow improved from a $0.198 million use to $0.391 million provided for the first half.
- Shares used in the six-month per-share calculation rose to 43.115 million from 8.151 million; the filing also reports substantial outstanding warrants and other potentially dilutive securities.
Outlook, risks and other items
- Management expected product revenue to decline during the rest of 2019, citing completion of first-generation Bandwidth Engine last-time-buy shipments and a large networking customer’s inventory reduction. It expected cost of revenue to remain consistent as a percentage of revenue, and R&D and SG&A to increase slightly.
- Management said 2019 cash expenditures were expected to exceed receipts and that further capital may be required. The filing gives no quantified cash runway or specific revenue/profit guidance.
- MoSys relied heavily on a small customer base: four customers accounted for 84% of accounts receivable at quarter-end. Two customers represented 56% of Q2 revenue.
- The notes are secured by company assets, accrue interest at 8%, and permit interest to be paid in kind. Additional financing may dilute shareholders or impose restrictive terms.
- Outstanding warrants included 36.9 million shares exercisable at $0.30, plus 2.3 million pre-funded warrants; the notes were convertible into up to 4.8 million shares, subject to stated limitations. These represent potential dilution, not current shares outstanding.
- MoSys adopted the lease accounting standard in January 2019, recognizing lease assets and liabilities; it reported no material effect on earnings or cash flows. No legal proceeding was identified as likely to have a material adverse effect. Management concluded disclosure controls were effective as of June 30, 2019.
Important facts for investors to verify
- Confirm the intended company: this source is MoSys, Inc., not Peraso Inc.
- Review the customer inventory reduction and expected decline in second-half 2019 product revenue.
- Assess cash needs and potential financing, given management’s expectation that 2019 expenditures would exceed receipts.
- Examine the secured note terms, in-kind interest, maturity, and restrictions on additional debt.
- Evaluate customer concentration and potential dilution from warrants, convertible notes, options, and restricted stock awards.
- Compare reported operating cash flow with underlying working-capital movements and future shipment trends.