SECURITIES & EXCHANGE COMMISSION EDGAR FILING
MoSys, Inc.
Form: 10-K
Date Filed: 2013-03-12
Corporate Issuer CIK: 890394
© Copyright 2019, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of use.
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TABLE OF CONTENTS 1
Part IV
MOSYS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year December 31, 2012 or
❑ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-32929
MOSYS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
77-0291941
(IRS Employer
Identification Number)
3301 Olcott Street
Santa Clara, California 95054
(Address of principal executive offices)
(408) 418-7500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
Global Market of the NASDAQ Stock
Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Series AA Preferred Stock, par value $0.01 per share
Name of each exchange on which registered
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ❑ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ❑ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☑ No ❑
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ☑ No ❑
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ❑
Accelerated filer ☑
Non-accelerated filer ❑
(Do not check if a
smaller reporting company)
Smaller reporting company ❑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ❑ No ☑
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The aggregate market value of the common stock held by non-affiliates of the Registrant, as of June 30, 2012 was $116,627,970 based upon the last sale
price reported for such date on the Global Market of the NASDAQ Stock Market. For purposes of this disclosure, shares of common stock held by persons who
beneficially own more than 5% of the outstanding shares of common stock and shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination is not necessarily conclusive.
As of March 1, 2013, 40,391,414 shares of the registrant's common stock, $0.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be delivered to stockholders in connection with the registrant's 2013 Annual Meeting of Stockholders to be
held on or about June 4, 2013 are incorporated by reference into Part III of this Form 10-K. The registrant intends to file its proxy statement within 120 days after
its fiscal year end.
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ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
TABLE OF CONTENTS
Part I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Part II
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III
Directors, Executive Officers and Corporate Governance
Item 10.
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Part IV
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Part I
This Annual Report on Form 10-K and the documents incorporated herein by reference contain 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 products, technology, our strategy, competition, expected financial performance and other aspects of our business identified in this Annual Report, as well
as 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 Annual Report 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 in Part I., Item 1A, "Risk Factors," and elsewhere in this report. 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 other events occur in the future.
MoSys®,1T-SRAM® and Bandwidth Engine ® are registered trademarks of MoSys, Inc. GigaChip™ is a trademark of MoSys, Inc.
Item 1. Business
Company Overview
MoSys, Inc., together with its subsidiaries ("MoSys," the "Company," "we," "our" or "us"), is a fabless semiconductor company focused on the development
and sale of integrated circuits, or ICs, for the high-speed networking, communications, storage and computing markets. Our technology delivers time-to-market,
performance, power and economic benefits for system original equipment manufacturers, or OEMs. We have developed a family of ICs, called Bandwidth
Engine, that combines our proprietary 1T-SRAM high-density embedded memory and high-speed 10 Gigabits per second, or Gbps, serial interface, or I/O, with
our intelligent access technology and a highly efficient interface protocol. As the bandwidth requirements and amount of packet processing increase in high-
speed networking systems, critical memory access bottlenecks can occur. Our Bandwidth Engine IC, with its combination of serial I/O, high-speed memory, and
efficient, intelligent access, drastically increases memory accesses per second, removing these bottlenecks. The first applications for our Bandwidth Engine IC
are in networking and communications systems to enable next generation, high density 10 Gbps, 40 Gbps, 80 Gbps and higher solutions. Historically, our
primary business was the design, development, marketing, sale and support of differentiated intellectual property, or IP, including embedded memory and high-
speed parallel and serial I/O used in advanced systems-on-chips, or SoCs. We are focused on developing differentiated IP-rich IC products, such as the
Bandwidth Engine, and are dedicating substantially all of our research and development, marketing and sales budget to these IC products.
Our future success and ability to achieve and maintain profitability will be dependent on the marketing and sales of our Bandwidth Engine IC products into
networking, communications and other markets requiring high bandwidth memory access. Since the beginning of 2010, we have invested an increasing amount
of our research and development resources towards development of our Bandwidth Engine family of ICs, and as of the end of 2012 had ceased our efforts to
actively market our IP and establish license agreements for customers' new SoC development projects. However, we have made opportunistic sales of some of
our IP. For instance, in December 2011, we sold a number of patents in an arrangement that provided $35 million in cash with no equity dilution to the Company
and, in March 2012, we sold a portion of our SerDes technology and supporting workforce for approximately $4.3 million, of which we have received $3.6 million
through December 2012.
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Due to the shift in our engineering and research and development focus and the decline in major consumer electronics applications utilizing customized
versions of our 1T-SRAM technology, our competitiveness and the demand for our IP have declined since the beginning of 2011. Revenue from IP licensing and
royalties did represent the majority of our revenues for 2012. We expect revenue from IP licensing and royalties to represent a significant portion of our revenues
in 2013, although at a significantly reduced level. Our expectation is that our revenue will transition from primarily licensing and royalty to predominately IC
product sales.
Industry Background
The amount of data being transferred by networking, storage and computing systems is increasing rapidly, primarily driven by the growth of the Internet and
demand for real-time processing of bandwidth intensive applications, such as video-on-demand, Internet protocol TV, peer-to-peer and cloud computing, web2.0
applications, 3G and 4G wireless, voice-over-Internet protocol, and many others. In order to meet these demands, the network backbone, access, storage and
data center infrastructure must scale in bandwidth and processing capability. In addition, system designers face the challenge of increasing the throughput of all
subsystems for a variety of applications, such as video games, medical record and imaging transfers, and file sharing. These increased demands strain
communication between onboard IC devices, limiting the data throughput in network switches and routers and the network backbone. To support this trend, the
next generations of networking systems must offer higher levels of packet forwarding rates and bandwidth density. This in turn necessitates new generations of
packet processors and improved memory subsystems to enable system performance in support of these increased demands.
Networking systems, such as routers and switches, contain network line cards. The type and number of semiconductors included on the line cards depend
on the capacity, port type and target functionality of each card. Several types of semiconductors are included on each line card, including physical interface
electronics, one or more packet processors and multiple memory chips. Packet processors are complex ICs developed using field programmable gate arrays, or
FPGAs, application-specific integrated circuits, or ASICs, application specific standard products, or ASSPs, or network processing units, or NPUs, that perform
high speed processing for functions, such as traffic shaping, metering, billing, statistics, detection and steering. Various types of memory ICs are used in order to
facilitate the temporary storage and assist in the analysis and tracking of information embedded within each packet flowing through the processors. After a
packet enters the line card through a physical interface, a packet or data processor helps separate the packet into smaller pieces for rapid analysis. Typically,
the data is broken up into the packet header, which contains vital information on packet destination and type, such as the IP address, and the payload, which
contains the data being sent. The packet header is stripped from the packet, stored in memory ICs and processed separately by a packet processing engine on
the line card. The analysis of the packet header must occur at full data rates and typically requires accessing memory ICs many times. Simultaneously, the
packet's payload, which may be substantially larger than the packet header, is also stored in memory ICs. Once processing is complete, the packet is re-
combined to be sent from the system. Within the line card, communication between the packet processor and memory ICs occurs through either a parallel or
serial interface. Combinations of physical pins on each type of chip are grouped together in a parallel or serial architecture to form a pathway, called a bus,
through which information is transferred from one IC to the next.
Today, the majority of physical buses use a parallel architecture to communicate between processors and memory ICs, which means information can travel
only in one direction and in one instance at a time. As processing speeds increase, in a parallel architecture the number of pins required and the speed of the bus
become a limitation on system performance and capability. In a serial architecture, the number of connections is reduced substantially across fewer, higher-rate
pins and data
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is transferred simultaneously in both directions. High speed serial bus architectures and more advanced I/O protocols must be supported by the various ICs
included on the line card in order to remove the bottleneck and meet next generation bandwidth requirements.
The majority of networking systems sold today includes line cards that process data at speeds of 10 Gbps to 40Gbps, supporting many aggregated slower
ports. To accommodate the substantial and growing increase in demand for networking communications and applications, networking equipment manufacturers
are beginning to produce next-generation systems that run at aggregate speeds of 100 Gbps with plans to scale to thousands of Gbps, or Terabits, per second.
Another major challenge to system designers is what we call the "memory performance barrier." Processor performance in applications such as computing and
networking have continued to nearly double every 18 months, or even faster, while the performance of memory technology has generally been able to double
once every 10 years. Existing memory IC solutions based on parallel I/O architecture easily support speeds up to 40 Gbps, but will struggle to meet speeds of
100 Gbps and beyond due to system-level limitations for pin counts, power and performance. Traditional memory solutions currently used on line cards include
both dynamic random access memory, or DRAM, and static random access memory, or SRAM, IC solutions. Line cards in networking systems use both
specialized, high-performance DRAM ICs, such as reduced-latency DRAM, or RLDRAM, low-latency DRAM, or LLDRAM, and commodity DRAM, such as
double data rate, or DDR ICs. In addition, networking systems use higher-performance SRAM ICs such as quad data rate, or QDR SRAM. Substantially all of
these DRAM and SRAM memory ICs use parallel interfaces, which are slower than serial interfaces and will be challenged to meet the performance
requirements of networking systems greater than 40 Gbps. The result is a gap between processor and memory performance. To meet the higher performance
requirements being demanded by the industry, while using current components and architectural approaches, system designers must add more discrete memory
ICs to the line cards. This results in higher cost and power consumption, the use of more space on the line cards and additional communication interference
between the ICs, which in turn results in additional bandwidth limitation problems.
To address the bandwidth limitations currently confronting networking system designers, we have developed our Bandwidth Engine family of ICs. We
expect our Bandwidth Engine IC products to address the increasing demands placed on conventional memory technology used on the line cards in high-
bandwidth networking systems. We believe that our product and technology is required as a replacement for existing memory IC solutions in order to meet the
needs of the next-generation networking systems that will require a large number of packet lookups and to support aggregated rates greater than 100 Gbps.
Bandwidth Engine IC Products
Our Bandwidth Engine ICs combine: (1) our proprietary high-density, high-speed, low latency embedded memory, (2) our high-speed serial 10 Gbps serial
interface technology, or SerDes, (3) an open-standard interface protocol and (4) intelligent access technology. We believe an IC combining our 1T-SRAM
memory and serial I/O with logic and other intelligence functions provides a system-level solution and significantly improves overall system performance at lower
cost, size and power consumption. Our first-generation Bandwidth Engine ICs can provide over two billion accesses per second, which is more than twice the
performance of current memory-based solutions. They also can enable system designers to significantly narrow the gap between processor and memory IC
performance. Customers that design Bandwidth Engine ICs onto the line cards in their networking systems will re-architect their systems at the line card level and
use our product to replace traditional memory solutions. When compared with existing commercially available solutions, our Bandwidth Engine ICs may:
•
provide up to four times the performance;
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•
•
•
reduce power by approximately 50%;
reduce cost by greater than 50%; and
result in a dramatic reduction in IC pin counts on the line card.
The Bandwidth Engine is a memory-dominated IC that has been designed to be a high-performance companion IC to packet processors. While the
Bandwidth Engine primarily functions as a memory device with a high-performance and high-efficiency interface, it also can accelerate certain processing
operations by serving as a co-processor element.
Our first generation Bandwidth Engine IC contains 576 megabytes, or MB, of memory and uses 10.3 Gbps SerDes I/O technology. Variations of this IC can
have up to two interface ports, with up to eight serial receiver and eight serial transmitter lanes per port for a total of 16 lanes of 10.3 Gbps SerDes interface.
These ICs include an arithmetic logic unit, or ALU, that can perform read-modify-write operations. These ICs are tested to meet or exceed the standards for
telecommunications carrier class and enterprise grade applications.
Our second generation Bandwidth Engine IC family and architecture was announced in late 2012. These devices will operate at up to 480 Gbps using
sixteen 15 Gbps SerDes lanes. In addition to a speed improvement of up to 50%, the architecture will enable several family member parts with added
specialized features. To date, we have announced three devices:
•
•
•
MSR620 adds burst features optimized for oversubscription buffer applications;
MSR720 adds a write cache and memory coherency capability that allows for deterministic look ups optimized for state and que type applications;
and
MSR820 delivers increased intelligence for lookup, metering and statistics applications by adding dual counters, atomic and extensive metering
functions.
The devices will represent a significant improvement in speed and features, supporting aggregate line rates of up to 400 Gbps and further reduce size, pin count
and power. We expect to begin sampling these devices in mid-2013.
On-chip Functionality
A significant performance bottleneck in any network line card is the need to transfer data between discrete ICs. Many of these data-transfer operations are
iterative in nature, requiring subsequent, back-to-back accesses of the memory IC by the processor IC. Our Bandwidth Engine ICs have an ALU, which enables
the Bandwidth Engine IC to perform mathematical operations on data. By moving certain processing functions from the processor IC to the Bandwidth Engine IC
through the use of this embedded ALU, the number of I/O transactions is reduced and the processor IC is freed up to perform other networking or micro-
processing functions.
High-Performance Interface
High-speed, efficient I/Os are critical building blocks to meet high data transfer rate requirements for communication between ICs on network line cards. We
believe that current networking equipment system requirements necessitate an industry transition from parallel I/O to serial I/O. As a result, semiconductor
companies are increasingly turning to serial I/O architectures to achieve needed system performance. For example, high-performance ICs that are sold into wide
markets, such as FPGAs and NPUs, are using serial I/Os to ensure they can match the performance of, and compete with ASICs. Using serial I/O, IC
developers also are able to reduce pin count (the wired electrical pins that connect an IC to the network line card on which it is mounted) on the IC. With
reducing geometries, the size of most high-performance ICs is dictated by the number of pins required, rather than the amount of
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logic and memory embedded in the chip. As a result, using serial I/O facilitates cost reduction and reduced system power consumption, while improving the
performance of both the IC itself and the overall system.
GigaChip Interface Protocol
In addition to the physical characteristics of the serial I/O, the protocol used to transmit data is also an important element that impacts speed and
performance. To address this and complement our Bandwidth Engine devices, we have developed the GigaChip Interface, or GCI, which is an open-interface
transport protocol optimized for efficient chip-to-chip communications. The GCI electrical interface is compatible with the current industry standard (Common
Electrical Interface, release #11 or CEI-11). GCI can enable highly efficient serial chip-to-chip communications, and its transport efficiency averages 90% for the
data transfers it handles. GCI is included in our Bandwidth Engine ICs, and we are offering it to customers and prospective partners on terms intended to
encourage widespread adoption.
High-Performance and High-Density Memory Architecture
The Bandwidth Engine uses our proprietary 1T-SRAM high-density memory technology to provide the density of DRAM and the speed of SRAM. The
internal multi-bank memory array architecture used in our Bandwidth Engine ICs enables concurrent access operations. We believe that this architecture is also
optimized for small algorithmic operations and data transfers, such as packet header analysis.
Carrier and Enterprise Grade Quality and Reliability
Networking equipment providers focused on the carrier and enterprise market have rigid performance and reliability standards that they require their IC
vendors to achieve. Our Bandwidth Engine architecture and interface are designed for data robustness and employ end-to-end error checking and correction
codes. Although the Bandwidth Engine functions as more than a discrete memory device, the onboard memory array represents a significant portion of the total
chip area. Memory-dominated devices require substantially different and more robust testing than non-memory ICs in order to achieve the quality and reliability
requirements of advanced networking systems. We have considered these requirements for our target customers and market segments and have incorporated
appropriate design and manufacturing performance margins into our Bandwidth Engine IC products. As a result, our first generation Bandwidth Engine passed
extensive reliability and life tests required for carrier grade qualification certification as part of its release to production.
Our Technology
Our historical business was focused on the licensing of our proprietary 1T-SRAM and SerDes I/O technologies. We leveraged our proprietary IP to design
our Bandwidth Engine IC. The following discussion explains these technologies in further detail, as well as our historical licensing activities, which have
generated substantially all of our revenues in 2012.
1T-SRAM
Our innovative 1T-SRAM technologies provide major advantages over a traditional SRAM in cell stability, memory density and power consumption, making
it more economical for designers to incorporate large amounts of embedded memory in their designs. In addition, our 1T-SRAM technologies offer all the
benefits of the traditional SRAM, such as low latency, high speed and the opportunity to use a simple interface. Our 1T-SRAM technologies can achieve these
advantages while
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utilizing standard logic manufacturing processes and providing the simple, standard SRAM interface that designers are accustomed to.
High-Density
The high-density of our 1T-SRAM technologies stems from the use of a single- transistor, or 1T, which is similar to DRAM, with a storage cell for each bit of
information. Embedded memory utilizing our 1T-SRAM technologies is typically two to three times denser than the six-transistor storage cells used by traditional
SRAM, i.e., 6T-SRAM. Increased density enables manufacturers of electronic products, such as cellular phones, video game consoles and digital cameras and
camcorders, to incorporate additional functionality into a single IC, generally a SoC, resulting in overall cost savings.
Low-power Consumption
Embedded memory utilizing our 1T-SRAM technologies can consume as little as one-half the active power and generate less heat than traditional SRAM
when operating at the same speed. This reduces system level heat dissipation and enables reliable operation using lower cost packaging.
High-speed
Embedded memory utilizing our 1T-SRAM technologies typically provides speeds essentially equal to or greater than the speeds of traditional SRAM and
DRAM, particularly for larger memory sizes. Our 1T-SRAM memory designs can sustain random access cycle times of less than three nanoseconds, significantly
faster than embedded 6T-SRAM technology.
SerDes (I/Os)
High-speed
To meet increasing system performance requirements, which in many cases are being driven by the growth in the Internet and the need to transmit data
faster, systems are requiring both more memory and faster communication between ICs in a system. Our interface technology includes high-speed serial I/Os,
called SerDes. Our SerDes technology allows for fast exchange of data between ICs in the system and can support data rates of 2.5 to 11 Gbps in a number of
protocols, including XAUI, 10G KR and PCI Express (generations 1 to 3). We are developing next generation SerDes solutions, which we are targeting to
achieve data rates of 15 Gbps and support advanced geometry nodes, such as 28 nanometers, primarily for use in our IC products.
Interoperability
We make our I/O technologies compliant with industry standards so that they can interoperate with interfaces on existing ICs. In addition, we make them
programmable to support multiple data rates, which allows for greater flexibility for the system designer, while lowering their development and validation costs.
Interoperability reduces development time, thereby reducing the overall time to market of our licensees' ICs.
Low power
While SerDes I/Os provide significantly enhanced performance over parallel I/Os, SerDes I/Os have higher power consumption, which is a challenge for IC
designers. Our SerDes I/Os are tuned for low-power consumption to meet our customers' stringent power consumption requirements.
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Our Strategy
Our primary business objective is to become an IP-rich fabless semiconductor company offering ICs that deliver unparalleled bandwidth performance for
next generation networking systems. The key components of the expansion of our strategic plan to become an IC supplier include the following IC-focused
strategies:
Target Large and Growing Markets
Our initial strategy is to target the multi-billion dollar networking and telecommunications equipment market, which includes OEM companies such as
Alcatel-Lucent, Brocade Communications Systems, Inc., Cisco Systems, Inc., Tel. LM Ericsson, Fujitsu Ltd., Hitachi Ltd., Huawei Technologies, Juniper
Networks, Inc., Nokia Siemens Networks, ZTE Corporation, and others. To date, we have secured two design wins with networking and telecommunications
OEMs. A "design win" means that the customer has completed its prototype evaluation, frozen its line-card specification and informed us that its next generation
systems will use our Bandwidth Engine IC. We are engaged with multiple other customers, where we are working to achieve design wins, and we refer to these
engagements as design-wins-in-progress.
Leverage Technologies to Create New Products
Our strategy is to combine our proprietary IP and design and applications expertise to address the needs of several upcoming generations of advanced
networking equipment. We believe an IC combining our 1T-SRAM and serial I/O with logic, such as in an ALU, and other functions can provide a system-level
solution and significantly improve overall system performance at lower cost while using less power. We intend to develop a Bandwidth Engine product portfolio
that can serve a wide range of system performance requirements and provide cost reduction options. In addition, we can provide customized IC solutions to
customers using their proprietary technology and architecture, which would allow for improved communication between our Bandwidth Engine IC and the
customer's packet processor.
Another strategy is to leverage our high-speed serial I/O to create non-memory denominated ICs, which will work alongside the Bandwidth Engine ICs on
100 Gbps and higher system solutions. This will provide our customers with a more complete solution, and possibly allow us to sell a chipset containing multiple
MoSys ICs.
Expand Adoption of the GigaChip Interface Protocol
Our goal is for our GCI interface protocol to become an open industry standard that is designed into other ICs in the system, as we believe this will further
enable serial communication on network line cards and encourage adoption of our Bandwidth Engine IC products. Since 2010, we have publicly announced the
following IC providers that intend to support GCI: Altera Corporation, Avago Technologies, Inc., LSI, Inc., NetLogic Microsystems, Inc. (acquired by Broadcom
Corporation, or Broadcom), Renesas Electronics Corporation, or Renesas, and Xilinx, Inc. In addition, multiple network equipment companies, including actual
and prospective customers, have adopted GCI.
Build Long-Term Relationships with Suppliers of Packet Processors
A key consideration of network system designers is to demonstrate interoperability between our Bandwidth Engine IC and the packet processors utilized in
their systems. To obtain design wins for our Bandwidth Engine IC, we must demonstrate this interoperability, and also show that our IC works optimally with the
packet processor to achieve the performance requirements. In addition, packet processor suppliers must adopt our GCI interface. To that end, we have been
working closely with FPGA, ASIC and NPU providers, to enable interoperability between our Bandwidth Engine IC products and their high-performance products.
To facilitate the acceptance of our Bandwidth Engine
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ICs, we have made available development and characterization kits for system designers to evaluate and develop code for next-generation networking systems.
Our characterization kits are fully-functional hardware platforms that allow FPGA and ASIC providers, and their customers, to demonstrate interoperability of the
Bandwidth Engine IC with the ASIC or FPGA the designers use within their networking systems. As we engage with ASSP and NPU providers, we will be
developing characterization kits to support their products as well. We believe that having long-term relationships with packet processor providers is critical to our
success, as such relationships may enable us to speed our time-to-market, provide us with a competitive advantage and expand our target markets.
Licensing and Distribution Strategy for our IP
Historically, we have offered our memory and I/O technologies on a worldwide basis to semiconductor companies, electronic product manufacturers,
foundries, intellectual property companies and design companies through product development, technology licensing and joint marketing relationships. We
licensed our IP technology to semiconductor companies who incorporated our technology into ICs that they sold to their customers. As a result of the change in
our corporate strategy, beginning in 2012, our IP licensing activities have been limited and this is expected to continue. We intend to avoid future licensing
projects that require significant use of our engineering resources, as our engineering personnel are now focused on our IC products. However, during 2012,
substantially all of our revenues were generated from licensing and royalties related to our existing licensing arrangements, as we continue to perform and
deliver under outstanding license agreements and collect royalties from 1T-SRAM licensees. To date, we have substantially completed our performance
obligations under our existing agreements, and, as a result, we expect licensing revenues to decline in 2013.
Customers in the United States accounted for 41%, 39% and 38% of our revenues for the years ended December 31, 2012, 2011 and 2010, respectively.
Customers in Japan accounted for 26%, 33% and 43% of our revenues for the years ended December 31, 2012, 2011 and 2010, respectively. Customers in
Taiwan accounted for 28%, 23% and 18% of our revenues for the years ended December 31, 2012, 2011 and 2010, respectively. Our remaining revenues were
from customers in the rest of Asia and in Europe.
Project Licenses
Historically, we formed product development and IP licensing relationships directly with semiconductor companies. In these relationships, the prospective
licensee's implementation of our technologies typically included customized development. Usually, these relationships involved both engineering work to
implement our technology in the specified product and licensing the technology for manufacture and sale of the product. Although the precise terms contained in
our license agreements vary, they generally include licensing fees and development fees for customizations based on the achievement of specified development
milestones and royalties. The vast majority of our contracts allow for milestone billings based on work performed. If we perform the contracted services, usually
the licensee is obligated to pay the license fees even if the licensee cancels the project prior to completion. The agreements often also provide for the payment
of additional contract fees if we provide engineering or manufacturing support services related to the manufacture of the product. Provisions in our memory
license agreements generally require the payment of royalties to us based on the future sale or manufacture of products utilizing our technologies. Generally, our
project licenses grant rights on a non-exclusive, non-transferable basis, limited to the use of our technology as modified for the project covered by the license
agreement. Our license agreements generally have a fixed term and are subject to renewal. Each new project requires a separate agreement or an addendum to
modify an existing agreement. We are not expecting to enter into similar kinds of projects in the future, as such licenses generally require significant engineering
effort and support.
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Technology Licenses
Historically, we also offered our technology to semiconductor companies and foundries through 1T-SRAM and I/O technology license agreements, under
which we granted the licensee the additional right to create and modify designs to offer to its own customers or use internally. The contract fees associated with
these arrangements typically require the licensee to pay us to port our technology to the licensee's manufacturing process and develop a template design that the
licensee will be able to use to generate future designs. These agreements also may obligate the licensee to pay contract fees upon the achievement of specified
development milestones and may provide for the payment of additional contract fees for engineering or manufacturing support services. Our memory technology
license agreements include royalty provisions based on the sale or manufacture of products utilizing our technologies. The technology licenses are non-
transferable and authorize the licensee to modify designs for its customers or internal use from the template design that we provide under the agreement.
Typically, the template design applies only to a specified manufacturing process generation or specific application. The licensee may add future process
generations or uses to the license agreement for additional contract fees.
Research and Development
Our ability to compete in the future depends on successfully improving our technology to meet the market's increasing demand for higher performance and
lower cost requirements. We have assembled a team of highly skilled engineers whose activities are focused on developing higher density, higher bandwidth,
higher speed and lower cost next generation IC products. Development of our Bandwidth Engine IC products requires the hiring of specialized chip design and
product engineers, as well as significant fabrication and testing costs, including mask costs, as we bring these products to market. Our significant future research
and development activities will include:
•
•
•
•
designing next generation ICs with larger memory blocks and higher-speed SerDes;
developing versions of our initial Bandwidth Engine IC with alternative features, such as lower-speed SerDes, increased intelligence or smaller
memory blocks to allow us to serve a broader range of applications and systems;
porting our 1T-SRAM and SerDes technology to more advanced foundry process nodes; and
developing new products that can leverage our proprietary IP portfolio and expand our market opportunity.
No development efforts are being dedicated to creating new or enhanced technology solely for use in licensing offerings.
As of December 31, 2012, we employed 76 individuals in engineering and research and development, of which 17 were employed in our design center in
Hyderabad, India. For the years ended December 31, 2012, 2011 and 2010, research and development expenditures totaled approximately $28.5 million,
$26.2 million and $25.5 million, respectively.
Sales and Marketing
As of December 31, 2012, we had 7 sales and marketing personnel managing and supporting our efforts to secure design wins for our IC products. Our
sales and marketing personnel are located in the United States, Japan and China. In addition to our direct sales team, we sell our technologies through sales
representatives and distributors in the United States and Asia.
Our IP revenue has been highly concentrated, with a few customers accounting for a significant percentage of our total revenue. For the year ended
December 31, 2012, Taiwan Semiconductor Manufacturing Co., Ltd., or TSMC, Broadcom and Renesas, represented 28%, 26% and 12% of total revenue,
respectively. For the year ended December 31, 2011, TSMC, Renesas, and Broadcom represented 23%, 17% and 12% of total revenue, respectively. For the
year ended December 31, 2010, Renesas, TSMC and Rohm Co., Ltd. represented 23%, 18% and 15% of total revenue, respectively.
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Intellectual Property
We regard our patents, copyrights, trademarks, trade secrets and similar intellectual property as critical to our success, and rely on a combination of patent,
trademark, copyright, and trade secret laws to protect our proprietary rights.
As of December 31, 2012, we held approximately 70 U.S. and 35 foreign patents on various aspects of our technology, with expiration dates ranging from
2013 to 2031. We currently have approximately 80 pending patent applications in the U.S. and abroad. There can be no assurance that others will not
independently develop or patent similar or competing technology or design around any patents that may be issued to us, or that we will be able to successfully
enforce our patents against infringement by others.
In December 2011, we sold 43 United States and 30 related foreign memory technology patents for $35 million in cash pursuant to a patent purchase
agreement. Under the agreement, we retained a license to all of the sold patents that is unlimited with respect to our development, manufacturing and
distribution of our Bandwidth Engine IC product line and any other proprietary products that we develop as long as they are not DRAM ICs. We also retained the
rights necessary to renew existing 1T-SRAM licenses and to grant licenses similar in scope to identified foundries. We also retained rights to grant licenses for
our second source purposes, to enable certain kinds of technology development and to a limited extent, for certain ASIC products that incorporate one of our
technology macros. However, the patent purchase agreement limits our rights to grant licenses under the sold patents outside the scope of our retained license
and, in particular, limits the number of future licenses of 1T-SRAM memory technology that we can grant to developers of SoCs, which used to be the principal
focus of our 1T-SRAM licensing activities.
The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. Our licensees or we might, from
time to time, receive notice of claims that we have infringed patents or other intellectual property rights owned by others. Our successful protection of our patents
and other intellectual property rights and our ability to make, use, import, offer to sell, and sell products free from the intellectual property rights of others are
subject to a number of factors, particularly those described in Part I, Item 1A, "Risk Factors."
Competition
The markets for our Bandwidth Engine IC products are highly competitive. We believe that the principal competitive factors are:
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•
•
•
processing speed and performance;
density and cost;
low-power consumption;
reliability;
interface requirements;
ease with which technology can be customized for and incorporated into customers' products; and
level of technical support provided.
We believe that we can compete favorably with respect to each of these criteria. Using our proprietary 1T-SRAM embedded memory and high-speed serial
I/O IP provides our Bandwidth Engine ICs with a competitive advantage over alternative devices. Alternative solutions are either DRAM or SRAM-based and can
support either the memory size or speed requirements of high-performance
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networking systems, but generally not both. DRAM solutions provide a significant amount of memory at competitive cost, but DRAM solutions do not have the
required fast access and cycle times to enable high-performance. The DRAM solutions currently used in networking systems include RLDRAM from Micron
Technology, Inc. and Integrated Silicon Solutions, Inc., LLDRAM from Renesas and DDR from Samsung Electronics Co., Ltd., or Samsung, Micron and others.
SRAM solutions can meet high-speed performance requirements, but often lack adequate memory size. The SRAM solutions currently used in networking
systems primarily include QDR or similar SRAM products from Cypress Semiconductor Corporation, GSI Technology, Inc. and Samsung. The majority of the
currently available SRAM and DRAM solutions use a parallel, rather than a serial I/O. To offset these drawbacks, system designers generally use more discrete
memory ICs, resulting in higher power consumption and greater utilization of space on the line card. Our competitors include established semiconductor
companies with significantly longer operating histories, greater name recognition and reputation, large customer bases, dedicated manufacturing facilities and
greater financial, technical, sales and marketing resources. This may allow them to respond more quickly than us to new or emerging technologies or changes in
customer requirements. Many of our competitors also have significant influence in the semiconductor industry. They may be able to introduce new technologies
or devote greater resources to the development, marketing and sales of their products than we can. Furthermore, in the event of a manufacturing capacity
shortage, these competitors may be able to manufacture products when we are unable to do so.
Our Bandwidth Engine ICs compete with embedded memory solutions, stand-alone memory ICs, including both DRAM and SRAM ICs, and ASICs
designed by customers in-house to meet their system requirements. Our prospective customers may be unwilling to adopt and design-in our ICs due to the
uncertainties and risks surrounding designing a new IC into their systems and relying on a supplier that has almost no history of manufacturing such ICs. In
addition, Bandwidth Engine ICs require the customer and its other IC suppliers to implement our new chip-to-chip communication protocol, GCI. These parties
may be unwilling to do this if they believe it could adversely impact their own future product developments or competitive advantages, or if they believe it might
complicate their development process or increase the cost of their products. In order to remain competitive, we believe we must provide unparalleled memory IC
solutions with the highest bandwidth capability for our target markets, which solutions are engineered and built for high-reliability carrier class and enterprise
applications.
Manufacturing
We depend on third-party vendors to manufacture, package, assemble and production test our Bandwidth Engine IC products, as we do not own or operate
a semiconductor fabrication, packaging or production testing facility for boards and system assembly. By outsourcing manufacturing, we are able to avoid the
high cost associated with owning and operating our own facilities, allowing us to focus our efforts on the design and marketing of our products.
Manufacturing and Testing. We use TSMC to manufacture and ASE, Inc. and Evans Analytical Group, LLC, or EAG, to assemble, package and production
test, our IC products. We utilize eSilicon Corporation to assist with the management and support of certain of our manufacturing and testing operations.
Quality Assurance. We maintain an ongoing review of product manufacturing and testing processes. Our IC products are subjected to extensive testing to
assess whether their performance exceeds the design specifications. Our test vendors provide us with immediate test data and the ability to generate
characterization reports that are made available to our customers.
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Employees
As of December 31, 2012, we had 95 employees, consisting of 76 in research and development and engineering, 7 in sales and marketing and 12 in
finance and administration. By location, we had 76 employees in the United States, 17 in our development center in India and 2 sales and marketing employees
in Asia. We believe our future success depends, in part, on our ability to continue to attract and retain qualified technical and management personnel, particularly
highly skilled design engineers involved in new product development, for which competition is intense. We believe that our employee relations are good.
Available Information
We were founded in 1991 and reincorporated in Delaware in September 2000. Our website address is www.mosys.com. The information in our website is
not incorporated by reference into this report. Through a link on the Investor section of our website, we make available our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission, or SEC.
You can also read and copy any materials we file with the SEC, at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can
obtain additional information about the operation of the Public Reference Room by calling the SEC at 1.800.SEC.0330. In addition, the SEC maintains a website
(www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
Executive Officers
The names of our executive officers and certain information about them are set forth below:
Name
Leonard Perham
James W. Sullivan
Thomas Riordan
Age
Position(s) with the Company
69 President and Chief Executive Officer
44 Vice President of Finance and Chief Financial Officer
56 Chief Operating Officer and Executive Vice President
Leonard Perham, Mr. Perham was appointed President and Chief Executive Officer in November 2007. Mr. Perham was one of the original investors in
MoSys and served on our Board of Directors from 1991 to 1997. In 2000, Mr. Perham retired from Integrated Device Technology, Inc., or IDT, where he served
as Chief Executive Officer from 1991 and President and board member from 1986. From March 2000 to February 2012, Mr. Perham served as a member of or
chairman of the board of directors of NetLogic Microsystems, a fabless semiconductor company. Mr. Perham also has been a venture partner with AsiaTech
Management, a venture capital firm. Prior to joining IDT, Mr. Perham was President and CEO of Optical Information Systems, Inc., a division of Exxon
Enterprises. He was also a member of the founding team at Zilog, Inc. and held management positions at Advanced Micro Devices and Western Digital.
Mr. Perham received a Bachelor of Science degree in Electrical Engineering from Northeastern University.
James W. Sullivan, Mr. Sullivan became our Vice President of Finance and Chief Financial Officer in January 2008. From July 2006 until January 2008,
Mr. Sullivan served as Vice President of Finance and Chief Financial Officer at Apptera, Inc., a venture-backed company providing software for mobile
advertising, search and commerce. From July 2002 until June 2006, Mr. Sullivan was the Chief Financial Officer at 8x8, Inc., a provider of voice over internet
protocol communication services. Mr. Sullivan's prior experience includes various positions at 8x8, Inc. and PricewaterhouseCoopers LLP.
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He received a Bachelor of Science degree in Accounting from New York University and is a Certified Public Accountant.
Thomas Riordan, Mr. Riordan became our Chief Operating Officer and Executive Vice President in May 2011. Prior to joining the Company, Mr. Riordan
was President and Chief Executive Officer of Exclara, a fabless semiconductor supplier of ICs for solid-state lighting from 2006 until 2010. From 2000 to 2004,
Mr. Riordan served as Vice President of PMC-Sierra's microprocessor division. Mr. Riordan joined PMC-Sierra in August 2000 when it purchased Quantum
Effects Devices, which he had co-founded and served as President and Chief Executive Officer. Mr. Riordan serves on the board of directors of Mellanox
Technologies and PLX Technology. Mr. Riordan holds Bachelor of Science and Master of Science degrees in Electrical Engineering as well as a Bachelor of Arts
degree in Government from the University of Central Florida and has done post-graduate work in Electrical Engineering at Stanford University.
Item 1A. Risk Factors
If any of the following risks actually occur, our business, results of operations and financial condition could suffer significantly.
We have a history of losses and are uncertain as to our future profitability.
We recorded an operating loss of $31.0 million, excluding the one-time gain on sale of assets of $3.3 million, for the year ended December 31, 2012 and
ended the period with an accumulated deficit of $93.0 million. We recorded an operating loss of $24.3 million, excluding the one-time gain on sale of patents of
$35.6 million, for the year ended December 31, 2011 and ended the period with an accumulated deficit of $65.4 million. In addition, we recorded an operating
loss of $23.2 million for the year ended December 31, 2010. We expect to continue to incur operating losses for the foreseeable future as we secure customers
for and invest in the commercialization of our IC products. Due to the strong commitment of our resources to research and development and expansion of our
offerings to customers, we will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable
operating profit. Given our history of fluctuating revenues and operating losses, the expected reduction in royalty and licensing revenues and challenges we face
in securing customers for our IC products, we cannot be certain that we will be able to achieve profitability on either a quarterly or annual basis in the future.
Our success depends upon the semiconductor market's acceptance of our Bandwidth Engine ICs.
The future prospects of our business depend on the adoption and acceptance by our target markets of our Bandwidth Engine ICs. In 2011, we began
focusing our engineering, marketing and sales efforts on our IC products and de-emphasizing our technology licensing activities, which historically have been our
primary revenue source. Our primary focus is on obtaining design wins, or winning competitive bids, in which customers select our IC products to design into
their systems. Our prospective customers may be unwilling to adopt and design-in our ICs due to the uncertainties and risks surrounding designing a new IC into
their systems and relying on a supplier that has almost no history of manufacturing such ICs. In addition, our Bandwidth Engine IC products require our
customers and their other IC suppliers to implement our new and proprietary chip-to-chip communication protocol, GCI, which they may be unwilling to do. We
have determined and negotiated prices with a few customers for our ICs and have gained only limited experience with the cost of making and selling these
products. Thus, currently we do not know whether we will be able to profitably make and sell these products. We are investing significant resources to develop
our next generation IC products, but may not introduce these new products successfully or obtain significant revenue from them.
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An important part of our strategy to gain market acceptance is to penetrate new markets by targeting market leaders to accept our IC solutions. This
strategy is designed to encourage other participants in those markets to follow these leaders in adopting our solutions. If a high-profile industry participant adopts
our ICs for one or more of its products but fails to achieve success with those products, or is unable to successfully implement our ICs, other industry
participants' perception of our solutions could be harmed. Any such event could reduce the amount of future sales of our IC products.
We utilize a limited number of suppliers to manufacture our integrated circuits, and, if any of these suppliers fail to support future versions of our
technology, it will be difficult for us to develop and introduce new products and our business may not grow.
We are a fabless semiconductor company and use a limited number of suppliers to manufacture our integrated circuits, and certain of these suppliers, such
as our foundry, TSMC, are sole sources. We are dependent upon supply from TSMC and other suppliers to produce our integrated circuits. Furthermore, we are
dependent on TSMC to support the production of wafers for future versions of our integrated circuits, and such production may require changes to TSMC's
existing process technology. If TSMC elects to not alter their process technology to support future versions of our integrated circuits, we would need to identify a
new foundry. Even if TSMC alters its production processes to produce wafers for future versions of our integrated circuits, we may experience lower than
anticipated manufacturing yields and device reliability problems due to the introduction of changes in production processes. Our inability to obtain supply for our
existing and future integrated circuit products or to obtain the support of third party foundries for the development and manufacture of our products at smaller
process geometries could materially and adversely affect our ability to achieve our strategic product development objectives and limit our prospects for future
growth.
In addition, we do not have long-term supply contracts with TSMC or any of our other manufacturing suppliers, and, therefore, such suppliers are not
obligated to manufacture products for us or meet our supply requirements. In addition, such suppliers are under no obligation to meet our future design
specifications, except as may be provided in a particular purchase order. If we are unable to obtain an adequate supply of our current or future products from our
suppliers or find alternative sources in a timely manner, we will be unable to fulfill our customer orders and our operating results will be harmed.
Because the manufacturing of integrated circuits is extremely complex, the process of qualifying a new foundry and/or other suppliers is a lengthy process
and there can be no assurance that we will be able to find and qualify replacement suppliers without materially adversely affecting our business, financial
condition, results of operations and prospects for future growth.
We may not achieve the anticipated benefits of becoming a fabless semiconductor company by developing and bringing to market the Bandwidth
Engine IC product line.
In 2010, we expanded our business model to become a fabless semiconductor company through the development of a product line of ICs called the
Bandwidth Engine. Our goal is to increase our total available market by creating high-performance ICs for networking systems, using our proprietary technology
and design expertise. This development effort has required that we add significant headcount and design resources, such as expensive software tools, which has
increased our losses from and cash used in operations. We may not be successful in our development efforts to bring Bandwidth Engine ICs to market
successfully nor be successful in selling ICs due to various risks and uncertainties, including, but not limited to:
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customer acceptance;
adoption of the GCI protocol;
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•
•
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difficulties and delays in our development, production, testing and marketing activities;
the anticipated costs and technological risks of developing and bringing ICs to market;
the willingness of our manufacturing partners to assist successfully with fabrication;
the availability of quantities of ICs supplied by our manufacturing partners at a competitive cost;
our ability to generate the desired gross margin percentages and return on our product development investment;
competition from established IC suppliers;
the adequacy of our intellectual property protection for our proprietary IC designs and technologies;
the vigor and growth of markets served by our current and prospective customers; and
our lack of recent experience as a fabless semiconductor company making and selling proprietary ICs.
If we experience significant delays in bringing our IC products to market or if customer adoption of our products is delayed, we may need to raise additional
capital to support the product development efforts and fund our working capital needs.
Our main objective is the development and sale of our products to networking and communications systems providers and their subsystem and
component vendors, and, if demand for these products does not grow, we may not achieve revenue growth and our strategic objectives.
We market and sell our ICs to networking and communications systems providers and their subsystem and component vendors. We believe our future
business and financial success depends on market acceptance and increasing sales of these products. In order to meet our growth and strategic objectives,
networking infrastructure OEMs must incorporate our products into their systems, and the demand for their systems must grow as well. We cannot provide
assurance that sales of products will increase substantially in the future or that the demand for our customers' systems will increase. Our future revenues from
these products may not increase in accordance with our growth and strategic objectives if instead our OEM customers modify their product designs, select
products sold by our competitors or develop their own proprietary ICs. Thus, the future success of this part of our business depends in large part on factors
outside our control, and sales of our products may not meet our revenue growth and strategic objectives.
The Bandwidth Engine ICs have a lengthy sales cycle, which makes it difficult to predict success in this market and the timing of future revenue.
Bandwidth Engine ICs have a lengthy sales cycle, ranging from six to 24 months from the date of our initial proposal to a prospective customer until the date
on which the customer confirms that it has designed our product into its system. As lengthy, or an even lengthier period, could ensue before we would know the
volume of products that such customer will, or is likely to, order. A number of factors can contribute to the length of the sales cycle, including technical
evaluations of our products by the customers, the design process required to integrate our products into the customers' products and the timing of the customers'
new product announcements. In anticipation of product orders, we may incur substantial costs before the sales cycle is complete and before we receive any
customer payments. As a result, in the event that a sale is not completed or is cancelled or delayed, we may have incurred substantial expenses, making it more
difficult for us to become profitable or otherwise negatively impacting our financial results. Furthermore, because of this lengthy sales cycle, the recording of
revenue from our selling efforts may be substantially delayed, our ability to forecast our future revenue
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may be more limited and our revenue may fluctuate significantly from quarter to quarter. We cannot provide any assurances that our efforts to build a strong and
profitable business based on the Bandwidth Engine ICs will succeed. If these efforts are not successful, in light of the substantial resources that we have
invested, our future operating results and cash flows could be materially adversely affected.
We expect our licensing and royalty revenues to decrease compared with our historical results, and we do not expect revenues from our IC products
to replace these lost revenues in the near future.
In 2011, we began to place greater emphasis on our IC business and re-deploy engineering, marketing and sales resources from IP to IC activities. We are
no longer actively pursuing new license arrangements, and, as a result, our license and royalty revenues in 2012 declined when compared with prior years. We
do not expect to generate sufficient revenues from our IC products to approximate the level of our historical IP revenues and allow us to achieve profitability in
2013. As a result, our operating results, cash flows and financial condition for 2013 are likely to be adversely affected.
The semiconductor industry is cyclical in nature and subject to periodic downturns, which can negatively affect our revenue.
The semiconductor industry is cyclical and has experienced pronounced downturns for sustained periods of up to several years. To respond to any
downturn, many semiconductor manufacturers and their customers will slow their research and development activities, cancel or delay new product
developments, reduce their workforces and inventories and take a cautious approach to acquiring new equipment and technologies. As a result, our business has
been in the past and could be adversely affected in the future by an industry downturn, which could negatively impact our future revenue and profitability. Also,
the cyclical nature of the semiconductor industry may cause our operating results to fluctuate significantly from year-to-year, which may tend to increase the
volatility of the price of our common stock.
Royalties generated from the licensing of our memory technologies are currently a key component of revenues, and, if we fail to realize expected
royalties, our operating results will suffer.
We are relying on the receipt of future royalties to provide working capital to partially fund our investment in our IC product line. Royalty payments owed to
us are calculated based on factors such as our licensees' selling prices, wafer production and other variables as provided in each license agreement. The
amount of royalties we will receive depends on our licensees' business success, production volumes and other factors beyond our control. This exposes our
business model to risks that we cannot minimize directly and may result in significant fluctuations in our royalty revenue and operating results from quarter-to-
quarter. We do not expect to enter into any new memory technology licensing activities, therefore the number of royalty-bearing agreements will not increase
and contribute to our royalty stream. In addition, the production volumes of the current royalty-bearing products shipped by our licensees are expected to
decrease; therefore we do not expect our royalty revenue to grow in future periods. If we are unable to generate as much royalty revenue in the future as we
believe will be necessary to partially fund our investment in our IC product line, we may need to raise capital from other sources.
Our revenue has been highly concentrated among a small number of licensees and customers, and our results of operations could be harmed if we
lose a key revenue source and fail to replace it.
Our overall revenue has been highly concentrated, with a few customers accounting for a significant percentage of our total revenue. For the year ended
December 31, 2012, our three largest customers represented 28%, 26%, and 12% of total revenue, respectively. For the year ended December 31, 2011, our
three largest customers represented 23%, 17% and 12% of total revenue
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respectively. For the year ended December 31, 2010, our three largest customers represented 23%, 18% and 15% of total revenue, respectively. We expect that
a relatively small number of licensees will continue to account for a substantial portion of our revenue for the foreseeable future.
Our royalty revenue also has been highly concentrated among a few licensees, and we expect this trend to continue for the foreseeable future. In particular,
a substantial portion of our licensing and royalty revenue in 2012, 2011 and 2010 has come from the license fees and royalties for integrated circuits supplied by
one integrated device manufacturer, or IDM, for Nintendo® gaming devices that incorporate our 1T-SRAM technology. Royalties earned for the sale of Nintendo
gaming devices from this customer represented 11%, 16% and 22% of total revenue in 2012, 2011 and 2010, respectively. In 2012, Nintendo introduced a new
gaming system, which does not incorporate our technology, which will cause a reduction in royalties we receive related to the existing gaming devices.
As a result of this revenue concentration, our results of operations could be impaired by the decision of a single key licensee or customer to cease using our
technology or products or by a decline in the number of products that incorporate our technology that are sold by a single licensee or customer or by a small
group of licensees or customers.
Our revenue concentration may also pose credit risks, which could negatively affect our cash flow and financial condition.
We might also face credit risks associated with the concentration of our revenue among a small number of licensees and customers. As of December 31,
2012, three customers represented 100% of total trade receivables. Our failure to collect receivables from any customer that represents a large percentage of
receivables on a timely basis, or at all, could adversely affect our cash flow or results of operations and might cause our stock price to fall.
Our failure to continue to enhance our products on a timely basis could diminish our ability to attract and retain customers.
The existing and potential markets for our products are characterized by ever-increasing performance requirements, evolving industry standards, rapid
technological change and product obsolescence. These characteristics lead to frequent new product introductions and enhancements, shorter product life cycles
and changes in industry demands. In order to attain and maintain a significant position in the market, we will need to continue to enhance and evolve our
products and the underlying proprietary technologies in anticipation of these market trends.
Our future performance depends on a number of factors, including our ability to:
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•
•
•
identify target markets and relevant emerging technological trends;
develop and maintain competitive technology by improving performance and adding innovative features that differentiate our products from
alternative technologies;
enable the incorporation of our products into the customers' products on a timely basis and at competitive prices;
develop our products to be manufactured at smaller process geometries; and
respond effectively to new technological developments or new product introductions by others.
We plan to continually introduce enhancements to our products to meet market requirements. However, we cannot be assured that these introductions will
achieve market acceptance or that we will be able to sell the products on terms that are favorable to us. Our failure to develop future products that achieve
market acceptance could harm our competitive position and impede our future growth.
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Our products must meet exact specifications, and defects and failures may occur, which may cause customers to return or stop buying our
products.
Our customers generally establish demanding specifications for quality, performance and reliability that our products must meet. However, our products are
highly complex and may contain defects and failures when they are first introduced or as new versions are released. If defects and failures occur in our products
during the design phase or after, we could experience lost revenues, increased costs, including warranty expense and costs associated with customer support,
delays in or cancellations or rescheduling of orders or shipments, product returns or discounts, diversion of management resources or damage to our reputation
and brand equity, and in some cases consequential damages, any of which would harm our operating results. In addition, delays in our ability to fill product
orders as a result of quality control issues may negatively impact our relationship with our customers. We cannot assure you that we will have sufficient
resources to satisfy any asserted claims. Furthermore, any such defects, failures or delays may be particularly damaging to us as we attempt to establish our
reputation as a reliable provider of IC products.
Because we sell our products on a purchase order basis and rely on estimated forecasts of our customers' needs, inaccurate forecasts could
adversely affect our business.
We expect to sell our IC products pursuant to individual purchase orders, rather than long-term purchase commitments. Therefore, we will rely on estimated
demand forecasts, based upon input from our customers, to determine how much product to manufacture. Because our sales will be based primarily on
purchase orders, our customers may cancel, delay or otherwise modify their purchase commitments with little or no notice to us. For these reasons, we will
generally have limited visibility regarding our customers' product needs. In addition, the product design cycle for networking OEMs is lengthy, and it may be
difficult for us to accurately anticipate when they will commence commercial shipments of products that include our ICs. Furthermore, if we experience
substantial warranty claims, our customers may cancel existing orders or cease to place future orders. Any cancellation, delay or other modification in our
customers' orders could significantly reduce our revenue, cause our operating results to fluctuate from period to period and make it more difficult for us to predict
our revenue. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to mitigate the effect of the lost
revenue on our business.
If we overestimate customer demand for our products, we may purchase products from manufacturers that we cannot sell. Conversely, if we underestimate
customer demand or if sufficient manufacturing capacity were unavailable, we would forego revenue opportunities and could lose market share in the markets
served by our products. In addition, our inability to meet customer requirements for our products could lead to delays in product shipments, force customers to
identify alternative sources and otherwise adversely affect our ongoing relationships with our customers.
We will depend on contract manufacturers for a significant portion of our revenue from the sale of our Bandwidth Engine products.
Many of our prospective OEM customers use third party contract manufacturers to manufacture their systems, and these contract manufacturers would
purchase our products directly from us on behalf of the OEMs. Although we expect to work with our OEM customers in the design and development phases of
their systems, these OEMs often give contract manufacturers some authority in product purchasing decisions. If we cannot compete effectively for the business
of these contract manufacturers, or, if any of the contract manufacturers that work with our OEM customers experience financial or other difficulties in their
businesses, our revenue and our business could be adversely affected. For example, if a contract manufacturer becomes subject to bankruptcy proceedings, we
may not be able to obtain our products held by the contract manufacturer or recover payments owed to us by the contract manufacturer for products already
delivered to the contract manufacturer. If we are unable to persuade
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contract manufacturers to purchase our products, or if the contract manufacturers are unable to deliver systems with our products to OEMs on a timely basis, our
business would be adversely affected.
We rely on independent foundries and contractors for the manufacture, assembly, testing and packaging of our integrated circuits, and the failure of
any of these third parties to deliver products or otherwise perform as requested could damage our relationships with our customers and harm our
sales and financial results.
As a fabless semiconductor company, we rely on third parties for all of our manufacturing operations. We depend on these parties to supply us with material
in a timely manner that meets our standards for yield, cost and quality. We do not have long-term supply contracts with any of our suppliers or manufacturing
service providers, and therefore they are not obligated to manufacture products for us for any specific period, in any specific quantity or at any specified price,
except as may be provided in a particular purchase order. Any problems with our manufacturing supply chain could adversely impact our ability to ship our
products to our customers on time and in the quantity required, which in turn could damage our customer relationships and impede market acceptance of our IC
solutions.
Our costs may increase substantially if the wafer foundries and assembly and test vendors that supply and test our products do not achieve
satisfactory product yields, reliability or quality.
The wafer fabrication process requires extreme precision, and the slightest changes in the design, specifications or materials can result in material
decreases in manufacturing yields or even the suspension of production. From time to time, we and our wafer foundries may experience manufacturing defects
and reduced manufacturing yields related to errors or problems in our wafer foundries' manufacturing processes or the interrelationship of their processes with
our designs. In some cases, our wafer foundries may not be able to detect these defects early in the fabrication process or determine the cause of such defects
in a timely manner, which may affect the quality or reliability of our products. We may incur substantial research and development expense for prototype or
development stage products as we qualify the products for production.
Our third party wafer foundries, testing and assembly vendors and sales offices are located in regions at high risk for earthquakes and other natural
disasters. Any disruption to the operations of these foundries, vendors and offices resulting from earthquakes or other natural disasters could
cause significant delays in the development, production, shipment and sales of our IC products.
TSMC, which manufactures our products, is located in Asia, as are other foundries we may use in the future. EAG, which handles the testing of our
products, is headquartered in California. Our primary engineering design center is located in Santa Clara, California, and we have sales offices in Japan and
China. The risk of an earthquake in the Pacific Rim region is significant due to the proximity of major earthquake fault lines. In September 1999, a major
earthquake in Taiwan affected the facilities of several major foundries and other vendors. As a result of this earthquake, these vendors suffered power outages
and disruptions that impaired their production capacity. In March 2002 and September 2003, additional earthquakes occurred in Taiwan. The occurrence of
additional earthquakes or other natural disasters could result in the disruption of the wafer foundry or assembly and test capacity of the third parties that supply
these services to us and may impede our research and development efforts, as well as our ability to market and sell our products. We may not be able to obtain
alternate capacity on favorable terms, if at all.
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Any claim that our products or technology infringe third party intellectual property rights could increase our costs of operation and distract
management and could result in expensive settlement costs or the discontinuance of our technology licensing or product offerings. In addition, we
may incur substantial litigation expense, which would adversely affect our profitability.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which has resulted in often
protracted and expensive litigation. We are not aware of any third party intellectual property that our products or technology would infringe. However, like many
companies of our size with limited resources, we have not searched for all potentially applicable intellectual property in the public databases. It is possible that a
third party now has, or may in the future obtain, patents or other intellectual property rights that our products or technology may now, or in the future, infringe.
Our licensees and IC customers, or we, might, from time to time, receive notice of claims that we have infringed patents or other intellectual property rights of
others. Litigation against us can result in significant expense and divert the efforts of our technical and management personnel, whether or not the litigation has
merit or results in a determination adverse to us.
Royalty amounts owed to us might be difficult to verify, and we might find it difficult, expensive and time-consuming to enforce our license
agreements.
The standard terms of our 1T-SRAM license agreements require our licensees to document the manufacture and sale of products that incorporate our
technology and generally report this data to us after the end of each quarter. We have the right to audit these royalty reports periodically. These audits can be
expensive, time-consuming and potentially detrimental to our business relationships. A failure to fully enforce the royalty provisions of our license agreements
could cause our revenue to decrease and impede our ability to achieve and maintain profitability.
We might not be able to protect and enforce our intellectual property rights, which could impair our ability to compete and reduce the value of our
technology.
Our technology is complex and is intended for use in complex SoCs and networking systems. Our licensees' products utilize our embedded memory and/or
I/O technology, and a large number of companies manufacture and market these products. Because of these factors, policing the unauthorized use of our
intellectual property is difficult and expensive. We cannot be certain that we will be able to detect unauthorized use of our technology or prevent other parties
from designing and marketing unauthorized products based on our technology. In the event we identify any past or present infringement of our patents,
copyrights or trademarks, or any violation of our trade secrets, confidentiality procedures or licensing agreements, we cannot assure you that the steps taken by
us to protect our proprietary information will be adequate to prevent misappropriation of our technology. Our inability to adequately protect our intellectual
property would reduce significantly the barriers of entry for directly competing technologies and could reduce the value of our technology. Furthermore, we might
initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation by us could
result in significant expense and divert the efforts of our technical and management personnel, whether or not such litigation results in a determination favorable
to us.
Our existing patents might not provide us with sufficient protection of our intellectual property, and our patent applications might not result in the
issuance of patents, either of which could reduce the value of our core technology and harm our business.
We rely on a combination of patents, trademarks, copyrights, trade secret laws and confidentiality procedures to protect our intellectual property rights. As of
December 31, 2012, we held approximately 70 patents in the United States, and approximately 35 corresponding foreign patents, which expire at
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various times from 2013 to 2031. In addition, as of December 31, 2012, we had approximately 80 patent applications pending worldwide. We cannot be sure that
any patents will issue from any of our pending applications or that any claims allowed from pending applications will be of sufficient scope or strength, or issued
in all countries where our products can be sold, to provide meaningful protection or any commercial advantage to us. In December 2011, we sold 43 United
States and 30 related foreign patents, which reduced the size of our patent portfolio and diminishes our ability to assert counterclaims in the defense of actions
against us that may arise. Also, competitors might be able to design around our patents. Failure of our patents or patent applications to provide meaningful
protection might allow others to utilize our technology without any compensation to us.
The discovery of defects in our technology and products could expose us to liability for damages.
The discovery of a defect in our technologies and products could lead our customers to seek damages from us. Many of our license agreements include
provisions waiving implied warranties regarding our technology and limiting our liability to our licensees. We cannot be certain, however, that the waivers or
limitations of liability contained in our license contracts will be enforceable.
If we fail to retain key personnel, our business and growth could be negatively affected.
Our business has been dependent to a significant degree upon the services of a small number of executive officers and technical employees. The loss of
any key personnel could negatively impact our technology development efforts, our ability to successfully transition our business model from IP licensing to IC
sales, our ability to deliver under our existing agreements, maintain strategic relationships with our partners, and obtain new customers. We generally have not
entered into employment or non-competition agreements with any of our employees and do not maintain key-man life insurance on the lives of any of our key
personnel.
Our failure to successfully address the potential difficulties associated with our international operations could increase our costs of operation and
negatively impact our revenue.
We are subject to many difficulties posed by doing business internationally, including:
•
•
•
•
•
foreign currency exchange fluctuations;
unanticipated changes in local regulation;
potentially adverse tax consequences, such as withholding taxes;
political and economic instability; and
reduced or limited protection of our intellectual property.
Because we anticipate that integrated circuit sales to companies that operate primarily outside the United States may account for a substantial portion of our
revenue in future periods, the occurrence of any of these circumstances could significantly increase our costs of operation, delay the timing of our revenue and
harm our profitability.
Any acquisitions we make could disrupt our business and harm our financial condition.
In the future, we may consider opportunities to acquire other businesses or technologies that would complement our current offerings, expand the breadth
of our markets or enhance our technical capabilities. Acquisitions that we may do in the future will present a number of potential challenges that could, if not
overcome, disrupt our business operations, substantially increase our operating
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expenses, negatively affect our operating results and cash flows and reduce the value to us of the acquired company or assets purchased, including:
•
•
•
•
•
•
•
•
•
uncertainty related to future revenues;
increased operating expenses and cost structure;
integration of the acquired employees, operations, technologies and products with our existing business and products;
focusing management's time and attention on our core business;
retention of business relationships with suppliers and customers of the acquired business;
entering markets in which we lack prior experience;
retention of key employees of the acquired business;
difficulties and delays in the further development, production, testing and marketing of the acquired technologies; and
amortization of intangible assets, write-offs, stock-based compensation and other charges relating to the acquired business and our acquisition
costs.
Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products could reduce
our ability to compete and could harm our business.
We intend to continue spending substantial amounts to grow our business. In December 2011, we sold 43 United States patents and 30 related foreign
patents in exchange for $35 million in cash. In December 2010, we completed an equity offering and issued approximately 5,000,000 shares of our common
stock for approximately $20 million in net proceeds. Although we believe that we have access to capital sufficient to satisfy our working capital requirements for
the foreseeable future, we believe that we need to obtain additional financing to pursue our business strategy, develop new products, respond to competition and
market opportunities and acquire complementary businesses or technologies. We may not be able to obtain such financing on favorable terms or at all.
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 a
subsequent 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.
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Provisions of our certificate of incorporation and bylaws or Delaware law might delay or prevent a change of control transaction and depress the
market price of our stock.
Various provisions of our certificate of incorporation and bylaws might have the effect of making it more difficult for a third party to acquire, or discouraging a
third party from attempting to acquire, control of our company. These provisions could limit the price that certain investors might be willing to pay in the future for
shares of our common stock. Certain of these provisions eliminate cumulative voting in the election of directors, limit the right of stockholders to call special
meetings and establish specific procedures for director nominations by stockholders and the submission of other proposals for consideration at stockholder
meetings.
We are also subject to provisions of Delaware law which could delay or make more difficult a merger, tender offer or proxy contest involving our company.
In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years unless specific conditions are met. Any of these provisions could have the effect of delaying, deferring or
preventing a change in control, including without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our
common stock.
Under our certificate of incorporation, our board of directors may issue up to 20,000,000 shares of preferred stock without stockholder approval on such
terms as the board might determine. The rights of the holders of common stock will be subject to, and might be adversely affected by, the rights of the holders of
any preferred stock that might be issued in the future.
Our stockholder rights plan could prevent stockholders from receiving a premium over the market price for their shares from a potential acquirer.
We adopted a stockholder rights plan that generally entitles our stockholders to rights to acquire additional shares of our common stock when a third party
acquires 15% of our common stock or commences or announces its intent to commence a tender offer for at least 15% of our common stock, other than for one
group of related stockholders, as to whom this threshold is 20%. The plan also includes an exception to permit the acquisition of shares representing more than
15% of our common stock by a brokerage firm that manages independent customer accounts and generally does not have any discretionary voting power with
respect to such shares. This plan could delay, deter or prevent an investor from acquiring us in a transaction that could otherwise result in stockholders
receiving a premium over the market price for their shares of common stock. Our intention is to maintain and enforce the terms of this plan, which could delay,
deter or prevent an investor from acquiring us in a transaction that could otherwise result in stockholders receiving a premium over the market price for their
shares of common stock.
Potential volatility of the price of our common stock could negatively affect your investment.
We cannot assure you that there will continue to be an active trading market for our common stock. Historically, the stock market, as well as our common
stock, has experienced significant price and volume fluctuations. Market prices of securities of technology companies have been highly volatile and frequently
reach levels that bear no relationship to the operating performance of such companies. These market prices generally are not sustainable and are subject to wide
variations. If our common stock trades to unsustainably high levels, it is likely that the market price of our common stock will thereafter experience a material
decline. In the past, our board of directors approved stock repurchase programs, and any future program could impact the price of our common stock and
increase volatility.
In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We
could be the target of similar litigation in the future. Securities litigation could cause us to incur substantial costs, divert management's attention and resources,
harm our reputation in the industry and the securities markets and negatively impact our operating results.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal administrative, sales, marketing, support and research and development functions are located in a leased facility in Santa Clara, California.
We currently occupy approximately 47,000 square feet of space in the Santa Clara facility, the lease for which extends through August 2020. We have leased
office space in Hyderabad, India for our engineering design center and in Tokyo, Japan, and Shanghai, China for our sales and support offices. We believe that
our existing facilities are adequate to meet our current needs.
Item 3. Legal Proceedings
We are not a party to any material legal proceeding which would have a material adverse effect on our consolidated financial position or results of
operations. From time to time we may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could
result in the expenditure of significant financial resources and diversion of management efforts.
Item 4. Mine Safety Disclosures
Not applicable.
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Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the Global Market of the NASDAQ Stock Market under the symbol MOSY. The following table sets forth the range of high
and low sales prices of our common stock for each period indicated.
Quarter ended
December 31, 2012
September 30, 2012
June 30, 2012
March 31, 2012
December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011
We had 18 stockholders of record as of March 1, 2013.
Dividend Policy
High
$ 4.38
$ 4.04
$ 3.98
$ 4.44
$ 4.20
$ 5.83
$ 6.22
$ 6.58
Low
$ 2.89
$ 3.09
$ 2.86
$ 3.35
$ 2.77
$ 3.29
$ 5.07
$ 5.37
We have not declared or paid any cash dividends on our common stock and presently intend to retain future earnings, if any, to fund the development and
growth of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.
Stock Performance Graph
The following graph compares cumulative total stockholder return on our common stock with that of the S&P 500 Index and the S&P Technology Sector
Index from 2007 through 2012. The comparison assumes that $100 was invested on December 31, 2007 in our common stock, the stocks included in the
S&P 500 Index and the stocks included in the S&P Technology Sector Index. We have never paid any cash dividends to holders of our common stock.
The comparisons shown in the graph below are based upon historical data, and we caution that the stock price performance shown in the graph below is
not indicative of, nor intended to forecast, the potential future performance of our common stock. Information used in the graph was obtained from Standard and
Poor's website, a source believed to be reliable, but we are not responsible for any errors or omissions in such information.
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Comparison of Five-Year Cumulative Return
MOSYS, INC.
S & P 500
S & P TECHNOLOGY SECTOR
12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012
$ 100.00 $
71.75
167.74
100.00
110.30
100.00
81.24 $ 117.32 $
78.21
91.04
43.30 $
61.51
56.32
147.04
99.61
144.24
98.63
86.60 $
Securities Authorized for Issuance under Equity Compensation Plan
For information regarding securities authorized for issuance under equity compensation plans, please refer to Item 12.—Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.
Item 6. Selected Financial Data
The selected financial data presented below is derived from our consolidated financial statements that are included under Item 8. The selected financial data
should be read in conjunction with our
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consolidated financial statements and notes related to those statements and with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.
Year Ended December 31,
Statement of Operations Data:
Total net revenue
Cost of net revenue
Gross profit
Operating expenses
Income (loss) from operations
Other income and expense, net
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Shares used in computing net income (loss) per share:
Basic
Diluted
Allocation of stock-based compensation to cost of net revenue and
operating expenses:
Cost of net revenue
Research and development
Selling, general and administrative
Balance Sheet Data:
Cash, cash equivalents and investments
Working capital
Total assets
Deferred revenue
Long-term liabilities
Stockholders' equity
2012(1)
2011(2)
2010(3)
(In thousands, except per share data)
2009(4)
2008(5)
$
6,082 $ 14,107 $ 15,563 $ 11,458 $ 14,026
2,797
2,826
3,295
1,993
334
5,748
33,407
10,812
12,737
(526) 35,925
9,465
29,468
11,229
31,925
(27,659) 11,338
206
155
(27,504) 11,544
288
110
(23,188) (20,003) (20,696)
2,243
744
177
(23,011) (19,259) (18,453)
132
(155)
51
$ (27,614) $ 11,256 $ (23,062) $ (19,104) $ (18,585)
$
$
(0.70) $
(0.70) $
0.30 $
0.28 $
(0.72) $
(0.72) $
(0.61) $
(0.61) $
(0.59)
(0.59)
39,176
39,176
37,861
40,377
31,870
31,870
31,238
31,238
31,698
31,698
$
53 $
407 $
309 $
250 $
2,694
1,064
1,961
1,398
1,524
1,465
1,153
1,651
405
1,235
3,103
$
3,811 $ 3,766 $
3,298 $
3,054 $
4,743
2012
2011
Year Ended December 31,
2010
(In thousands)
2009
$ 40,710 $ 57,975 $ 37,544 $ 40,436
25,628
75,543
2,671
136
64,701
47,968
89,637
920
109
85,493
27,246
73,966
1,801
146
67,057
30,155
69,534
481
171
64,542
2008
$ 67,470
43,304
85,933
639
—
81,888
(1)
(2)
(3)
Operating expenses include a gain on the sale of patents of $3.3 million and $1.7 million of amortization of acquired intangible assets.
Operating expenses include a gain on the sale of patents of $35.6 million and $2.6 million of amortization of acquired intangible assets.
Operating expenses include $2.8 million of amortization of acquired intangible assets.
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(4)
(5)
Operating expenses include restructuring charges of $0.7 million and $1.5 million of amortization of acquired intangible assets.
Operating expenses include restructuring charges of $1.3 million, impairment charges for acquired intangible assets of $1.4 million and
$0.7 million of amortization of acquired intangible assets.
Item 7. 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
consolidated financial statements and notes included in this report.
Overview
Our strategy and primary business objective is to become a fabless semiconductor company focused on the development and sale of integrated circuits, or
ICs, for the high-speed networking, communications, storage and computing markets. Our technology delivers time-to-market, performance, power and
economic benefits for system original equipment manufacturers, or OEMs. We have developed a family of ICs, called Bandwidth Engine, which combines our
proprietary 1T-SRAM high-density embedded memory and high-speed 10 Gigabits per second, or Gbps, serial interface, or I/O, with our intelligent access
technology and a highly efficient interface protocol. Historically, our primary business was the design, development, marketing, sale and support of differentiated
intellectual property, or IP, including embedded memory and high-speed parallel and serial I/O used in advanced systems-on-chips, or SoCs. We are focused on
developing differentiated IP-rich IC products, such as the Bandwidth Engine, and are dedicating substantially all our R&D, marketing and sales budget to these
IC products.
Since the beginning of 2010, we have invested an increasing amount of our research and development resources towards development of our Bandwidth
Engine family of ICs. Our future success and ability to achieve and maintain profitability will be dependent on the marketing and sales of our Bandwidth Engine IC
products into networking, communications and other markets requiring high bandwidth memory access. During 2011, we began placing less emphasis on IP
licensing and deploying more resources towards our IC product development and marketing efforts. In December 2011, we sold a number of patents in an
arrangement that provided $35 million in cash with no equity dilution to the Company. We are using the proceeds from this sale to partially fund our investment in
our Bandwidth Engine IC product line. We retained a license to the sold patents to cover our Bandwidth Engine IC product line and to execute current business
with our IP technology customers and partners. However, the retained license limits, among other things, the number of future licenses of 1T-SRAM memory
technology that we can grant to developers of SoCs, which, at one time, were a principal focus of our 1T-SRAM licensing activities. We still maintain a large
patent portfolio with over 100 patents granted and more in process.
Historically, our primary business has been defining, designing, marketing and licensing differentiated embedded memory and high-speed parallel and serial
interface IP for advanced SoCs designs. Revenue from IP licensing and royalties represented the majority of our revenues for 2012, and we expect revenue from
IP licensing and royalties to represent a significant portion of our revenues in 2013. Due to the shift in our engineering and research and development focus and
the decline in major consumer electronics applications utilizing customized versions of our 1T-SRAM technology, our competitiveness and the demand for our IP
have declined since the beginning of 2011. As a result of our reduced licensing activities, we expect our licensing and royalty revenue to decrease in future
periods. Our expectation is that our revenue will transition from primarily licensing and royalty to predominately IC product sales. To date, we have substantially
completed our performance obligations under our existing agreements, and we expect licensing revenues to decline in 2013. We have also been focused on
monetizing our IP portfolio to fund the change in our business. Towards this end, we have completed asset sales for proceeds of approximately $39.3 million,
including our December 2011 patent sale and March 2012 SerDes technology sale.
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The 1T-SRAM is our high-density, high-performance patented memory solution that represents an alternative to traditional volatile embedded memory. Our
I/O IP includes physical layer (PHY) circuitry that allows ICs to communicate with one another in the networking, storage, computer and consumer market
segments. Our PHY IP supports serial interface technologies, such as 10 Gbps Base KR, XAUI, PCI Express and SATA, as well as parallel interfaces like DDR3.
Our IP customers typically include fabless semiconductor companies, integrated device manufacturers (IDMs) and foundries.
Critical Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Note 1 to
the consolidated financial statements in Item 15 of this report describes the significant accounting policies and methods used in the preparation of our
consolidated financial statements.
We have identified the accounting policies below as some of the more critical to our business and the understanding of our results of operations. These
policies may involve estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Although we believe our judgments
and estimates are appropriate, actual future results may differ from our estimates, and if different assumptions or conditions were to prevail, the results could be
materially different from our reported results.
Revenue Recognition
Licensing
Licensing revenue consists of fees earned from license agreements, development services and support and maintenance. License fees generally range
from $100,000 to several million dollars per contract, depending on the scope and complexity of the development project, and the extent of the licensee's rights.
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.
We recognize revenue when persuasive evidence of an arrangement exists, delivery or performance has occurred, the sales price is fixed or determinable, and
collectibility is reasonably assured. Evidence of an arrangement generally consists of signed agreements. When sales arrangements contain multiple elements
(e.g., license and services), we review each element to determine the separate units of accounting that exist within the agreement. If more than one unit of
accounting exists, the consideration payable to us under the agreement is allocated to each unit of accounting using the relative fair value method. Revenue is
recognized for each unit of accounting when the revenue recognition criteria have been met for that unit of accounting.
For stand-alone license agreements or license deliverables in multi-deliverable arrangements that do not require significant development, modification or
customization, revenue is recognized when all revenue recognition criteria have been met. Delivery of the licensed technology is typically the final revenue
recognition criterion met, at which time revenue is recognized. If any of the criteria are not met, revenue recognition is deferred until such time as all criteria have
been met.
For license agreements that include deliverables requiring significant production, modification or customization, and where we have significant experience in
meeting the design specifications involved in the contract and the direct labor hours related to services under the contract can be reasonably estimated, we
recognize revenue over the period in which the contract services are performed. For these arrangements, we recognize revenue using the percentage of
completion method. Revenue recognized in any period is dependent on our progress toward completion of projects in progress. Significant management
judgment and discretion are used to estimate total direct labor hours. These judgmental elements include determining that we have the experience to meet the
design specifications and estimating the total direct labor hours. We follow this method because we can obtain reasonably
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dependable estimates of the direct labor hours to perform the contract services. The direct labor hours for the development of the licensee's design are estimated
at the beginning of the contract. As these direct labor hours are incurred, they are used as a measure of progress towards completion. We have the ability to
reasonably estimate the direct labor hours on a contract-by-contract basis based on our experience in developing prior licensees' designs. During the contract
performance period, we review estimates of direct labor hours to complete the contracts as the contract progresses to completion and will revise our estimates of
revenue and gross profit under the contract if we revise the estimations of the direct labor hours to complete. Our policy is to reflect any revision in the contract
gross profit estimate in reported income or loss in the period in which the facts giving rise to the revision become known. Under the percentage of completion
method, provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses are determined to be likely. If the amount of
revenue recognized under the percentage of completion accounting method exceeds the amount of billings to a customer, then the excess amount is recorded
as an unbilled contracts receivable.
We provide support and maintenance under many of our license agreements. Under these arrangements, we provide unspecified upgrades, design rule
changes and technical support. No other upgrades, products or other post-contract support are provided. Support and maintenance revenue is recognized at its
fair value established by vendor-specific objective evidence, ratably over the period during which the obligation exists, typically 12 months. These arrangements
are generally renewable annually by the customer.
Royalty
Royalty revenue represents amounts earned under provisions in our memory licensing agreements 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. We
recognize royalties in the quarter in which we receive the licensee's report. Under limited circumstances, we may also recognize prepaid post-production
royalties as revenue upon execution of the contract, which are paid in a lump sum after the licensee commences production of the royalty- bearing product and
applied against future unit shipments regardless of the actual level of shipments by the licensee. The criteria for revenue recognition of prepaid royalties are that
a formal agreement with the licensee is executed, no deliverables, development or support services related to prepaid royalties are required, the fees are non-
refundable and not contingent upon future product shipments by the licensee, and the fees are payable by the licensee in a time period consistent with our
normal billing terms. If any of these criteria are not met, we defer revenue recognition until such time as all criteria have been met.
As with our licensing revenue, 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. Many of the products of our licensees that are currently subject to licenses from us are used in consumer products, such
as electronic game consoles, for which demand can be seasonal.
IC products
Products are sold both directly to customers, as well as through distributors. Revenue from sales directly to customers is generally recognized at the time of
shipment. We record an estimated allowance, 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. Distributors are generally able to return up to 10% of their purchases of
slow, non-moving or obsolete inventory for credit every six months. At the time of shipment to distributors, an accounts receivable for the selling price is recorded,
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as there is a legally enforceable right to receive payment, and inventory is relieved, as legal title to the inventory is transferred upon shipment. Revenues are
recognized upon receiving notification from the distributors that products have been sold to end customers. Distributors provide information regarding products
and quantity, end customer shipments and remaining inventory on hand. The associated deferred margin is included in the deferred revenues line item in the
consolidated balance sheet. We recorded initial IC product revenue in 2012, and a significant reserve for returns has been recorded due to the product's early
stage of development and testing. IC product revenue was not significant in 2012, and has been included in the licensing and other revenue line item in the
consolidated statement of operations and comprehensive loss.
Fair Value Measurements of Financial Instruments
We measure the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three broad levels, as follows:
Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the
reporting date.
Level 2—Pricing is provided by third party sources of market information obtained from investment advisors rather than models. We do not adjust for or
apply any additional assumptions or estimates to the pricing information we receive from advisors. Our Level 2 securities include cash equivalents and
available-for-sale securities, which consisted primarily of corporate debt, and government agency and municipal debt securities from issuers with high
quality credit ratings. Our investment advisors obtain pricing data from independent sources, such as Standard & Poor's, Bloomberg and Interactive Data
Corporation, and rely on comparable pricing of other securities because the Level 2 securities we hold are not actively traded and have fewer observable
transactions. We consider this the most reliable information available for the valuation of the securities.
Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to
measure fair value. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market
participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment
and subjectivity.
Valuation of long-lived Assets
We evaluate our long-lived assets for impairment at least annually, or more frequently when a triggering event is deemed to have occurred. This
assessment is subjective in nature and requires significant management judgment to forecast future operating results, projected cash flows and current period
market capitalization levels. If our estimates and assumptions change in the future, it could result in a material write-down of long-lived assets. We amortize our
finite-lived intangible assets, such as developed technology, customer relationships and patent license, on a straight-line basis over their estimated useful lives of
one to seven years. We recognize an impairment charge as the difference between the net book value of such assets and the fair value of the assets on the
measurement date.
Goodwill
We review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be
recoverable. We first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying
amount as a basis for determining whether it is necessary to perform the two-step impairment test. If the qualitative assessment warrants further analysis, we
compare the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the
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market approach. If the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit, goodwill is not impaired, and no further
testing is performed. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, then we must record an impairment charge equal to the
difference. We have determined that we have a single reporting unit for purposes of performing the goodwill impairment test. We performed the annual
impairment test in September 2012, and the test did not indicate impairment of goodwill. As of December 31, 2012, we did not identify any factors to indicate
there was an impairment of our goodwill and determined that no additional impairment analysis was required.
Deferred tax valuation allowance
When we prepare our consolidated financial statements, we estimate our income tax liability for each of the various jurisdictions where we conduct
business. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for
tax and accounting purposes. These differences result in deferred tax assets, which we show on our consolidated balance sheet under the category of other
current assets. The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. We must make significant judgments to determine our provision for income taxes, our deferred tax assets
and liabilities and any valuation allowance to be recorded against our net deferred tax asset.
Stock-based compensation
We recognize stock-based compensation for equity awards on a straight-line basis over the requisite service period, usually the vesting period, based on the
grant-date fair value. We estimate the value of employee stock options on the date of grant using the Black-Scholes model. The determination of fair value of
share-based payment awards on the date of grant using an option- pricing model is affected by our stock price as well as assumptions regarding a number of
highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual
and projected employee stock option exercise behaviors. The expected term of options granted is derived from historical data on employee exercises and post-
vesting employment termination behavior. The expected volatility is based on the historical volatility of our stock price.
Results of Operations
Net Revenue.
Year ended December 31,
2011
2010
2012
Year-Over-Year Change
2011 to 2012
2010 to 2011
Licensing and other
Percentage of total net revenue
$ 1,340
$ 5,987
$ 6,468
$ (4,647) (78)% $ (481) (7)%
(dollar amounts in thousands)
22%
42%
42%
Licensing revenue decreased $4.6 million in 2012 due to the lack of new license agreements and a decline in the number of residual fee-generating license
agreements. License revenue recognized in 2012 was generated solely from agreements entered into in 2011 and prior years. We expect our licensing revenue
to decrease in 2013 as we will not be pursuing new IP licenses, and our sales and marketing personnel will be focusing on selling ICs.
Licensing revenue decreased $0.5 million in 2011 due to a decline in the number and value of new license agreements. Licensing revenue in 2011 included
significant revenue recognized from the
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achievement of final milestones for two 1T-SRAM technology license agreements executed in the fourth quarter of 2009.
Royalty
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2012
2011
2010
2011 to 2012
2010 to 2011
(dollar amounts in thousands)
$ 4,742
$ 8,120
$ 9,095
$ (3,378) (42)% $ (975) (11)%
78%
58%
58%
Royalty revenue decreased $3.4 million in 2012 primarily due to a decrease in shipments by an IDM licensee whose product is used in the Nintendo Wii®
game console and TSMC, a major foundry partner. We expect royalty revenues to decrease in 2013, primarily due to reduced shipments by the IDM licensee, as
Nintendo has introduced a new console that does not incorporate our technology. In addition, we expect decline in shipments of units incorporating our
technology by other licensees, as their products approach their end of life.
Royalty revenue decreased $1.0 million in 2011 primarily due to a decrease in shipments by an IDM licensee whose product is used in the Nintendo Wii®
game console, although we did experience an increase in royalties received from TSMC and from another licensee due to higher manufacturing volumes for
their products.
Cost of Net Revenue and Gross Profit.
Cost of net revenue
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2012
2011
2010
2011 to 2012
(dollar amounts in thousands)
2010 to 2011
$ 334
$ 3,295
$ 2,826
$ (2,961) (90)% $ 469
17%
5%
23%
18%
Gross profit
Gross margin
Year ended December 31,
2011
2010
2012
Year-Over-Year Change
2010 to 2011
2009 to 2010
(dollar amounts in thousands)
$ 5,748
$ 10,812
$ 12,737
$ (5,064) (47)% $ (1,925) (15)%
95%
77%
82%
Cost of net revenue consists of personnel and related overhead allocation costs for engineers assigned to revenue-generating licensing arrangements and
direct and indirect costs related to the sale of IC products.
Cost of net revenue decreased in 2012, primarily due to the lack of new licensing agreements and reduced requirements for engineering services on
existing contracts. Cost of net revenue in 2012 included stock-based compensation expense of $0.1 million, a decrease of $0.3 million compared with 2011.
Total gross profit decreased to $5.7 million in 2012 primarily due to the decrease in license and royalty revenues. We expect that the cost of licensing revenue
will decrease in absolute dollars in the future because we anticipate entering into few, if any, license agreements. This decrease will be offset by increased IC
cost of net revenue from sales of our Bandwidth Engine ICs. We expect cost as a percentage of total net revenue to increase as we generate additional revenue
from the sale of ICs rather than the licensing of IP.
Cost of net revenue increased in 2011 primarily due to two 1T-SRAM projects that were substantially completed in the fourth quarter of 2011 in which we
expensed $1.2 million of previously capitalized deferred costs. Cost of net revenue in 2011 included stock-based compensation expense of $0.4 million, an
increase of $0.1 million compared with 2010. Total gross profit decreased to
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$10.8 million in 2011 primarily due to the lower margin contribution from the two 1T-SRAM projects and the decrease in royalty revenues.
Research and Development.
Research and development
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2012
2011
2010
2011 to 2012
2010 to 2011
$ 28,480
$ 26,216
(dollar amounts in thousands)
$ 2,264
$ 25,534
9% $ 682
3%
468%
186%
164%
Our research and development expenses include costs related to the development of our IC products and amortization of technology-based intangible
assets. We expense research and development costs as they are incurred.
The $2.3 million increase in 2012 was primarily due to increases in our mask tooling and other fabrication costs and stock-based compensation charges,
partially offset by decreases in personnel-related costs resulting from lower headcount and lower amortization costs related to acquired intangible assets.
The $0.7 million increase in 2011 was primarily due to increases in license costs for our CAD software tools, costs related to the development of our
Bandwidth Engine IC and stock-based compensation charges, offset by a decrease in acquisition-related contingent compensation charges.
Research and development expenses included stock-based compensation expense of $2.7 million, $2.0 million and $1.5 million for the years ended
December 31, 2012, 2011 and 2010, respectively. We expect that research and development expenses will remain flat or decrease slightly in absolute dollars
and as a percentage of total revenue as our average headcount and related personnel costs are expected to be lower in 2013 as compared to 2012. The primary
driver of research and development expense will be our continued investment in our current and next generation IC products.
Selling, General and Administrative.
Year ended December 31,
2011
2012
Year-Over-Year Change
2010 to 2011
2010
2011 to 2012
(dollar amounts in thousands)
Selling, general and administrative
Percentage of total net revenue
$ 8,218
$ 8,869
$ 10,391
$ (651) (7)% $ (1,522) (15)%
135%
63%
67%
Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and
general management.
The $0.7 million decrease for 2012 was primarily due to a decrease in personnel-related, legal and stock-based compensation costs.
The $1.5 million decrease for 2011 was primarily due to a decrease in personnel-related, acquisition-related and consulting costs.
Selling, general and administrative expenses included stock-based compensation expense of $1.1 million, $1.4 million and $1.5 million for the years ended
December 31, 2012, 2011 and 2010, respectively. We expect total selling, general and administrative expenses to remain flat or slightly decrease in absolute
dollars.
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Gain on Sale of Assets.
Gain on sale of assets
Percentage of total net revenue
$ 3,291
54%
$ 35,611
$ —
252% —
$ (32,230) (91)% $ 35,611
100%
Year ended December 31,
Year-Over-Year Change
2012
2011
2010
2011 to 2012
2010 to 2011
(dollar amounts in thousands)
In March 2012, we entered into an asset purchase agreement for an exclusive license of a portion of our intellectual property pertaining to our high-speed
serial I/O technology for approximately $4.3 million. As part of the agreement, we provided certain technology transfer support services, and 15 employees of our
India subsidiary accepted employment with the purchaser. In 2012, we received approximately $3.4 million in cash, net of transaction costs, from this
agreement, and we expect to receive an additional $0.6 million in March 2013.
In December 2011, we entered into a patent purchase agreement for the sale of 43 United States and 30 related foreign memory technology patents for
$35.0 million in cash. We recognized a $35.6 million gain on this transaction. The gain was comprised of the $35.0 million of proceeds, plus $0.8 million, which
we determined to be the value of our retained license to these patents, net of transaction costs.
Other Income and Expense, net.
Year ended December 31,
2011
2012
Year-Over-Year Change
2010 to 2011
2010
2011 to 2012
(dollar amounts in thousands)
Other income and expense, net
Percentage of total net revenue
$ 155
$ 206
$ 177
$ (51) (25)% $ 29
16%
3%
1%
1%
Other income and expense, net primarily consisted of interest income on our investments, which was $0.2 million, $0.1 million and $0.3 million for the years
ended December 31, 2012, 2011 and 2010, respectively. Interest income increased by $28,000 in 2012 due to a higher average investment balance and
declined by $129,000 in 2011 primarily due to lower average investment balances and lower interest rates earned. The increase in interest income was offset by
increases in other expenses.
Income Tax Provision.
Income tax provision
Percentage of total net revenue
Year ended
December 31,
2011
2010
2012
Year-Over-Year Change
2011 to 2012
2010 to 2011
(dollar amounts in thousands)
$ 110
$ 288 $ 51 $ (178) (62)% $ 237
465%
2%
2% —
Our 2012 and 2010 income tax provisions were primarily attributable to foreign jurisdictions. Our 2011 income tax provision was attributable to the federal
alternative minimum tax, as we were profitable in 2011, and foreign jurisdictions.
As of December 31, 2012, we had net operating loss carryforwards of approximately $80.6 million for U.S. federal income tax purposes and approximately
$86.5 million for state income tax purposes that are available to reduce future income tax liabilities to the extent permitted under federal and state income tax
laws. The federal net operating loss carryforwards expire from 2025 to 2032, and state net operating loss carryforwards expire from 2013 to 2032. In 2013, we
anticipate that our effective income tax rate will continue to be less than the federal statutory tax rate because of expected losses.
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As of December 31, 2012 and 2011, we had net deferred tax assets of approximately $43.8 million and $32.4 million, respectively. Because of uncertainties
regarding the realization of deferred tax assets, we had recorded a full valuation allowance as of December 31, 2012 and 2011.
Liquidity and Capital Resources
As of December 31, 2012, we had cash, cash equivalents and investments totaling $40.7 million compared with a combined balance of $58.0 million at
December 31, 2011. Our principal source of cash in 2011 was the sale of patents for $35 million in December 2011. In December 2010, we sold approximately
5 million shares of common stock in a registered direct equity offering, raising approximately $20 million, net of transaction expenses of approximately
$0.1 million. The offering was made under our $50 million shelf registration statement that became effective in November 2010. 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.
In 2012, we used $22.0 million in operating activities, which primarily resulted from the net loss of $27.6 million and the $3.3 million gain on the sale of
assets, adjusted for non-cash charges consisting of stock-based compensation of $3.8 million, depreciation and amortization of $2.7 million and $2.4 million
generated from changes in operating assets and liabilities. The changes in assets and liabilities primarily related to the timing of billing our customers, collection
of receivables, recognition of revenue related to deferred revenues and payments to vendors.
In 2011, we used $15.7 million in operating activities, which primarily resulted from the net income of $11.3 million and $1.3 million generated from changes
in operating assets and liabilities, reduced by the $35.6 million gain on the sale of patents and adjusted for non-cash charges consisting of stock-based
compensation of $3.8 million and depreciation and amortization of $3.7 million. The changes in assets and liabilities primarily related to the timing of billing our
customers, collection of receivables and payments to vendors.
In 2010, we used $15.6 million in operating activities, which primarily resulted from the net loss of $23.1 million, partially offset by non-cash charges
consisting of stock-based compensation expense of $3.3 million, depreciation and amortization of $3.8 million and $0.4 million generated from changes in
operating assets and liabilities. The changes in assets and liabilities primarily related to the timing of billing our customers, collection of receivables and
payments to vendors.
Our investing activities in 2012 primarily consisted of $3.4 million received, net of transaction costs, for the sale of assets and $0.7 million for purchases of
fixed assets. Remaining investing activities consisted of investing our cash in marketable securities, which did not affect our liquidity.
Our investing activities in 2011 included the payment of $1.5 million in deferred consideration for the MagnaLynx acquisition in 2010 and the purchase of
$0.3 million of fixed assets.
Our investing activities in 2010 included business acquisition payments of $7.9 million, of which $4.6 million related to a contingent payment related to the
acquisition of Prism Circuits and $3.3 million related to the acquisition of MagnaLynx in the first quarter of 2010. In 2010, we purchased $1.4 million of fixed
assets. Remaining investing activities consisted of investing our cash in marketable securities.
Our financing activities in 2012 primarily consisted of proceeds from the exercise of stock options, partially offset by a repurchase and retirement of
common stock.
Our financing activities in 2011 primarily consisted of proceeds from the exercise of stock options. Our cash from financing activities in 2010 consisted of
the proceeds of our registered direct offering of common stock and proceeds from the exercise of stock options.
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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, including meeting customer design specifications;
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 2013 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 operations, if any, to be sufficient to meet our capital requirements for the foreseeable
future. We believe that we need to obtain additional capital prior to achieving positive operating cash flows. We have not determined what actions we will take to
obtain such capital. We do have a shelf registration allowing us to sell up to approximately $30 million of our securities from time to time until November 2013.
We also might decide to raise additional capital at such times and upon such terms as management considers favorable and in our interests, including, but not
limited to, from the sale of our debt and/or equity securities under our existing shelf registration statement. There can be no assurance that such additional
funding will be available to us on favorable terms, if at all. The failure to raise capital when needed could have a material adverse effect on our business and
financial condition.
Disclosures about Contractual Obligations and Commercial Commitments
The impact that our contractual obligations as of December 31, 2012 are expected to have on our liquidity and cash flow in future periods is as follows (in
thousands):
Operating leases
Purchase commitments
Payment Due by Period
Total
$ 5,673
1,944
Less than
1 year
1-3 years
3-5 years
$
739
878
$ 1,484
1,066
$ 1,507
—
More than
5 years
$
1,943
—
$ 7,617
$ 1,617
$ 2,550
$ 1,507
$
1,943
As of December 31, 2012, our purchase commitments were for licenses related to computer-aided design tools payable through 2015. In July 2010, we
entered into a 10 year operating lease agreement for approximately 47,000 square feet with Mission West Properties, Inc. (sold to M West Propco XII, LLC in
December 2012) for our corporate headquarters in Santa Clara, California.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial
condition, results of operations, liquidity or capital resources.
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Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from losses relating to
a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the
particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be
subject to maximum loss clauses. We have also entered into indemnification agreements with our officers and directors. No material amounts are reflected in our
consolidated financial statements for the years ended December 31, 2012, 2011 or 2010 related to these indemnifications.
Recent Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of
adoption and effects on results of operations and financial condition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk
We have exposure to interest rate risk due to our investment portfolio. Our investments are made in accordance with an investment policy under the
guidance of the audit committee of our board of directors. The primary objective of our investment activities is to preserve principal and meet liquidity needs. To
achieve this objective, we maintain our portfolio of cash equivalents and short-term and long-term investments in a variety of securities, including U.S.
government agency debt, municipal notes, corporate notes and bonds, certificates of deposit, and money market funds. We place our investments with high-
credit quality issuers and, by policy, limit the amount of credit exposure with any one issuer or fund.
The investments, other than money market funds, are classified as available-for-sale and are recorded on the balance sheet at fair value with unrealized
gains and losses reported as a separate component of accumulated other comprehensive income. Securities with an original maturity of three months or less
are considered cash equivalents. Securities with original maturities greater than three months and remaining maturities less than one year are classified as
short-term investments. Securities with remaining maturities greater than one year are classified as long-term investments. All investments have a maturity of
less than two years. No single security should exceed 5% of the portfolio or $2.0 million at the time of purchase. The portfolio's dollar- weighted average maturity
of investments is within 12 months. These securities, which approximated $40.4 million as of December 31, 2012 and earned an average annual interest rate of
approximately 0.3% in 2012, are subject to interest rate and credit risks. As of December 31, 2012, we performed a sensitivity analysis on our investment
portfolio. According to our analysis, parallel shifts in the yield curve of both +/- 0.5% would result in changes in fair market values for these investments of
approximately $0.1 million. We do not have any investments denominated in foreign currencies, and therefore are not subject to foreign currency risk on such
investments.
Foreign currency exchange rate risk
Currently, all of our international sales are denominated in U.S. dollars and, as a result, we have not experienced significant foreign exchange gains or
losses to date. However, the expenses of our foreign subsidiaries are denominated in their local currencies, therefore we have risk of foreign exchange gains and
losses through the funding of those expenditures. We do not currently enter into forward exchange contracts to hedge exposures denominated in foreign
currencies or any other derivative financial instruments for trading or speculative purposes. However, in the event our exposure
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to foreign currency risk increases, we may choose to hedge those exposures. For most currencies, we are a net payer of foreign currencies and, therefore,
benefit from a stronger U.S. dollar and are adversely affected by a weaker U.S. dollar relative to those foreign currencies.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements listed under the heading (a) (1) Financial Statements and Reports of Burr Pilger Mayer, Inc. of Item 15, which
financial statements are incorporated by reference in response to this Item 8.
Quarterly Results of Operations
The following tables set forth unaudited results of operations data for each of the eight quarters in the two year period ended December 31, 2012. This
unaudited information has been prepared on a basis consistent with our audited financial statements appearing elsewhere in this report and, in the opinion of our
management, includes all adjustments, consisting only of normal recurring adjustments, except as disclosed below, necessary for a fair presentation of the
information for the periods presented. The unaudited quarterly information should be read in conjunction with the financial statements and notes included
elsewhere in this report.
Dec. 31,
2012
Sep. 30,
2012
Jun. 30,
2012
Mar. 31,
2012
Dec. 31,
2011
Sep. 30,
2011
Jun. 30,
2011
Mar. 31,
2011
(In thousands, except per share data)
(Unaudited—All periods)
Net revenue:
Licensing and other
Royalty
Total net revenue
Cost of net revenue:
Licensing and other
Total cost of net revenue
Gross profit
Operating expenses:
$
227 $
248 $
644 $
221 $ 2,668 $
1,368
1,079
1,092
1,203
2,501
756 $ 1,216 $ 1,347
2,192
2,076
1,351
1,595
1,327
1,736
1,424
5,169
2,107
3,292
3,539
45
53
179
57
1,780
356
469
690
45
1,550
53
1,274
179
1,557
57
1,367
1,780
3,389
356
1,751
469
2,823
690
2,849
Research and development
Selling, general and administrative
Gain on sale of assets
7,260
2,126
—
7,026
1,738
(1,435)
6,688
1,428
—
7,506
2,926
(1,856) (35,611)
6,847
2,286
6,648
1,952
—
6,566
1,917
—
6,155
2,714
—
Total operating expenses
Operating income (loss)
Other income and expense, net
Income (loss) before income taxes
Income tax provision (benefit)
7,329
9,386
8,116
(7,836) (6,055) (6,559) (7,209) 29,867
162
8,576
34
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61
24
8,869
8,483
(6,849) (5,660) (6,020)
9
25
10
(26,478) 8,600
(7,802) (5,994) (6,523) (7,185) 30,029
229
(29)
79
30
30
(6,839) (5,635) (6,011)
18
24
17
Net income (loss)
$ (7,773) $ (6,073) $ (6,553) $ (7,215) $ 29,800 $ (6,863) $ (5,652) $ (6,029)
Net income (loss) per share:
Basic
Diluted
Shares used in computing net income
(loss) per share:
Basic
Diluted
$ (0.19) $ (0.15) $ (0.17) $ (0.19) $
$ (0.19) $ (0.15) $ (0.17) $ (0.19) $
0.78 $ (0.18) $ (0.15) $ (0.16)
0.75 $ (0.18) $ (0.15) $ (0.16)
39,958
39,958
39,299
39,299
38,880
38,880
38,566
38,566
38,353
39,765
38,090
38,090
37,738
37,738
37,264
37,264
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Table of Contents
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934. Based on this evaluation, our management concluded that as of December 31, 2012, our disclosure controls and procedures
were effective.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-
15(f) and 15d-15(f) under the Securities Exchange Act of 1934. In designing and evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and
management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on the evaluation, our management concluded that our internal control over financial reporting was effective as of
December 31, 2012.
Burr Pilger Mayer, Inc., an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as
of December 31, 2012, as stated in their report, which is included under Item 15 below.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth fiscal quarter of 2012 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
42
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Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance
Part III
Information regarding our directors and corporate governance will be presented in our definitive proxy statement for our 2013 Annual Meeting of
Stockholders to be held on or about June 4, 2013, which information is incorporated into this report by reference. However, certain information regarding current
executive officers found under the heading "Executive Officers" in Item 1 of Part I hereof is also incorporated by reference in response to this Item 10.
We have adopted a code of ethics that applies to all of our employees. The code of ethics is designed to deter wrongdoing and to promote, among other
things, honest and ethical conduct, full, fair, accurate, timely, and understandable disclosures in reports and documents submitted to the SEC and other public
communications, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code and accountability for adherence to such code.
The code of ethics is available on our website, www.mosys.com. If we make any substantive amendments to the code of ethics or grant any waiver,
including any implicit waiver, from a provision of the code to our Chief Executive Officer or Chief Financial Officer, or persons performing similar functions, where
such amendment or waiver is required to be disclosed under applicable SEC rules, we intend to disclose the nature of such amendment or waiver on our
website.
Item 11. Executive Compensation
Information required to be provided in response to this item will be presented in our definitive proxy statement for our 2013 Annual Meeting of Stockholders
to be held on or about June 4, 2013, which information is incorporated into this report by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required to be provided in response to this item, including information relating to securities authorized for issuance under equity compensation
plans, will be presented in our definitive proxy statement for our 2013 Annual Meeting of Stockholders to be held on or about June 4, 2013, which information is
incorporated into this report by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required to be provided in response to this item will be presented in our definitive proxy statement for our 2013 Annual Meeting of Stockholders
to be held on or about June 4, 2013, which information is incorporated into this report by reference.
Item 14. Principal Accountant Fees and Services
Information required to be provided in response to this item will be presented in our definitive proxy statement for our 2013 Annual Meeting of Stockholders
to be held on or about June 4, 2013, which information is incorporated into this report by reference.
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this report:
Part IV
(1)
Financial Statements and Reports of Independent Registered Public Accounting Firm, which are set forth in the Index to Consolidated Financial
Statements on pages 40 through 63 of this report.
43
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Table of Contents
Reports of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedule—Schedule II—Valuation and Qualifying Accounts
Exhibits
(2)
(3)
50
52
53
54
55
56
2.1(1)
Agreement and Plan of Merger by and among MoSys, Inc., MLI Merger Corporation, MagnaLynx, Inc., and the
Representative of the Shareholders of MagnaLynx, Inc. dated as of March 24, 2010
3.1(2)
3.2(3)
4.1(4)
4.4(5)
Restated Certificate of Incorporation of the Registrant
Amended and Restated Bylaws of the Registrant
Specimen common stock certificate
Rights Agreement, dated November 10, 2010, by and between the Company and Wells Fargo Bank, N.A., as Rights
Agent
4.4.1(5)
4.4.2(5)
4.4.3(6)
Form of Right Certificate
Summary of Rights to Purchase Preferred Shares
Amendment No. 1 to Rights Agreement, dated July 22, 2011, by and between the Registrant and Wells Fargo Bank,
N.A., as Rights Agent
4.4.4(7)
Amendment No. 2 to Rights Agreement, dated May 18, 2012, by and between the Registrant and Wells Fargo
Bank, N.A., as Rights Agent
Form of Indemnity Agreement between the Registrant and each of its directors and executive officers
Form of Restricted Stock Purchase Agreement
2000 Stock Option Plan and form of Option Agreement thereunder
10.1(4)
10.2(8)*
10.3(9)*
10.3.1(10)* Amended and Restated 2000 Stock Option and Equity Incentive Plan
10.4(11)*
10.5(12)*
10.6(13)*
Form of Stock Option Agreement pursuant to Amended and Restated 2000 Stock Option and Equity Incentive Plan
Form of New Employee Inducement Grant Stock Option Agreement
Employment offer letter agreement and Mutual Agreement to Arbitrate between Registrant and Leonard Perham
dated as of November 8, 2007
10.7.1(14)* New Employee Inducement Grant Stock Option Agreements between Registrant and Leonard Perham dated as of
November 28, 2007
10.7.2(15)* New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of
November 28, 2007
10.7.3(16)* New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of
November 28, 2007
Employment offer letter agreement between the Registrant and James Sullivan dated December 21, 2007
Change-in-control Agreement between Registrant and James Sullivan dated January 18, 2008
10.8(17)*
10.9(18)*
10.10(19)* MoSys, Inc. 2010 Equity Incentive Plan
10.11(20)* Form of Option Agreement for Stock Option Grant pursuant to the MoSys, Inc. 2010 Equity Incentive Plan
10.12(21)* MoSys, Inc. 2010 Employee Stock Purchase Plan
10.13
10.14(22)* Form of Notice of Restricted Stock Unit Award and Agreement
10.15(23) Lease Agreement between Registrant and M West Propco XII, LLC. dated July 19, 2010
Reserved
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Table of Contents
10.16(24)* Employment offer letter agreement between Registrant and Thomas Riordan dated May 6, 2011
10.17(24)* New employee inducement grant stock option agreement between Registrant and Thomas Riordan dated May 10,
2011
Reserved
10.18
10.19(25) Form of New Employee Inducement Grant Stock Option Agreement (revised February 2012)
10.20(26)* Stock Option Agreement between Registrant and Leonard Perham dated as of November 1, 2011
10.21(27)* Stock Option Agreement between Registrant and Thomas Riordan dated as of December 21, 2011
10.22(28) Form of Indemnification Agreement used from June 5, 2012
List of subsidiaries
21.1
Consent of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.
23.1
Power of Attorney (see signature page)
24.1
Rule 13a-14 certification
31.1
Rule 13a-14 certification
31.2
32
Section 1350 certification
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Incorporated by reference to Exhibit 2.4 to Form 10-K filed by the Company on March 26, 2010 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 3.6 to Form 8-K filed by the Company on November 12, 2010 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 3.4 to Form 8-K filed by the Company on October 29, 2008 (Commission File No. 000-32929).
Incorporated by reference to the same-numbered exhibit to the Company's Registration Statement on Form S-1, as amended, originally
filed August 4, 2000, declared effective June 27, 2001 (Commission file No. 333-43122).
Incorporated by reference to the same-numbered exhibit to Form 8-K filed by the Company on November 12, 2010 (Commission File
No. 000-32929).
Incorporated by reference to Exhibit 4.2.3 to the Current Report on Form 8-K, filed on July 27, 2011 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 4.2.4 to Current Report on Form 8-K filed by the Company on May 24, 2012 (Commission File
No. 000-32929).
Incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, as amended, originally filed August 4,
2000, declared effective June 17, 2001 (Commission File No. 333-43122).
Incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, as amended, originally filed August 4,
2000, declared effective June 17, 2001 (Commission File No. 333-43122).
(10)
Incorporated by reference to Appendix B to the Company's proxy statement on Schedule 14A filed by the Company on October 7, 2004
(Commission File No. 000-32929).
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Table of Contents
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
*
Incorporated by reference to Exhibit 10.15 to Form 10-Q filed by the Company on August 9, 2005 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.24 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25.1 to Form 10-Q filed by the Company on May 9, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25.2 to Form 10-Q filed by the Company on May 9, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25.3 to Form 10-Q filed by the Company on May 9, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.26 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.27 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).
Incorporated by reference to Appendix A to the proxy statement on Schedule 14A filed by the Company on May 26, 2010 (Commission
File No. 000-32929).
Incorporated by reference to Exhibit 4.10 to Form S-8 filed by the Company on July 28, 2010 (Commission File No. 333-168358).
Incorporated by reference to Appendix B to the proxy statement on Schedule 14A filed by the Company on May 26, 2010 (Commission
File No. 000-32929).
Incorporated by reference to Exhibit 4.8 to Form S-8 filed by the Company on June 5, 2009 (Commission File No. 333-159753).
Incorporated by reference to Exhibit 10.35 to Form 8-K filed by the Company on July 22, 2010 (Commission File No. 000-32929).
Incorporated by reference to the same-numbered exhibit to Form 10-Q filed by the Company on August 8, 2011 (Commission File
No. 000-32929).
Incorporated by reference to Exhibit 10.19 to Form 10-K filed by the Company on March 15, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.20 to Form 10Q filed by the Company on May 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.21 to Form 10Q filed by the Company on May 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.22 to Form 10Q filed by the Company on August 9, 2012 (Commission File No. 000-32929).
Management contract, compensatory plan or arrangement.
46
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Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 11th day of March 2013.
SIGNATURES
MOSYS, INC.
By:
/s/ LEONARD PERHAM
Leonard Perham
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Leonard Perham and James W.
Sullivan as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and
all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
/s/ LEONARD PERHAM
Leonard Perham
/s/ JAMES W. SULLIVAN
James W. Sullivan
Title
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Date
March 11, 2013
Vice President of Finance and Chief Financial
March 11, 2013
Officer (Principal Financial Officer and Principal
Accounting Officer)
/s/ STEPHEN L. DOMENIK
Director
Stephen L. Domenik
/s/ TOMMY ENG
Tommy Eng
/s/ CHI-PING HSU
Chi-Ping Hsu
Director
Director
47
March 11, 2013
March 11, 2013
March 11, 2013
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Table of Contents
Signature
/s/ JAMES D. KUPEC
James D. Kupec
/s/ VICTOR K. LEE
Victor K. Lee
Title
Date
Director
March 11, 2013
Director
48
March 11, 2013
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Table of Contents
MOSYS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedule II: Valuation and Qualifying Accounts
49
50
52
53
54
55
56
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Table of Contents
To the Board of Directors and Stockholders
of MoSys, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of MoSys, Inc. and its subsidiaries (the "Company") as of December 31, 2012 and 2011,
and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 2012. Our audits also included the financial statement schedule listed in the Index to this Annual Report on Form 10-K at Part IV
Item 15(a)(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MoSys, Inc. and its
subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control
over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated March 11, 2013 expressed an unqualified opinion thereon.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
March 11, 2013
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Table of Contents
To the Board of Directors and Stockholders
of MoSys, Inc
Report of Independent Registered Public Accounting Firm
We have audited the internal control over financial reporting of MoSys, Inc. and its subsidiaries (the "Company") as of December 31, 2012, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting, appearing in Item 9A.
Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, MoSys, Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31,
2012, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance
sheets of MoSys, Inc. and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income
(loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2012, and the related financial statement schedule and
our report dated March 11, 2013 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
March 11, 2013
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Table of Contents
MOSYS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
December 31,
2012
2011
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Prepaid expenses and other current assets
Total current assets
Long-term investments
Property and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Total current liabilities
Long-term liabilities
Commitments and contingencies (Note 12)
Stockholders' equity
Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding
Common stock, $0.01 par value; 120,000 shares authorized; 40,054 shares and 38,423 shares
issued and outstanding at December 31, 2012 and 2011, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
$
2,529 $ 40,025
9,413
969
1,596
30,798
287
1,362
34,976
7,383
1,238
23,134
2,654
149
52,003
8,537
1,382
23,134
4,400
181
$ 69,534 $ 89,637
$
393 $
3,947
481
4,821
171
336
2,779
920
4,035
109
—
—
401
157,143
11
(93,013)
384
150,507
1
(65,399)
64,542
85,493
$ 69,534 $ 89,637
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
MOSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
Year Ended December 31,
2011
2010
2012
Net revenue
Licensing and other
Royalty
Total net revenue
Cost of net revenue
Licensing and other
Total cost of net revenue
Gross profit
Operating expenses
Research and development
Selling, general and administrative
Gain on sale of assets
Total operating expenses
Income (loss) from operations
Other income and expense, net
Income (loss) before income taxes
Income tax provision
Net income (loss)
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on available-for-sale securities
Comprehensive income (loss)
Net income (loss) per share
Basic
Diluted
Shares used in computing net income (loss) per share
Basic
Diluted
$
1,340 $
4,742
5,987 $
8,120
6,468
9,095
6,082
14,107
15,563
334
3,295
2,826
334
5,748
3,295
10,812
2,826
12,737
28,480
8,218
(3,291)
26,216
8,869
(35,611)
33,407
(27,659)
155
(27,504)
110
(526)
11,338
206
11,544
288
25,534
10,391
—
35,925
(23,188)
177
(23,011)
51
$ (27,614) $ 11,256 $ (23,062)
10
(3)
(37)
$ (27,604) $ 11,253 $ (23,099)
$
$
(0.70) $
(0.70) $
0.30 $
0.28 $
(0.72)
(0.72)
39,176
39,176
37,861
40,377
31,870
31,870
The accompanying notes are an integral part of these consolidated financial statements.
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MOSYS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock
Shares Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Balance at January 1, 2010
Issuance of common stock for exercise of options and
31,224 $
312 $ 117,941 $
Accumulated
Deficit
(53,593) $ 64,701
Total
41 $
release of awards
Issuance of common stock, net of costs of $46
Stock-based compensation
Other comprehensive loss—change in unrealized gain
1,046
4,955
—
10
50
—
2,181
19,916
3,298
—
—
—
—
—
—
2,191
19,966
3,298
on available-for-sale investments
—
—
—
(37)
—
(37)
(23,062) (23,062)
Net loss
Balance at December 31, 2010
Issuance of common stock for exercise of options,
employee stock purchase plan and release of awards
Stock-based compensation
Other comprehensive loss—change in unrealized gain
on available-for-sale investments
Net income
Balance at December 31, 2011
Issuance of common stock for exercise of options,
37,225
372
143,336
4
(76,655) 67,057
1,198
—
—
12
—
—
3,391
3,780
—
—
—
(3)
—
—
3,403
3,780
—
11,256
(3)
11,256
38,423
384
150,507
1
(65,399) 85,493
employee stock purchase plan and release of awards
1,881
Repurchase of common stock
Stock-based compensation
Other comprehensive loss—change in unrealized loss
(250)
—
19
(2)
—
3,627
(826)
3,835
on available-for-sale investments
—
—
—
Net loss
—
—
—
10
—
—
—
3,646
(828)
3,835
—
10
(27,614) (27,614)
Balance at December 31, 2012
40,054 $
401 $ 157,143 $
11 $
(93,013) $ 64,542
The accompanying notes are an integral part of these consolidated financial statements.
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MOSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2011
2010
2012
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
$ (27,614) $ 11,256 $ (23,062)
Depreciation and amortization
Amortization of intangible assets
Stock-based compensation
Gain on sale of assets
Provision for (recovery of) doubtful accounts
Other non-cash items
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable
Prepaid expenses and other assets
Deferred revenue
Accounts payable
Accrued expenses and other liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Net cash paid for purchase of businesses
Net proceeds from sale of assets
Proceeds from sales and maturities of marketable securities
Purchases of marketable securities
1,110
2,618
3,766
952
1,746
3,811
(3,291) (35,611)
(125)
19
—
—
682
371
(439)
(84)
1,850
235
2,375
(881)
(763)
305
1,000
2,818
3,298
—
—
65
(326)
2,259
(1,027)
(125)
(458)
(22,016) (15,696)
(15,558)
(349)
(1,500)
(738)
—
3,437
34,371
(54,592) (31,587)
34,831
36,836
(1,412)
(7,935)
—
57,734
(47,687)
Net cash (used in) provided by investing activities
(17,522) 38,231
700
Cash flows from financing activities:
Proceeds from issuance of common stock
Repurchase of common stock
Payments on capital lease obligations
Proceeds from the sale of common stock, net of issuance costs
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure:
3,636
(1,444)
(150)
—
3,336
—
(186)
—
2,191
—
(82)
19,966
2,042
3,150
(37,496) 25,685
14,340
40,025
22,075
7,217
7,123
$
2,529 $ 40,025 $ 14,340
Cash paid for income taxes
Patent license recorded in connection with patent sale
Property and equipment acquired through capital lease
Intangible assets acquired for contingent consideration, in connection with acquisition.
$
$
$
$
345 $
— $
— $
— $
53 $
780 $
— $
— $
56
—
201
1,500
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
MOSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The Company and Summary of Significant Accounting Policies
The Company
MoSys, Inc. (the "Company") was incorporated in California in September 1991, and reincorporated in September 2000 in Delaware. The Company has
been designing, developing, marketing and licensing high-performance semiconductor memory and high-speed parallel and serial interface intellectual property
(IP) used by the semiconductor industry and communications, networking and storage equipment manufacturers. In February 2010, the Company announced
the commencement of a new product initiative to develop a family of integrated circuit (IC) products under the "Bandwidth Engine" product name. Bandwidth
Engine ICs combine the Company's proprietary high-density embedded memory with its high-speed 10 Gigabits per second and higher interface (I/O)
technology and are initially being marketed to networking and telecommunications systems companies. The Company's strategy and primary business objective
is to become an IP-rich fabless semiconductor company focused on development and sale of Bandwidth Engine ICs. During 2011, the Company began to
dedicate more of its engineering resources to IC efforts, and, in 2012, substantially all of the Company's emphasis was on IC product sales as opposed to IP
licensing transactions. The Company's future success and ability to achieve and maintain profitability depends on its success in developing a market for ICs.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. The Company's fiscal year ends on December 31 of each calendar year.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassification includes reclassifying unbilled contracts
receivable into the prepaid expenses and other current assets line item of the consolidated balance sheets and combining the accrued restructuring liabilities line
item with the accrued expenses and other liabilities line item of the consolidated statement of cash flows. The amount for the prior period has been reclassified
to be consistent with the current year presentation and has no impact on previously reported total assets, total stockholders' equity or net income (loss).
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues recognized under the percentage of completion method and expenses recognized during the reported period.
Actual results could differ from those estimates.
Foreign Currency
The functional currency of the Company's foreign entities is the U.S. dollar. The financial statements of these entities are translated into U.S. dollars and the
resulting gains or losses are included in other income and expense, net in the consolidated statements of operations and comprehensive income (loss). Such
gains and losses were not material for any period presented.
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Cash Equivalents and Investments
The Company has invested its excess cash in money market accounts, certificates of deposit, corporate debt, government agency and municipal debt
securities and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with
original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining
maturities greater than one year are classified as long-term investments. Management generally determines the appropriate classification of securities at the time
of purchase. All securities are classified as available-for-sale. The Company's available-for-sale short-term and long-term investments are carried at fair value,
with the unrealized holding gains and losses reported in accumulated other comprehensive income. Realized gains and losses and declines in the value judged
to be other than temporary are included in the other income and expense, net line item in the consolidated statements of operations and comprehensive income
(loss). The cost of securities sold is based on the specific identification method.
Fair Value Measurements
The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels, as follows:
Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the
reporting date
Level 2—Pricing is provided by third party sources of market information obtained through the Company's investment advisors rather than models. The
Company does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from advisors. The Company's Level 2
securities include cash equivalents and available-for-sale securities, which consisted primarily of certificates of deposit, commercial paper, corporate debt,
and government agency and municipal debt securities from issuers with high quality credit ratings. The Company's investment advisors obtain pricing data
from independent sources, such as Standard & Poor's, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities
because the Level 2 securities are not actively traded and have fewer observable transactions. The Company considers this the most reliable information
available for the valuation of the securities.
Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to
measure fair value. These values are generally determined using pricing models for which the assumptions utilize management's estimates of market
participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment
and subjectivity.
Allowance for Doubtful Accounts
The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The
Company performs ongoing customer credit evaluations within the context of the industry in which it operates. A specific allowance of up to 100% of the invoice
value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of
collection is remote. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral from its
customers. The Company grants credit only to customers deemed creditworthy in the judgment of management. The Company maintains an allowance for
doubtful accounts receivable based upon the expected collectibility of all accounts receivable. There was no allowance for doubtful accounts at December 31,
2011 and 2012. For the years ended December 31,
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Table of Contents
2011 and 2012, no amounts were written off. For the year ended December 31, 2010, $78,000 was written off.
Inventory
The Company values its inventories at the lower of cost, which approximates actual cost on a first-in, first-out basis, or market value. The Company records
inventory reserves for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. Once a
reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of. If actual market conditions are less favorable than
those expected by management, additional adjustment to inventory valuation may be required. As of December 31, 2012, inventory was not significant and has
been included in the prepaid expenses and other current assets line item of the consolidated balance sheet.
Property and Equipment
Property and equipment are originally recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets, generally three to five years. Leasehold improvements and assets acquired through capital leases are amortized over the shorter of their estimated
useful life or the lease term.
Valuation of Long-lived Assets
The Company evaluates the recoverability of long-lived assets with finite lives whenever events or changes in circumstances occur that indicate that the
carrying value of the asset or asset group may not be recoverable. Finite-lived intangible assets are being amortized on a straight-line basis over their estimated
useful lives of one to seven years. An impairment charge is recognized as the difference between the net book value of such assets and the fair value of such
assets at the date of measurement. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets.
Intangible Assets
Intangible assets acquired in business combinations, referred to as purchased intangible assets, are accounted for based on the fair value of assets
purchased and are amortized over the period in which economic benefit is estimated to be received. In December 2011, the Company sold 73 of its memory
technology patents and received a license to those patents for use in its Bandwidth Engine ICs and other limited instances. The fair value of the patent rights
received was recorded as a patent license (see Note 5). Identifiable intangible assets relating to business combinations and the patent license were as follows
(dollar amounts in thousands):
December 31, 2012
Life
(years)
Gross
Carrying
Amount
3-5 $ 9,240 $
Accumulated
Amortization
Net
Carrying
Amount
3
7
390
9,630
780
7,255 $ 1,985
—
390
7,645
111
1,985
669
$ 10,410 $
7,756 $ 2,654
58
Developed technology
Customer relationships
Subtotal purchased intangible assets
Patent license
Total
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Table of Contents
December 31, 2011
Developed technology
Customer relationships
Contract backlog
Non-compete agreements
Subtotal purchased intangible assets
Patent license
Total
Life
(years)
Gross
Carrying
Amount
3-5 $ 9,240 $
Accumulated
Amortization
Net
Carrying
Amount
3
1
1.5
390
750
140
10,520
780
7
5,676 $ 3,564
56
—
—
334
750
140
6,900
—
3,620
780
$ 11,300 $
6,900 $ 4,400
For the years ended December 31, 2012, 2011 and 2010, amortization expense was $1.7 million, $2.6 million and $2.8 million, respectively. Amortization
expense has been included in research and development expense in the consolidated statements of operations and comprehensive income (loss). The
estimated aggregate amortization expense to be recognized in future years is approximately $1.0 million for 2013, $1.0 million for 2014, $0.4 million for 2015,
and $0.1 million annually for 2016 through 2018.
Goodwill
The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset
may not be recoverable. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is
less than the carrying amount as a basis for determining whether it is necessary to perform the two-step impairment test. If the qualitative assessment warrants
further analysis, the Company compares the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the
market approach. If the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit, goodwill is not impaired, and the Company
is not required to perform further testing. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, then the Company must record an
impairment charge equal to the difference. The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment
test. As the Company used the market approach to assess impairment in the second step of the analysis, the price of its common stock is an important
component of the fair value calculation. If the Company's stock price continues to experience significant price and volume fluctuations, this will impact the fair
value of the reporting unit, which can lead to potential impairment in future periods. The Company performed step one of the annual impairment test in
September 2012, and concluded no factors indicated impairment of goodwill. As of December 31, 2012, the Company had not identified any factors to indicate
there was an impairment of our goodwill and determined that no additional impairment analysis was required.
Revenue Recognition
General
The Company generates revenue from the licensing of its IP and sales of IC products. The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery or performance has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. Evidence of an
arrangement generally consists of signed agreements or customer purchase orders.
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Licensing
Licensing revenue consists of fees earned from license agreements, development services and support and maintenance. For stand-alone license
agreements or license deliverables in multi-deliverable arrangements that do not require significant development, modification or customization, revenues are
recognized when all revenue recognition criteria have been met. Delivery of the licensed technology is typically the final revenue recognition criterion met, at
which time revenue is recognized. If any of the criteria are not met, revenue recognition is deferred until such time as all criteria have been met.
When sales arrangements contain multiple deliverables (e.g., license and services), the Company reviews each deliverable to determine the separate units
of accounting that exist within the agreement. If more than one unit of accounting exists, the consideration payable to the Company under the agreement is
allocated to each unit of accounting using the relative fair value method. Revenue is recognized for each unit of accounting when the revenue recognition criteria
have been met for that unit of accounting. The Company allocates revenue among the deliverables using the relative selling price method. Revenue allocated to
each element is recognized when the basic revenue recognition criteria is met for each element. Under GAAP, the Company is required to apply a hierarchy to
determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (VSOE), (ii) third-party evidence of
selling price (TPE) and (iii) best estimate of the selling price (ESP). In general, the Company is unable to establish VSOE or TPE for license fees and
development services. Therefore revenue is allocated to these elements based on the Company's ESP, which the Company determines after considering
multiple factors such as management approved pricing guidelines, geographic differences, market conditions, competitor pricing strategies, internal costs and
gross margin objectives. These factors may vary over time depending upon the unique facts and circumstances related to each deliverable. If the facts and
circumstances underlying the factors considered change or should future facts and circumstances lead the Company to consider additional factors, the
Company's ESP for license fee and development services could change.
For license agreements involving deliverables that do require significant production, modification or customization, and where the Company has significant
experience in meeting the design specifications in the contract and the direct labor hours related to services under the contract can be reasonably estimated, the
Company recognizes revenue over the period in which the contract services are performed. For these arrangements, the Company recognizes revenue using
the percentage of completion method. Under this method, revenue recognized in any period depends on the Company's progress toward completion of projects
in progress. Significant management judgment and discretion are used to estimate total direct labor hours. These judgmental elements include determining that
the Company has the experience to meet the design specifications and estimate the total direct labor hours to perform the contract services, based on
experience in developing prior licensees' designs. The direct labor hours for the development of the licensee's design are estimated at the beginning of the
contract. As the direct labor hours are incurred, they are used as a measure of progress towards completion. During the contract performance period, the
Company reviews estimates of direct labor hours to complete the contracts and will revise its estimates of revenue and gross profit under the contract if it revises
the estimations of the direct labor hours to complete. The Company's policy is to reflect any revision in the contract gross profit estimate in reported income or
loss in the period in which the facts giving rise to the revision become known. Under the percentage of completion method, provisions for estimated losses on
uncompleted contracts are recorded in the period in which such losses are determined to be likely. If the amount of revenue recognized under the percentage of
completion accounting method exceeds the amount of billings to a customer, the excess amount is recorded as an unbilled contracts receivable. Unbilled
contracts receivable as of December 31, 2011 were not considered significant and have been included in the prepaid expenses and other current assets line
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Table of Contents
item of the consolidated balance sheets. There was no unbilled contracts receivable as of December 31, 2012.
The Company provides support and maintenance under many of its license agreements. Under these arrangements, the Company provides unspecified
upgrades, design rule changes and technical support. No other upgrades, products or other post-contract support are provided. Support and maintenance
revenue is recognized at its fair value established by VSOE, ratably over the period during which the obligation exists, typically 12 months. These arrangements
are generally renewable annually by the customer.
Under limited circumstances, the Company also recognizes prepaid pre-production royalties as license revenues. These are lump sum payments made
when the Company enters into licensing agreements that cover future shipments of a product that is not commercially available from the licensee. The Company
characterizes such payments as license revenues because they are paid as part of the initial license fee and not with respect to products being produced by the
licensee. These payments are non-cancelable and non-refundable.
Royalty
The Company's licensing contracts typically also provide for royalties based on licensees' use of the Company's memory technology in their currently
shipping commercial products. The Company recognizes royalties in the quarter in which it receives the licensee's report. Under limited circumstances, the
Company may also recognize prepaid post-production royalties as revenue upon execution of the contract, which are paid in a lump sum after the licensee
commences production of the royalty-bearing product and applied against future unit shipments regardless of the actual level of shipments by the licensee. The
criteria for revenue recognition of prepaid royalties are that a formal agreement with the licensee is executed, no deliverables, development or support services
related to prepaid royalties are required, the fees are non-refundable and not contingent upon future product shipments by the licensee, and the fees are payable
by the licensee in a time period consistent with the Company's normal billing terms. If any of these criteria are not met, the Company defers revenue recognition
until such time as all criteria have been met.
IC products
The Company sells products both directly to customers, as well as through distributors. Revenue from sales directly to customers is generally recognized at
the time of shipment. The Company records an estimated allowance, 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 the Company's inability to estimate future returns and credits to be issued. Distributors are generally able to
return up to 10% of their purchases for slow, non-moving or obsolete inventory for credit every six months. 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, and inventory is relieved, as legal title to the inventory is
transferred upon shipment. Revenues are recognized upon receiving notification from the distributors that products have been sold to end customers.
Distributors provide information regarding products and quantity, end customer shipments and remaining inventory on hand. The associated deferred margin is
included in the deferred revenues line item in the consolidated balance sheet. The Company recorded initial IC product revenue in 2012, and a significant
reserve for returns has been recorded due to the product's early stage of development and testing. IC product revenue was not significant in 2012, and has been
included in the licensing and other revenue line item in the consolidated statements of operations and comprehensive loss.
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Cost of Revenue
Cost of licensing and other revenue consists primarily of engineering personnel and overhead allocation costs directly related to development services
specified in licensing agreements and direct and indirect costs of IC product sales. Development services typically include customization of the Company's
technologies for the licensee's particular IC design and may include engineering support to assist in the commencement of production of a licensee's products.
Adveristing Costs
Advertising costs are expensed as incurred. Advertising costs were not significant in the years ended December 31, 2012, 2011 and 2010.
Research and Development
Engineering costs are recorded as research and development expense in the period incurred.
Stock-Based Compensation
The Company recognizes stock-based compensation for awards on a straight-line basis over the requisite service period, usually the vesting period, based
on the grant-date fair value.
Options Issued to Non-Employees
The Company records stock-based compensation expense for stock options granted to non-employees, excluding non-employee directors, based upon the
estimated then-current fair value of the equity instrument using the Black- Scholes pricing model. Assumptions used to value the equity instruments are
consistent with equity instruments issued to employees. The Company charges the value of the equity instrument to earnings over the term of the service
agreement and the unvested shares underlying the option are subject to periodic revaluation over the remaining vesting period.
Per Share Amounts
Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares of common stock
outstanding during the period. Diluted net income (loss) per share gives effect to all potentially dilutive common shares outstanding during the period. Potential
common shares are composed of incremental shares of common stock issuable upon the exercise of stock options or restricted stock awards. As of
December 31, 2012, 2011 and 2010, stock awards to purchase approximately 10,384,000, 9,015,000 and 10,603,000 shares, respectively, were excluded from
the computation of diluted net income (loss) per share as their inclusion would be
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Table of Contents
anti-dilutive. The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per
share amounts):
Year Ended December 31,
2011
2010
2012
Numerator:
Net income (loss)
Denominator:
Add: weighted-average common shares outstanding
Less: unvested common shares subject to repurchase
Total shares: basic
Add: weighted-average stock options outstanding
Add: common shares subject to repurchase
Total shares: diluted
Net income (loss) per share:
Basic
Diluted
Income Taxes
$ (27,614) $ 11,256 $ (23,062)
39,176
—
37,942
(81)
39,176
—
—
37,861
2,435
81
32,049
(179)
31,870
—
—
39,176
40,377
31,870
$
$
(0.70) $
(0.70) $
0.30 $
0.28 $
(0.72)
(0.72)
The Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax basis of the Company's
assets and liabilities using tax rates in effect for the year in which the Company expects the differences to affect taxable income. A valuation allowance is
established for any deferred tax assets for which it is more likely than not that all or a portion of the deferred tax assets will not be realized.
The Company files U.S. federal and state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company is currently under
tax examination in India. The 2003 through 2012 tax years generally remain subject to examination by federal, state and foreign tax authorities.
As of December 31, 2012, the Company did not have any unrecognized tax benefits nor expect its unrecognized tax benefits to change significantly over
the next 12 months. The Company recognizes interest related to unrecognized tax benefits in its income tax expense and penalties related to unrecognized tax
benefits as other income and expenses. During the years ended December 31, 2012, 2011 and 2010, the Company did not recognize any interest or penalties
related to unrecognized tax benefits.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2011-05, Presentation of Comprehensive
Income (ASU No. 2011-05). ASU No. 2011-05 eliminates the option to report other comprehensive income and its components in the statement of stockholders'
equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income
either in a single continuous statement or in two separate but consecutive statements. Effective January 1, 2012, the Company elected to present net income
and other comprehensive income in a single continuous statement. The adoption of ASU 2011-05 did not have any impact on the Company's consolidated
financial position or results of operations.
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In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , an amendment to
FASB ASC Topic 220 Comprehensive Income. The update requires disclosure of amounts reclassified out of accumulated other comprehensive income by
component. In addition, an entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of
accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net
income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other
disclosures that provide additional detail about those amounts. This ASU is effective prospectively for the Company for annual and interim periods beginning
January 1, 2013. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.
Note 2: Consolidated Balance Sheets and Statements of Operations and Comprehensive Income (Loss) Components
Prepaid expenses and other current assets:
Inventory
Interest receivable
Tax receivable
Deferred cost of revenue
Prepaid expenses and other assets
Property and equipment:
Equipment, furniture and fixtures and leasehold improvements
Acquired software
Less: Accumulated depreciation and amortization
December 31,
2012
2011
(in thousands)
$
252 $
263
57
—
790
—
127
157
101
1,211
$ 1,362 $ 1,596
$ 4,135 $ 3,996
626
651
4,786
(3,548)
4,622
(3,240)
$ 1,238 $ 1,382
Property and equipment included $198,000 of testing equipment purchased through capital leases. The accumulated amortization of property and equipment
under capital leases was $198,000 and $298,000, as of December 31, 2012 and 2011, respectively.
Accrued expenses and other liabilities:
Accrued wages and employee benefits
Employee stock purchase plan withholdings
Professional fees
Other
64
December 31,
2012
2011
$
881
292
503
2,271
$
782
392
271
1,334
$ 3,947
$ 2,779
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Other income and expense, net:
Interest income
Other income and expense, net
Note 3: Fair Value of Financial Instruments
2012
2011
(in thousands)
2010
$ 171
(16)
$ 143
63
$ 272
(95)
$ 155
$ 206
$ 177
The estimated fair values of financial instruments outstanding at December 31, 2012 and 2011 were as follows (in thousands):
Cash and cash equivalents
Short-term investments:
U.S. government debt securities
Corporate notes
Certificates of deposit
Total short-term investments
Long-term investments:
U.S. government debt securities
Corporate notes
Total long-term investments
Cash and cash equivalents
Short-term investments:
U.S. government debt securities
Corporate notes
Total short-term investments
Long-term investments:
U.S. government debt securities
Corporate notes
Total long-term investments
2012
Unrealized
Gains
$
$
$
$
$
—
6
8
—
14
2
1
3
Unrealized
Losses
$
—
Fair
Value
$ 2,529
$
$
$
$
(2)
(4)
—
$ 15,856
14,475
467
(6)
$ 30,798
—
—
—
$ 6,332
1,051
$ 7,383
2011
Unrealized
Gains
$
$
$
$
$
—
2
1
3
1
2
3
Unrealized
Losses
$
—
Fair
Value
$ 40,025
$
$
$
$
—
(2)
$ 4,836
4,577
(2)
$ 9,413
(1)
(2)
$ 5,721
2,816
(3)
$ 8,537
Cost
$ 2,529
$ 15,852
14,471
467
$ 30,790
$ 6,330
1,050
$ 7,380
Cost
$ 40,025
$ 4,834
4,578
$ 9,412
$ 5,721
2,816
$ 8,537
As of December 31, 2012 and 2011, all of the available-for-sale securities with unrealized losses had been in a loss position for less than 12 months. Total
fair value of available-for-sale securities with unrealized losses was $8.2 million at December 31, 2012.
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Cost and fair value of investments based on two maturity groups at December 31, 2011 and 2010 were as follows (in thousands):
Due within 1 year
Due in 1-2 years
Total
Due within 1 year
Due in 1-2 years
Total
2012
Cost
$ 30,790
7,380
Unrealized
Gains
$
14
3
Unrealized
Losses
$
(6)
—
Fair
Value
$ 30,798
7,383
$ 38,170
$
17
$
(6)
$ 38,181
Unrealized
Gains
$
Cost
$ 9,412
8,537
$ 17,949
$
2011
3
3
6
Unrealized
Losses
$
(2)
(3)
Fair
Value
$ 9,413
8,537
$
(5)
$ 17,950
The following table represents the Company's fair value hierarchy for its financial assets (cash equivalents and investments) as of December 31, 2012 and
2011 (in thousands):
Money market funds
U.S. government debt securities
Corporate notes
Certificates of deposit
Total assets
Money market funds
Corporate notes
U.S. government debt securities
Total assets
2012
$
Fair Value
1,407
22,289
16,226
467
Level 1
$ 1,407
—
—
—
Level 2
$
—
22,289
16,226
467
Level 3
$ —
—
—
—
$ 40,389
$ 1,407
$ 38,982
$ —
2011
$
Fair Value
2,792
7,393
10,557
Level 1
$ 2,792
—
—
Level 2
$
—
7,393
10,557
Level 3
$ —
—
—
$ 20,742
$ 2,792
$ 17,950
$ —
There were no transfers in or out of Level 1 and Level 2 securities during the years ended December 31, 2012 and 2011. There were no Level 3 financial
assets as of December 31, 2012 and 2011.
The following table provides a summary of changes in fair value of the Company's acquisition-related earn-out liabilities measured at fair value using
significant unobservable inputs (Level 3) for the year ended December 31, 2011 (in thousands):
Balance at December 31, 2010
Payment of earn-out
Balance at December 31, 2011
66
Fair Value
$
1,000
(1,000)
$
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Table of Contents
Note 4: Acquisitions
MagnaLynx
In March 2010, the Company acquired all of the outstanding stock of MagnaLynx, Inc. (MagnaLynx), a provider of semiconductor interface technology.
Under the terms of the merger agreement, the Company paid approximately $2.2 million to settle debt and certain other liabilities of MagnaLynx and
approximately $1.2 million to MagnaLynx shareholders. An additional $0.5 million, referred to as the indemnification holdback, was payable 18 months after the
closing, net of any costs related to indemnification claims that may have arisen during such 18 month period. An additional $1.0 million was payable six months
after the closing as earn-out consideration based on MagnaLynx meeting certain contractually agreed-upon development milestones. Both the indemnification
holdback and earn-out were paid in 2011. The earn-out consideration was included in the acquisition price because the Company expected that it was more
likely than not that the objectives related to this earn-out would be met.
The Company recorded a total acquisition price as follows (in thousands):
Cash
Acquisition-related earn-out
Indemnification holdback
Liabilities assumed by MoSys
Total acquisition price
The allocation of the acquisition price for net tangible and intangible assets was as follows (in thousands):
Net tangible assets
Intangible asset—developed technology
Goodwill
Total acquisition price
$ 3,355
1,000
500
32
$ 4,887
$
100
4,440
347
$ 4,887
Goodwill represents the excess of the acquisition price of an acquired business over the fair value of the underlying net tangible and intangible assets.
Included in the goodwill amount is the value of the acquired workforce, which has significant expertise in low-power interface IP. The goodwill recognized is
expected to be deductible for income tax purposes.
The value of the identifiable intangible asset was determined by using future cash flow assumptions. The intangible asset, which is considered developed
technology, is being amortized on a straight-line basis over its estimated life of five years.
Note 5: Patent Sale and License
In December 2011, the Company entered into a patent purchase agreement for the sale of 43 United States and 30 related foreign memory technology
patents for $35 million in cash and a license for the use of those patents in the Bandwidth Engine ICs and other limited uses. The Company recognized a
$35.6 million gain on this transaction, which was recorded as a reduction of operating expenses in the consolidated statements of operations and comprehensive
income (loss). The gain was comprised of the $35 million of cash proceeds, plus $0.8 million for the patent license, net of transaction costs.
Under the patent purchase agreement, the Company received a license to the sold patents to cover its Bandwidth Engine IC product line and technology
partners, along with related rights to offer sublicenses to current and future partners. This right to use the patents was valued to be $0.8 million and has been
recorded as an intangible asset ("patent license") (see Note 1). The value was determined based on the present value of the future cash flows that could
potentially be generated by the patent license over its estimated remaining life. The patent license is being amortized over its estimated useful life of seven
years.
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Note 6: Sale of I/O Technology
In March 2012, the Company entered into an asset purchase agreement for an exclusive license of a portion of its intellectual property pertaining to its high-
speed serial I/O technology for approximately $4.3 million. As part of the agreement, the Company provided certain technology transfer support services, and 15
employees of the Company's India subsidiary accepted employment with the purchaser. The Company received approximately $2.2 million, net of transaction
costs, in cash upon execution of the agreement. The agreement provides for an additional $1.9 million (the "Holdback") to be paid upon providing technology
transfer support services and achievement of certain contractually agreed-upon development milestones. A portion of the Holdback is reserved for any costs
related to indemnification claims that may arise during the 12 month period following the agreement date. In July 2012, $1.3 million of the Holdback payment
was received.
In 2012, Company recognized a $3.3 million gain on this asset sale, net of transaction costs. The gain on asset sale has been recorded as a reduction of
operating expenses in the consolidated statements of operations and comprehensive income (loss). Gains related to the remaining Holdback will be recorded
when the indemnity period lapses, which is expected to be within 12 months of the agreement date.
Note 7: Income Taxes
The income tax provision (benefit) consisted of the following (in thousands):
Current portion:
Federal
State
Foreign
Year Ended
December 31,
2011
2010
$ 247
3
38
$ 288
$ (19)
2
68
$ 51
2012
$
(5)
3
112
$ 110
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
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Significant components of the Company's deferred tax assets and liabilities were as follows (in thousands):
Deferred tax assets:
Federal and state loss carryforwards
Reserves, accruals and other
Depreciation and amortization
Deferred stock-based compensation
Research and development credit carryforwards
Foreign tax and other credits
Total deferred tax assets
Deferred tax liabilities:
Acquired intangible assets and other
Less: Valuation allowance
Net deferred tax assets
December 31,
2012
2011
$ 30,977
341
1,991
3,319
7,476
1,326
$ 20,196
685
2,117
3,061
6,856
1,347
45,430
34,262
1,652
(43,778)
1,898
(32,364)
$
—
$
—
The valuation allowance increased by $11.4 million during the year ended December 31, 2012 and decreased $2.7 million during the year ended
December 31, 2011. The valuation allowance at December 31, 2012 includes $1.8 million related to stock option deductions incurred prior to January 1, 2006,
the benefit of which will be credited to additional paid-in capital if they become realized.
As of December 31, 2012, the Company had net operating loss carryforwards of approximately $80.6 million for federal income tax purposes and
approximately $86.5 million for state income tax purposes. These losses are available to reduce future taxable income and expire at various times from 2013
through 2032. Approximately $5.5 million of federal net operating loss carryforwards and $4.7 million of state net operating loss carryforwards are related to
excess tax benefits from stock-based compensation and will be charged to additional paid-in capital when realized.
The Company also had federal research and development tax credit carryforwards of approximately $4.6 million, which began expiring in 2012, and
California research and development credits of approximately $4.4 million, which do not have an expiration date. The Company had foreign tax credits available
for federal income tax purposes of approximately $1.1 million which will begin to expire in 2014.
In January 2013, The American Taxpayer Relief Act of 2012 reinstated the research tax credit retroactive to January 1, 2012 and extended the credit
through December 31, 2013. As a result of this new legislation, the Company is expected to recognize an increase in its federal tax credit carryforward of
$1.0 million during the three months ended March 31, 2013.
Utilization of the Company's net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net
operating loss and tax credit carryforwards before utilization. Management does not believe it is likely that utilization will in fact be significantly limited due to
ownership change limitation provisions.
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A reconciliation of income taxes provided at the federal statutory rate (35%) to actual income tax provision (benefit) follows (in thousands):
Income tax benefit computed at U.S. statutory rate
Federal alternative minimum tax
State income tax (net of federal benefit)
Foreign income tax at rate different from U.S. statutory rate
Research and development credits
Foreign tax credit
Stock-based compensation
Amortization of intangible assets
Valuation allowance changes affecting tax provision
Other
2010
2012
Year Ended December 31,
2011
$ (9,626) $ 4,040 $ (8,054)
—
2
(90)
(1,239)
(21)
607
—
8,979
(133)
247
2
(9)
(1,254)
(17)
292
(657)
(2,363)
—
2
(13)
(691)
—
252
(100)
10,526
(240)
7
Income tax provision
$
110 $
288 $
51
The domestic and foreign components of income (loss) before income tax provision were as follows (in thousands):
U.S.
Non-U.S.
Note 8: Stock-Based Compensation
Equity Compensation Plans
Common Stock Option Plans
2012
$ (27,737)
233
Year Ended December 31,
2011
$ 11,363
181
2010
$ (23,499)
488
$ (27,504)
$ 11,544
$ (23,011)
In 2000, the Company adopted the 2000 Stock Plan, which was amended in 2004 (Amended 2000 Plan), and terminated in 2010. As of December 31,
2012, no options were available for future issuance under the Amended 2000 Plan and options to purchase approximately 3,158,000 shares were outstanding
with a weighted-average exercise price of $4.44 per share. The Amended 2000 Plan will remain in effect as to outstanding equity awards granted under the plan
prior to the date of expiration.
In June 2010, the Company's stockholders approved the 2010 Equity Incentive Plan (2010 Plan). The 2010 Plan authorizes the board of directors or the
compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation rights, restricted stock,
performance-based awards, and restricted stock units. Under the 2010 Plan, 4,000,000 shares were initially reserved for issuance and there will be an automatic
annual increase in the share reserve of 500,000 on January 1 of each year. The 2010 Plan has a 10 year term and provides for annual option grants or other
awards to our non-employee directors to acquire up to 40,000 shares and for a one-time grant of an option or other award to a non-employee director to acquire
up to 120,000 shares upon his or her initial appointment or election to the board of directors.
The term of options granted under the 2010 Plan may not exceed ten years. The term of all incentive stock options granted to a person who, at the time of
grant, owns stock representing more than 10% of the voting power of all classes of the Company's stock may not exceed five years.
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The exercise price of stock options granted under the 2010 Plan must be at least equal to the fair market value of the shares on the date of grant.
Generally, options granted under the 2010 Plan will vest over a four-year period and will have a six-year term. In addition, the 2010 Plan provides for automatic
acceleration of vesting for options granted to non-employee directors upon a change of control of the Company.
The Amended 2000 Plan and 2010 Plan are referred to collectively as the "Plans."
The Company may also award shares to new employees outside the Plans, as material inducements to the acceptance of employment with the Company.
These grants must be approved by the compensation committee of the board of directors, a majority of the independent directors or an authorized executive
officer.
Employee Stock Purchase Plan
In June 2010, the Company's stockholders approved the 2010 Employee Stock Purchase Plan (ESPP). A total of 2,000,000 shares of common stock have
been reserved for issuance under the ESPP. The ESPP, which is intended to qualify under Section 423 of the Internal Revenue Code, is administered by the
board of directors or the compensation committee of the board of directors. The ESPP provides that eligible employees may purchase up to $25,000 worth of
the Company's common stock annually over the course of two six-month offering periods. The purchase price to be paid by participants is 85% of the price per
share of the Company's common stock either at the beginning or the end of each six-month offering period, whichever is less. On September 1, 2010, the
Company commenced the first offering period under the ESPP. For the year ended December 31, 2012, approximately 351,000 shares of common stock were
issued at an aggregate purchase price of approximately $1.1 million under the ESPP. For the year ended December 31, 2011, approximately 310,000 shares of
common stock were issued at an aggregate purchase price of approximately $1.1 million under the ESPP. As of December 31, 2012, there were approximately
1,335,000 shares authorized and unissued under the ESPP.
Stock-Based Compensation Expense
The Company recorded $3.8 million, $3.8 million and $3.3 million of stock-based compensation expense in the years ended December 31, 2012, 2011 and
2010, respectively. The Company is required to present the tax benefits resulting from tax deductions in excess of the compensation cost recognized from the
exercise of stock options as financing cash flows in the consolidated statements of cash flows. For the years ended December 31, 2012, 2011 and 2010, there
were no such tax benefits associated with the exercise of stock options.
In June 2011, the Company's executive vice president of engineering resigned from the Company and agreed to act as a consultant. As compensation for
the consulting services, an option to purchase 675,000 shares of the Company's common stock that was granted to the executive vice president on June 26,
2009, of which the unvested and unexercised portion would have otherwise terminated by its terms following the termination of employment with the Company,
remained in effect and continued to vest in accordance with its vesting terms until termination of the consulting agreement in August 2012. The Company
accounted for this option as a variable award and the fair value compensation expense was recognized each period over the vesting term of the option.
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Valuation Assumptions and Expense Information for Stock-based Compensation
The fair value of the Company's share-based payment awards for the years ended December 31, 2012, 2011 and 2010 was estimated on the grant dates
using the Black-Scholes valuation option-pricing model with the following assumptions:
Employee stock options:
Risk-free interest rate
Volatility
Expected life (years)
Dividend yield
2012
0.2% - 0.8%
59.5% - 73.1%
Year Ended December 31,
2011
0.2% - 1.7%
40.7% - 65.4%
4.0
0%
4.0
0%
2010
0.6% - 2.1%
62.5% - 72.7%
4.0
0%
The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates as published by the U.S. Department of the Treasury as of the grant date
for terms equal to the expected terms of the options. The expected volatility was based on the combination of: 1) four-year historical volatility and 2) implied
volatility of the Company's stock price. The expected term of options granted was derived from historical data based on employee exercises and post-vesting
employment termination behavior. A dividend yield of zero is applied because the Company has never paid dividends and has no intention to pay dividends in
the near future.
The stock-based compensation expense recorded is adjusted based on estimated forfeiture rates. An annualized forfeiture rate has been used as a best
estimate of future forfeitures based on the Company's historical forfeiture experience. The stock-based compensation expense will be adjusted in later periods if
the actual forfeiture rate is different from the estimate.
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A summary of activity under the Plans is presented below (in thousands, except exercise price):
Balance at December 31, 2009
Additional authorized under the Amended 2000 Plan
Additional authorized under the 2010 Plan
Plan termination
Options cancelled prior to and upon termination of the Amended 2000 Plan
Options cancelled and expired subsequent to termination of the Amended 2000 Plan
Options granted
Options exercised
Options expired
Balance at December 31, 2010
Additional authorized under the 2010 Plan
Options granted
Options cancelled
Options exercised
Options expired
Balance at December 31, 2011
Additional authorized under the 2010 Plan
Options granted
Options cancelled
Options exercised
Options expired
Shares
Available
for Grant
Number of
Options
outstanding
Weighted
Average
Exercise
Prices
1,875
500
4,000
(1,502)
487
—
(1,690)
—
(20)
3,650
500
(2,201)
28
—
—
1,977
500
(1,827)
615
—
—
5,450 $
—
—
—
(487) $
(401) $
1,690 $
(658) $
—
5,594 $
—
2,201 $
(28) $
(524) $
(715) $
6,528 $
—
1,827 $
(615) $
(266) $
(602) $
4.37
—
—
—
4.31
2.98
4.47
2.47
—
4.64
—
4.13
4.23
3.34
5.45
4.48
—
3.19
3.97
2.38
6.89
Balance at December 31, 2012
1,265
6,872 $
4.05
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A summary of the inducement grant option activity is presented below (in thousands, except exercise price):
Options Outstanding
Balance at December 31, 2009
Granted
Cancelled
Exercised
Balance at December 31, 2010
Granted
Cancelled
Exercised
Balance at December 31, 2011
Granted
Cancelled
Exercised
Balance at December 31, 2012
Number of
Shares
5,295
—
(108)
(375)
4,812
400
(48)
(349)
4,815
350
(550)
(1,257)
3,358
Weighted
Average
Exercise
Prices
$
2.81
—
1.55
1.54
2.92
6.06
1.54
1.55
3.29
3.92
1.55
1.55
4.29
$
$
$
$
$
$
$
$
$
$
$
A summary of the restricted stock award and restricted stock unit activity is presented below (in thousands, except fair value):
Non-vested shares at December 31, 2009
Vested
Non-vested shares at December 31, 2010
Vested
Non-vested shares at December 31, 2011
Vested
Cancelled
Non-vested shares at December 31, 2012
74
Number
of
Shares
46
(15)
Weighted
Average
Grant-Date
Fair Value
$
$
1.60
1.60
$
$
$
$
$
31
(16)
15
(12)
(3)
—
1.60
1.60
1.60
1.62
1.55
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Table of Contents
The following table summarizes significant ranges of outstanding and exercisable options and inducement grants, excluding restricted stock award and
restricted stock unit activity, as of December 31, 2012 (in thousands, except contractual life and exercise price):
Options Outstanding
Weighted
Average
Remaining
Contractual
Life
(in Years)
Options Exercisable
Weighted
Average
Remaining
Contractual
Life
(in Years)
Range of Exercise Price
$1.50 - $3.09
$3.10 - $3.92
$3.93 - $5.61
$5.62 - $9.81
Number
Outstanding
2,715
2,864
3,172
1,479
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
value
3.66 $
4.44 $
2.34 $
2.61 $
2.33 $ 3,124
213
3.62 $
—
4.97
—
6.66
Number
Exercisable
1,421
1,159
2,828
1,040
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
value
2.68 $
3.69 $
2.20 $
1.91 $
1.93 $ 2,199
38
3.69 $
—
5.02
—
6.93
10,230
3.32 $
4.13 $ 3,337
6,448
2.53 $
4.41 $ 2,237
As of December 31, 2012, options for approximately 9.5 million shares were fully vested and expected to vest, after estimated forfeitures, with a remaining
contractual life of 3.19 years, weighted average exercise price of $4.17 and aggregate intrinsic value of approximately $3.2 million.
The total fair value of the options that vested during the year ended December 31, 2012 calculated using the Black-Scholes valuation method was
$2.4 million. The total intrinsic value of employee stock options exercised during the years ended December 31, 2012, 2011 and 2010 was $2.7 million,
$2.4 million and $2.4 million, respectively.
Options to purchase 6.4 million shares with weighted average exercised prices of $4.41 per share were exercisable at December 31, 2012. As of
December 31, 2012, total compensation costs related to unvested, but not yet recognized, stock-based awards was $5.0 million, net of estimated forfeitures.
This cost will be amortized on a straight-line basis over a weighted average remaining period of 2.6 years and will be adjusted for subsequent change in
estimated forfeitures.
Note 9: Stockholders' Equity
In December 2010, the Company completed an equity offering and issued approximately 5 million shares of its common stock for approximately
$20.0 million in net proceeds.
Stockholder Rights Plan
On November 10, 2010, the Company executed a rights agreement in connection with the declaration by the Company's board of directors of a dividend of
one preferred stock purchase right (a "Right") to be paid on November 10, 2010 (the "Record Date") for each share of the Company's common stock issued and
outstanding at the close of business on the Record Date. Each Right entitles the registered holder to purchase one one-thousandth of a share of Series AA
Preferred Stock, $0.01 par value per share (a "Preferred Share"), of the Company at a price of $48.00 per one one-thousandth of a Preferred Share, subject to
adjustment. The rights will not be exercisable until a third party acquires 15.0% of the Company's common stock or commences or announces its intent to
commence a tender offer for at least 15.0% of the common stock, other than holders of "grandfathered stock" as defined below.
"Grandfathered stock" refers to stock held by Carl E. Berg and his affiliates. The beneficial ownership threshold for a holder of grandfathered stock is 20%,
rather than 15%. In 2011, the Company amended the rights agreement to designate Artis Capital Management L.P. and its affiliates (collectively, "Artis") as a
holder of grandfathered stock. In 2012, an amendment removed this designation and reduced Artis' ownership threshold to 15%. In addition, under the rights
agreement,
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the firm of Ingalls & Snyder, or I&S, and its managed account beneficial owners collectively will not trigger the rights as long as none of their shares are held for
the purpose of acquiring control or effecting change or influence in control of the Company. This exclusion applies only to shares of common stock for which
there is only shared dispositive power and I&S has only non-discretionary voting power. The rights agreement could delay, deter or prevent an investor from
acquiring the Company in a transaction that could otherwise result in its stockholders receiving a premium over the market price for their shares of common
stock.
Note 10: Retirement Savings Plan
Effective January 1997, the Company adopted the MoSys 401(k) Plan (the Savings Plan) which qualifies as a thrift plan under Section 401(k) of the Internal
Revenue Code. Full-time and part-time employees who are at least 21 years of age are eligible to participate in the Savings Plan at the time of hire. Participants
may contribute up to 15% of their earnings to the Savings Plan. No matching contributions were made by the Company in the years ended December 31, 2012,
2011 and 2010.
Note 11: Business Segments, Concentration of Credit Risk and Significant Customers
The Company operates in one business segment and uses one measurement of profitability for its business. Revenue attributed to the United States and to
all foreign countries is based on the geographical location of the customer.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term
and long-term investments and accounts receivable. Cash, cash equivalents and short-term and long term investments are deposited with high credit quality
institutions.
The Company recognized revenue from licensing of its technologies to customers in North America, Asia and Europe as follows (in thousands):
United States
Taiwan
Japan
Europe
Rest of Asia
Total
Years Ended December 31,
2011
$ 5,476
3,197
4,700
727
7
2012
$ 2,511
1,700
1,571
86
214
2010
$ 5,886
2,888
6,661
—
128
$ 6,082
$ 14,107
$ 15,563
Customers who accounted for at least 10% of total revenues were as follows:
Customer A
Customer B
Customer C
Customer D
*
Represents percentages less than 10%.
Years Ended
December 31,
2012 2011 2010
28% 23% 18%
26% 12%
12% 17% 23%
15%
*
*
*
Three customers accounted for 100% of net accounts receivable at December 31, 2012. Four customers accounted for 96% of net accounts receivable at
December 31, 2011.
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Net property and equipment, classified by major geographic areas, was as follows at December 31, 2012 and 2011 (in thousands):
U.S.
Non-U.S.
Total
Note 12: Commitments and Contingencies
Leases and Purchase Commitments
December 31,
2012
2011
(in thousands)
$ 1,114
124
$ 1,238
$ 1,216
166
$ 1,382
The Company leases its facilities under non-cancelable operating leases that expire at various dates through 2020. Rent expense was approximately
$895,000, $915,000 and $694,000 for the years ended December 31, 2012, 2011 and 2010, respectively. The leases provide for monthly payments and are
being charged to operations ratably over the lease terms. In addition to the minimum lease payments, the Company is responsible for property taxes, insurance
and certain other operating costs.
Future minimum lease payments under non-cancelable operating leases and purchase commitments are as follows (in thousands):
Year ended December 31,
2013
2014
2015
2016
2017
Thereafter
Total minimum payments
Operating
leases
$
739
764
720
743
764
1,943
Purchase
commitments
$
878
566
500
—
—
—
Total
$ 1,617
1,330
1,220
743
764
1,943
$
5,673
$
1,944
$ 7,617
Purchase commitments include licenses related to computer-aided design tools payable through November 2015.
Indemnification
In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties from any
losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising from certain events as
outlined within the particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification
clauses may not be subject to maximum loss clauses. The Company has entered into indemnification agreements with its officers and directors. No material
amounts were reflected in the Company's consolidated financial statements for the years ended December 31, 2012, 2011 or 2010 related to these
indemnifications.
The Company has not estimated the maximum potential amount of indemnification liability under these agreements due to the limited history of prior claims
and the unique facts and circumstances applicable to each particular agreement. To date, the Company has not made any payments related to these
indemnification agreements.
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Table of Contents
Legal Matters
The Company is not a party to any material legal proceeding that the Company believes is likely to have a material adverse effect on its consolidated
financial position or results of operations. From time to time the Company may be subject to legal proceedings and claims in the ordinary course of business.
These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.
In September 2010, a claimant filed suit against the Company seeking a contractual payment of approximately 200,000 shares of the Company's common
stock, among other claims. In November 2010, the suit went to arbitration, and, in December 2010, the Company filed a counter claim against the claimant. On
April 3, 2012, the arbitrator ruled against the Company and awarded the claimant a cash award of approximately $1.4 million, which was paid in the second
quarter of 2012 and has been recorded as a repurchase of common stock in the consolidated statement of cash flows. The Company repurchased the disputed
shares in the second quarter of 2012, and the shares were retired. In the first quarter of 2012, the value of the disputed shares, $0.8 million as of the arbitration
settlement date, was recorded as a reduction to stockholders' equity as a stock repurchase. The remaining amount of $0.6 million was recorded as a selling,
general and administrative expense in the Company's consolidated statements of operations and comprehensive income (loss).
Note 13: Related Party Transactions
In February 2012, the Company entered into a strategic development and marketing agreement with Credo Semiconductor (Hong Kong) Ltd. (Credo), a
privately-funded fabless semiconductor company, to develop, market and sell integrated circuits. Two of the Company's executive officers are investors in
Credo. The agreement calls for the Company to pay approximately $1.4 million to Credo upon Credo achieving certain development and verification milestones
towards the development of IC products and provides the Company with exclusive sales and marketing rights for such IC products. In 2012, Credo achieved a
number of the milestones set forth in the agreement, including delivery of the IC design to its foundry for tape-out and receipt of first silicon. As a result of the
milestone achievements, the Company paid Credo $1.1 million, which the Company recorded as research and development expense. As of December 31, 2012,
$0.3 million is included as a current liability. The first $1.2 million of gross profits generated by the sale of these integrated circuits will be retained by the
Company. Thereafter, the gross profits will be shared equally by the two companies.
In July 2010, the Company entered into a lease agreement with Mission West Properties, Inc., (the Lessor or Mission West), to lease approximately 47,000
square feet for its corporate headquarters in Santa Clara, California. The lease term is 120 months. The Company has an option to extend the lease for two
additional five-year periods at 95% of the then fair market monthly rent rate. After the first two years of the lease, the Company may terminate the lease early in
the event that it has signed a lease to move into a facility that is also owned by the Lessor or one of its affiliates and is at least 20% larger. The Company may
also terminate the lease at the end of 60 or 90 months if the Company has sold all or substantially all of its assets to an independent buyer or if the Lessor
cannot accommodate the Company's future expansion requirements, provided that the Company pays the Lessor an amount equal to the outstanding
unamortized balance of the initial improvements. The chief executive officer and chairman of the board of Mission West was Carl E. Berg. Mr. Berg held the
position of director of the Company and member of the compensation committee and the audit committee of the Company's board of directors until June 2012.
Mr. Berg beneficially owns approximately 5% of the Company's common stock, and his daughter's trust beneficially owns approximately 6% of the Company's
common stock. For the years ended December 31, 2012, 2011 and 2010, a total of $728,000, $716,000 and $379,000, respectively, of lease payments were
paid to Mission West. In December 2012, Mission West sold the property, which the Company leases, to an unrelated third-party.
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Table of Contents
Description
Allowance for doubtful accounts
Year ended December 31, 2012
Year ended December 31, 2011
Year ended December 31, 2010
Schedule II—Valuation and Qualifying Accounts
(In thousands)
Additions
Deductions
Balance at
beginning of
period
Charged to
costs and
expenses
Charged to
other
accounts
Amounts
recovered
Amounts
written
off
Balance at
end of
period
$
$
$
— $
125 $
93 $
79
— $
— $
— $
— $
— $
125 $
— $
(125) $
(15) $
— $
— $
(78) $
—
—
125
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Table of Contents
INDEX OF EXHIBITS
2.1(1)
Agreement and Plan of Merger by and among MoSys, Inc., MLI Merger Corporation, MagnaLynx, Inc., and the
Representative of the Shareholders of MagnaLynx, Inc. dated as of March 24, 2010
3.1(2)
3.2(3)
4.1(4)
4.2(5)
Restated Certificate of Incorporation of the Registrant
Amended and Restated Bylaws of the Registrant
Specimen common stock certificate
Rights Agreement, dated November 10, 2010, by and between the Company and Wells Fargo Bank, N.A., as Rights
Agent
4.2.1(5)
4.2.2(5)
4.4.3(6)
Form of Right Certificate
Summary of Rights to Purchase Preferred Shares
Amendment No. 1 to Rights Agreement, dated July 22, 2011, by and between the Registrant and Wells Fargo Bank,
N.A., as Rights Agent
4.4.4(7)
Amendment No. 2 to Rights Agreement, dated May 18, 2012, by and between the Registrant and Wells Fargo
Bank, N.A., as Rights Agent
Form of Indemnity Agreement between the Registrant and each of its directors and executive officers
Form of Restricted Stock Purchase Agreement
2000 Stock Option Plan and form of Option Agreement thereunder
10.1(4)
10.2(8)*
10.3(9)*
10.3.1(10)* Amended and Restated 2000 Stock Option and Equity Incentive Plan
10.4(11)*
10.5(12)*
10.6(13)*
Form of Stock Option Agreement pursuant to Amended and Restated 2000 Stock Option and Equity Incentive Plan
Form of New Employee Inducement Grant Stock Option Agreement
Employment offer letter agreement and Mutual Agreement to Arbitrate between Registrant and Leonard Perham
dated as of November 8, 2007
10.7.1(14)* New Employee Inducement Grant Stock Option Agreements between Registrant and Leonard Perham dated as of
November 28, 2007
10.7.2(15)* New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of
November 28, 2007
10.7.3(16)* New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of
November 28, 2007
Employment offer letter agreement between the Registrant and James Sullivan dated December 21, 2007
Change-in-control Agreement between Registrant and James Sullivan dated January 18, 2008
10.8(17)*
10.9(18)*
10.10(19)* MoSys, Inc. 2010 Equity Incentive Plan
10.11(20)* Form of Option Agreement for Stock Option Grant pursuant to the MoSys, Inc. 2010 Equity Incentive Plan
10.12(21)* MoSys, Inc. 2010 Employee Stock Purchase Plan
10.13
10.14(22)* Form of Notice of Restricted Stock Unit Award and Agreement
10.15(23) Lease Agreement between Registrant and M West Propco XII, LLC. dated July 19, 2010
10.16(24)* Employment offer letter agreement between Registrant and Thomas Riordan dated May 6, 2011
10.17(24)* New employee inducement grant stock option agreement between Registrant and Thomas Riordan dated May 10,
Reserved
2011
10.18
10.19(25) Form of New Employee Inducement Grant Stock Option Agreement (revised February 2012)
Reserved
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10.20(26)* Stock Option Agreement between Registrant and Leonard Perham dated as of November 1, 2011
10.21(27)* Stock Option Agreement between Registrant and Thomas Riordan dated as of December 21, 2011
10.22(28) Form of Indemnification Agreement used from June 5, 2012
List of subsidiaries
21.1
Consent of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.
23.1
Power of Attorney (see signature page)
24.1
Rule 13a-14 certification
31.1
Rule 13a-14 certification
31.2
32
Section 1350 certification
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
Incorporated by reference to Exhibit 2.4 to Form 10-K filed by the Company on March 26, 2010 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 3.6 to Form 8-K filed by the Company on November 12, 2010 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 3.4 to Form 8-K filed by the Company on October 29, 2008 (Commission File No. 000-32929).
Incorporated by reference to the same-numbered exhibit to the Company's Registration Statement on Form S-1, as amended, originally
filed August 4, 2000, declared effective June 27, 2001 (Commission file No. 333-43122).
Incorporated by reference to the same-numbered exhibit to Form 8-K filed by the Company on November 12, 2010 (Commission File
No. 000-32929).
Incorporated by reference to Exhibit 4.2.3 to the Current Report on Form 8-K, filed on July 27, 2011 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 4.2.4 to the Current Report on Form 8-K filed by the Company on May 24, 2012 (Commission File
No. 000-32929).
Incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, as amended, originally filed August 4,
2000, declared effective June 17, 2001 (Commission File No. 333-43122).
Incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, as amended, originally filed August 4,
2000, declared effective June 17, 2001 (Commission File No. 333-43122).
Incorporated by reference to Appendix B to the Company's proxy statement on Schedule 14A filed by the Company on October 7, 2004
(Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.15 to Form 10-Q filed by the Company on August 9, 2005 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).
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(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
*
Incorporated by reference to Exhibit 10.24 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25.1 to Form 10-Q filed by the Company on May 9, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25.2 to Form 10-Q filed by the Company on May 9, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25.3 to Form 10-Q filed by the Company on May 9, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.26 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.27 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).
Incorporated by reference to Appendix A to the proxy statement on Schedule 14A filed by the Company on May 26, 2010 (Commission
File No. 000-32929).
Incorporated by reference to Exhibit 4.10 to Form S-8 filed by the Company on July 28, 2010 (Commission File No. 333-168358).
Incorporated by reference to Appendix B to the proxy statement on Schedule 14A filed by the Company on May 26, 2010 (Commission
File No. 000-32929).
Incorporated by reference to Exhibit 4.8 to Form S-8 filed by the Company on June 5, 2009 (Commission File No. 333-159753).
Incorporated by reference to Exhibit 10.35 to Form 8-K filed by the Company on July 22, 2010 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.35 to Form 10Q filed by the Company on August 8, 2011 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.19 to Form 10-K filed by the Company on March 15, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.20 to Form 10Q filed by the Company on May 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.21 to Form 10Q filed by the Company on May 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.22 to Form 10Q filed by the Company on August 9, 2012 (Commission File No. 000-32929).
Management contract, compensatory plan or arrangement.
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SUBSIDIARIES OF REGISTRANT
NAME
MoSys International, Inc.
MoSys India Pvt. Ltd
MoSys Iowa, Inc.
EXHIBIT 21.1
JURISDICTION OF INCORPORATION
California, USA
India
Iowa
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EXHIBIT 21.1
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Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-64302, 333-104071, 333-118992, 333-123364,
333-132492, 333-141264, 333-149756, 333-157964, 333-159753, 333-168358, 333-172828 and 333-180119) and Form S-3 (No. 333-170327) of MoSys, Inc. of
our reports dated March 11, 2013 relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over
financial reporting , which appear in this Annual Report on Form 10-K.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
March 11, 2013
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EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
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CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
Exhibit 31.1
I, Leonard Perham, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of MoSys, Inc. for the year ended December 31, 2012;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 11, 2013
/s/ LEONARD PERHAM
Leonard Perham
President and Chief Executive Officer
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
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CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
Exhibit 31.2
I, James W. Sullivan, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of MoSys, Inc. for the year ended December 31, 2012;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 11, 2013
/s/ JAMES W. SULLIVAN
James W. Sullivan
Vice President of Finance and
Chief Financial Officer
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Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
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CERTIFICATION OF CEO AND CFO FURNISHED PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report on Form 10-K of MoSys, Inc. (the "Company") for the year ended December 31, 2012 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), Leonard Perham, President and Chief Executive Officer of the Company, and James W. Sullivan, Vice
President of Finance and Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ LEONARD PERHAM
Leonard Perham
President and Chief Executive Officer
March 11, 2013
/s/ JAMES W. SULLIVAN
James W. Sullivan
Vice President of Finance and
Chief Financial Officer
March 11, 2013
This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.
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Exhibit 32
CERTIFICATION OF CEO AND CFO FURNISHED PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT
OF 2002
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