Filing summary
Entity and period mismatch: The supplied filing is MoSys, Inc.’s Form 10-K for the fiscal year ended December 31, 2011, filed March 15, 2012. It is not a Peraso Inc. filing, and it reports annual results rather than a standalone 2011 Q4 filing. The figures below summarize MoSys; Q4 figures are identified separately where available.
Business context and reporting period
MoSys was a fabless semiconductor company shifting from IP licensing and royalties toward developing and selling its Bandwidth Engine ICs for high-speed networking. At year-end 2011 it had not generated revenue from Bandwidth Engine products. Management said future success and profitability depended on customer adoption and sales of these ICs.
Financial performance and position
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $14.1 million | $15.6 million |
| Licensing revenue | $6.0 million | $6.5 million |
| Royalty revenue | $8.1 million | $9.1 million |
| Gross profit / margin | $10.8 million / 77% | $12.7 million / 82% |
| Operating income (loss), reported | $11.3 million | $(23.2) million |
| Net income (loss), reported | $11.3 million | $(23.1) million |
| Operating cash flow | $(15.7) million | $(15.6) million |
| Cash, cash equivalents and investments | $58.0 million | $37.5 million |
| Working capital | $48.0 million | $27.2 million |
| Total assets / stockholders’ equity | $89.6 million / $85.5 million | $74.0 million / $67.1 million |
The reported FY 2011 operating and net profits were driven by a $35.6 million gain on the patent sale. Excluding that gain, MoSys reported an operating loss of approximately $24.3 million. Research and development expense was $26.2 million, up from $25.5 million. The filing reports no conventional borrowings; year-end current liabilities were $4.0 million and long-term liabilities $0.1 million. Contractual obligations totaled $9.9 million, including operating leases and purchase commitments.
In Q4 2011, revenue was $5.2 million, gross profit $3.4 million, and reported net income $29.8 million, reflecting the patent-sale gain. Q4 2010 revenue was $4.0 million and net loss $5.7 million.
Material changes versus the prior comparable period
- Revenue declined 9% year over year, as licensing revenue fell 7% and royalties fell 11%. Gross margin decreased from 82% to 77%.
- The December 2011 sale of 73 memory-technology patents generated $35.0 million in cash and a $35.6 million accounting gain. MoSys retained defined rights, including rights supporting Bandwidth Engine, but the agreement restricted some future 1T-SRAM licensing.
- Cash and investments increased by $20.4 million, principally reflecting patent-sale proceeds; operations continued to consume cash. Operating cash use remained similar to 2010.
- The company continued reallocating engineering and commercial resources to IC development, while demand and competitiveness for its legacy IP were declining.
Outlook, commentary and principal risks
- MoSys expected licensing and royalty revenue to decline in 2012 and cash expenditures to exceed receipts. It anticipated minimal IC revenue in 2012 and did not expect IC revenue to offset declining IP revenue until at least 2013; elsewhere, the filing says this could be the second half of 2013 or later.
- Management expected significant Bandwidth Engine revenue no earlier than the second half of 2012, while cautioning that timing and eventual scale were uncertain. Two low-volume design wins had been secured; customer design cycles were estimated at 6–24 months.
- Key risks include customer adoption and GigaChip Interface uptake, product development and manufacturing execution, uncertain IC pricing and profitability, competition, concentrated legacy royalties, and reliance on third-party manufacturers. Nintendo-related royalties were 16% of 2011 revenue, and the expected 2012 gaming-system replacement did not use MoSys technology.
- Three customers represented 52% of 2011 revenue, and four customers represented 96% of year-end trade receivables. The filing also notes potential need for additional financing if cash resources prove inadequate, despite management’s view that available resources were sufficient for the foreseeable future.
- No material legal proceeding was reported. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Most important facts for an investor to verify
- Confirm the intended issuer and filing: the supplied document is MoSys, Inc., not Peraso Inc.
- Reconcile reported FY 2011 profit with the $35.6 million one-time patent-sale gain and recurring operating losses.
- Track quarterly cash burn, cash and investments, and whether financing is needed as legacy licensing and royalties decline.
- Verify Bandwidth Engine customer production timing, design-win conversion, product economics, and adoption of the GigaChip Interface.
- Assess concentration exposure, particularly key customers, receivables, and Nintendo-related royalties, and review the patent-sale agreement’s limits on future licensing.