UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Form 8-K
______________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): February 26, 2018
MOSYS, INC.
(Exact Name of Registrant as Specified in Charter)
000-32929
(Commission File Number)
| Delaware | 77-0291941 |
| (State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification Number) |
|
2309 Bering Dr.
San Jose, California 95131 |
| (Address of principal executive offices, with zip code) |
(408) 418-7500
(Registrant's telephone number, including area code)
|
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
|
||
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 1.01. Entry into a Material Definitive Agreement.
On March 14, 2016, MoSys, Inc., or the Company, entered into a 10% Senior Secured Convertible Note Purchase Agreement (the “Purchase Agreement”) with the purchasers of $8,000,000 principal amount of 10% Senior Secured Convertible Notes due August 15, 2018 (the “Notes”), as described in the Company’s Current Report on Form 8-K, dated March 14, 2016 (the “2016 8-K”).
Effective February 18, 2018, the Company amended the Purchase Agreement, and each of the Notes, pursuant to Amendment to 10% Senior Secured Convertible Note Purchase Agreement and Every 10% Senior Secured Convertible Note Due August 15, 2018 Issued Thereunder (the “Amendment”), by and between the Company and the purchasers’ agent and the holders of the Notes. The following are the principal changes to the Notes from the description in the 2016 8-K:
Item 2.02. Results of Operations and Financial Condition.
On February 27, 2018, the Company issued a press release announcing its financial results for the three and twelve months ended December 31, 2017. A copy of this press release is furnished as Exhibit 99.1 to this report. The press release should be read in conjunction with the statements regarding forward-looking statements, which are included in the text of the release.
In addition to disclosing financial results calculated in accordance with U.S. generally accepted accounting principles (GAAP), management also presents information regarding the Company’s performance over comparable periods based on gross margin, operating expenses (research and development and sales, general and administrative), operating loss, net loss and net loss per share, exclusive of stock-based compensation, restructuring and impairment charges, and amortization of intangibles. Because management discloses financial measures calculated without taking into account these items, these financial measures are characterized as "non-GAAP financial measures" under Securities and Exchange Commission rules.
Stock-based compensation charges represent non-cash charges related to equity awards granted by the Company. Although these are recurring charges to the Company’s operations, management believes the measurement of these amounts can vary considerably from period to period and depend substantially on factors that are not a direct consequence of operating performance that is within management’s control. Thus, management believes that excluding these charges facilitates comparisons of the Company’s operational performance in different periods, as well as with similarly determined non-GAAP financial measures of comparable companies.
Amortization of intangible assets results from the value recorded for a license the Company retained to patents sold in 2011. The amortization does not represent operating expenses ordinarily incurred by the Company with respect to its primary business activities of selling integrated circuits. Thus, these charges are excluded from the Company’s non-GAAP financial measures to provide another basis for evaluating and comparing the Company’s performance for the three and twelve months ended December 31, 2017.
During 2016 and 2017, the Company incurred restructuring and impairment charges, as it effected reductions in workforce and associated operating expenses to reduce net loss and cash burn and to realign resources. In 2017, these charges included accruals for certain contractual obligations related to computer-aided design software and lease termination costs related to the relocation of its headquarters facility. The restructuring charges do not represent operating expenses ordinarily incurred by the Company with respect to its primary business activities of selling integrated circuits. Thus, these charges are excluded from the Company’s non-GAAP financial measures to provide another basis for evaluating and comparing the Company’s performance for the three and twelve months ended December 31, 2017.
Management and the Company’s board of directors will continue to analyze the historical consolidated results of operations and comprehensive loss (revenue, gross margin, research and development expenses, selling, general and administrative expenses, operating loss, net loss and net loss per share), excluding stock-based compensation, charges for amortization of intangibles and restructuring charges, as described above, to assess the business and compare operating results to the Company's performance objectives. For example, the Company's budgeting and planning process utilizes these non-GAAP financial measures, along with other types of financial information.
The Company discloses these non-GAAP financial measures to the public as an additional means by which investors can assess the Company's performance and to identify the Company's operating results for investors on the same basis applied by management. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The Company has furnished reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures in the press release furnished as Exhibit 99.1.
Moreover, although these non-GAAP financial measures adjust expense, they should not be viewed as a pro-forma presentation reflecting the elimination of the underlying share-based compensation programs, which are an important element of the Company's compensation structure. GAAP requires that all forms of share-based payments should be valued and included, as appropriate, in results of operations. Management believes these expenses are a material part of the Company's operating results.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The disclosures under Item 1.01 with respect to the Amendment are incorporated in this Item 2.03 by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MOSYS, INC. | ||
| Date: February 27, 2018 | By: | /s/ James W. Sullivan |
| James W. Sullivan | ||
| Vice President of Finance and Chief Financial Officer | ||
EXHIBIT INDEX
| Exhibit No. | Description | |
| 10.4 | Amendment to 10% Senior Secured Convertible Note Purchase Agreement and Every 10% Senior Secured Convertible Note Due August 15, 2018 Issued Thereunder | |
| 99.1 |
Exhibit 10.4
AMENDMENT
TO
10% SENIOR SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
AND EVERY
10% SENIOR SECURED CONVERTIBLE NOTE
DUE AUGUST 15, 2018 ISSUED THEREUNDER
MoSys, Inc., a Delaware corporation (the “Company”), Ingalls & Snyder LLC as agent (“Purchasers’ Agent”) for all Purchasers of Notes pursuant to the 10% Senior Secured Convertible Note Purchase Agreement dated as of March 14, 2016 (the “Agreement”), and Ingalls & Snyder Value Partners, LP , the Holder of the Majority-in-Interest of the Notes agree to amend the Agreement and the Notes as provided in this instrument (this “Amendment”).
Pursuant to Sections 11.1 and 12.4 of the Agreement, this Amendment is signed by Purchasers’ Agent for and on behalf of all Purchasers and Holders of Notes, and is effective and binding on all Purchasers and Holders as of February 18, 2018.
All capitalized terms defined in the Purchase Agreement have the same meanings when used in this Amendment.
A. The following provisions of the Agreement and/or the Notes are amended as of February 18, 2018 to read as set forth below:
Under DEFINITIONS, Section 1 of the Agreement,
1.20 “Maturity Date” means August 15, 2019;
Under PURCHASE AND SALE OF NOTES, Section 2 of the Agreement,
2.8(b) Notwithstanding the foregoing, the Company, at its sole option, may pay interest due on each of August 15, 2016, February 15, 2017, August 15, 2017, February 15, 2018, August 15, 2018, and/or February 15, 2019 through the issuance of the new Notes in the principal amount of the interest due to the Holders, if there is no pending Event of Default as of such interest payment date. The Company shall notify the Purchasers’ Agent and the Holders of any election pursuant to this Section 2.8(b) at least 15 days prior to the related interest payment date. Any election by the Company pursuant to this Section 2.8(b) shall apply to all Notes outstanding as of the related interest payment date, other than Notes as to which the Holder has submitted a Fundamental Change Repurchase Right Notice prior to the date the Company sends a notice pursuant to this Section 2.8(b). The Company may elect to convert interest accrued subsequent to February 15, 2019 upon notice to the Purchasers’ Agent and the Holders who have elected to convert the entire amount of their Note(s) then outstanding into Shares pursuant to Section 4.;
Under REPURCHASE UPON A FUNDAMENTAL CHANGE, Section 3 of the Agreement,
3.1(a) Subject to the satisfaction of the requirements of this Section 3.1, if a Fundamental Change occurs at any time prior to the Maturity Date, each Holder will, upon receipt of the notice of the occurrence of a Fundamental Change described in Section 3.1(c), have the right to require the Company to repurchase any or all of such Holder’s Notes for cash in an amount equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to (but not including) the Fundamental Change Repurchase Date (the “Fundamental Change Repurchase Price”).;
Under CONVERSION, Section 4 of the Agreement,
4.6(a) is deleted and replaced with “Reserved.”;
Under INTEREST, Paragraph 1 of each of the Notes,
The first sentence is restated to say, “MoSys, Inc., a Delaware corporation (the ‘Company,’ which term shall include any successor under the Purchase Agreement hereinafter referred to), promises to pay interest on the principal amount of this Note at the rate of eight percent (8%) per annum from and after February 15, 2018.”;
Under REPURCHASE OF NOTES AT OPTION OF HOLDER UPON A FUNDAMENTAL CHANGE of each of the Notes ,
A. Subject to the terms and conditions of the Purchase Agreement, if a Fundamental Change occurs at any time prior to the Maturity Date, the Holder will, upon receipt of the notice of the occurrence of a Fundamental Change, have the right to require the Company to repurchase any or all of such Holder’s Notes for cash in an amount equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to (but not including) the Fundamental Change Repurchase Date, unless such Fundamental Change Repurchase Date falls after an interest payment record date and on or prior to the corresponding interest payment date, in which case the Fundamental Change Repurchase Price will include the full amount of accrued and unpaid interest payable on such interest payment date to the Holder of record at the close of business on the corresponding interest payment record date. Subject to Section 3.1 of the Purchase Agreement, on or before the 10th Business Day prior to the effective date of a Fundamental Change, or as soon as practicable after the occurrence of a Fundamental Change described in Section 1.11(c) of the Purchase Agreement, the Company will provide to the Holder and Purchasers’ Agent a notice of the occurrence of the Fundamental Change and of the resulting repurchase right. To exercise the repurchase right, the Holder must deliver a Repurchase Exercise Notice duly completed to the Company as described in the Purchase Agreement.; and
| 2 |
Under OPTIONAL CONVERSION, Paragraph 7 of each of the Notes,
A. The Holder, at the Holder’s sole option, may convert the principal amount of this Note (or any portion thereof equal to $100,000 or any integral multiple of $100,000 in excess thereof) into Shares, and/or such other consideration as provided in Section 4 of the Purchase Agreement, at any time prior to the close of business on the last Business Day prior to the Maturity Date, at the Applicable Conversion Price (which is the Conversion Price as adjusted from time to time in accordance with the Purchase Agreement) in effect on the Conversion Date; provided , however , that if such Note is submitted or presented for purchase pursuant to Section 3.1 of the Purchase Agreement, such conversion right shall terminate at the close of business on the Business Day immediately preceding the Fundamental Change Repurchase Date for such Note, or such earlier date as the Holder presents such Note for repurchase (unless the Company shall default in making the Fundamental Change Repurchase Price payment when due, as the case may be, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Note is redeemed or purchased as the case may be). The Conversion Price is $4.25 per Share, and the Conversion Rate is one Share per $4.25 principal amount of Note. The Conversion Price and the Conversion Rate are subject to adjustment as provided in the Purchase Agreement. All accrued and unpaid interest on the Note through the Business Day immediately preceding the Conversion Date shall be paid in accordance with Paragraph 2, provided that if the Company elected to pay the interest with the issuance of a new Note thereof, the full amount thereof shall be converted into additional Shares as Note principal. Upon surrender of this Note for conversion and timely delivery to the Company of the Holder’s conversion notice (which may be submitted on Holder’s behalf by Purchaser’s Agent), the Company will issue, or will cause its transfer agent to issue, the Shares to the Holder on the requested Conversion Date. No fractional Shares will be issued upon conversion; in lieu thereof, an amount will be paid in cash based upon the Closing Sale Price of the Common Stock on the Trading Day immediately prior to the Conversion Date. The Shares when issued may be represented by book entry, or by certificates if so requested by Holder.
B. The Company may repay principal owed under the Notes, in whole or in part, at any time after February 15, 2018.
C. All provisions of the Agreement and the Notes shall remain in effect as written, except as modified by this Amendment. The provisions of Section 12 of the Agreement (12.1-12.10) are incorporated by reference into this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the day and year first above written.
| 3 |
| COMPANY: | MOSYS, INC. | |
| By: | ||
| Name: | ||
| Title: | ||
| PURCHASERS’ AGENT: | INGALLS & SNYDER LLC | |
| By: | ||
| Name: | ||
| Title: | ||
| HOLDER(S) OF A MAJORITY-IN-INTEREST OF THE NOTES | Per attached counterpart Holder signature page(s) | |
| 4 |
MoSys, Inc.
Amendment to 10% Senior Secured Convertible Note Purchase Agreement
And every 10% Senior Secured Convertible Note
Due August 15, 2018 Issued Thereunder
The undersigned Holder(s) of a Majority-in-Interest of the Notes hereby execute(s) this Amendment as of the Effective Date specified therein and agree(s) to be bound by the same.
Instructions: Please sign where indicated below and complete the information requested as the bottom of the page regarding your investment.
EXHIBIT 99.1
MoSys, Inc. Reports Fourth Quarter and Full Year 2017 Financial Results
Announces Amendment to Senior Secured Convertible Notes
SAN JOSE, Calif., Feb. 27, 2018 (GLOBE NEWSWIRE) -- MoSys, Inc. (NASDAQ:MOSY), today reported financial results for the fourth quarter and fiscal year ended December 31, 2017 and an amendment to its senior secured convertible notes.
Fourth Quarter and Full Year 2017 Financial Results
Total net revenue for the fourth quarter of 2017 was $3.8 million, compared with $2.5 million for the third quarter of 2017 and $1.4 million for the fourth quarter of 2016. Total net revenue for the full year 2017 increased approximately 47% to $8.8 million, compared with $6.0 million for the full year 2016.
Product revenue for the fourth quarter was $3.5 million, compared with $2.2 million in the third quarter of 2017 and $1.0 million in the year-ago period. Product revenue for the full year 2017 increased 70% to $7.8 million from $4.6 million in 2016.
GAAP gross margin for the fourth quarter of 2017 was 45%, compared with 49% for the third quarter of 2017 and 57% for the fourth quarter of 2016. Gross margin decreased sequentially and year-over-year primarily due to higher cost of goods sold due to the growth in product shipments, as well as an inventory valuation charge of $0.3 million recorded in the fourth quarter of 2017. Excluding the inventory valuation charge, gross margin would have been greater than 50% for the fourth quarter of 2017.
Total operating expenses on a GAAP basis for the fourth quarter of 2017 were $2.2 million, compared with $2.7 million for the third quarter of 2017 and $15.1 million for the fourth quarter of 2016, which included a $9.9 million goodwill impairment charge. Operating expenses decreased both sequentially and year-over-year due to the benefits of restructuring and cost reduction initiatives implemented during 2017. Total operating expenses for the full year 2017 were $14.2 million, compared with $34.3 million for 2016.
GAAP net loss for the fourth quarter of 2017 was $0.5 million, or ($0.07) per share, compared with a net loss of $1.7 million, or ($0.22) per share, for the previous quarter and a net loss of $14.5 million, or ($2.18) per share, for the fourth quarter of 2016. GAAP net loss for the full year 2017 was $10.7 million, or ($1.45) per share, compared with $32.0 million, or ($4.86) per share, in 2016. Non-GAAP net loss for the fourth quarter of 2017 was $0.1 million, or ($0.01) per share, and the full year 2017 non-GAAP net loss was $8.5 million, or ($1.16) per share. A reconciliation of GAAP results to non-GAAP results is provided in the financial statement tables following the text of this press release.
Management Commentary - Financial Results
“The fourth quarter of 2017 reflected continued progress across our business, resulting in product revenue growing approximately 60% sequentially and 70% over full year 2016,” commented Len Perham, president and CEO of MoSys. “IC revenue growth in the fourth quarter of 2017 was primarily driven by Bandwidth Engine 2 unit shipments, led by our largest customers in the security appliance and networking market segments. In addition, we shipped Bandwidth Engine 3 prototype quantities to initial customers. We expect to release Bandwidth Engine 3 to production in mid-2018, and continue to track multiple potential design wins for this new product, as well as for Bandwidth Engine 2 and the Programmable Search Engine product family.
“During the quarter, our results benefited from the restructuring and cost reduction efforts we implemented throughout 2017, resulting in operating expenses declining approximately 20% sequentially. We also continued to make progress increasing manufacturing and operational efficiencies to improve our gross margins and support our current and prospective customers. We expect gross margins to improve in 2018 and exceed 50%, as we benefit from these efficiencies, improved utilization of our manufacturing capacity, and contribution from royalties and licensing.”
Mr. Perham concluded, “2017 was a pivotal year that will provide a solid base for continued growth in 2018, with our lead customers continuing to ramp into production. Bandwidth Engine 2 will remain our primary revenue driver, and we expect initial revenue contribution from Bandwidth Engine 3 production late in 2018. Further, we will continue to investigate opportunities to reduce our cost of operations, while closely monitoring cash flow. Based on our current backlog and improving visibility, we believe we can achieve non-GAAP profitability and grow revenue in excess of 75% in 2018.”
Business Outlook for First Quarter of 2018
The Company expects total net revenue for the first quarter of 2018 to be in the range of $3.8 million to $4.1 million, with non-GAAP operating expenses in the range of $2.2 million to $2.4 million.
Amendment to Convertible Notes
Effective February 18, 2018, the Company reached agreement with the purchasing agent and noteholders to amend the 10% Senior Secured Convertible Notes due August 15, 2018 (the “Notes”). Under the amendment to the Notes, the Company has agreed with the purchasing agent and the noteholders to the following principal changes in terms and conditions:
The conversion price per share of common stock is not subject to any further reset, except in the event of a stock split or similar type of transaction. All other terms of the Notes remain the same.
“We are pleased that our noteholders have agreed to the amendment and appreciate their commitment to the Company and belief in its prospects. This amendment will provide the Company with additional time to focus on the further development of its business and strive towards achieving profitability," stated James Sullivan, chief financial officer of MoSys.
In February 2017, the Company effected a 1-for-10 reverse stock split of its common stock. All share and per share amounts in this press release have been adjusted to reflect the reverse stock split for all current and prior periods.
Financial Results Conference Call
The Company will not be hosting a conference call or webcast in conjunction with today’s release of its fourth quarter results.
Use of Non-GAAP Financial Measures
To supplement MoSys’ consolidated financial statements presented in accordance with GAAP, MoSys uses non-GAAP financial measures that exclude from the statement of operations the effects of non-cash goodwill impairment, restructuring, stock-based compensation and intangible asset amortization charges. MoSys’ management believes that the presentation of these non-GAAP financial measures is useful to investors and other interested persons because they are one of the primary indicators that MoSys’ management uses for planning and forecasting future performance. MoSys’ management believes that the presentation of non-GAAP financial measures that exclude these items is useful to investors because management does not consider these charges part of the day-to-day business or reflective of the core operational activities of the Company that are within the control of management or that would be used to evaluate management’s operating performance.
Investors are encouraged to review the reconciliations of these non-GAAP financial measures to the comparable GAAP results, which are provided in tables below the Condensed Consolidated Statements of Operations. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. For additional information regarding these non-GAAP financial measures, and management’s explanation of why it considers such measures to be useful, refer to the Form 8-K dated February 27, 2018 that the Company filed with the Securities and Exchange Commission.
Forward-Looking Statements
This press release may contain forward-looking statements about the Company, including, without limitation, anticipated benefits and performance expected from its IC products and the Company’s future markets and future business prospects. Forward-looking statements are based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Actual results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors. These factors include, but are not limited, to the following:
other risks identified in the company’s most recent report on Form 10-K filed with the Securities and Exchange Commission, as well as other reports that MoSys files from time to time with the Securities and Exchange Commission. MoSys undertakes no obligation to update publicly any forward-looking statement for any reason, except as required by law, even as new information becomes available or other events occur in the future.
About MoSys, Inc.
MoSys, Inc. (NASDAQ:MOSY) is a fabless semiconductor company enabling leading equipment manufacturers in the data center, networking, security and communications systems markets to address the continual increase in Internet users, data and services. More information is available at www.mosys.com.
Bandwidth Engine and MoSys are registered trademarks of MoSys, Inc. in the US and/or other countries. All other marks mentioned herein are the property of their respective owners.
(Financial Tables to Follow)
Contacts:
Jim Sullivan, CFO
MoSys, Inc.
+1 (408) 418-7500
jsullivan@mosys.com
Beverly Twing, Sr. Acct. Manager
Shelton Group, Investor Relations
+1 (214) 272-0089
btwing@sheltongroup.com