SECURITIES & EXCHANGE COMMISSION EDGAR FILING
MoSys, Inc.
Form: 10-K
Date Filed: 2016-03-15
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
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, 2015 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 Select 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 ❑
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ❑ No ☑
The aggregate market value of the common stock held by non-affiliates of the registrant, as of June 30, 2015 was $120,238,800 based upon the last sale
price reported for such date on the Global Select 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 2, 2016, 65,975,362 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 2016 Annual Meeting of Stockholders to be
held on or about June 7, 2016 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, 2015
TABLE OF CONTENTS
Part I
Part II
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
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
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®, Bandwidth Engine ® and GigaChip ® are registered trademarks of MoSys, Inc. LineSpeed™ is a trademark of MoSys, Inc.
Item 1. Business
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 solutions deliver time-to-market,
performance, signal integrity, power, area and economic benefits for system original equipment manufacturers, or OEMs. We have developed two IC product
lines under the Bandwidth Engine and LineSpeed product names. Bandwidth Engine ICs integrate our proprietary 1T-SRAM high-density embedded memory
with our integrated macro function technology and a highly efficient serial interface protocol resulting in a monolithic memory IC solution optimized for transaction
performance. As the bandwidth requirements and amount of processing per packet increase in high-speed networking systems, critical memory access
bottlenecks occur. Our Bandwidth Engine IC, with its combination of serial I/O, high-speed memory, offload functions and efficient, intelligent access, drastically
increases memory accesses per second, removing these bottlenecks. In addition, the serial interface and high memory capacity reduce the board footprint,
number of pins and complexity using less power. The LineSpeed IC product line, which we announced in March 2013, is comprised of non-memory, high-speed
serialization-deserialization, or SerDes, I/O physical layer, or PHY, devices that ensure signal integrity between interfaces commonly referred to as clock data
recovery, or CDR, or retimer functionality, which perform multiplexing to transition from one speed to another, commonly referred to as Gearbox functionality.
These PHY devices reside within optical modules and networking equipment line cards designed for next-generation Ethernet and optical transport network
applications.
We are currently supporting existing design win customers, primarily for Bandwidth Engine, and actively pursuing additional design wins for the use of our
ICs in networking communications and data center equipment. We have established initial pricing of our IC products ordered to date, but longer-term volume
prices will be subject to negotiations with our customers and may vary substantially from these initial prices.
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. Currently, we are focused on developing differentiated
IP-rich IC products and are dedicating all our research and development, marketing and sales budget to these IC products. Royalty and other revenue generated
from our existing IP
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agreements represented 58% of our total revenue in 2014 and 45% in 2015. We expect royalty and other revenue to continue to decline in 2016 both in absolute
dollars and as a percentage of revenues.
Our future success and ability to achieve and maintain profitability are dependent on the marketing and sales of our IC products into networking,
communications and other markets. Since the beginning of 2010, we have invested substantially all of our of our research and development resources toward
development of our 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.
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, 4G/LTE 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 meet these demands, carrier and enterprise networks are undergoing significant changes and, most significantly, are migrating to packet-based Ethernet
networks that enable higher throughput, lower cost and uniform technology across access, core and metro network infrastructure. These networks are now being
designed to deliver voice, video and high-speed Internet access on one converged, efficient and flexible network. These trends require networking systems,
especially the high-speed switches and routers that primarily comprise these networks, to comply with evolving market requirements and be capable of providing
new services and better quality of service while supporting new protocols and standards. To support these trends, OEM network and telecommunications
equipment manufacturers, such as Alcatel-Lucent (a subsidiary of Nokia Corporation), Brocade Communications Systems, Inc., Cisco Systems, Inc., Tel. LM
Ericsson, Fujitsu Ltd., Hitachi Ltd., Huawei Technologies, Juniper Networks, Inc., Nokia Corporation, and ZTE Corporation, must offer higher levels of packet
forwarding rates, bandwidth density and be optimized to enable higher-density, lower power data path connectivity in the next generations of their networking
systems.
Networking and telecommunications systems throughout the network must operate at higher speed and performance levels and so require new generations
of packet processors and improved memory subsystems, as well as new physical interface products, to enable system performance. These systems and their
component line cards generally need to support aggregate rates of 100 gigabits per second, or Gbps, and above to meet the continued growth in network traffic.
Cloud services have accelerated this transition with applications such as security. Data centers and access equipment that were previously aggregating slower
traffic such at 1Gbps to 10Gbps, and 40Gbps, now are being designed to aggregate traffic at 10Gbps to 100Gbps, or more. The transition to 100 Gbps networks
has begun, and 100 Gbps networks are expected to grow rapidly over the coming years.
Several types of semiconductors are included on each line card, including PHY, one or more packet processors and multiple memory chips. Packet
processors are complex ICs or IC chipsets that perform high speed processing for functions, such as traffic routing, shaping, metering, billing, statistics, detection
and steering. The line cards use various types of memory ICs to facilitate temporary packet 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 PHY, 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 Internet
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protocol address, and the payload, which contains the data being sent. Generally, the line card operations must occur at full data rates and typically require
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 until processing is complete and the packet can re-combine and be sent to its next system destination. Within the line card, communication between the
packet processor and memory ICs occurs through an interface consisting of combinations of physical pins on each type of chip. These pins are grouped together
in a parallel or a 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 that connect networking equipment and components 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, the number of pins
required and the speed of the bus in a parallel architecture become a limitation on system performance and capability. In contrast, the number of connections is
reduced substantially across fewer, higher-rate pins in a serial architecture, and data is transferred simultaneously in both directions. Data transfer rates with
high-speed serial bus architectures and more advanced I/O protocols are limited by the capabilities of the various ICs included on the line card, thus leading to
bottlenecks when these ICs perform inadequately. In order to remove these bottlenecks and meet next-generation bandwidth requirements, the line card ICs
must support high-speed serial bus architectures and these more advanced I/O protocols.
Most networking and communication systems sold and in operation today include line cards that process data at speeds ranging from 10 Gbps, to 100 Gbps,
and support many aggregated slower ports. To accommodate the substantial and growing increase in demand for networking communications and applications,
networking systems manufacturers are developing and bringing to market next-generation systems that run at aggregate speeds of 100 to 400 Gbps or more with
developments underway to scale to thousands of Gbps, or terabits, per second. However, although processor performance in applications such as computing
and networking has continued to double nearly every 18 months, or even sooner, the performance of memory technology has generally been able to double only
once every 10 years. Existing memory IC solutions based on parallel I/O architecture easily support speeds up to 40 Gbps, but are not optimal for meeting
speeds of 100 Gbps and beyond due to system-level limitations for pin counts, power and performance. These networking and communications systems are
generally comprised of a chassis populated by four to 16 line cards. Often, these systems are shipped to customers with only a portion of the line card slots
populated, and the customer will add additional line cards subsequently to increase system performance and capacity.
Each line card requires a significant amount of memory to support its processing capabilities. Traditional external memory IC solutions currently used on line
cards include both dynamic random access memory, or DRAM, and static random access memory, or SRAM. 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 traditional memory IC solutions use parallel interfaces, which are slower than serial interfaces, so we believe they will be increasingly challenged to meet
the performance, pin count, area and power requirements as networking systems expand beyond 100 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 and/or add more embedded memory on the packet processor. 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. We believe our Bandwidth Engine family of products is well suited to address these challenges and replace these traditional
memory solutions.
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In addition, each line card requires PHY products to provide interoperability and signal integrity functions. As network speeds increase beyond 100Gbps, the
serial data rates are transitioning from 10Gbps to 25Gbps. This means that the signal integrity challenges (maintaining the quality of the electrical signals) of
moving these high speed signals around within line cards, or between line cards and systems using fiber optic or copper cable, increase as data rates increase.
These networking systems often use copper or optical modules to modify signals for transmission over longer distances ranging from tens of meters to
thousands of kilometers. Optical modules convert electrical signals to optical signals for transportation over longer distances from one system to another system.
Because of the challenges arising from the increase in network speeds, new 100Gbps standards have emerged that specify a CDR or retimed interface on
optical modules, which was not the case at 10Gbps based interfaces. Each 100Gbps module and above using 25Gbps per lane will require a CDR/retimer
function inside the module to meet these requirements. In addition, the systems themselves also require additional support to move signals between the module
and the system, and these challenges become more acute as the distance increases. Our LineSpeed products address these new line card and optical module
challenges by providing unique signal integrity and feature sets that align with the industry standards, as well as provide backward compatibility for the previous
data rates. We believe our LineSpeed PHY products are well suited ensure the quality of signals and/or increase the transmission distance for both short reach
(e.g., between ICs on a line card) or long-reach (e.g., between line cards or systems).
We have developed our Bandwidth Engine and LineSpeed families of ICs to synergistically address the need for high-speed data access and throughput
currently confronting networking system designers. We expect our IC products to meet the increasing demands placed on conventional memory technology used
on the line cards in high-bandwidth networking systems. We believe that our products and technology are well positioned as replacements for existing 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.
Our Approach
Our historical business was focused on the licensing of our proprietary 1T-SRAM and SerDes I/O technologies. We have leveraged our proprietary IP to
design our Bandwidth Engine and LineSpeed IC product families to help networking OEMs address the growing bottlenecks in system performance. We have
incorporated critical features into our product families to accomplish this objective.
On-chip Functionality
One 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 include an arithmetic logic
unit, or ALU, which enables the Bandwidth Engine IC to perform mathematical operations on data. Moving certain processing functions from the processor IC to
the Bandwidth Engine IC through the use of this embedded ALU, reduces the number of I/O transactions and frees the processor IC to perform other important
networking or micro-processing functions.
High-Performance Interface
High-speed, efficient interface 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 system requirements necessitate an industry transition from parallel 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 field programmable gate arrays, or FPGAs, and network processing units, NPUs, are using serial I/Os to ensure they can compete with custom
designed application specific ICs, or ASICs, by matching their
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performance. 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 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. While SerDes I/Os provide significantly enhanced performance over parallel I/Os, SerDes I/Os
traditionally have had higher power consumption, which is a challenge for IC designers. Our SerDes I/Os, however, are tuned for low power consumption to meet
our customers' stringent power consumption requirements.
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 customers' systems.
Analog Design Capabilities
We have invested in personnel needed to define, design and market high-performance analog IC products. We have built a team of experienced engineers
who combine industry expertise with advanced semiconductor design expertise to meet customer requirements and develop new products to bring to market.
We intend to leverage these capabilities to achieve new levels of integration, power reduction and performance, enabling our customers to achieve differentiation
in their end systems. We initially developed our team of analog engineers to develop the SerDes I/O used in our Bandwidth Engine families of products. We
leveraged the capabilities of this team to produce our LineSpeed IC products, which are primarily comprised of analog circuitry.
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-11G-SR and XFI) to simplify electrical interoperability between devices. 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 is offered to
customers and prospective partners on terms intended to encourage widespread adoption.
High-Performance and High-Density Memory Architecture
The high-density of our proprietary 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, or 6T-SRAM. 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. 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.
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Our Strategy
Our primary business objective is to be an IP-rich fabless semiconductor company offering ICs that deliver unparalleled memory bandwidth performance for
packet processing and improved signal integrity performance for networking, security and data center systems. The key components of the expansion of our
strategic plan to become an IC supplier include the following strategies:
Target Large and Growing Markets
Our initial strategy is to target the multi-billion dollar networking telecommunications, security and data center OEM equipment markets, and we have
developed products to support the growth in 100 Gbps and higher networking speeds. We are currently supporting approximately 25 existing customers, with
whom we have achieved over 85 design wins, which reflects broadening acceptance of our products. We define a design win as the point at which a customer
has made a commitment to build a board against the fixed schematic for his system, and this board will utilize our IC products. We continue to actively pursue
additional design wins for the use of our ICs in our target markets. We believe our design wins represent the potential for significant future revenues. With limited
history to date, however, we cannot estimate how much revenue each design win is likely to generate, or how much revenue all of these (and future design wins)
are likely to generate. For example, our first design wins from 2012 and 2013 are starting to ramp into production, and, while we cannot predict how steep these
ramps might be, we expect our revenues from them to grow in successive periods over the next few years. There is no assurance that these customer designs
will be shipped in large volume by our customers to their customers, however.
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 systems. 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 also seek to leverage our high-speed serial I/O to create
non-memory denominated ICs, such as our LineSpeed products. Our initial LineSpeed products targeted the line card and the same customers as our Bandwidth
Engine products. This has given us the opportunity to provide both memory and PHY solutions during the sale process. In 2013, we introduced our first
LineSpeed products to address the requirements new industry standards were placing on optical modules, as well as line cards.
Expand Adoption of the GigaChip Interface Protocol
We have provided our GCI interface protocol as an open industry standard that may be 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. A number of IC providers and partners have
publicly announced their support of GCI and Bandwidth Engine, including the largest FPGA providers, Altera Corporation (a subsidiary of Intel Corporation),
Xilinx, Inc., and EZchip Semiconductor Ltd. (a subsidiary of Mellanox Technologies Ltd.), with whom we work closely to support common customers. In addition,
multiple networking systems companies, including actual and prospective customers, have adopted GCI.
Build Long-Term Relationships with Suppliers of Packet Processors
We believe that having long-term relationships with packet processor providers is critical to our success, as such relationships may enable us to reduce our
time-to-market, provide us with a competitive advantage and expand our target markets. 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
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performance requirements. In addition, our current strategy requires packet processor suppliers to 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 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. Our
recent announcement of the third-generation Bandwidth Engine Z30 device, designed for interoperability with the EZ-chip NPS-400, is an example and direct
result of this strategy.
Our Products
Bandwidth Engine
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 Bandwidth Engine ICs combine: (1) our proprietary high-density, high-speed, low latency embedded
memory, (2) our high-speed 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 Bandwidth Engine ICs can provide up to and over 4.5 billion memory 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;
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.
Our first generation Bandwidth Engine IC products contain 576 megabytes, or MB, of memory and use a serial I/O with up to 16 lanes operating at up to
10.3 Gbps per lane. 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 ALU, which can perform read-modify-write operations. We have been shipping our initial
Bandwidth Engine products since 2012.
Our second generation Bandwidth Engine IC products contain 576 MB of memory and use serial I/O with up to 16 lanes operating at up to 15 Gbps per
lane. 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 unique devices in this product family:
•
•
•
MSR620 with burst features optimized for oversubscription buffer applications;
MSR720 with a write cache and memory coherency capability that allows for deterministic look-ups optimized for state and queue type applications;
and
MSR820 with increased intelligence for lookup, metering and statistics applications by adding dual counters, atomic and extensive metering
functions.
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We have been shipping our Bandwidth Engine 2 IC products since 2013.
Our third generation Bandwidth Engine IC products contain 1152 MB of memory and use serial I/O with up to 16 lanes operating at up to 30 Gbps per lane.
Bandwidth Engine 3 targets support for packet-processing applications with up to five billion memory single word accesses per second, as well as burst mode to
enable full duplex buffering up to 400Gbps for ingress, egress and oversubscription applications. To date, we have announced three unique devices in this
product family:
•
•
•
MSR630 enables high rate lookup or high-performance buffer capabilities; and
MSR830 offers additional offload capabilities for functions such as statistics and metering to increase performance and add features for next-
generation networking and communications equipment; and
MSRZ30 builds upon the capabilities and performance of the MSR830, with data rates, interface protocol and data structures that are optimized for
the EZchip NPS-400 network processing unit, or NPU, and can increase memory bandwidth by up to 50%.
We commenced sampling of these products in the first quarter of 2016.
The devices provide benefits of size, power, pin count and cost savings to our customers.
LineSpeed
Our first generation LineSpeed products consist of single-chip PHY ICs, including a 100G multi-mode gearbox and a 100G quad retimer. These devices are
designed to support 10, 40 and 100Gbps standards for high-density line cards or modules for next generation ethernet and optical transport network
applications. These devices are capable of supporting both short and long reach connections across different specifications. We have developed these PHY ICs
to provide the CDR function and to provide signal conversion from lower rates to higher rates both on the line card and within the optical module. We have
defined performance and form factor (sizes) for specific devices for optimization of features and performance to solve challenges on the line card and in the
optical module. We introduced and began sampling these devises in 2013.
Our second generation of LineSpeed products consists of our 100G low power retimer, which is optimized for ultra low power consumption, integrated test
features and small size. The low-power retimer is primarily targeting opportunities in 100G CFP2, CFP4 and QSFP28 optical modules and active copper cables.
We introduced and began sampling this product in 2014.
We announced our third generation of our LineSpeed products, the Flex family of 100G PHYs, and sampled first devices in the second half of 2015. These
PHY devices are designed to support the latest industry standards and include gearbox, Multi-Link Gearbox, or MLG, and high density CDR/retimer devices
designed to enable existing and next generation Ethernet and OTN line card applications to support the latest high-density electrical and optical interfaces. To
date, we have announced four unique devices in this product family:
•
•
MSH320, a 100Gbps Gearbox with RS-FEC: For adapting 10x10 to 4x25 from 100Gbps optical standards to a host ASIC, MAC/Framer, NPU or
FPGA with 10x10G interfaces. The MSH320 includes an integrated Reed-Solomon forward error correction, or RS-FEC, option to enable systems
to also support new electrical and optical standards. The device also includes a 10x10Gbps retimer to allow seamless support of 10 and 40Gbps
interfaces;
MSH225, a 10 Lane Full-Duplex Retimer: For high-density retiming applications where the line rates may be up to 28Gbps per lane and connect to
host ASIC, framer, NPU or FPGA ICs equipped with 25Gbps interfaces. Each one of the 20 total independent lanes can be configured to support
10, 25, 40 or 100Gbps standards. The MSH225 integrates optional 100Gbps RS-FEC capability and includes a unique redundant link mode feature
to support redundancy, scaling or monitoring features;
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•
•
MSH322, a 100Gbps Multi-Link Gearbox for Line Cards for support of high-density, independent 10GE and 40GE interfaces multiplexed into a
100GE (4x25Gbps) host interface, while supporting the latest optical industry standards. The device enables line cards with high-density switches
based on 25Gbps interfaces to support two times the density of 10 and 40Gbps ports; and
MSH321, a derivative Multi-Link Gearbox built into a highly compact package and optimized layout to support the MLG function in module and
compact daughter card applications.
We do not anticipate significant revenues from our LineSpeed ICs until 2017 or later. While we have a robust pipeline of design win opportunities, to date,
less than 10% of our design wins claimed are for our LineSpeed products, and we expect these customers to take a minimum of 18 months to commence
production.
IP Licensing and Distribution
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, since early 2012, our IP licensing activities have been limited, and we expect this to continue. However, during 2015, 45% of our total
revenues were generated from royalties related to our existing licensing arrangements, as we continue to collect royalties from 1T- SRAM licensees. Licensing
and royalty revenues have been declining since 2010, and we expect continued decline in 2016.
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 IC products requires specialized chip design and product engineers, as well as
significant fabrication and testing costs, including mask costs, as we bring these products to market. We expect our significant future research and development
activities to include:
•
•
•
•
designing next generation ICs with larger memory blocks and higher-speed SerDes;
developing versions of our Bandwidth Engine ICs with alternative features, such as lower-speed SerDes, increased chip-level intelligence or
smaller memory blocks to allow us to serve a broader range of applications and systems;
developing derivative versions of our LineSpeed ICs to meet customer demands; 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.
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Sales and Marketing
We believe that networking and communications systems OEMs typically prefer to extend the use of traditional memory solutions and their parallel
interfaces, despite performance and costs challenges and are reluctant to change their technology platforms and adopt new designs and technologies, such as
serial interfaces, which are an integral part of our product solutions. Therefore, our principal selling and marketing activities to date have been focused on
persuading these OEMs and key component suppliers that our solutions provide critical performance advantages, as well as on securing design wins with them.
Our sales and marketing personnel are located in the United States, Japan and China. In addition to our direct sales team, we sell through sales
representatives and distributors in the United States and Asia. We also have eight applications engineers who support our customer engagements and work
closely with our engineering team on product definition. For our products, our applications engineers must engage with the customers' system architects and
designers to propose our IC and IP solutions such as the GCI Interface, to address their systems challenges.
In the markets we serve, the time from initial customer engagement to design win to production volume shipments can range from 18-36 months.
Networking and communications systems can have a product life from a few years to over 10 years once a product like ours has been designed into the system.
Our revenue has been highly concentrated, with a few customers accounting for a significant percentage of our total revenue. For the year ended
December 31, 2015, Alcatel-Lucent, Taiwan Semiconductor Manufacturing Co., Ltd., or TSMC and Kogent, Inc., our Japanese IC distributor, represented 34%,
31% and 12% of total revenue, respectively. For the year ended December 31, 2014, TSMC, Kogent, Inc. and Broadcom Ltd., represented 34%, 31% and 11%
of total revenue, respectively. For the year ended December 31, 2013, TSMC and Broadcom Ltd., licensees of our memory IP, represented 41% and 13% of
total revenue, respectively.
Customers in North America accounted for 51%, 28% and 30% of our revenues for the years ended December 31, 2015, 2014 and 2013, respectively.
Customers in Japan accounted for 15%, 36% and 27% of our revenues for the years ended December 31, 2015, 2014 and 2013, respectively. Customers in
Taiwan accounted for 32%, 35% and 42% of our revenues for the years ended December 31, 2015, 2014 and 2013, respectively. Our remaining revenues were
primarily from customers in the rest of Asia and in Europe.
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, 2015, we held approximately 67 U.S. and 30 foreign patents on various aspects of our technology, with expiration dates ranging from
2016 to 2035. We currently have approximately 29 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
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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 products are highly competitive. We believe that the principal competitive factors are:
•
•
•
•
•
•
•
processing speed and performance;
density and cost;
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. Our proprietary 1T-SRAM embedded memory and high-speed serial I/O IP
can provide 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 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., or Micron, and Integrated Silicon Solutions, Inc., LLDRAM from
Renesas and DDR from Samsung Electronics Co., Ltd., Micron and others. In addition, Micron has a hybrid memory cube DRAM product, which consists of
multiple DRAMs connected with a serial interface. 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 and GSI
Technology, Inc. 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 must 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.
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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 limited history of manufacturing such ICs. In addition,
Bandwidth Engine ICs require the customer and its other IC suppliers to implement our chip-to-chip communication protocol, the GCI interface. 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 and enterprise
applications.
Our LineSpeed ICs compete with solutions offered by Broadcom Ltd., Inphi Corporation, M/A-COM Technology Solutions Holdings, Inc. and Semtech Corp.,
as well as other smaller analog signal processing companies. We also may compete with ASICs designed by customers in-house to meet their system
requirements, as well as by optical module OEMs. The market for our LineSpeed products is highly competitive, and customers have a number of suppliers they
can choose from. We must provide differentiated features with a reasonable IC power budget, while offering competitive pricing.
Manufacturing
We depend on third-party vendors to manufacture, package, assemble and test our 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.
We perform an ongoing review of product manufacturing and testing processes. Our IC products are subjected to extensive testing to assess whether their
performance meets 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. We have achieved ISO 9001:2008 certification, and all of our manufacturing vendors have also achieved ISO 9001 certification.
Employees
As of December 31, 2015, we had 104 employees, consisting of 75 in research and development, 8 in sales and marketing, 11 in manufacturing operations
and 10 in finance and administration. By location, we had 81 employees in the United States, 21 in our development center in India and 2 sales and marketing
employees in Asia. In January 2016, we committed to effect a reduction in our workforce and associated operating expenses, net loss and cash burn and to
realign resources, as we have substantially concluded development of new products, including our third generation Bandwidth Engine IC product family, and
expect to bring these products to market in 2016. We have reduced United States headcount by approximately 13 people and will cease operations at our
subsidiary in Hyderabad, India in the first half of 2016.
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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 obtain copies of 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
John Monson
Age
Position(s) with the Company
72 President and Chief Executive Officer
47 Vice President of Finance and Chief Financial Officer
59 Chief Operating Officer and Executive Vice President
53 Vice President of Marketing and Sales
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. 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. 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. 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
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University of Central Florida and has done post-graduate work in Electrical Engineering at Stanford University.
John Monson. Mr. Monson became our Vice President of Marketing in February 2012. In early 2014, he assumed, on a permanent basis, additional
responsibilities for our sales and business development activities and became our Vice President of Marketing and Sales. Prior to joining the Company,
Mr. Monson was Vice President of Marketing for Mellanox Technologies, a supplier of interconnect solutions and services, from 2009 to 2012. From 2007 to
2008, Mr. Monson was Vice President of the EDC/PhyOptik business line at Inphi Corporation. He joined Inphi Corporation through a business unit acquisition of
Scintera Networks, where he was Vice President of Sales and Marketing from 2005 to 2007. Previously, he held various management positions at PMC-
Sierra, Inc., Lucent Technologies and AT&T Microelectronics. Mr. Monson received a Bachelor of Science degree in Electrical Engineering from the University of
Minnesota.
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 $31.5 million for the year ended December 31, 2015 and ended the period with an accumulated deficit of $182.0 million.
We recorded an operating loss of $32.7 million for the year ended December 31, 2014 and ended the period with an accumulated deficit of $150.5 million. We
recorded an operating loss of $25.6 million, excluding the one-time gain on sale of assets of $0.6 million, for the year ended December 31, 2013. These and
prior year losses have resulted in significant negative cash flows for more than a decade and have required us to raise substantial amounts of additional capital
during this period. We expect to continue to incur operating losses for the foreseeable future as we secure customers for and continue to invest in the
commercialization of our IC products. Due to the strong commitment of our resources to research and development and expansion of our product 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 and
sufficient cash flows to continue doing business without raising additional capital from time to time. 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 networking and communications systems markets' acceptance of our ICs.
The future prospects of our business depend on the adoption and acceptance by our target markets, networking communications and data center equipment
providers, of our Bandwidth Engine and LineSpeed 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 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
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generation IC products, but may not introduce these new products successfully or obtain significant revenue from them.
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.
Our future revenue depends on our winning designs with our customers, and those customers designing our solutions into their product offerings
and successfully selling and marketing such products. If we do not continue to win designs in the short term, our product revenue in the following
years will not grow.
We sell our ICs to original equipment manufacturer (OEM) customers that include our ICs in their products. Our technology is generally incorporated into
products at the design stage, which we refer to as a design win, and which we define as the point at which a customer has made a commitment to build a board
against the fixed schematic for his system, and this board will utilize our ICs. As a result, our future revenue depends on our OEM customers designing our ICs
into their products, and on those products being produced in volume and successfully commercialized. If we fail to convince our current or prospective customers
to include our ICs in their products and fail to achieve a consistent number of design wins, our results of operations and business will be harmed. In addition, if a
current or prospective customer designs a competitor's offering into its product, it becomes significantly more difficult for us to sell our IC solutions to that
customer because changing suppliers involves significant cost, time, effort and risk for the OEM. Even if a customer designs one of our ICs into its product, we
cannot be assured that the OEM's product will be commercially successful over time or at all or that we will receive or continue to receive any revenue from that
customer. Furthermore, the customer product for which we obtain a design win may be canceled before the product enters production or is introduced into the
market. Because of our extended sales cycle, our revenue in future years is highly dependent on design wins we are awarded today.
The design win process is generally a lengthy, expensive and competitive process, with no guarantee of revenue, and if we fail to generate sufficient
revenue to offset our expenses, our business and operating results would suffer.
Achieving a design win is typically a lengthy, expensive and competitive process because our customers generally take a considerable amount of time to
evaluate our ICs. In the markets we serve, the time from initial customer engagement to design win to production volume shipments can range from two to three
years, though it may take longer for new customers or markets we intend to address. In order to win designs, we are required to both incur design and
development costs and dedicate substantial engineering resources in pursuit of a single customer opportunity. Even though we incur these costs, we may not
prevail in the competitive selection process and, even if we do achieve a design win, we may never generate sufficient, or any, revenue to offset our
development expenditures. Our customers have the option to decide whether or not to put our solutions into production after initially designing our products in
the specification. The customer can make changes to its product after a design win has been awarded to us, which can have the effect of canceling a previous
design win. The delays inherent in our protracted sales cycle increase the risk that a customer will decide to cancel, curtail, reduce or delay its product plans,
causing us to lose anticipated revenue. In addition, any change, delay or cancellation of a customer's plans could harm our financial results, as we may have
incurred significant expense while generating no revenue.
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If our foundries do not achieve satisfactory yields or quality, our cost of goods sold will increase, our operating margins will decline, and our
reputation and customer relationships could be harmed.
We depend not only on sufficient foundry manufacturing capacity and wafer prices, but also on good production yields (the number of good die per wafer)
and timely wafer delivery to meet customer demand and maintain profit margins. The fabrication of our products is a complex and technically demanding
process. Minor deviations in the manufacturing process can cause substantial decreases in yields, and in some cases, cause production to be suspended. Our
foundry, Taiwan Semiconductor Manufacturing Company (TSMC), from time to time, experiences manufacturing defects and reduced manufacturing yields.
Changes in manufacturing processes or the inadvertent use of defective or contaminated materials by our foundries could result in lower than anticipated
manufacturing yields, which would harm our revenue or increase our costs. For example, recently, our foundry produced ICs and met its process specification
range but did not meet our customer's specifications causing us to write off a portion of our production lot. Many of these problems are difficult to detect at an
early stage of the manufacturing process and may be time consuming and expensive to correct. Poor yields from our foundry, or defects, integration issues or
other performance problems in our ICs, could cause us significant customer relations and business reputation problems, harm our operating results and give rise
to financial or other damages to our customers. Our customers might consequently seek damages from us for their losses. A product liability claim brought
against us, even if unsuccessful, would likely be time consuming and costly to defend.
We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration,
which may result in reduced manufacturing yields, delays in product deliveries and increased costs.
We aim to use the most advanced manufacturing process technology appropriate for our solutions that is available from TSMC. As a result, we periodically
evaluate the benefits of migrating our solutions to other technologies in order to improve performance and reduce costs. These ongoing efforts require us from
time to time to modify the manufacturing processes for our products and to redesign some products, which in turn may result in delays in product deliveries. We
are dependent on TSMC to support the production of wafers for future versions of our ICs, as TSMC is our sole foundry. 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 ICs, we would need to identify a new
foundry.
In addition, to date, specifically with regard to our Bandwidth Engine products, TSMC has not provided us with a product roadmap for the 1T-SRAM
technology at process nodes below 40 nanometers. If TSMC does not support our 1T-SRAM at process nodes below 40 nanometers, so, we have not developed
any memory products below that process node yet. We would need to eventually identify a new foundry and/or no longer use our 1T-SRAM technology. We do
not consider this to adversely affect our current product offerings but we may face difficulties, delays and increased expense as we transition our products to
new processes, and potentially to new foundries for future products.
Because the manufacturing of integrated circuits is extremely complex, the process of qualifying a new foundry 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 cannot assure you that we will be able to maintain our relationship with our foundries or develop relationships
with new foundries. If we or TSMC experience significant delays in transitioning to smaller geometries or fail to efficiently implement transitions, we could
experience reduced manufacturing yields, delays in product deliveries and increased costs, any of which could harm our relationships with our customers and
our operating results.
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We may not achieve the anticipated benefits of becoming a fabless semiconductor company by developing and bringing to market the Bandwidth
Engine and LineSpeed IC product lines.
In 2010, we expanded our business model to become a fabless semiconductor company through the development of a product line of memory ICs called
the Bandwidth Engine. In March 2013, we announced a product line of SerDes ICs called LineSpeed. Our goal is to increase our total available market by
creating high-performance ICs for networking communications and data center systems, using our proprietary technology and design expertise. This
development effort has required that we add 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 our 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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•
•
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customer acceptance;
adoption of the GCI protocol, without which our Bandwidth Engine products cannot function;
difficulties and delays in our product development, manufacturing, testing and marketing activities;
timeliness of new product introductions;
the anticipated costs and technological risks of developing and bringing ICs to market;
the willingness of our manufacturing partners to assist successfully with fabrication;
our ability to qualify our products for mass production and achieve wafer yield levels to be price competitive;
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;
customer concerns over our financial condition and viability to be a long-term profitable supplier;
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, this could have a material
adverse effect on our anticipated revenues in upcoming years due to the potential loss of design wins and future revenues. For example, we have experienced
significant delays in bringing our third generation LineSpeed products to market, which has prevented us from achieving design wins and resulted in us
introducing products after our competitors. We may continue to experience significant delays in the future.
Our main objective is the development and sale of our products to networking communications and data center 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 communications and data center equipment 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,
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and the demand for their systems must grow as well. We cannot provide assurance that sales of our products to these OEMs 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.
Moreover, demand for their products that incorporate our ICs may not grow or result in significant sales of such products due to factors affecting the customers
and their business, such as industry downturns, declines in capital spending in the enterprise and carrier markets and unfavorable macroeconomic conditions.
Thus, the future success 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.
Our failure to continue to develop new products and 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:
•
•
•
•
•
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.
Our ICs have a lengthy sales cycle, which makes it difficult to predict success in this market and the timing of future revenue.
Our 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 revenues
from our selling efforts may be substantially delayed, our ability to forecast our future revenue 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
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sale of 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 and 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.
We expect our licensing and royalty revenues to decrease compared with our historical results, and there is no guarantee revenues from our IC
products will 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 2015 declined when compared with prior years. We
do not expect to generate sufficient revenues from our IC business to allow us to achieve profitability in 2016, and we expect our royalty revenues to decline in
2016 compared with 2015. In addition, the production volumes of the current royalty-bearing products shipped by our licensees are expected to decrease;
therefore we expect our royalty revenue to decrease in future periods. Historically, royalties have generated a 100% gross margin, and any decrease in royalties
adversely affects our gross margin, operating results and cash flows.
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, 2015, our three largest customers represented 34%, 31% and 12% of total revenue, respectively. For the year ended December 31, 2014, our
three largest customers represented 34%, 31% and 11% of total revenue, respectively. For the year ended December 31, 2013, our two largest customers
represented 41%, and 13% of total revenue, respectively. We expect that a relatively small number of customers will continue to account for a substantial portion
of our revenue for the foreseeable future.
As a result of this revenue concentration, our results of operations could be adversely affected 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,
2015, three customers represented 94% 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.
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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 and customer support expenses and penalties for non-
performance stipulated in customer purchase agreements, 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 our manufacturers that we cannot sell. Conversely, if we
underestimate customer demand or if sufficient manufacturing and testing capacity were unavailable, we would forego revenue opportunities and could lose
market share in the markets served by our products and could incur penalty payments under our customer purchase agreements. 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 depend on contract manufacturers for a significant portion of our revenue from the sale of our IC products.
Many of our current and prospective OEM customers use third party contract manufacturers to manufacture their systems, and these contract
manufacturers 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
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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 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 substantially 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 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 February 2016 and September 2003, additional disruptive 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.
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
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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, although we have not
conducted any such audits since 2010. 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, 2015, we held approximately 67 patents in the United States, and approximately 30 foreign patents, which expire at various times from 2016 to
2035. In addition, as of December 31, 2015, we had approximately 29 pending patent applications worldwide. We cannot be sure that any patents will be issued
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 agreements with customers
include provisions waiving implied
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warranties regarding our technology and products and limiting our liability to our customers. We cannot be certain, however, that the waivers or limitations of
liability contained in our agreements with customers 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 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 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 March 2016, we issued $8 million aggregate principal amount of 10%
Subordinate Senior Secured Convertible Notes due August 15, 2018 (the "Notes"). The Note principal is convertible into our common stock, as well as the
interest on the Notes, as we have the option of paying the interest in-kind by converting such interest into additional note principal. In addition, the Notes also
include limited anti-dilution protection, such that the conversion price will be reset to a lower conversion price in some situations. As a result, our stockholders
may experience significant dilution if these Notes and any additional paid-in-kind principal are converted into our common stock and the conversion price is reset.
Although we believe that with the proceeds of this debt we will have capital sufficient to satisfy our working capital requirements for at least the next 12 months,
we will still 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.
Our indebtedness could impair our financial condition, harm our ability to operate our business, limit our ability to borrow additional funds or
capitalize on acquisition or other business opportunities.
We have indebtedness outstanding under the Notes. Pursuant to the terms of the Notes, we cannot engage in certain transactions, including disposing of
certain assets, or incurring additional indebtedness, with limited exception, unless we receive prior approval from the Note holders. In the
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absence of such consent, we could be prohibited from engaging in transactions that could be beneficial to our business and our stockholders. In addition, the
Notes are secured by a security interest in substantially all of our personal assets, and, in the event of a default by us, the Note holders would have a right to
seize our assets. The Notes are payable in full on August 15, 2018 and holders of the Notes that do not elect to convert their Notes must be paid in cash. The
holders of the Notes also have the right to require us to redeem the Notes for 120% of the Note principal in the event we are acquired or a majority of our board
of directors is replaced within 12 months other than by reason of voluntary resignation or death. In the event of a required redemption, we must obtain the
necessary funds if we do not have them at the time, or we will be in default under the Notes, which could have a material adverse effect on our financial
condition and the price of our common stock.
We may incur additional debt in the future, subject to certain limitations contained in our senior secured convertible notes.
The degree to which we are leveraged and the restrictions governing our indebtedness could have important consequences including, but not limited to:
•
•
•
•
•
limiting our ability to service all of our debt obligations;
impacting our ability to incur additional indebtedness or obtain additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate or other purposes;
increasing our vulnerability to general economic downturns and adverse industry conditions;
limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
limiting our ability to engage in certain transactions or capitalize on acquisition or other business opportunities.
If we are in violation of the terms of the Notes in the future and do not receive a waiver, the note holders could choose to accelerate payment on all
outstanding loan balances. If we needed to obtain replacement financing, we may not be able to quickly obtain equivalent or suitable replacement financing. If
we are unable to secure alternative sources of funding, such acceleration would have a material adverse impact on our financial condition.
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 and transfer pricing issues;
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
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that could, if not overcome, disrupt our business operations, substantially increase our operating 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.
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
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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.
Our stock price could drop, and there could be significantly less trading activity in our stock, if securities or industry analysts downgrade our stock
or do not publish research or reports about our business.
Our stock price and the trading market for our stock are likely to be affected significantly by the research and reports concerning our company and our
business which are published by industry and securities analysts. We do not have any influence or control over these analysts, their reports or their
recommendations. Our stock price and the trading market for our stock could be negatively affected if any analyst downgrades our stock, publishes a report
which is critical of our business, or discontinues coverage of us.
If we fail to maintain compliance with the continued listing requirements of The NASDAQ Global Select Market, our common stock may be delisted
and the price of our common stock and our ability to access the capital markets could be negatively impacted.
Our common stock currently trades on The NASDAQ Global Select Market under the symbol "MOSY." This market has continued listing standards that we
must comply with in order to maintain the listing of our common stock. The continued listing standards include, among others, a minimum bid price requirement of
$1.00 per share and any of: (i) a minimum stockholders' equity of $2.5 million; (ii) a market value of listed securities of at least $35.0 million; or (iii) net income
from continuing operations of $500,000 in the most recently completed fiscal year or in the two of the last three fiscal years. Our results of operations and
fluctuating stock price directly impact our ability to satisfy these continued listing standards. In the event we are unable to maintain these continued listing
standards, our common stock may be subject to delisting from The NASDAQ Global Select Market.
In March 2016, we were notified by the Nasdaq staff that the bid price for our common stock must close at $1.00 per share or more for a minimum of ten
consecutive trading days during the 180 calendar day period ending September 6, 2016 or we might be delisted. As mentioned above, the price of our common
stock can be volatile, and there can be no assurance that we will be able to meet the minimum $1.00 bid price requirement or the other NASDAQ continued
listing requirements in the future, and we may be subject to delisting as a result. If we are delisted, we would expect our common
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stock to be traded in the over-the-counter market, which could adversely affect the liquidity of our common stock. Additionally, we could face significant material
adverse consequences, including:
•
•
•
•
•
•
a limited availability of market quotations for our common stock;
a reduced amount of analyst coverage;
a decreased ability to issue additional securities or obtain additional financing in the future;
reduced liquidity for our stockholders;
potential loss of confidence by customers, collaboration partners and employees; and
loss of institutional investor interest.
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 an engineering design center, which we expect to close by June 30, 2016, 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 could 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 currently listed on the Global Select 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, 2015
September 30, 2015
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
December 31, 2013
September 30, 2013
June 30, 2013
March 31, 2013
High
Low
$
$
$
$
$
$
$
$
$
$
$
$
1.62 $
2.03 $
2.37 $
2.37 $
2.77 $
3.42 $
4.68 $
5.90 $
5.64 $
4.36 $
4.80 $
4.85 $
1.08
1.38
1.83
1.68
1.53
2.33
2.86
4.39
4.01
3.50
3.98
3.36
We had 16 stockholders of record as of March 1, 2016.
Dividend Policy
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 2010 through 2015. The comparison assumes that $100 was invested on December 31, 2010 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
12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015
19.16
$ 100.00 $
96.50
177.70
32.86 $
98.21
172.41
97.01 $
86.92
143.10
101.94
100.99
116.29
111.82
100.00
100.00
73.81 $
61.16 $
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.
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Item 6. Selected Financial Data
The selected financial data presented below is derived from our consolidated financial statements that are included under Item 15. The selected financial
data should be read in conjunction with our 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,
2015(1)
2014(2)
2013(3)
2012(4)
2011(5)
(In thousands, except per share data)
Statement of Operations Data:
Total net revenue
Cost of net revenue
Gross profit
Operating expenses
Income (loss) from operations
Other income, net
Income (loss) before income taxes
Income tax provision
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
Current liabilities
Long-term liabilities
Stockholders' equity
$
334
5,748
33,407
5,380 $
2,318
3,062
35,780
6,082 $ 14,107
4,398 $
4,390 $
3,295
474
2,474
10,812
3,924
1,916
33,407
(526)
28,856
(31,491) (32,718) (24,932) (27,659) 11,338
206
(31,397) (32,575) (24,723) (27,504) 11,544
288
$ (31,483) $ (32,682) $ (24,794) $ (27,614) $ 11,256
143
209
155
107
110
94
86
71
$
$
(0.50) $
(0.50) $
(0.66) $
(0.66) $
(0.55) $
(0.55) $
(0.70) $
(0.70) $
0.30
0.28
62,497
62,497
49,528
49,528
45,246
45,246
39,176
39,176
37,861
40,377
$
— $
— $
7 $
2,733
917
3,650 $
3,419
1,172
4,591 $
2,565
1,126
3,698 $
$
53 $
407
1,961
2,694
1,064
1,398
3,811 $ 3,766
Year Ended December 31,
2015
2014
2013
(In thousands)
2012
2011
$ 20,238 $ 25,794 $ 50,482 $ 40,710 $ 57,975
47,968
36,020
89,637
77,989
4,035
2,355
216
109
85,493
75,418
30,155
69,534
4,821
171
64,542
19,661
48,692
3,604
247
44,841
22,649
52,626
2,845
241
49,540
(1)
(2)
(3)
(4)
(5)
Operating expenses include $0.3 million of amortization of acquired intangible assets.
Operating expenses include $1.0 million of amortization of acquired intangible assets.
Operating expenses include a gain on the sale of patents of $0.6 million and $1.0 million of amortization of acquired intangible assets.
Operating expenses include a gain on the sale of assets 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.
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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 data center markets. Our solutions deliver time-to-market, performance, power, area and
economic benefits for system original equipment manufacturers, or OEMs. We have developed two families of ICs under the Bandwidth Engine® and
LineSpeed™ product names. Bandwidth Engine ICs combine our proprietary 1T-SRAM® high-density embedded memory, integrated macro functions and high-
speed serial interface, or SerDes, I/O, with our intelligent access technology and a highly efficient interface protocol. The LineSpeed IC product line, which was
announced in March 2013, is comprised of non-memory, high-speed SerDes I/O devices with clock data recovery, gearbox and retimer functionality, which
convert lanes of data received on line cards or by optical modules into different configurations and/or ensure signal integrity.
Certain SerDes products have been developed under a strategic development and marketing agreement with Credo Semiconductor Ltd., or Credo. As of
December 31, 2015, the Company had paid Credo $4.8 million cumulatively for achievement of development milestones, as well as for mask costs and wafer
purchases from third-party vendors. All amounts incurred have been recorded as research and development expenses. Currently, under the strategic
development and marketing agreement, the Company is entitled to a remaining reimbursement amount of $3.6 million of development costs based on payments
made to Credo to date. This amount is subject to increase as additional payments are made to Credo. The reimbursement will be funded by the gross profits
earned by the Company from the sale of the relevant SerDes products, with the initial gross profits being primarily applied to reimbursing the Company for these
development payments and a portion paid to Credo. Once the full amount has been reimbursed, the gross profits from these products will be shared equally by
the Company and Credo.
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 SerDes I/O used in advanced systems-on-chips, or SoCs. Currently, we are focused on developing
differentiated IP-rich IC products and are dedicating all our research and development, marketing and sales budget to these IC products.
Our future success and ability to achieve and maintain profitability are dependent on the marketing and sales of our IC products into networking,
communications and other markets requiring high-bandwidth memory access.
In January 2016, we committed to effect a reduction in our workforce and associated operating expenses, net loss and cash burn and to realign resources,
as we have substantially concluded development of new products, including our third generation Bandwidth Engine IC product family, and expect to bring these
products to market in 2016. We reduced United States headcount by approximately 16% and will cease operations at our subsidiary in Hyderabad, India, which
has 18 employees. We anticipate that we will fully implement the planned reductions by the end of the second quarter of 2016, and expect to realize
approximately $3.2 million of savings on an annual basis from the reductions. We expect operating expenses to decrease in 2016 as a result of the workforce
reductions and subsequent reduction in computer-aided design software expenses.
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We expect product revenue to increase in 2016 primarily driven by increased Bandwidth Engine 2 IC revenues, as our existing customers commence full
production of systems utilizing our ICs. Furthermore, we expect to expand our customer base and increase our cumulative design win count in 2016.
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
General
We generate revenue from the sales of IC products and licensing of our IP. 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 or customer purchase orders.
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 may 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 or stock rotation are generally 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, 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 accrued expenses
and other line item in the consolidated balance sheets.
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. The timing and level of royalties are difficult to predict, and depend on the licensee's
ability to market, produce and sell products incorporating our technology.
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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, 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. Support and
maintenance revenue is recognized ratably over the period during which the obligation exists, typically 12 months.
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 and patent license, on a straight-line basis over their estimated useful lives of three 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
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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 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 use the market approach to assess impairment in the second step of the analysis. We
performed the annual impairment test in September 2015, and the test did not indicate impairment of goodwill. As of December 31, 2015, 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.
Product
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2015
2014
2013
2014 to 2015
(dollar amounts in thousands)
2013 to 2014
$ 2,400 $ 2,280 $ 394 $ 120
5% $ 1,886
479%
55%
42%
9%
Product revenue increased in 2015 and 2014 due to increased volume of shipments for our ICs, mainly Bandwidth Engine, as we gained more customers.
In 2015, our Bandwidth Engine 2 IC products were the primary source of IC revenue, while in 2014, our Bandwidth Engine 1 IC products accounted for most of
our IC revenue. In 2014, we recognized $0.3 million of revenue from the reversal of sales return reserves recorded in prior periods following the completion of
system-level tests in the field by
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customers, which reduced our expected risk of returns. We expect our product revenues to increase in the future in absolute dollars, as we expect our design
wins to commence their production ramps.
Royalty and other
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2015
2014
2013
2014 to 2015
2013 to 2014
(dollar amounts in thousands)
$ 1,990 $ 3,100 $ 4,004 $ (1,110) (36)% $ (904) (23)%
45%
58%
91%
Royalty and other revenue is primarily comprised of revenue generated from licensing agreements. The sequential decreases were primarily due to a
decrease in shipment volumes by licensees whose products incorporate our licensed IP and a decrease in revenue recognized from residual licensing
agreements entered into in 2011 and prior years. We expect royalty and other revenue to decline in 2016, as we expect a decline in shipments of units
incorporating our technology by licensees, as their products approach their end of life.
Cost of Net Revenue and Gross Profit.
Cost of net revenue
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2015
2014
2013
2014 to 2015
(dollar amounts in thousands)
2013 to 2014
$ 2,474 $ 2,318 $ 474 $ 156
7% $ 1,844
389%
56%
43%
11%
Gross profit
Gross margin
$
1,916 $
44%
3,062 $
57%
3,924 $
89%
(1,146) (37)% $
(862)
(22)%
Year ended December 31,
Year-Over-Year Change
2015
2014
2013
2014 to 2015
2013 to 2014
(dollar amounts in thousands)
In each of 2015, 2014 and 2013, cost of net revenue primarily consisted of direct and indirect costs related to the sale of IC products.
Cost of net revenue increased in 2015 and 2014, primarily due to the increase in product material testing and other production costs related to our
increased IC shipments. We expect the cost of net revenue to increase in the future in absolute dollars, because we anticipate an increase in sales of our IC
products.
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Gross profit decreased in 2015 and 2014, primarily due to the decrease in our royalty revenue, which has no associated costs, coupled with the increase in
IC shipments. The deferred margin recognized from the reversal of sales return reserves in 2014 and 2015 was not material. Gross margin percentage
decreased in 2015 and 2014, primarily due to an increase in product revenue, which has associated costs, as compared with royalty revenue, which has no
associated costs.
Research and Development.
Research and development
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2015
2014
2013
2014 to 2015
2013 to 2014
(dollar amounts in thousands)
$ 27,108 $ 29,261 $ 23,325 $ (2,153) (7)% $ 5,936
25%
618%
544%
530%
Our research and development expenses include costs related to the development of our IC products and amortization of intangible assets. We expense
research and development costs as they are incurred.
The $2.2 million decrease in 2015 over the prior year was primarily due to a decrease in consulting expenses, computer-aided software license fees,
amortization of intangibles and stock-based compensation charges, partialy offset by an increase in mask tooling costs.
The $5.9 million increase in 2014 over the prior year was primarily due to increases in personnel-related costs, resulting from higher headcount, mask
tooling costs, computer-aided software license fees and stock-based compensation charges.
Research and development expenses included stock-based compensation expense of $2.7 million, $3.4 million and $2.6 million for the years ended
December 31, 2015, 2014 and 2013, respectively. We expect that research and development expenses will decrease in absolute dollars due to the reduction in
force initiated in the first quarter of 2016 and reductions in computer-aided software license fees.
Selling, General and Administrative.
Selling, general and administrative
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2015
2014
2013
2014 to 2015
2013 to 2014
(dollar amounts in thousands)
$ 6,299 $ 6,519 $ 6,161 $ (220)
121%
144%
140%
(3)% $ 358
6%
Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales, marketing, finance, human resources and
general management.
Selling, general and administrative expenses decreased $0.2 million for 2015, compared with the prior year, primarily as a result of a decrease in stock-
based compensation expense.
Selling, general and administrative expenses increased $0.4 million for 2014, compared with the prior year, as a result of increases in personnel-related and
consulting costs.
Selling, general and administrative expenses included stock-based compensation expense of $0.9 million, $1.2 million and $1.1 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
We expect total selling, general and administrative expenses to decrease slightly in absolute dollars in 2016.
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Gain on Sale of Assets.
Year ended December 31,
2015
2014
2013
Year-Over-Year Change
2014 to 2015
2013 to 2014
Gain on sale of assets
Percentage of total net revenue
—
—
—
—
(dollar amounts in thousands)
—
$ 630
—
$
(630) (100)%
14%
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 March 2013, we received the final payment of $0.6 million under the agreement.
Other Income, net.
Other income, net
Percentage of total net revenue
Year ended December 31,
Year-Over-Year Change
2015
2014
2013
2014 to 2015
2013 to 2014
(dollar amounts in thousands)
$ 94 $ 143 $ 209 $ (49)
3%
2%
5%
(34)% $ (66)
(32)%
Other income, net primarily consisted of interest income on our investments, which was $0.1 million for the year ended December 31, 2015 and $0.2 million
for each of the years ended December 31, 2014 and 2013, partially offset by other non-operating items.
Income Tax Provision.
Income tax provision
Percentage of total net revenue
Year ended
December 31,
Year-Over-Year Change
2015
2014
2013
2014 to 2015
2013 to 2014
(dollar amounts in thousands)
$
86 $ 107 $
2%
2%
71 $ (21) (20)%$ 36
51%
2%
Our income tax provisions were primarily attributable to taxes on earnings of our foreign subsidiaries and branches.
As of December 31, 2015, we had net operating loss carryforwards of approximately $163 million for U.S. federal income tax purposes and approximately
$107 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.
These net operating loss carryforwards expire from 2016 to 2035. In 2016, we anticipate that our effective income tax rate will continue to be less than the
federal statutory tax rate because of expected losses.
As of December 31, 2015 and 2014, we had net deferred tax assets of approximately $81 million and $67 million, respectively. Because of uncertainties
regarding the realization of these deferred tax assets, we had recorded a full valuation allowance as of December 31, 2015 and 2014.
Liquidity and Capital Resources
As of December 31, 2015, we had cash, cash equivalents and investments totaling $20.2 million compared with a combined balance of $25.8 million at
December 31, 2014. On March 14, 2016, we issued $7 million aggregate principal amount of Notes at par. The Notes bear interest at the annual
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rate of 10% and interest is payable semi-annually in cash or in kind through the issuance of identical new Notes, or with a combination of the two, at our option.
In 2015, we used $27.5 million in operating activities, which primarily resulted from the net loss of $31.5 million, adjusted for non-cash charges and gains,
which included stock-based compensation expenses of $3.7 million and depreciation and amortization expenses of $0.9 million, and changes to operating assets
and liabilities of $0.6 million. The changes in assets and liabilities primarily related to the timing of the collection of receivables from customers and payments to
vendors, including purchases of and increase in inventory.
In 2014, we used $26.3 million in operating activities, which primarily resulted from the net loss of $32.7 million, adjusted for non-cash charges and gains,
which included stock-based compensation expenses of $4.6 million and depreciation and amortization expenses of $1.4 million, and changes to operating assets
and liabilities of $0.3 million. The changes in assets and liabilities primarily related to the payments to vendors, including purchases of inventory.
In 2013, we used $22.6 million in operating activities, which primarily resulted from the net loss of $24.8 million, and $2.6 million used for operating assets
and liabilities, adjusted for non-cash charges and gains, which included stock-based compensation expenses of $3.7 million and depreciation and amortization
expenses of $1.7 million. The changes in assets and liabilities primarily related to the recognition of revenue related to deferred revenues and payments to
vendors.
Our investing activities in 2015 primarily consisted of $1.2 million expended 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 2014 primarily consisted of $0.6 million expended 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 2013 primarily consisted of $0.6 million received for the sale of assets and $0.2 million expended for purchases of fixed assets. Remaining investing
activities consisted of investing our cash in marketable securities, which did not affect our liquidity.
Our financing activities in 2015 primarily consisted of $21.4 million in net proceeds received from the sale of common stock though a public offering and
$1.8 million in proceeds from the exercise of stock options and purchases of common stock under our employee stock purchase plan. Our financing activities in
2014 primarily consisted of proceeds from the exercise of stock options and sales under our employee stock purchase plan. Our financing activities in 2013
primarily consisted of $27.7 million in net proceeds received from the sale of common stock though a public offering and $4.2 million in proceeds from the
exercise of stock options and purchases of common stock under our employee stock purchase plan.
Our future liquidity and capital requirements are expected to vary from quarter to quarter, depending on numerous factors, including:
•
•
•
•
•
•
•
level of revenue;
cost, timing and success of technology development efforts;
inventory levels, timing of product shipments and length of billing and collection cycles;
fabrication costs, including mask costs, of our ICs, currently under development;
variations in manufacturing yields, materials costs and other manufacturing risks;
costs of acquiring other businesses and integrating the acquired operations;
profitability of our business; and
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•
whether interest payments on the Notes are paid in cash or, at our election, in kind through the issuance of new Notes with identical terms for the
accrued interest.
We expect our cash expenditures to continue to exceed receipts in 2016, 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 at least the next
12 months. However, there can be no assurance that our capital is sufficient to fund operations until such time as we begin to achieve positive cash flows. We
have an effective shelf registration statement under which we could sell additional securities without advance notice. We might decide to raise additional capital,
and there can be no assurance that such funding will be available to us on favorable terms, if at all. The failure to raise capital when needed could have a
material adverse effect on our business and financial condition.
If we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership. If we engage in
debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, prohibit us from paying dividends, repurchasing our
stock or making investments, and force us to maintain specified liquidity or other ratios, any of which could harm our business, operating results and financial
condition. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:
•
•
•
•
•
•
develop or enhance our products;
continue to expand our product development and sales and marketing organizations;
acquire complementary technologies, products or businesses;
expand operations, in the United States or internationally;
hire, train and retain employees; or
respond to competitive pressures or unanticipated working capital requirements.
Our failure to do any of these things could seriously harm our ability to execute our business strategy and may force us to curtail our research and
development plans or existing operations.
Disclosures about Contractual Obligations and Commercial Commitments
The impact that our contractual obligations as of December 31, 2015 are expected to have on our liquidity and cash flow in future periods is (in thousands):
Operating leases
Software licenses
Payment Due by Period
Less than
1 year
1-3 years
3-5 years
More than
5 years
796 $
1,305
2,101 $
2,244 $
786
3,030 $
513 $
—
513 $
—
—
—
Total
$
$
3,553 $
2,091
5,644 $
As of December 31, 2015, our software licenses related to computer-aided design software.
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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Table of Contents
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, 2015, 2014 or 2013 related to these indemnifications.
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements in Item 15 of this report 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 money market
accounts, certificates of deposit, corporate debt, government-sponsored enterprise bonds and municipal bonds. 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 (loss). 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
$18.5 million as of December 31, 2015 and earned an average annual interest rate of approximately 0.3% in 2015, are subject to interest rate and credit risks. As
of December 31, 2015, 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 less than $25,000. 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 entities are primarily 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 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.
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Table of Contents
Item 8. Financial Statements and Supplementary Data
Reference is made to the consolidated financial statements listed under the heading (a) (1) Financial Statements and Reports of Burr Pilger Mayer, Inc. of
Item 15, which consolidated 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, 2015. 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.
Net revenue:
Product
Royalty and other
Total net revenue
Cost of net revenue
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Total operating expenses
Operating loss
Other income, net
Loss before income taxes
Income tax provision
Net loss
Net loss per share:
Basic and diluted
Shares used in computing net loss per
share:
Basic and diluted
Dec. 31,
2015
Sep. 30,
2015
Jun. 30,
2015
Mar. 31,
2015
Dec. 31,
2014
Sep. 30,
2014
Jun. 30,
2014
Mar. 31,
2014
(In thousands, except per share data)
(Unaudited—All periods)
$ 1,112 $
486
1,598
881
717
565 $
457
1,022
793
229
543 $
451
994
563
431
180 $
596
776
237
539
287 $
859
1,146
272
874
437 $
716
1,153
447
706
975 $
774
1,749
1,022
727
581
751
1,332
577
755
8,793
1,547
10,340
5,633
1,588
7,221
(6,504) (10,111)
7,054
6,893
1,797
1,614
8,851
8,507
(8,096)
(7,968)
30
23
(8,066)
(7,945)
21
20
$ (6,507) $ (10,105) $ (6,906) $ (7,965) $ (8,951) $ (8,483) $ (7,161) $ (8,087)
6,432
1,490
7,922
(7,195)
55
(7,140)
21
5,789
1,550
7,339
(6,908)
29
(6,879)
27
8,268
1,543
9,811
(8,937)
28
(8,909)
42
7,507
1,689
9,196
(8,490)
30
(8,460)
23
(6,481) (10,092)
26
23
13
19
$ (0.10) $
(0.15) $ (0.11) $ (0.15) $ (0.18) $ (0.17) $ (0.14) $ (0.16)
65,496
65,317
64,737
54,282
49,783
49,634
49,511
49,174
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, 2015, 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 (2013 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, 2015.
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, 2015, 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 2015 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
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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 2016 Annual Meeting of
Stockholders to be held on or about June 7, 2016, 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 2016 Annual Meeting of Stockholders
to be held on or about June 7, 2016, 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 2016 Annual Meeting of Stockholders to be held on or about June 7, 2016, 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 2016 Annual Meeting of Stockholders
to be held on or about June 7, 2016, 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 2016 Annual Meeting of Stockholders
to be held on or about June 7, 2016, which information is incorporated into this report by reference.
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Table of Contents
Item 15. Exhibits
(a)
The following documents are filed as part of this report:
Part IV
(1)
Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firm, which are set forth in the Index to Consolidated
Financial Statements on pages 50 through 77 of this report.
Reports of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)
Exhibits
51
53
54
55
56
57
3.1(1)
3.2(2)
4.1(3)
4.4(4)
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 Registrant and Wells Fargo Bank, N.A., as Rights
Agent
4.4.1(4)
4.4.2(4)
4.4.3(5)
Form of Right Certificate
Summary of Rights to Purchase Preferred Shares
Amendment No. 1 to Rights Agreement, dated July 22, 2011, by and between Registrant and Wells Fargo Bank,
N.A., as Rights Agent
4.4.4(6)
Amendment No. 2 to Rights Agreement, dated May 18, 2012, by and between Registrant and Wells Fargo Bank,
N.A., as Rights Agent
Form of Indemnity Agreement between Registrant and each of its directors and executive officers
Reserved
2000 Stock Option Plan and form of Option Agreement thereunder
10.1(3)
10.2
10.3(7)*
10.3.1(8)* Amended and Restated 2000 Stock Option and Equity Incentive Plan
10.4(9)*
10.5(10)* Form of New Employee Inducement Grant Stock Option Agreement
10.6(11)* Employment offer letter agreement and Mutual Agreement to Arbitrate between Registrant and Leonard Perham
Form of Stock Option Agreement pursuant to Amended and Restated 2000 Stock Option and Equity Incentive Plan
dated as of November 8, 2007
Reserved
10.7
10.8(12)* Employment offer letter agreement between Registrant and James Sullivan dated December 21, 2007
10.9(13)* Change-in-control Agreement between Registrant and James Sullivan dated January 18, 2008
10.10(14)* Amended and Restated 2010 Equity Incentive Plan
10.11(15)* Form of Option Agreement for Stock Option Grant pursuant to 2010 Equity Incentive Plan
10.12(16)* 2010 Employee Stock Purchase Plan
10.13
10.14(17)* Form of Notice of Restricted Stock Unit Award and Agreement
10.15(18) Lease Agreement between Registrant and M West Propco XII, LLC. dated July 19, 2010
Reserved
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Table of Contents
10.16(19)* Employment offer letter agreement between Registrant and Thomas Riordan dated May 6, 2011
10.17(19)* New Employee Inducement Grant Stock Option Agreement between Registrant and Thomas Riordan dated
May 10, 2011
Reserved
10.18
10.19(20)* Form of New Employee Inducement Grant Stock Option Agreement (revised February 2012)
10.20(21)* Stock Option Agreement between Registrant and Leonard Perham dated as of November 1, 2011
10.21(22)* Stock Option Agreement between Registrant and Thomas Riordan dated as of December 21, 2011
10.22(23) Form of Indemnification Agreement used from June 5, 2012
10.23
10.24(24)* Form of Notice of Grant of Restricted Stock Unit Award and Agreement under the Amended and Restated 2010
Reserved
Equity Incentive Plan
10.25(25)* Employment offer letter agreement between Registrant and John Monson dated February 21, 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)
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 10.5 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).
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Table of Contents
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
*
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).
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 10.26 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 Exhibit 4.8 to From S-8 filed by the Company on August 8, 2014 (Commission File No. 000-197989).
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 10-Q filed by the Company on May 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.21 to Form 10-Q filed by the Company on May 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.22 to Form 10-Q filed by the Company on August 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.24 to Form 10-K filed by the Company on March 14, 2014 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25 to Form 10-K filed by the Company on March 14, 2014 (Commission File No. 000-32929).
Management contract, compensatory plan or arrangement.
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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 15th day of March 2016.
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 15, 2016
Vice President of Finance and Chief Financial
March 15, 2016
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
/s/ VICTOR K. LEE
Victor K. Lee
Director
Director
Director
49
March 15, 2016
March 15, 2016
March 15, 2016
March 15, 2016
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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 Loss
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
50
51
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, 2015 and 2014,
and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements 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 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, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
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, 2015, based on criteria established in Internal Control—Integrated Framework (2013 Framework) issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 2016 expressed an unqualified opinion thereon.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
March 15, 2015
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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, 2015, based on criteria
established in Internal Control—Integrated Framework (2013 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,
2015, based on criteria established in Internal Control—Integrated Framework (2013 Framework) by COSO.
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, 2014 and 2013, and the related consolidated statements of operations and comprehensive loss,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2015 and our report dated March 15, 2016 expressed an
unqualified opinion on those consolidated financial statements.
/s/ Burr Pilger Mayer, Inc.
San Jose, California
March 15, 2015
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MOSYS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories, net
Prepaid expenses and other
Total current assets
Long-term investments
Property and equipment, net
Goodwill
Intangible assets, net
Other
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued expenses and other
Total current liabilities
Long-term liabilities
Commitments and contingencies (Note 10)
Stockholders' equity
December 31,
2015
2014
$
5,640 $
14,598
729
1,597
701
23,265
—
1,630
23,134
334
329
48,692 $
$
$
940 $
2,664
3,604
247
3,110
20,439
177
881
887
25,494
2,245
854
23,134
655
244
52,626
495
2,350
2,845
241
Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding
Common stock, $0.01 par value; 120,000 shares authorized; 65,496 shares and 49,793 shares
—
—
issued and outstanding at December 31, 2015 and 2014, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
(16)
655
226,174
498
199,541
(10)
(181,972) (150,489)
49,540
52,626
44,841
48,692 $
$
The accompanying notes are an integral part of these consolidated financial statements.
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MOSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
Year Ended December 31,
2014
2013
2015
Net revenue
Product
Royalty and other
Total net revenue
Cost of net revenue
Gross profit
Operating expenses
Research and development
Selling, general and administrative
Gain on sale of assets
Total operating expenses
Loss from operations
Other income, net
Loss before income taxes
Income tax provision
Net loss
Other comprehensive loss, net of tax:
Net unrealized gains (losses) on available-for-sale securities
Comprehensive loss
Net loss per share
Basic and diluted
Shares used in computing net loss per share
Basic and diluted
$
2,400 $
1,990
4,390
2,474
1,916
2,280 $
3,100
5,380
2,318
3,062
394
4,004
4,398
474
3,924
27,108
6,299
—
33,407
(31,491)
23,325
6,161
(630)
28,856
(24,932)
209
(24,723)
71
$ (31,483) $ (32,682) $ (24,794)
29,261
6,519
—
35,780
(32,718)
143
(32,575)
107
(31,397)
86
94
2
$ (31,489) $ (32,705) $ (24,792)
(23)
(6)
$
(0.50) $
(0.66) $
(0.55)
62,497
49,528
45,246
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, 2013
Issuance of common stock for exercise of options,
employee stock purchase plan and release of awards
Issuance of common stock, net of costs of $2,154
Stock-based compensation
Change in unrealized gain on available-for-sale
40,054 $
401 $ 157,143 $
1,365
7,475
—
13
75
—
4,211
27,671
3,698
investments
—
—
—
Net loss
Balance at December 31, 2013
Issuance of common stock for exercise of options,
employee stock purchase plan and release of awards
Stock-based compensation
Change in unrealized loss on available-for-sale
investments
Net loss
Balance at December 31, 2014
Issuance of common stock for exercise of options,
employee stock purchase plan and release of awards
Issuance of common stock, net of costs of $1,632
Stock-based compensation
Change in unrealized loss on available-for-sale
48,894
489
192,723
899
—
—
9
—
—
2,227
4,591
—
49,793
498
199,541
Accumulated
Deficit
(93,013) $ 64,542
Total
11 $
—
—
—
2
13
—
—
—
—
—
4,224
27,746
3,698
—
2
(24,794) (24,794)
(117,807) 75,418
—
—
2,236
4,591
(23)
(10)
—
(23)
(32,682) (32,682)
(150,489) 49,540
1,328
14,375
—
13
144
—
1,759
21,224
3,650
—
—
—
—
—
—
1,772
21,368
3,650
investments
Net loss
Balance at December 31, 2015
—
—
—
65,496 $
655 $ 226,174 $
—
(6)
(6)
(31,483) (31,483)
(16) $ (181,972) $ 44,841
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)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Amortization of intangible assets
Stock-based compensation
Gain on sale of assets
Other non-cash items
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Net proceeds from sale of assets
Proceeds from sales and maturities of marketable securities
Purchases of marketable securities
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from the sale of common stock, net of issuance costs
Net proceeds from issuance of common stock
Payments on capital lease obligations
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:
Cash paid for income taxes
Year Ended December 31,
2014
2013
2015
$ (31,483) $ (32,682) $ (24,794)
607
321
3,650
—
—
449
1,000
4,591
—
—
679
999
3,698
(630)
7
(552)
(716)
104
261
334
(27,474)
(29)
(314)
405
(23)
296
(26,307)
139
(315)
1
(125)
(2,304)
(22,645)
(1,202)
—
44,953
(596)
—
39,270
(36,873)
6,878
(15,859)
22,815
(154)
630
49,267
(57,202)
(7,459)
21,368
1,772
(14)
23,126
2,530
3,110
5,640 $
$
—
2,238
—
2,238
(1,254)
4,364
3,110 $
27,746
4,193
—
31,939
1,835
2,529
4,364
$
56 $
111 $
92
The accompanying notes are an integral part of these consolidated financial statements.
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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's
strategy and primary business objective is to be an IP-rich fabless semiconductor company focused on the development and sale of integrated circuit (IC)
products. Prior to 2011, the Company's primary business activities were designing, developing, marketing and licensing high-performance semiconductor
memory and high-speed parallel and serial interface, or SerDes, intellectual property (IP) used by the semiconductor industry and communications, networking
and storage equipment manufacturers. Since 2011, the Company has developed two IC product lines under the "Bandwidth Engine" and "LineSpeed" product
names. Bandwidth Engine ICs combine the Company's proprietary high-density embedded memory with its high-speed 10 gigabits per second and higher
interface technology. The LineSpeed IC product line is comprised of non-memory based, high-speed SerDes devices with gearbox or retimer functionality that
convert lanes of data received on line cards or by optical modules into different configurations and/or ensure signal integrity. Both product lines are being
marketed to networking and communications systems companies. The Company's future success and ability to achieve and maintain profitability depends on its
success in developing a market for its 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.
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 and expenses recognized during the reported period. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation. Revenue line items have been reclassified to create a
separate line item for product revenue and to include licensing revenue in the royalty and other line item. The amounts for the prior periods have been
reclassified to be consistent with the current year presentation and have no impact on previously reported total assets, total stockholders' equity or net loss.
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, net in the consolidated statements of operations and comprehensive 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-sponsored enterprise bonds and
municipal bonds 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 (loss). Realized gains and losses and declines in
the value judged to be other-than-temporary are included in the other income, net line item in the consolidated statements of operations and comprehensive
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:
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, 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 and generally does not require collateral from its
customers. 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 grants credit only to customers deemed creditworthy in the
judgment of management. There was no allowance for doubtful accounts receivable at December 31, 2015 or December 31, 2014.
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
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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. Charges for obsolete and slow moving inventories are recorded based upon an analysis of specific
identification of obsolete inventory items and quantification of slow moving inventory items. The Company recorded inventory reserves of $0.3 million during the
year ended December 31, 2015.
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. Depreciation is recorded in operating expenses in the consolidated statements of operations and comprehensive loss.
Leasehold improvements and assets acquired through capital leases are amortized over the shorter of their estimated useful life or the lease term and are
recorded with depreciation expense in the consolidated statements of operations and comprehensive loss.
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 three 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.
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 uses 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 2015, and concluded no factors indicated impairment of goodwill. As of December 31, 2015, the Company had not identified
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any factors to indicate there was an impairment of its goodwill and determined that no additional impairment analysis was required.
Revenue Recognition
General
The Company generates revenue from the sales of IC products and licensing of its IP. 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.
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 may 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 or stock rotation are generally 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 accrued expenses and other line item in the consolidated balance sheets.
Royalty
The Company's licensing contracts typically also provide for royalties based on the licensee's 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.
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. Support and
maintenance revenue is recognized ratably over the period during which the obligation exists, typically 12 months. Licensing revenue was zero for the year
ended December 31, 2015 and was $155,000 and $387,000 for the years ended December 31, 2014 and 2013, respectively.
Cost of Net Revenue
Cost of net revenue consists primarily of direct and indirect costs of IC product sales and engineering personnel costs directly related to maintenance and
support services specified in licensing agreements. Maintenance and support typically includes engineering support to assist in the commencement of production
of a licensee's products.
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Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were not significant in the years ended December 31, 2015, 2014 and 2013.
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.
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 loss per share is computed by dividing net loss for the period by the weighted-average number of shares of common stock outstanding during the
period. Diluted net loss per share gives effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist
of incremental shares of common stock issuable upon the exercise of stock options, vesting of stock awards and purchases under the employee stock purchase
plan. As of December 31, 2015, 2014 and 2013, stock awards to purchase approximately 9,076,000, 8,817,000 and 10,072,000 shares, respectively, were
excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive. The following table sets forth the computation of basic and
diluted net loss per share for the periods indicated (in thousands, except per share amounts):
Numerator:
Net loss
Denominator:
Shares used in computing net loss per share:
Basic and diluted
Net loss per share:
Basic and diluted
Year Ended December 31,
2015
2014
2013
$ (31,483) $ (32,682) $ (24,794)
62,497
49,528
45,246
$
(0.50) $
(0.66) $
(0.55)
Income Taxes
The Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases 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 2005 through 2015 tax
years generally remain subject to examination by federal, state and foreign tax authorities.
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As of December 31, 2015, 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, 2015, 2014 and 2013, the Company did not recognize any interest or penalties
related to unrecognized tax benefits.
Comprehensive Loss
Comprehensive loss includes unrealized gains and losses on available-for-sale securities. Realized gains and losses on available-for-sale securities are
reclassified from accumulated other comprehensive loss and included in other income, net in the consolidated statements of operations and comprehensive
loss. All amounts recorded were not significant in the years ended December 31, 2015, 2014 and 2013.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09 (ASU 2014-09), Revenue from
Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and
services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will be
effective for the Company on January 1, 2018. Early application is not permitted. ASU 2014-09 permits the use of either the retrospective or cumulative effect
transition methods. The Company has not yet selected a transition method nor has it determined the potential effect that ASU 2014-09 will have on its
consolidated financial statements and related disclosures.
In August 2014, the FASB issued ASU No. 2014-15 (ASU 2014-15), Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate, at each annual and interim reporting
period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date
the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual and interim reporting periods ending after December 15,
2016, with early adoption permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2014-15 on its consolidated financial
statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02 (ASU 2016-02), Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease
liability equal to the present value of the lease payments for virtually all leases not classified as short term. Consistent with current U.S. GAAP, the recognition,
measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depend on its classification as a finance or operating
lease. The ASU also will require disclosures to provide additional qualitative and quantitative information about the amounts recorded in the financial statements.
ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. The new standard requires
a modified retrospective transition for application at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact
that ASU 2016-02 will have on its consolidated financial statements and related disclosures.
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Note 2: Consolidated Balance Sheets and Statements of Operations and Comprehensive Loss Components
Inventories, net:
Work-in-process
Finished goods
Prepaid expenses and other:
Interest receivable
Prepaid insurance
Prepaid expenses and other
Property and equipment, net:
Equipment, furniture and fixtures and leasehold improvements
Acquired software
Less: Accumulated depreciation and amortization
December 31,
2015
2014
(in thousands)
$ 1,478 $
119
$ 1,597 $
$
$
48 $
134
519
701 $
651
230
881
160
143
584
887
$ 5,646 $
334
5,980
(4,350)
$ 1,630 $
4,255
750
5,005
(4,151)
854
Intangible assets, net:
Identifiable intangible assets relating to business combinations and a patent license were (dollar amounts in thousands):
Developed technology
Patent license
Total
Developed technology
Patent license
Total
December 31, 2015
Life
(years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
3-5 $
7
$
9,240 $
780
10,020 $
9,240 $
446
9,686 $
—
334
334
December 31, 2014
Life
(years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
3-5 $
7
$
9,240 $
780
10,020 $
9,031 $
334
9,365 $
209
446
655
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Amortization expense has been included in research and development expense in the consolidated statements of operations and comprehensive loss. The
estimated aggregate amortization expense to be recognized in future years is approximately $0.1 million annually for 2016 through 2018.
Accrued expenses and other:
Accrued wages and employee benefits
IC development and wafer costs
Employee stock purchase plan withholdings
Professional fees
Capital lease obligation
Deferred revenue
Other
As of December 31, 2015 and 2014, the amounts in long-term liabilities included deferred rent.
Other income, net:
Interest income
Other income (expense), net
Note 3: Fair Value of Financial Instruments
The estimated fair values of financial instruments outstanding were (in thousands):
December 31,
2015
2014
(in thousands)
$ 1,076 $ 1,026
203
357
123
—
4
637
$ 2,664 $ 2,350
921
323
158
138
31
17
2015
2014
(in thousands)
2013
$
$
114 $
(20)
94 $
155 $
(12)
143 $
174
35
209
Cash and cash equivalents
Short-term investments:
U.S. government-sponsored enterprise bonds
Municipal bonds
Corporate notes
Total short-term investments
64
December 31, 2015
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
$
5,640 $
— $
— $
5,640
$
6,243 $
200
8,171
$ 14,614 $
— $
—
—
— $
6,243
— $
200
—
(16)
8,155
(16) $ 14,598
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Table of Contents
December 31, 2014
Cash and cash equivalents
Short-term investments:
U.S. government-sponsored enterprise bonds
Municipal bonds
Corporate notes
Certificates of deposit
Total short-term investments
Long-term investments:
U.S. government-sponsored enterprise bonds
Corporate notes
Total long-term investments
Cost
3,110 $
$
$
1,250 $
841
15,921
2,430
$ 20,442 $
$
$
1,000 $
1,252
2,252 $
Unrealized
Gains
Unrealized
Losses
Fair
Value
— $
— $
3,110
— $
—
2
1
3 $
— $
—
— $
1,250
— $
—
841
(6) 15,917
—
2,431
(6) $ 20,439
(2) $
(5)
(7) $
998
1,247
2,245
The estimated fair values of available-for-sale securities with unrealized losses were (in thousands):
Short-term investments:
Corporate notes
Total short-term investments
Short-term investments:
Corporate notes
Total short-term investments
Long-term investments:
U.S. government-sponsored enterprise bonds
Corporate notes
Total long-term investments
December 31, 2015
Unrealized
Losses
Fair Value
Cost
$
$
8,171 $
8,171 $
(16) $
(16) $
8,155
8,155
December 31, 2014
Cost
Unrealized
Losses
Fair Value
$ 13,006 $
$ 13,006 $
(6) $ 13,000
(6) $ 13,000
$
$
1,000 $
1,252
2,252 $
(2) $
(5)
(7) $
998
1,247
2,245
As of December 31, 2015 and 2014, substantially all of the available-for-sale securities with unrealized losses had been in a loss position for less than
12 months.
Cost and fair value of investments based on two maturity groups were (in thousands):
Due within 1 year
Total
December 31, 2015
Unrealized
Gains
Unrealized
Losses
Fair Value
— $
— $
(16) $
(16) $
14,598
14,598
Cost
14,614 $
14,614 $
$
$
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Due within 1 year
Due in 1-2 years
Total
Cost
20,442 $
2,252
22,694 $
$
$
December 31, 2014
Unrealized
Gains
Unrealized
Losses
Fair
Value
3 $
—
3 $
(6) $
(7)
(13) $
20,439
2,245
22,684
The following table represents the Company's fair value hierarchy for its financial assets (cash equivalents and investments) as of December 31, 2015 and
2014 (in thousands):
December 31, 2015
Money market funds
U.S. government-sponsored enterprise bonds
Municipal bonds
Corporate notes
Certificates of deposit
Total assets
Money market funds
U.S. government-sponsored enterprise bonds
Municipal bonds
Corporate notes
Certificates of deposit
Total assets
Fair Value Level 1
$
2,238 $ 2,238 $
7,525
200
8,255
240
—
—
—
—
Level 2
— $
Level 3
—
—
—
—
—
—
7,525
200
8,255
240
$ 18,458 $ 2,238 $ 16,220 $
December 31, 2014
Level 2
— $
Fair Value Level 1
$
1,837 $ 1,837 $
2,248
1,243
17,164
2,676
—
—
—
—
2,248
1,243
17,164
2,676
$ 25,168 $ 1,837 $ 23,331 $
Level 3
—
—
—
—
—
—
There were no transfers in or out of Level 1 and Level 2 securities during the years ended December 31, 2015 and 2014.
Note 4: 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. Consistent with the previous payments received, the approximately
$2.2 million, net of transaction costs, in cash upon execution of the agreement. The The final payment of $0.6 million which was received in March 2013, was
recorded as a gain on sale of assets and reduction of operating expenses in the consolidated statements of operations and comprehensive loss.
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Note 5: Income Taxes
The income tax provision consisted of the following (in thousands):
Current portion:
Federal
State
Foreign
Year Ended
December 31,
2015
2014
2013
$
$
— $
3
83
86 $
— $
3
104
107 $
—
2
69
71
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.
Significant components of the Company's deferred tax assets and liabilities were (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,
2015
2014
$ 60,831 $
761
1,304
4,504
12,886
1,131
81,417
50,057
587
1,497
3,589
11,351
1,241
68,322
1,781
(79,636)
— $
1,537
(66,785)
—
$
The valuation allowance increased by $12.9 million and $12.1 million for the years ended December 31, 2015 and December 31, 2014, respectively.
As of December 31, 2015, the Company had net operating loss carryforwards of approximately $162.8 million for federal income tax purposes and
approximately $106.8 million for state income tax purposes. These losses are available to reduce future taxable income and expire at various times from 2016
through 2035. Approximately $5.7 million of federal net operating loss carryforwards and $4.8 million of state net operating loss carryforwards are related to
excess tax benefits from stock-based compensation and would be charged to additional paid-in capital if realized.
The Company also had federal research and development tax credit carryforwards of approximately $8.2 million, which will begin expiring in 2018, and
California research and development credits of approximately $7.2 million, which do not have an expiration date. The Company had remaining foreign tax credits
available for federal income tax purposes of approximately $0.9 million which will began expiring in 2016.
The Company considers its undistributed earnings of its foreign subsidiary permanently reinvested in foreign operations and has not provided for U.S.
income taxes on such earnings. As of December 31,
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2015, the Company's unremitted earnings from its foreign subsidiary were $0.9 million. The determination of the unrecognized deferred U.S. income tax liability,
if any, is not practicable.
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.
A reconciliation of income taxes provided at the federal statutory rate (35%) to the actual income tax provision follows (in thousands):
Income tax benefit computed at U.S. statutory rate
State income tax (net of federal benefit)
Foreign income tax at rate different from U.S. statutory rate
Research and development credits
Stock-based compensation
Amortization of intangible assets
Valuation allowance changes affecting tax provision
Other
Income tax provision
2013
2015
Year Ended December 31,
2014
$ (10,989) $ (11,401) $ (8,653)
2
(11)
(1,196)
91
(100)
9,915
23
71
3
(12)
(1,614)
130
(100)
3
(15)
(1,580)
123
(100)
12,588
56
86 $
13,027
74
107 $
$
The domestic and foreign components of (loss) income before income tax provision were (in thousands):
U.S.
Non-U.S.
Note 6: Stock-Based Compensation
Equity Compensation Plans
Common Stock Option Plans
2015
Year Ended December 31,
2014
2013
$
$
(31,580) $
183
(31,397) $
(32,735) $
160
(32,575) $
(24,906)
183
(24,723)
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,
2015, no options were available for future issuance under the Amended 2000 Plan and options to purchase approximately 580,000 shares were outstanding with
a weighted-average exercise price of $4.48 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, which was amended in 2014 (Amended 2010 Plan). The Amended
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 Amended 2010 Plan, 4,000,000 shares were initially
reserved for issuance. In June 2014, the Company's stockholders approved an amendment increasing the number of shares reserved for issuance by 1,500,000
shares. In addition, the terms of the Amended 2010 Plan provide for an automatic annual increase in the share reserve of 500,000 on January 1 of each year.
The Amended
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2010 Plan has a 10 year term and provides for annual option grants or other awards to 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 initial appointment or election to the board of directors.
The term of options granted under the Amended 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.
The exercise price of stock options granted under the Amended 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 Amended 2010 Plan will vest over a four-year period and will have a six or ten-year term. In addition, the Amended 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 Amended 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,
as permitted under the Listing Rules of the Nasdaq Stock Market. These grants must be approved by the compensation committee of the board of directors, a
majority of the independent directors or, below a specified share level, by 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 were
initially reserved for issuance under the ESPP in 2010. On September 1, 2010, the Company commenced the first offering period under the ESPP. In May 2015,
the Company's stockholders approved an amendment increasing the number of shares reserved for issuance by 2,000,000 shares. 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 February 28, 2015, approximately 339,000 shares of common stock were issued at an aggregate purchase price of $518,000 under the ESPP. On
August 31, 2015, approximately 268,000 shares of common stock were issued at an aggregate purchase price of $339,000 under the ESPP. As of December 31,
2015, there were approximately 2.2 million shares authorized and unissued under the ESPP.
Stock-Based Compensation Expense
The unamortized compensation cost, net of expected forfeitures, as of December 31, 2015 was $2.4 million related to stock options and is expected to be
recognized as expense over a weighted average period of approximately 2.0 years. The unamortized compensation cost, net of expected forfeitures, as of
December 31, 2015 was $0.6 million related to restricted stock units and is expected to be recognized as expense over a weighted average period of
approximately 1.3 years. For the year ended December 31, 2015 the fair value of options and awards vested was approximately $3.2 million.
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
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consolidated statements of cash flows. For the years ended December 31, 2015, 2014 and 2013, there were no such tax benefits associated with the exercise of
stock options.
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, 2015, 2014 and 2013 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
2015
0.6% - 1.7%
55.7% - 59.3%
3.0 - 5.0
Year Ended December 31,
2014
1.3% - 1.7%
53.7% - 57.5%
4.0 - 5.0
0%
0%
2013
0.5% - 1.7%
57.7% - 62.9%
4.0 - 5.0
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 historical volatility of the Company's stock price over the expected
term of the options. 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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Common Stock Options and Restricted Stock
A summary of option activity under the Plans is presented below (in thousands, except exercise price):
Balance at December 31, 2012
Additional shares authorized under the Amended 2010 Plan
Restricted stock units granted
Options granted
Options cancelled
Options exercised
Options expired
Balance at December 31, 2013
Additional shares authorized under the Amended 2010 Plan
Restricted stock units granted
Restricted stock units cancelled
Options granted
Options cancelled
Options exercised
Options expired
Balance at December 31, 2014
Additional shares authorized under the Amended 2010 Plan
Restricted stock units cancelled
Options granted
Options cancelled
Options exercised
Options expired
Balance at December 31, 2015
71
Options outstanding
Shares
Available
for Grant
Number of
Shares
Weighted
Average
Exercise
Prices
1,265
500
(35)
(1,543)
1,123
—
(888)
422
2,000
(508)
5
(174)
496
—
(481)
1,760
500
22
(1,538)
701
—
(386)
1,059
6,872 $
—
—
1,543 $
(1,123) $
(565) $
— $
6,727 $
—
—
—
174 $
(496) $
(411) $
— $
5,994 $
—
—
1,538 $
(701) $
(82) $
— $
6,749 $
4.05
—
—
4.27
6.00
3.05
6.49
3.86
—
—
—
3.53
4.31
3.06
4.32
3.87
—
—
2.02
3.52
1.64
3.20
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A summary of the inducement grant option activity is presented below (in thousands, except exercise price):
Balance at December 31, 2012
Granted
Cancelled
Exercised
Balance at December 31, 2013
Granted
Exercised
Expired
Balance at December 31, 2014
Cancelled
Exercised
Expired
Balance at December 31, 2015
Options Outstanding
Weighted
Average
Exercise
Prices
Number of
Shares
3,358 $
347 $
(7) $
(520) $
3,178 $
418 $
(73) $
(1,290) $
2,233 $
(59) $
(518) $
(16) $
1,640 $
4.29
3.94
3.45
3.28
4.42
3.68
2.59
5.57
3.68
3.62
1.55
1.55
4.37
A summary of restricted stock unit activity under the Plans is presented below (in thousands, except fair value):
Non-vested shares at December 31, 2012
Granted
Vested
Non-vested shares at December 31, 2013
Granted
Vested
Cancelled
Non-vested shares at December 31, 2014
Vested
Cancelled
Non-vested shares at December 31, 2015
Weighted
Average
Grant-Date
Fair Value
Number of
Shares
—
35 $
(8) $
27 $
508 $
(136) $
(5) $
394 $
(131) $
(22) $
241 $
—
4.46
4.46
4.46
4.61
4.60
4.62
4.61
4.60
4.62
4.61
The total intrinsic value of the restricted stock units outstanding as of December 31, 2015 was $0.3 million.
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The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2015 (in thousands, except contractual life
and exercise price):
Range of Exercise Price
$1.68 - $2.05
$2.06 - $3.23
$3.24 - $3.85
$3.86 - $4.46
$4.47 - $6.06
$6.07 - $6.11
$1.68 - $6.11
Vested and expected to vest
Exercisable
8,214
6,232
Options Outstanding
Weighted
Average
Remaining
Contractual
Life
(in Years)
Weighted
Average
Exercise
Price
Options Exercisable
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Number
Exercisable
8.47 $
2.80 $
2.40 $
3.71 $
1.94 $
1.32 $
3.91 $
3.81 $
2.87 $
2.01
3.09
3.67
4.27
5.42
6.11
3.68
3.71
3.97
380 $
1,578 $
1,276 $
1,640 $
1,317 $
40 $
6,232 $
2.04
3.08
3.68
4.26
5.46
6.11
3.97 $
$
$
—
—
—
Number
Outstanding
1,607
1,841
1,411
2,063
1,427
40
8,389
The aggregate intrinsic value of employee stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $0.3 million,
$0.8 million and $1.4 million, respectively.
Note 7: Stockholders' Equity
In the second quarter of 2013, the Company completed a public offering and issued approximately 7.5 million shares of its common stock for approximately
$27.7 million in net proceeds. The Company's chief executive officer purchased 250,000 shares at the public offering price.
In March 2015, the Company completed a public offering and issued approximately 14,375,000 shares of its common stock for approximately $21.4 million
in net proceeds. Two of the Company's executive officers between them purchased a total of 406,250 shares at the public offering price.
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%. Under the rights agreement, certain shares beneficially owned by the firm of Ingalls & Snyder, or I&S, and its managed account beneficial
owners collectively will not count toward the 15% beneficial ownership threshold that would trigger the rights as long as none of such shares are held for the
purpose of acquiring control or effecting change or influence in control of the Company. Further, this exclusion applies only
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to shares of common stock for which I&S possesses only shared dispositive power and 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 8: 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, 2015,
2014 and 2013.
Note 9: 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 and shipment of ICs to customers in North America, Asia and Europe as follows (in
thousands):
North America
Taiwan
Japan
Rest of world
Total net revenue
Customers who accounted for at least 10% of total net revenues were:
Years Ended December 31,
2015
2014
2013
$
$
2,222 $
1,396
667
105
4,390 $
1,485 $
1,894
1,961
40
5,380 $
1,318
1,831
1,207
42
4,398
Customer A
Customer B
Customer C
Customer D
*
Represents percentage less than 10%.
Years Ended
December 31,
2015 2014 2013
*
34%
31% 34% 41%
12% 31%
*
*
*
11% 13%
Three customers accounted for 94% of net accounts receivable at December 31, 2015. Three customers accounted for 97% of net accounts receivable at
December 31, 2014.
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Net long-lived assets (property and equipment), classified by major geographic areas, was (in thousands):
U.S.
Non-U.S.
Total
Note 10: Commitments and Contingencies
Leases and Purchase Commitments
December 31,
2015
2014
(in thousands)
1,578 $
52
1,630 $
766
88
854
$
$
The Company leases its facilities under non-cancelable operating leases that expire at various dates through 2020. Rent expense was approximately
$798,000, $802,000 and $822,000 for the years ended December 31, 2015, 2014 and 2013, 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 (in thousands):
Year ended December 31,
2016
2017
2018
2019
2020
Total minimum payments
Operating
leases
Purchase
commitments
Total
$
$
796 $
754
734
756
513
3,553 $
1,305 $
408
378
—
—
2,091 $
2,101
1,162
1,112
756
513
5,644
Purchase commitments include software licenses related to computer-aided design software payable through 2018, wafer and board components purchase
obligations.
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, 2015, 2014 or 2013 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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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.
Note 11: 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 between them loaned
a total of $250,000 to Credo for a portion of the seed funding needed by Credo to commence its integrated circuit design efforts. These loans were repaid by
Credo in August 2015. The strategic development and marketing agreement, as amended, calls for the Company to make payments 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. As of December 31, 2015, the Company has paid Credo $4.8 million for achievement of development milestones, as well
as for mask costs and wafer purchases from third-party vendors. All amounts incurred have been recorded as research and development expenses. Currently,
under the strategic development and marketing agreement, the Company is entitled to a remaining reimbursement amount of $3.6 million of development costs
based on payments made to Credo to date. This amount is subject to increase as additional payments are made to Credo. The reimbursement will be funded by
the gross profits earned by the Company from the sale of the products, with the initial gross profits being primarily applied to reimbursing the Company for these
development payments and a portion paid to Credo. Once the full amount has been reimbursed, the gross profits will be shared equally by the Company and
Credo.
Note 12: Subsequent Events
Reduction in Force
On January 28, 2016, the Company committed to effect a reduction in the Company's workforce and associated operating expenses, net loss and cash
burn and to realign resources, as the Company has substantially concluded development of new products, including its third generation Bandwidth Engine IC
product family, and expects to bring these products to market in 2016. The Company reduced United States headcount by approximately 16% and will cease
operations at its subsidiary in Hyderabad, India, which has 18 employees. The Company anticipates that it will fully implement the planned reductions by the end
of the second quarter of 2016. As a result of these reductions, the Company expects to incur total termination charges of up to $0.8 million, including $0.6 million
of charges for severance benefits and other one-time termination costs. The remaining charges represent lease obligations, asset impairments and other
expenses related to the Company's Indian subsidiary. The Company expects that substantially all of these charges will be recognized in the quarter ending
March 31, 2016, and will result in cash expenditures of up to $1.0 million, which are expected to be paid during the first and second quarters of 2016. The
Company expects to realize approximately $3.2 million of savings on an annual basis from the reductions.
Convertible Notes
On March 14, 2016, the Company entered into a 10% Senior Secured Convertible Note Purchase Agreement (the "Purchase Agreement") with the
purchasers of $8,000,000 principal amount of 10% Senior Secured Convertible Notes due August 15, 2018 (the "Notes"), at par, in a private placement
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transaction effected pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended. The conversion price of the
Notes is $0.90 per share and is subject to adjustment upon certain events as set forth in the Purchase Agreement. Pursuant to a security agreement entered into
by the Company, the Notes are secured by a security interest in all of the assets of the Company.
The Notes bear interest at the annual rate of 10%. Accrued interest is payable semi-annually in cash or in kind through the issuance of identical new Notes,
or with a combination of the two, at the Company's option. The Notes are noncallable and nonredeemable by the Company. The Notes are redeemable at the
election of the holders if the Company experiences a fundamental change (as defined in the Notes), which generally would occur in the event (i) any person
acquires beneficial ownership of shares of common stock of the Company entitling such person to exercise at least 40% of the total voting power of all of the
shares of capital stock of the Company entitled to vote generally in elections of directors, (ii) an acquisition of the Company by another person through a merger
or consolidation, or the sale, transfer or lease of all or substantially all of the Company's assets, or (iii) the Company's current directors cease to constitute a
majority of the board of directors of the Company within a 12-month period, disregarding for this purpose any director who voluntarily resigns as a director or dies
while serving as a director. The redemption price is 120% of the principal amount of the Note to be repurchased plus accrued and unpaid interest as of the
redemption date.
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Table of Contents
INDEX OF EXHIBITS
Reserved
Form of Stock Option Agreement pursuant to Amended and Restated 2000 Stock Option and Equity Incentive Plan
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 Registrant and Wells Fargo Bank, N.A., as Rights Agent
Form of Right Certificate
Summary of Rights to Purchase Preferred Shares
Amendment No. 1 to Rights Agreement, dated July 22, 2011, by and between Registrant and Wells Fargo Bank, N.A., as Rights Agent
Amendment No. 2 to Rights Agreement, dated May 18, 2012, by and between Registrant and Wells Fargo Bank, N.A., as Rights Agent
Form of Indemnity Agreement between Registrant and each of its directors and executive officers
Reserved
2000 Stock Option Plan and form of Option Agreement thereunder
3.1(1)
3.2(2)
4.1(3)
4.4(4)
4.4.1(4)
4.4.2(4)
4.4.3(5)
4.4.4(6)
10.1(3)
10.2
10.3(7)*
10.3.1(8)* Amended and Restated 2000 Stock Option and Equity Incentive Plan
10.4(9)*
10.5(10)* Form of New Employee Inducement Grant Stock Option Agreement
10.6(11)* Employment offer letter agreement and Mutual Agreement to Arbitrate between Registrant and Leonard Perham dated as of November 8, 2007
10.7
10.8(12)* Employment offer letter agreement between Registrant and James Sullivan dated December 21, 2007
10.9(13)* Change-in-control Agreement between Registrant and James Sullivan dated January 18, 2008
10.10(14)* Amended and Restated 2010 Equity Incentive Plan
10.11(15)* Form of Option Agreement for Stock Option Grant pursuant to 2010 Equity Incentive Plan
10.12(16)* 2010 Employee Stock Purchase Plan
10.13
10.14(17)* Form of Notice of Restricted Stock Unit Award and Agreement
10.15(18) Lease Agreement between Registrant and M West Propco XII, LLC. dated July 19, 2010
10.16(19)* Employment offer letter agreement between Registrant and Thomas Riordan dated May 6, 2011
10.17(19)* New Employee Inducement Grant Stock Option Agreement between Registrant and Thomas Riordan dated May 10, 2011
10.18
10.19(20)* Form of New Employee Inducement Grant Stock Option Agreement (revised February 2012)
10.20(21)* Stock Option Agreement between Registrant and Leonard Perham dated as of November 1, 2011
10.21(22)* Stock Option Agreement between Registrant and Thomas Riordan dated as of December 21, 2011
10.22(23) Form of Indemnification Agreement used from June 5, 2012
10.23
10.24(24)* Form of Notice of Grant of Restricted Stock Unit Award and Agreement under the Amended and Restated 2010 Equity Incentive Plan
Reserved
Reserved
Reserved
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Table of Contents
10.25(25)*
21.1
23.1
24.1
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Employment offer letter agreement between Registrant and John Monson dated February 21, 2012
List of subsidiaries
Consent of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.
Power of Attorney (see signature page)
Rule 13a-14 certification
Rule 13a-14 certification
Section 1350 certification
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Labels Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
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 10.5 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).
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 10.26 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).
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Table of Contents
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
*
Incorporated by reference to Exhibit 4.8 to Form S-8 filed by the Company on August 8, 2014 (Commission File No. 000-197989).
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 10-Q filed by the Company on May 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.21 to Form 10-Q filed by the Company on May 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.22 to Form 10-Q filed by the Company on August 9, 2012 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.24 to Form 10-K filed by the Company on March 14, 2014 (Commission File No. 000-32929).
Incorporated by reference to Exhibit 10.25 to Form 10-K filed by the Company on March 14, 2014 (Commission File No. 000-32929).
Management contract, compensatory plan or arrangement.
80
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SUBSIDIARIES OF REGISTRANT
EXHIBIT 21.1
NAME
MoSys International, Inc.
MoSys India Pvt. Ltd
MoSys Iowa, Inc.
JURISDICTION OF INCORPORATION
California, USA
India
Iowa, USA
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EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
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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, 333-180119, 333-187187, 333-194563, 333-197989, 333-202735
and 333-206209) and Form S-3 (No. 333-197991) of MoSys, Inc. of our reports dated March 15, 2016 relating to the consolidated financial statements 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 15, 2016
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EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
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CERTIFICATION PURSUANT TO
RULE 13a-14 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 period ended December 31, 2015;
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 most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 15, 2016
/s/ LEONARD PERHAM
Leonard Perham
President and Chief Executive Officer
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934
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CERTIFICATION PURSUANT TO
RULE 13a-14 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 period ended December 31, 2015;
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 most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 15, 2016
/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 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 Quarterly Report on Form 10-Q of MoSys, Inc. (the "Company") for the annual period ended December 31, 2015 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of Leonard Perham, Chief Executive Officer of the Company, and James W.
Sullivan, Chief Financial Officer of the Company, 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 15, 2016
/s/ JAMES W. SULLIVAN
James W. Sullivan
Vice President of Finance and Chief Financial Officer
March 15, 2016
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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