Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MOSY > SEC Filings for MOSY > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for MOSYS, INC.

Form 10-Q for MOSYS, INC.


8-Aug-2014

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this report. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance, all information disclosed under Item 3 of this Part I, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 14, 2014 and in other reports that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "expects," "intends," "plans," "projects," or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described below in Risk Factors and elsewhere in this report and under Item 1A of our annual report on Form 10-K for the year ended December 31, 2013. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or events occur in the future.

Company Overview

Our strategy and primary business objective is to be an IP-rich fabless semiconductor company focused on the development and sale of integrated circuits, or ICs, for the high-speed networking, communications, storage and computing markets. Prior to 2011, our primary business activities were designing, developing, marketing and licensing high-performance semiconductor memory and high-speed parallel and serial interface, or SerDes I/O, intellectual property (IP) used by semiconductor industry and communications, networking and storage equipment manufacturers. Since 2011, we have developed two IC product lines under the "Bandwidth Engine®" and "LineSpeed™" product names. Bandwidth Engine ICs combine our proprietary 1T-SRAM® high-density embedded memory and high-speed serial interface with our intelligent access technology and a highly efficient interface protocol. The LineSpeed IC product line is comprised of non-memory, high-speed SerDes I/O devices with gearbox and retimer functionality, which convert lanes of data received on line cards into different configurations and/or ensure signal integrity. Certain SerDes products have been developed under a strategic development and marketing agreement with Credo Semiconductor Ltd., or Credo. For those products developed by Credo, the first $2.6 million of gross profits generated by us from the sale of these products will be retained by us as reimbursement of the development costs. Thereafter, all gross profits from the sale of the Credo-developed products worldwide will be shared equally by Credo and us.


Table of Contents

Revenue from sales of our IC products is increasing, as we continue to support existing design-win customers and actively pursue additional design wins for the use of our ICs in networking and communication equipment. We have established initial pricing of our IC products ordered to date, but longer-term volume prices will be subject to negotiations with our customers and may vary substantially from the initial prices. Our future success and ability to achieve and maintain profitability depend on the manufacturing, marketing and sales of our IC products into networking, communications and other end- customer applications markets requiring the type of high performance provided by our products.

Sources of Revenue

Product. Product revenue is generally recognized at the time of shipment to our customers. An estimated allowance is recorded, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale. IC product revenue and costs relating to sales made through distributors with rights of return and stock rotation are deferred until the distributors sell the product to end customers due to our inability to estimate future returns and credits to be issued. At the time of shipment to distributors, an accounts receivable for the selling price is recorded, as there is a legally enforceable right to receive payment, inventory is relieved, as legal title to the inventory is transferred upon shipment, and the associated deferred margin is recorded as deferred revenues in the condensed consolidated balance sheets. Revenues are recognized upon receiving notification from the distributors that products have been sold to end customers.

Royalty. Royalty revenue represents amounts earned under provisions in our memory licensing contracts that require our licensees to report royalties and make payments at a stated rate based on actual units manufactured or sold by licensees for products that include our memory IP. Our license agreements require the licensee to report the manufacture or sale of products that include our technology after the end of the quarter in which the sale or manufacture occurs, and we recognize royalties in the quarter in which we receive the licensee's report. The timing and level of royalties are difficult to predict. They depend on the licensee's ability to market, produce and sell products incorporating our technology.

Licensing. Licensing revenue, which is included in royalty and other revenue, consists of fees earned from license agreements, development services, and support and maintenance. Our licensing revenue consists primarily of fees for providing circuit design, layout and design verification and granting licenses to customers that embed our technology into their products. The vast majority of our contracts allow for milestone billing based on work performed. Fees billed prior to revenue recognition are recorded as deferred revenue.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates, and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the "Notes to Consolidated Financial Statements" in our Annual Report on Form 10-K for the year ended December 31, 2013. As of June 30, 2014, there have been no material changes to our significant accounting policies and estimates.

Results of Operations



Net Revenue.



                                        June 30,             Change
                                     2014        2013     2013 to 2014
                                      (dollar amounts in thousands)
Product - three months ended      $      975    $   60   $   915   1,525 %
Percentage of total net revenue           56 %       5 %
Product - six months ended        $    1,556    $  121   $ 1,435   1,186 %
Percentage of total net revenue           51 %       5 %

Product revenue increased due to increased volume of shipments for our Bandwidth Engine ICs as we have more customers. In the first three and six months of 2014, we realized $0.2 million and $0.4 million, respectively, of revenue recognition from the reversal of sales return reserves recorded in prior periods. We expect product revenue to fluctuate in the remaining quarters of 2014, as our customers have not yet commenced full production of their systems that utilize our ICs.


Table of Contents

                                              June 30,             Change
                                          2014        2013      2013 to 2014
                                            (dollar amounts in thousands)
Royalty and other- three months ended   $     774    $ 1,060   $    (286 ) (27 )%
Percentage of total net revenue                44 %       95 %
Royalty and other - six months ended    $   1,525    $ 2,334   $    (809 ) (35 )%
Percentage of total net revenue                49 %       95 %

Royalty and other revenue include revenues generated from licensing agreements. Royalty and other revenue decreased primarily due to a decrease in shipment volumes by licensees whose products incorporate our licensed IP.

Cost of Net Revenue and Gross Profit.



                                                 June 30,             Change
                                              2014        2013     2013 to 2014
                                               (dollar amounts in thousands)
Cost of net revenue - three months ended   $    1,022    $   77   $   945   1,227 %
Percentage of total net revenue                    58 %       7 %
Cost of net revenue - six months ended     $    1,599    $   96   $ 1,503   1,566 %
Percentage of total net revenue                    52 %       4 %




                                          June 30,             Change
                                      2014        2013      2013 to 2014
                                        (dollar amounts in thousands)
Gross profit - three months ended   $     727    $ 1,043   $    (316 ) (30 )%
Percentage of total net revenue            42 %       93 %
Gross profit - six months ended     $   1,482    $ 2,359   $    (877 ) (37 )%
Percentage of total net revenue            48 %       96 %

Cost of net revenue is primarily comprised of direct and indirect costs related to the sale of IC products.

Cost of net revenue increased for the three and six months ended June 30, 2014, compared with the same periods of 2013, primarily due to the increase in product material and testing costs related to IC shipments.

Gross profit decreased for the three and six months ended June 30, 2014, compared with the same periods of 2013, primarily due to the decrease in our royalty revenue, which has no associated costs, coupled with the increase in IC shipments. The deferred margin recognized from the reversal of sales return reserves in the first six months 2014 was not material. Gross margin percentage decreased for the three and six months ended June 30, 2014, compared with the same periods of 2013, primarily due to the shift in revenue mix from royalty revenue, which has no associated costs, to product revenue.

Research and Development.



                                                      June 30,             Change
                                                  2014        2013      2013 to 2014
                                                    (dollar amounts in thousands)
Research and development - three months ended   $   6,432   $  5,983   $      449    8 %
Percentage of total net revenue                       368 %      534 %
Research and development - six months ended     $  13,486   $ 11,303   $    2,183   19 %
Percentage of total net revenue                       438 %      460 %

Our research and development expenses include costs related to the development of our IC products and amortization of intangible assets. We expense research and development costs as they are incurred.


Table of Contents

The $0.4 million and $2.2 million increase for the three and six months ended June 30, 2014, respectively, compared with the same periods a year ago, was primarily due to higher personnel costs resulting from higher headcount, computer-aided design software tools, consulting and stock-based compensation charges, partially offset by decreased development costs of our Bandwidth Engine IC products. R&D expense is expected to fluctuate in absolute dollars primarily due to timing of masks and test chip expenditures related to tape-outs of new IC products, which we expect to complete in both the third and fourth quarters of 2014. Tape-outs of new products also drive higher computer-aided design and consulting costs in the quarters preceding the tape-out.

Research and development expenses included stock-based compensation expense of $0.8 million and $0.7 million for the three months ended June 30, 2014 and 2013, respectively. Research and development expenses included stock-based compensation expense of $1.9 million and $1.3 million for the six months ended June 30, 2014 and 2013, respectively.

Selling, General and Administrative (SG&A).



                                        June 30,             Change
                                    2014        2013      2013 to 2014
                                      (dollar amounts in thousands)
SG&A - three months ended         $   1,490    $ 1,460   $      30     2 %
Percentage of total net revenue          85 %      130 %
SG&A - six months ended           $   3,287    $ 3,083   $     204     7 %
Percentage of total net revenue         107 %      126 %

Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and general management.

Selling, general and administrative expenses remained consistent for the three months ended June 30, 2014, compared with the same period a year ago.

The $0.2 million increase for the six months ended June 30, 2014 was primarily due to higher personnel costs and stock-based compensation charges.

Selling, general and administrative expenses included stock-based compensation expense of $0.2 million for each of the three months ended June 30, 2014 and 2013. Selling, general and administrative expenses included stock-based compensation expense of $0.7 million and $0.5 million for the six months ended June 30, 2014 and 2013, respectively.

We expect total selling, general and administrative expenses to increase in absolute dollars for the second half of 2014 as we incur annual compliance costs.

Other Income, net.



                                              June 30,             Change
                                          2014       2013       2013 to 2014
                                             (dollar amounts in thousands)
Other income, net - three months ended   $    55    $    24   $    31       129 %
Percentage of total net revenue                3 %        2 %
Other income, net - six months ended     $    85    $    44   $    41        93 %
Percentage of total net revenue                3 %        2 %

Other income, net primarily consisted of interest income on our investments, partially offset by other non-operating items.

Income Tax Provision.



                                                 June 30,              Change
                                             2014       2013        2013 to 2014
                                                 (dollar amounts in thousands)
Income tax provision - three months ended   $    21    $    20    $         1     5 %
Percentage of total net revenue                   1 %        2 %
Income tax provision - six months ended     $    42    $    40    $         2     5 %
Percentage of total net revenue                   1 %        2 %


Table of Contents

The provision for the three and six months ended June 30, 2014 and 2013 was primarily attributable to taxes on earnings of our foreign subsidiary and branches. We believe that, based on the history of our operating losses and other factors, the weight of available evidence indicates that it is more likely than not that we will not be able to realize the benefit of our net operating losses, which are primarily generated in the United States. Accordingly, a full valuation reserve has been recorded against our net deferred tax assets.

Liquidity and Capital Resources; Changes in Financial Condition

Cash Flows

As of June 30, 2014, we had cash, cash equivalents and short and long-term investments of $40.1 million and had total working capital of $30.4 million. Our primary capital requirements are to fund working capital, including development of our IC products, and any acquisitions that we make that require cash consideration or expenditures.

Net cash used in operating activities was $11.9 million for the first six months of 2014, which primarily resulted from our net loss of $15.2 million, partially offset by non-cash charges, including stock-based compensation expense of $2.5 million, depreciation and amortization expenses of $0.7 million and $0.1 million in the change in assets and liabilities. The changes in assets and liabilities primarily related to the timing of the collection of receivables from customers and payments to vendors.

Net cash used in operating activities was $11.5 million for the first six months of 2013, which primarily resulted from the net loss of $11.4 million, a gain on sale of assets of $0.6 million and $2.2 million in the net reduction of assets and liabilities, partially offset by non-cash charges, including stock-based compensation expense of $1.8 million and depreciation and amortization expenses of $0.9 million. The changes in assets and liabilities primarily related to the timing of collection of receivables from customers and payments to vendors.

Net cash provided by investing activities was $8.9 million for the first six months of 2014, and included net amounts transferred to cash and cash equivalents from investments of $9.0 million, which did not impact our liquidity, partially offset by $0.1 million for purchases of fixed assets.

Net cash used in investing activities was $12.1 million for the first six months of 2013, and included net amounts transferred from cash and cash equivalents to investments of $12.7 million that did not impact our liquidity and $0.1 million for purchases of fixed assets, partially offset by $0.6 million in proceeds from the sale of assets.

Our financing activities in the first six months of 2014 primarily consisted of proceeds from the exercise of stock options and our employee stock purchase plan. Our proceeds from financing activities for the first six months of 2013 of $29.2 million consisted primarily of net proceeds received from the sale of common stock though a public offering and proceeds from the exercise of stock options and purchases of common stock under our employee stock purchase plan.

Our future liquidity and capital requirements are expected to vary from quarter to quarter, depending on numerous factors, including:

† level of revenue;

† cost, timing and success of technology development efforts;

† inventory levels, timing of product shipments and length of billing and collection cycles;

† fabrication costs, including mask costs of our ICs, currently under development;

† variations in manufacturing yields, materials costs and other manufacturing risks;

† costs of acquiring other businesses and integrating the acquired operations; and

† profitability of our business.

We expect our cash expenditures to continue to exceed receipts in 2014 as our revenues will not be sufficient to offset our operating expenses, which include significant research and development expenditures for the expansion and fabrication of our IC products. We believe our existing cash, cash equivalents and investments, along with our existing capital and cash generated from


Table of Contents

operations, if any, to be sufficient to meet our capital requirements for the foreseeable future. There can be no assurance that our capital is sufficient to fund operations until such time as we begin to achieve positive cash flows. We might decide to raise additional capital, and there can be no assurance that such funding will be available to us on favorable terms, if at all. To this end we have filed a shelf registration statement with the SEC to allow us to sell up to approximately $50 million of our securities from time to time for a period of three years from the date the registration statement has been declared effective.

If we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating results and financial condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

† develop or enhance our products;

† continue to expand our product development and sales and marketing organizations;

† acquire complementary technologies, products or businesses;

† expand operations, in the United States or internationally;

† hire, train and retain employees; or

† respond to competitive pressures or unanticipated working capital requirements.

Our failure to do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our research and development plans or existing operations.

Contractual Obligations



The impact that our contractual obligations as of June 30, 2014 are expected to
have on our liquidity and cash flow in future periods is as follows (in
thousands):



                                                          Payment Due by Period
                                                                                                 More than
                                Total        Less than 1 year      1-3 years      3-5 years       5 years
Operating leases              $    4,632    $              762    $     1,485    $     1,490    $        895
Software licenses                  4,860                 3,226          1,634              -               -
Wafer purchase obligations           465                   465              -              -               -
                              $    9,957    $            4,453    $     3,119    $     1,490    $        895

As of June 30, 2014, our software licenses related to computer-aided design software.

  Add MOSY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MOSY - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.