Business context and reporting period
Important issuer discrepancy: The supplied filing is MoSys, Inc.’s Form 10-Q for the quarter ended June 30, 2017, filed August 10, 2017—not a Peraso Inc. filing. MoSys describes itself as a fabless semiconductor company developing and selling Bandwidth Engine and LineSpeed integrated circuits for networking and communications markets.
Financial results
Amounts below are in millions of dollars, except per-share data. Q2 refers to the three months ended June 30; H1 refers to the six months ended June 30.
| Metric | Q2 2017 | Q2 2016 | H1 2017 | H1 2016 |
|---|---|---|---|---|
| Revenue | $1.384 | $1.633 | $2.596 | $3.084 |
| Gross profit / margin | $0.652 / 47% | $0.670 / 41% | $1.262 / 49% | $1.258 / 41% |
| Operating expenses | $4.416 | $6.461 | $9.215 | $13.885 |
| Operating loss | $(3.764) | $(5.791) | $(7.953) | $(12.627) |
| Net loss | $(3.994) | $(6.004) | $(8.399) | $(12.869) |
| Net loss per share | $(0.60) | $(0.91) | $(1.26) | $(1.96) |
- Revenue fell 15% in Q2 and 16% in H1 year over year. MoSys attributed lower product revenue to reduced Bandwidth Engine shipments and lower royalty revenue to reduced shipments by licensees.
- H1 operating cash flow was negative $7.003 million, compared with negative $11.110 million in H1 2016. Investing cash flow was positive $1.002 million, primarily from transfers out of investments; financing cash flow was negative $0.022 million.
- Cash and cash equivalents were $2.743 million at June 30, 2017, down from $8.766 million at year-end 2016. Working capital was $1.9 million. Current assets were $5.437 million versus current liabilities of $3.532 million.
- Total liabilities were $12.625 million, including $8.702 million of convertible notes payable. The notes bear 10% interest and mature in August 2018; accrued interest has been paid in additional notes. The notes are secured by company assets and restrict additional borrowing, subject to specified conditions.
Material changes and notable items
- MoSys recorded $1.002 million of Q2 restructuring charges after reducing its workforce by approximately 60%, primarily at its Santa Clara facility. Charges included severance and future obligations under design-software licenses; $0.584 million remained accrued at quarter-end. The company expected another $0.1 million to $0.3 million of restructuring charges in H2 2017.
- R&D expense declined 53% in Q2 and 43% in H1 year over year; SG&A declined 30% and 22%, respectively. Management cited reduced personnel and other costs and said it would substantially curtail new product development to focus on existing products.
- On June 30, MoSys entered into a registered direct offering that closed in July: 1.325 million shares at $1.70 per share, for approximately $2.0 million net proceeds. A concurrent private placement provided warrants for 662,500 shares at $2.35 per share, exercisable after six months and expiring five years after that date.
- Revenue was concentrated: one customer represented 35% of Q2 revenue and 44% of H1 revenue; three customers accounted for 67% of accounts receivable at June 30.
Outlook, risks and contingencies
- Management expected continued operating losses and cash outflows in 2017 and said revenue must rise substantially to support sustainable profitability and cash generation. It anticipated lower R&D expense and slightly lower SG&A expense following restructuring.
- The filing states that recurring losses, negative cash flows, limited liquidity, and the need to repay the notes in 2018 raise substantial doubt about MoSys’s ability to continue as a going concern within one year of the financial statements’ issuance. The company was seeking additional financing; availability and acceptable terms were not assured. Further cost reductions could be required.
- Operating leases totaled $2.432 million, including $0.767 million due within one year. The filing reports no material legal proceeding believed likely to adversely affect financial position or results.
- Management concluded disclosure controls were effective as of June 30, 2017 and reported no material change in internal control over financial reporting during H1.
Most important facts for investors to verify
- Confirm the intended issuer: the provided filing identifies MoSys, Inc., not Peraso Inc.
- Review subsequent cash needs and whether the July offering proceeds and any further financing are sufficient relative to cash burn and the August 2018 note maturity.
- Track product shipments, customer and royalty demand, and customer concentration, which affect revenue and collections.
- Assess whether workforce reductions and curtailed development can reduce cash burn without materially impairing product commercialization.
- Verify the remaining restructuring costs and obligations, and the terms and potential dilution associated with the offering warrants and convertible notes.