Filing identity and reporting period
The supplied filing is MoSys, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2013—not a Peraso Inc. filing. The filing covers the three and six months ended June 30, 2013, with comparisons to 2012; balance-sheet comparisons are against December 31, 2012. Verify the issuer and period before relying on this summary.
Business context
MoSys describes its strategy as shifting from IP licensing toward developing and selling fabless semiconductor ICs for networking, communications, storage and computing markets. Its products include Bandwidth Engine and the newly announced LineSpeed line. IC product revenue remained insignificant; management said future success and profitability depend on establishing a market for these products.
Financial results
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $1.120 | $1.736 | $2.455 | $3.160 |
| Gross profit | $1.043 | $1.557 | $2.359 | $2.924 |
| Gross margin | 93% | 90% | 96% | 93% |
| Operating loss | $(6.400) | $(6.559) | $(11.397) | $(13.768) |
| Net loss | $(6.396) | $(6.553) | $(11.393) | $(13.768) |
| Basic and diluted loss per share | $(0.15) | $(0.17) | $(0.27) | $(0.36) |
Revenue comprised royalties of $0.960 million in Q2 and $2.046 million for the first half, plus licensing and other revenue of $0.160 million and $0.409 million, respectively. Research and development expense was $5.983 million for Q2 and $11.303 million for the first half; SG&A was $1.460 million and $3.083 million, respectively.
For the first half, operating cash flow was negative $11.461 million (versus negative $11.212 million in 2012). Investing cash flow was negative $12.107 million, primarily reflecting purchases of investments; financing cash flow was positive $29.211 million, largely from a public stock offering. Cash and cash equivalents were $8.172 million at June 30. Cash, cash equivalents and short- and long-term investments totaled approximately $58.9 million; working capital was $38.9 million. The balance sheet reported no borrowings; current and long-term liabilities were $2.791 million and $0.197 million. Contractual obligations included $5.351 million of operating leases and $6.903 million of purchase commitments.
Changes and notable items
- Q2 revenue fell 35% year over year; first-half revenue fell 22%. Management attributed lower licensing revenue to fewer and lower-value agreements, and lower royalties primarily to reduced shipments by licensees, partly offset by higher royalties from a major foundry partner.
- MoSys said it signed no new license agreements in the first half and did not expect to sign any in the remainder of 2013. It also expected licensing and royalty revenue to decline over time as it pursued IC product sales.
- Gross margin percentages improved as less engineering work was required on existing contracts, although gross profit dollars declined with revenue. R&D expense fell year over year, mainly because of lower personnel, amortization and software-tool costs, partly offset by higher IC development costs.
- The company issued approximately 7.5 million shares in a Q2 public offering, generating about $27.7 million net proceeds. First-half financing cash flow includes $27.890 million of net stock-sale proceeds.
- MoSys received the remaining $0.6 million holdback from its 2012 SerDes technology sale in March 2013; the filing says no further amounts are due. In July 2013, it agreed to pay related party Credo an additional $0.7 million for product development. Two MoSys executive officers were investors in Credo.
Outlook, risks and contingencies
Management estimated that, at current expense levels and assumptions, quarterly IC product revenue of approximately $14 million would be needed to achieve positive cash flow. It expected 2013 cash expenditures to exceed receipts by $15 million to $18 million and believed available cash and investments were sufficient for the foreseeable future, while cautioning that funding might be needed and might not be available on favorable terms. Management expected SG&A to remain flat in absolute dollars for the rest of 2013.
Key risks described include dependence on successful IC product development, customer design wins and market adoption; declining legacy licensing and royalty revenue; manufacturing yields, fabrication costs and development execution; and potential need for additional capital. One customer represented 53% of Q2 revenue and 42% of first-half revenue; one customer accounted for 94% of net receivables at June 30. The company disclosed an ongoing tax examination in India. It reported no material legal proceeding believed likely to materially harm its financial position or results; a prior arbitration dispute and related share repurchase were settled in 2012. Management assessed disclosure controls as effective at June 30, 2013.
Important facts for investors to verify
- Confirm that MoSys, Inc.—not Peraso Inc.—is the intended issuer and that 2013 Q2 is the intended reporting period.
- Review the assumptions behind management’s $14 million quarterly IC revenue threshold and 2013 cash-expenditure estimate.
- Track IC product design wins, customer adoption, revenue growth and the transition away from licensing and royalties.
- Assess customer concentration, the related-party Credo arrangement and the additional development payment disclosed after quarter-end.
- Reconcile cash and investment balances, operating cash burn, lease commitments and purchase commitments against future funding needs.