Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 

(Mark one)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to           

 

Commission file number 000-32929

 


 

MOSYS, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

77-0291941

(State or other jurisdiction

 

(I.R.S. Employer

of Incorporation or organization)

 

Identification Number)

 

3301 Olcott Street

Santa Clara, California, 95054

(Address of principal executive office and zip code)

 

( 408) 415-4500

(Registrant’s telephone number, including area code)

 


 

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 filing requirements for the past 90 days. YES  x  NO  o

 

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  x  NO  o

 

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer  x

 

 

 

Non-accelerated filer o

 

Smaller reporting company  o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x

 

As of August 1, 2012, 39,061,753 shares of the Registrant’s common stock, $0.01 par value, were outstanding.

 

 

 



Table of Contents

 

MOSYS, INC.

 

FORM 10-Q
June 30, 2012

 

TABLE OF CONTENTS

 

PART I —

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011

3

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2012 and 2011

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011

5

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

 

 

 

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

20

 

 

 

Item 4.

Controls and Procedures

21

 

 

 

PART II —

OTHER INFORMATION

21

 

 

 

Item 1

Legal Proceedings

21

 

 

 

Item 1A.

Risk Factors

21

 

 

 

Item 5.

Other Information

21

 

 

 

Item 6.

Exhibits

21

 

 

 

 

Signatures

22

 



Table of Contents

 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

MOSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)

 

 

 

June 30,
2012

 

December 31,
2011

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

3,970

 

$

40,025

 

Short-term investments

 

26,343

 

9,413

 

Accounts receivable, net

 

326

 

969

 

Prepaid expenses and other current assets

 

1,775

 

1,596

 

Total current assets

 

32,414

 

52,003

 

 

 

 

 

 

 

Long-term investments

 

18,626

 

8,537

 

Property and equipment, net

 

924

 

1,382

 

Goodwill

 

23,134

 

23,134

 

Intangible assets, net

 

3,154

 

4,400

 

Other assets

 

177

 

181

 

Total assets

 

$

78,429

 

$

89,637

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

623

 

$

336

 

Accrued expenses and other liabilities

 

2,278

 

2,779

 

Deferred revenue

 

851

 

920

 

Total current liabilities

 

3,752

 

4,035

 

 

 

 

 

 

 

Long-term liabilities

 

144

 

109

 

 

 

 

 

 

 

Commitments and contingencies (Note 4)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding

 

 

 

Common stock, $0.01 par value; 120,000 shares authorized; 38,956 shares and 38,423 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

 

390

 

384

 

Additional paid-in capital

 

153,311

 

150,507

 

Accumulated other comprehensive income (loss)

 

(1

)

1

 

Accumulated deficit

 

(79,167

)

(65,399

)

Total stockholders’ equity

 

74,533

 

85,493

 

Total liabilities and stockholders’ equity

 

$

78,429

 

$

89,637

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3



Table of Contents

 

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)
(In thousands, except per share data)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net revenue

 

 

 

 

 

 

 

 

 

Licensing and other

 

$

644

 

$

1,216

 

$

865

 

$

2,563

 

Royalty

 

1,092

 

2,076

 

2,295

 

4,268

 

Total net revenue

 

1,736

 

3,292

 

3,160

 

6,831

 

 

 

 

 

 

 

 

 

 

 

Cost of net revenue

 

 

 

 

 

 

 

 

 

Licensing and other

 

179

 

469

 

236

 

1,159

 

Total cost of net revenue

 

179

 

469

 

236

 

1,159

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

1,557

 

2,823

 

2,924

 

5,672

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Research and development

 

6,688

 

6,566

 

14,194

 

12,721

 

Selling, general and administrative

 

1,428

 

1,917

 

4,354

 

4,631

 

Gain on sale of assets

 

 

 

(1,856

)

 

Total operating expenses

 

8,116

 

8,483

 

16,692

 

17,352

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(6,559

)

(5,660

)

(13,768

)

(11,680

)

Other income and expense, net

 

36

 

25

 

60

 

34

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

(6,523

)

(5,635

)

(13,708

)

(11,646

)

Income tax provision

 

30

 

17

 

60

 

35

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(6,553

)

$

(5,652

)

$

(13,768

)

$

(11,681

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on available-for-sale securities

 

11

 

16

 

(2

)

8

 

Comprehensive loss

 

$

(6,542

)

$

(5,636

)

$

(13,770

)

$

(11,673

)

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.17

)

$

(0.15

)

$

(0.36

)

$

(0.31

)

Shares used in computing net loss per share

 

 

 

 

 

 

 

 

 

Basic and diluted

 

38,880

 

37,738

 

38,723

 

37,505

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4



Table of Contents

 

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(13,768

)

$

(11,681

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

498

 

562

 

Stock-based compensation

 

2,063

 

1,553

 

Amortization of intangible assets

 

1,246

 

1,309

 

Gain on sale of assets

 

(1,856

)

 

Provision for doubtful accounts

 

 

106

 

Other non-cash items

 

 

18

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

643

 

427

 

Prepaid expenses and other assets

 

308

 

853

 

Deferred revenue

 

(69

)

(75

)

Accounts payable

 

(190

)

(609

)

Accrued expenses and other liabilities

 

(87

)

251

 

Net cash used in operating activities

 

(11,212

)

(7,286

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(40

)

(316

)

Net proceeds from sale of assets

 

2,187

 

 

Net cash paid for purchase of MagnaLynx, Inc.

 

 

(1,000

)

Proceeds from sales and maturities of marketable securities

 

19,396

 

16,873

 

Purchases of marketable securities

 

(46,417

)

(20,563

)

Net cash used in investing activities

 

(24,874

)

(5,006

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common stock

 

1,569

 

2,465

 

Repurchase of common stock (Note 4)

 

(1,444

)

 

Payments on capital lease obligations

 

(94

)

(93

)

Net cash provided by financing activities

 

31

 

2,372

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(36,055

)

(9,920

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

40,025

 

14,340

 

Cash and cash equivalents at end of period

 

$

3,970

 

$

4,420

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5



Table of Contents

 

MOSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. The Company and Summary of Significant Accounting Policies

 

The Company

 

MoSys, Inc. (the “Company”) was incorporated in California in September 1991, and reincorporated in September 2000 in Delaware. The Company has been designing, developing, marketing and licensing high-performance semiconductor memory and high-speed parallel and serial interface intellectual property (IP) used by the semiconductor industry and communications, networking and storage equipment manufacturers. In February 2010, the Company announced the commencement of a new product initiative to develop a family of integrated circuit (IC) products under the “Bandwidth Engine” product name. Bandwidth Engine ICs combine the Company’s proprietary high-density embedded memory with its high-speed 10 Gigabits per second interface (I/O) technology and are initially being marketed to networking systems companies and designers of advanced systems on chips designs. The Company’s strategy and primary business objective is to become a fabless semiconductor company focused on development and sale of Bandwidth Engine ICs. During 2011, the Company began to dedicate more of its engineering resources and the engineering budget to IC efforts, and this trend will continue as the Company places more emphasis on IC product sales as opposed to IP licensing transactions. The Company’s future success and ability to achieve and maintain profitability will be dependent on its success in developing a market for the Bandwidth Engine ICs.

 

The accompanying condensed consolidated financial statements of the Company have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission (SEC).  The condensed consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted in accordance with these rules and regulations. The information in this report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its most recent annual report on Form 10-K filed with the SEC.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 or for any other future period.

 

Basis of Presentation

 

The condensed 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 is the 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 reported amounts of revenues and expenses recognized during the reported period. Actual results could differ from those estimates.

 

Cash Equivalents and Investments

 

The Company has invested its excess cash in money market accounts, certificates of deposit, commercial paper, corporate debt, government agency and municipal debt securities and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. Management generally determines the appropriate classification of securities at the time of purchase. All securities are classified as available-for-sale. The Company’s available-for-sale short-term and long-term investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income (loss). Realized gains and losses and declines in the value judged to be other than temporary are included in the other income and expense, net line item in the condensed consolidated statements of operations and comprehensive loss. The cost of securities sold is based on the specific identification method.

 

6



Table of Contents

 

Fair Value Measurements

 

The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

 

Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.

 

Level 2—Pricing is provided by third party sources of market information obtained through the Company’s investment advisors rather than models. The Company does not adjust for or apply any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s Level 2 securities include cash equivalents and available-for-sale securities, which consisted primarily of certificates of deposit, commercial paper, corporate debt, and government agency and municipal debt securities from issuers with high quality credit ratings. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities.

 

Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity.

 

Allowance for Doubtful Accounts

 

The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates. A specific allowance of up to 100% of the invoice value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral from its customers. The Company grants credit only to customers deemed creditworthy in the judgment of management. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of all accounts receivable. There was no allowance for doubtful accounts receivable at June 30, 2012 or December 31, 2011.

 

Inventory

 

The Company values its inventories at the lower of cost, which approximates actual cost on a first-in, first-out basis, or market value.  The Company records inventory reserves for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions.  Once a reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of. If actual market conditions are less favorable than those expected by management, additional adjustment to inventory valuation may be required.  As of June 30, 2012, inventory was not significant and has been included in the prepaid expenses and other current assets line item of the condensed consolidated balance sheets.

 

Revenue Recognition

 

General

 

The Company generates revenue from the licensing of its IP and sales of IC products. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery or performance has occurred, the sales price is fixed or determinable, and collectibility is reasonably assured. Evidence of an arrangement generally consists of signed agreements or customer purchase orders.

 

Licensing

 

Licensing revenue consists of fees earned from license agreements, development services and support and maintenance. For stand-alone license agreements or license deliverables in multi-deliverable arrangements that do not require significant development, modification or customization, revenues are recognized when all revenue recognition criteria have been met. Delivery of the licensed technology is typically the final revenue recognition criterion met, at which time revenue is recognized. If any of the criteria are not met, revenue recognition is deferred until such time as all criteria have been met.

 

When sales arrangements contain multiple deliverables (e.g., license and services), the Company reviews each deliverable to determine the separate units of accounting that exist within the agreement. If more than one unit of accounting exists, the consideration payable to the Company under the agreement is allocated to each unit of accounting using the relative fair value method.

 

7



Table of Contents

 

Revenue is recognized for each unit of accounting when the revenue recognition criteria have been met for that unit of accounting. The Company allocates revenue among the deliverables using the relative selling price method. Revenue allocated to each element is recognized when the basic revenue recognition criteria is met for each element. Under GAAP, the Company is required to apply a hierarchy to determine the selling price to be used for allocating revenue to deliverables: (i) vendor-specific objective evidence of fair value (VSOE), (ii) third-party evidence of selling price (TPE) and (iii) best estimate of the selling price (ESP). In general, the Company is unable to establish VSOE or TPE for license fees and development services.  Therefore revenue is allocated to these elements based on the Company’s ESP, which the Company determines after considering multiple factors such as management approved pricing guidelines, geographic differences, market conditions, competitor pricing strategies, internal costs and gross margin objectives. These factors may vary over time depending upon the unique facts and circumstances related to each deliverable. If the facts and circumstances underlying the factors considered change or should future facts and circumstances lead the Company to consider additional factors, the Company’s ESP for license fee and development services could change.

 

For license agreements involving deliverables that do require significant production, modification or customization, and where the Company has significant experience in meeting the design specifications in the contract and the direct labor hours related to services under the contract can be reasonably estimated, the Company recognizes revenue over the period in which the contract services are performed. For these arrangements, the Company recognizes revenue using the percentage of completion method. Under this method, revenue recognized in any period depends on the Company’s progress toward completion of projects in progress. Significant management judgment and discretion are used to estimate total direct labor hours. These judgmental elements include determining that the Company has the experience to meet the design specifications and estimate the total direct labor hours to perform the contract services, based on experience in developing prior licensees’ designs. The direct labor hours for the development of the licensee’s design are estimated at the beginning of the contract. As the direct labor hours are incurred, they are used as a measure of progress towards completion. During the contract performance period, the Company reviews estimates of direct labor hours to complete the contracts and will revise its estimates of revenue and gross profit under the contract if it revises the estimations of the direct labor hours to complete. The Company’s policy is to reflect any revision in the contract gross profit estimate in reported income or loss in the period in which the facts giving rise to the revision become known. Under the percentage of completion method, provisions for estimated losses on uncompleted contracts are recorded in the period in which such losses are determined to be likely. If the amount of revenue recognized under the percentage of completion accounting method exceeds the amount of billings to a customer, the excess amount is recorded as an unbilled contracts receivable. Unbilled contracts receivable as of June 30, 2012 and December 31, 2011 are not considered significant and have been included in the prepaid expenses and other current assets line item of the condensed consolidated balance sheets.

 

The Company provides support and maintenance under many of its license agreements. Under these arrangements, the Company provides unspecified upgrades, design rule changes and technical support. No other upgrades, products or other post-contract support are provided. Support and maintenance revenue is recognized at its fair value established by VSOE, ratably over the period during which the obligation exists, typically 12 months. These arrangements are generally renewable annually by the customer.

 

Under limited circumstances, the Company also recognizes prepaid pre-production royalties as license revenues. These are lump sum payments made when the Company enters into licensing agreements that cover future shipments of a product that is not commercially available from the licensee. The Company characterizes such payments as license revenues because they are paid as part of the initial license fee and not with respect to products being produced by the licensee. These payments are non-cancelable and non-refundable.

 

Royalty

 

The Company’s licensing contracts typically also provide for royalties based on licensees’ use of the Company’s memory technology in their currently shipping commercial products. The Company recognizes royalties in the quarter in which it receives the licensee’s report. Under limited circumstances, the Company may also recognize prepaid post-production royalties as revenue upon execution of the contract, which are paid in a lump sum after the licensee commences production of the royalty-bearing product and applied against future unit shipments regardless of the actual level of shipments by the licensee. The criteria for revenue recognition of prepaid royalties are that a formal agreement with the licensee is executed, no deliverables, development or support services related to prepaid royalties are required, the fees are non-refundable and not contingent upon future product shipments by the licensee, and the fees are payable by the licensee in a time period consistent with the Company’s normal billing terms. If any of these criteria are not met, the Company defers revenue recognition until such time as all criteria have been met.

 

IC products

 

The Company sells products both directly to customers, as well as through distributors.  Revenue from sales directly to customers is generally recognized at the time of shipment. The Company records an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.  IC product revenue and costs relating to sales made

 

8



Table of Contents

 

through distributors with rights of return and stock rotation are deferred until the distributors sell the product to end customers due to the Company’s inability to estimate future returns and credits to be issued.  At the time of shipment to distributors, an accounts receivable for the selling price is recorded, as there is a legally enforceable right to receive payment, and inventory is relieved, as legal title to the inventory is transferred upon shipment.  Revenues are recognized upon receiving notification from the distributors that products have been sold to end customers. Distributors provide information regarding products and quantity, end customer shipments and remaining inventory on hand.  The associated deferred margin is included in the deferred revenues line item in the condensed consolidated balance sheet.  The Company recorded initial IC product revenue in 2012, and a significant reserve for returns has been recorded due to the product’s early stage of development and testing. IC product revenue was not significant for the three and six months ended June 30, 2012, and has been included in the licensing and other revenue line item in the condensed consolidated statements of operations and comprehensive loss.

 

Cost of Revenue

 

Cost of licensing and other revenue consists primarily of engineering personnel and overhead allocation costs directly related to development services specified in licensing agreements and direct and indirect costs of IC product sales. Development services typically include customization of the Company’s technologies for the licensee’s particular IC design and may include engineering support to assist in the commencement of production of a licensee’s products.

 

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 net assets of the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. 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. The Company performed the annual impairment test in September 2011, and the test did not indicate impairment of goodwill, as the fair value exceeded the carrying value of the reporting unit by approximately 61%. As the Company used the market approach to assess impairment, 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. As of June 30, 2012, the Company had not identified any factors to indicate there was an impairment of our goodwill and determined that no additional impairment analysis was required.

 

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. Identifiable intangible assets relating to business combinations and the patent license were as follows (dollar amounts in thousands):

 

 

 

June 30, 2012

 

 

 

Life
(years)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Value

 

Developed technology

 

3-5

 

$

 9,240

 

$

 6,810

 

$

 2,430

 

Customer relationships

 

3

 

390

 

390

 

 

Contract backlog

 

1

 

750

 

750

 

 

Non-compete agreements

 

1.5

 

140

 

140

 

 

Subtotal purchased intangible assets

 

 

 

10,520

 

8,090

 

2,430

 

Patent license

 

7

 

780

 

56

 

724

 

Total

 

 

 

$

 11,300

 

$

 8,146

 

$

 3,154

 

 

9



Table of Contents

 

 

 

December 31, 2011

 

 

 

Life
(years)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net
Carrying
Value

 

Developed technology

 

3-5

 

$

9,240

 

$

5,676

 

$

3,564

 

Customer relationships

 

3

 

390

 

334

 

56

 

Contract backlog

 

1

 

750

 

750

 

 

Non-compete agreements

 

1.5

 

140

 

140

 

 

Subtotal purchased intangible assets

 

 

 

10,520

 

6,900

 

3,620

 

Patent license

 

7

 

780

 

 

780

 

Total

 

 

 

$

11,300

 

$

6,900

 

$

4,400

 

 

The related amortization expense was $0.6 million and $0.7 million for the three months ended June 30, 2012 and 2011, respectively. The related amortization expense was $1.2 million and $1.3 million for the six months ended June 30, 2012 and 2011, respectively. Amortization expense has been included in research and development expense in the condensed consolidated statements of operations and comprehensive loss.  The estimated aggregate amortization expense to be recognized in future years is approximately $0.5 million for the remainder of 2012, $1.0 million for 2013, $1.0 million for 2014, $0.3 million for 2015 and $0.1 million annually for 2016 through 2018.

 

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 June 30, 2012 and 2011, stock awards to purchase approximately 10,931,000 and 10,174,000 shares, respectively, were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive.

 

Note 2. Fair Value of Financial Instruments

 

The estimated fair values of financial instruments outstanding were as follows (in thousands):

 

 

 

June 30, 2012

 

 

 

Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair
Value

 

Cash and cash equivalents

 

$

3,970

 

$

 

$

 

$

3,970

 

Short-term investments:

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

$

8,130

 

$

1

 

$

(3

)

$

8,128

 

Corporate notes and commercial paper

 

14,143

 

7

 

(4

)

14,146

 

Certificates of deposit

 

4,067

 

3

 

(1

)

4,069

 

Total short-term investments

 

$

26,340

 

$

11

 

$

(8

)

$

26,343

 

Long-term investments:

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

$

11,641

 

$

2

 

$

(4

)

$

11,639

 

Corporate notes

 

6,268

 

3

 

(5

)

6,266

 

Certificates of deposit

 

721

 

 

 

721

 

Total long-term investments

 

$

18,630

 

$

5

 

$

(9

)

$

18,626

 

 

 

 

December 31, 2011

 

 

 

Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair
Value

 

Cash and cash equivalents

 

$

40,025

 

$

 

$

 

$

40,025

 

Short-term investments:

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

$

4,834

 

$

2

 

$

 

$

4,836

 

Corporate notes

 

4,578

 

1

 

(2

)

4,577

 

Total short-term investments

 

$

9,412

 

$

3

 

$

(2

)

$

9,413

 

Long-term investments:

 

 

 

 

 

 

 

 

 

U.S. government debt securities

 

$

5,721

 

$

1

 

$

(1

)

$

5,721

 

Corporate notes

 

2,816

 

2

 

(2

)

2,816

 

Total long-term investments

 

$

8,537

 

$

3

 

$

(3

)

$

8,537

 

 

10



Table of Contents

 

As of June, 30, 2012 and December 31, 2011, all of the available-for-sale securities with unrealized losses had been in a loss position for less than 12 months. Total fair value of available-for-sale securities with unrealized losses was $28.2 million at June 30, 2012.

 

Cost and fair value of investments based on two maturity groups were as follows (in thousands):

 

 

 

June 30, 2012

 

 

 

Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair
Value

 

Due within 1 year

 

$

26,340

 

$

11

 

$

(8

)

$

26,343

 

Due in 1-2 years

 

18,630

 

5

 

(9

)

18,626

 

Total

 

$

44,970

 

$

16

 

$

(17

)

$

44,969

 

 

 

 

December 31, 2011

 

 

 

Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair
Value

 

Due within 1 year

 

$

9,412

 

$

3

 

$

(2

)

$

9,413

 

Due in 1-2 years

 

8,537

 

3

 

(3

)

8,537

 

Total

 

$

17,949

 

$

6

 

$

(5

)

$

17,950

 

 

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) as of June 30, 2012 and December 31, 2011 (in thousands):

 

 

 

June 30, 2012

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Money market funds

 

$

790

 

$

790

 

$

 

$

 

Certificates of deposit

 

4,790

 

 

4,790

 

 

Corporate notes and commercial paper

 

22,912

 

 

22,912

 

 

U.S. government debt securities

 

19,917

 

 

19,917

 

 

Total assets

 

$

48,409

 

$

790

 

$

47,619

 

$

 

 

 

 

December 31, 2011

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

Money market funds

 

$

2,792

 

$

2,792

 

$

 

$

 

Corporate notes

 

7,393

 

 

7,393

 

 

U.S. government debt securities

 

10,557

 

 

10,557

 

 

Total assets

 

$

20,742

 

$

2,792

 

$

17,950

 

$

 

 

There were no transfers in or out of Level 1 and Level 2 securities during the three and six months ended June 30, 2012 and 2011. There were no Level 3 financial assets as of June 30, 2012 or December 31, 2011.

 

Note 3:         Asset Purchase Agreement

 

In March 2012, the Company entered into an asset purchase agreement for an exclusive license of a portion of its intellectual property pertaining to its high-speed serial I/O technology for approximately $4.3 million.  As part of the agreement, the Company provided certain technology transfer support services, and 15 employees of the Company’s India subsidiary accepted employment with the purchaser.  The Company received approximately $2.2 million, net of transaction costs, in cash upon execution of the agreement.  The agreement provides for an additional $1.9 million (the “Holdback”) to be paid upon providing technology transfer support services and achievement of certain contractually agreed-upon development milestones.  In July 2012, $1.3 million of the Holdback payment was received.  A portion of the Holdback is reserved for any costs related to indemnification claims that may arise during the 12 month period following the agreement date.

 

 During the quarter ended March 31, 2012, the Company recognized a $1.9 million gain on this asset sale, net of transaction costs, which has been recorded as a reduction of operating expenses in the condensed consolidated statements of operations and comprehensive loss, and approximately $0.3 million in current liabilities for the technology transfer support service obligation.  As of June 30, 2012, $0.2 million remained of this liability.  Gains related to the Holdback will be recorded when the milestones are completed and the indemnity period lapses, which is expected to be within 12 months of the agreement date.  No gains were recorded in the quarter ended June 30, 2012.

 

11



Table of Contents

 

Note 4. Commitments and Contingencies

 

Indemnifications

 

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 condensed consolidated financial statements for the three and six months ended June 30, 2012 or 2011 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.

 

Legal Matters

 

The Company is not a party to any material legal proceeding that the Company believes is likely to have a material adverse effect on its consolidated financial position or results of operations. From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.

 

In September 2010, a claimant filed suit against the Company seeking a contractual payment of approximately 200,000 shares of the Company’s common stock, among other claims. In November 2010, the suit went to arbitration, and, in December 2010, the Company filed a counter claim against the claimant.  On April 3, 2012, the arbitrator ruled against the Company and awarded the claimant a cash award of approximately $1.4 million, which was paid in the second quarter of 2012 and has been recorded as a repurchase of common stock in the condensed consolidated statement of cash flows.  The Company repurchased the disputed shares in the second quarter of 2012, and the shares were retired.  In the first quarter of 2012, the value of the disputed shares, $0.8 million as of the arbitration settlement date, was recorded as a reduction to stockholders’ equity as a stock repurchase.  The remaining amount of $0.6 million was recorded as a selling, general and administrative expense in the Company’s condensed consolidated statements of operations and comprehensive loss.

 

Note 5. Business Segments 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.

 

The Company recognized revenue from customers in North America, Asia and Europe as follows (in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

United States

 

$

1,036

 

$

1,088

 

$

1,617

 

$

2,434

 

Taiwan

 

334

 

848

 

771

 

1,637

 

Japan

 

299

 

916

 

693

 

2,210

 

Europe

 

67

 

436

 

79

 

542

 

Other Asia

 

 

4

 

 

8

 

Total

 

$

1,736

 

$

3,292

 

$

3,160

 

$

6,831

 

 

Customers who accounted for at least 10% of total revenues were as follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Customer A

 

35

%

15

%

31

%

13

%

Customer B

 

19

%

26

%

24

%

24

%

Customer C

 

11

%

*

 

*

 

*

 

Customer D

 

 

17

%

*

 

18

%

 


*Represents percentages less than 10%.

 

12



Table of Contents

 

Four customers accounted for 95% of net accounts receivable at June 30, 2012. Four customers accounted for 96% of net accounts receivable at December 31, 2011.

 

Note 6. Income Tax Provision

 

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 Company is not currently under any tax jurisdiction examination.  The 2003 through 2011 tax years generally remain subject to examination by federal, state and foreign tax authorities.  As of June 30, 2012, the Company did not have any unrecognized tax benefits or recognize any interest or penalties related to unrecognized tax benefits.

 

Note 7. Stock-Based Compensation

 

The Company recorded $1.0 million and $0.8 million of stock-based compensation expense for the three months ended June 30, 2012 and 2011, respectively. The Company recorded $2.1 million and $1.6 million of stock-based compensation expense for the six months ended June 30, 2012 and 2011, respectively. The expense relating to stock-based awards is recognized on a straight-line basis over the requisite service period, usually the vesting period, based on the grant-date fair value. The unamortized compensation cost, net of expected forfeitures, as of June 30, 2012 was $5.0 million and is expected to be recognized as expense over a weighted average period of approximately 2.47 years.

 

The Company presents 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 condensed consolidated statements of cash flows. For the three and six months ended June 30, 2012 and 2011, there were no such tax benefits associated with the exercise of stock options due to the Company’s loss position.

 

Common Stock Options and Restricted Stock

 

A summary of the option and restricted stock unit activity under the Company’s Amended and Restated 2000 Stock Option and Equity Incentive Plan and 2010 Equity Incentive Plan (2010 Plan), referred to collectively as the “Plans,” is presented below (in thousands, except exercise price):

 

 

 

 

 

Options Outstanding

 

 

 

Available
for Grant

 

Number of
Shares

 

Weighted
Average
Exercise
Prices

 

Balance at December 31, 2011

 

1,977

 

6,528

 

$

4.48

 

Additional shares authorized under the 2010 Plan

 

500

 

 

 

Options granted

 

(4

)

4

 

$

3.93

 

Options cancelled

 

111

 

(111

)

$

4.23

 

Options exercised

 

 

(34

)

$

2.85

 

Options expired

 

(55

)

 

 

Balance at March 31, 2012

 

2,529

 

6,387

 

$

4.50

 

Options granted

 

(430

)

430

 

$

3.23

 

Options cancelled

 

361

 

(361

)

$

6.70

 

Options exercised

 

 

(20

)

$

1.98

 

Options expired

 

(235

)

 

 

Balance at June 30, 2012

 

2,225

 

6,436

 

$

4.30

 

 

13



Table of Contents

 

A summary of restricted stock awards and restricted stock unit activity for grants outside of the Plans is presented below (in thousands, except fair value):

 

 

 

Number of
Shares

 

Weighted
Average
Grant-Date
Fair Value

 

Non-vested shares at March 31, 2012 and December 31, 2011

 

15

 

$

1.60

 

Vested

 

(11

)

$

1.62

 

Cancelled

 

(4

)

$

1.55

 

Non-vested shares at June 30, 2012

 

 

$

 

 

The Company also has awarded options to new employees outside of the Plans and may continue to do so outside of the 2010 Plan, 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.

 

A summary of the inducement grant option activity is presented below (in thousands, except exercise price):

 

 

 

Options Outstanding

 

 

 

Number of
Shares

 

Weighted
Average
Exercise
Prices

 

Balance at December 31, 2011

 

4,815

 

$

3.29

 

Granted

 

350

 

$

3.92

 

Cancelled

 

(103

)

$

1.54

 

Exercised

 

(111

)

$

1.54

 

Balance at March 31, 2012

 

4,951

 

$

3.41

 

Granted

 

 

 

Cancelled

 

(199

)

$

1.55

 

Exercised

 

(438

)

$

1.55

 

Balance at June 30, 2012

 

4,314

 

$

3.69

 

 

The following table summarizes significant ranges of outstanding and exercisable options, excluding restricted stock awards and restricted stock unit activity, as of June 30, 2012 (in thousands, except contractual life and exercise price):

 

 

 

Options Outstanding

 

Options Exercisable

 

Range of Exercise Price

 

Number
Outstanding

 

Weighted
Average
Remaining
Contractual
Life
(in Years)

 

Weighted
Average
Exercise
Price

 

Aggregate
Intrinsic
value

 

Number
Exercisable

 

Weighted
Average
Remaining
Contractual
Life (in
Years)

 

Weighted
Average
Exercise
Price

 

Aggregate
Intrinsic
value

 

$1.50 - $2.50

 

2,655

 

2.46

 

$

1.73

 

$

4,004

 

1,835

 

2.51

 

$

1.73

 

$

2,770

 

$2.51 - $5.00

 

4,935

 

4.23

 

$

3.90

 

243

 

2,304

 

3.49

 

$

4.11

 

43

 

$5.01 - $7.50

 

2,686

 

3.95

 

$

5.88

 

 

2,013

 

3.64

 

$

5.86

 

 

$7.51 - $15.00

 

474

 

0.95

 

$

8.31

 

 

474

 

0.95

 

$

8.31

 

 

 

 

10,750

 

3.58

 

$

4.05

 

$

4,247

 

6,626

 

3.08

 

$

4.28

 

$

2,813

 

 

As of June 30, 2012, the Company had 10.0 million shares subject to outstanding options fully vested and expected to vest, after estimated forfeitures, with a remaining contractual life of 3.48 years, weighted average exercise price of $4.06 and aggregate intrinsic value of $4.1 million.

 

The total fair value of shares subject to outstanding options vested calculated using the Black-Scholes valuation method was $1.1 million for both the six months ended June 30, 2012 and 2011. The total intrinsic value of employee stock options exercised during the six months ended June 30, 2012 and 2011 was $1.1 million and $1.9 million, respectively.

 

Options to purchase 6.6 million and 5.6 million shares with weighted average exercised prices of $4.28 and $4.47 per share were exercisable at June 30, 2012 and 2011, respectively.

 

14



Table of Contents

 

Valuation Assumptions and Expense Information

 

The fair value of the Company’s share-based payment awards for the three and six months ended June 30, 2012 and 2011 was estimated on the grant date using a Black-Scholes valuation method and an option-pricing model with the following assumptions:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Employee stock options:

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

0.6%

 

1.1% – 1.7%

 

0.6% – 0.8%

 

1.1% – 1.7%

 

Volatility

 

66.3% – 66.8%

 

62.7% – 63.8%

 

66.3% – 66.8%

 

62.7% – 63.8%

 

Expected life (years)

 

4.0

 

4.0

 

4.0

 

4.0

 

Dividend yield

 

0%

 

0%

 

0%

 

0%

 

 

The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates as published by the U.S. Department of the Treasury as of the grant date for terms equal to the expected terms of the options. The expected volatility was based on the combination of: 1) four-year historical volatility and 2) implied volatility of the Company’s stock price. The expected term of options granted was derived from historical data based on employee exercises and post-vesting employment termination behavior. A dividend yield of zero is applied because the Company has never paid dividends and has no intention to pay dividends in the near future.

 

The stock-based compensation expense recorded is adjusted based on estimated forfeiture rates. An annualized forfeiture rate has been used as a best estimate of future forfeitures based on the Company’s historical forfeiture experience. The stock-based compensation expense will be adjusted in later periods if the actual forfeiture rate is different from the estimate.

 

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 has been reserved for issuance under the ESPP. The ESPP, which is intended to qualify under Section 423 of the Internal Revenue Code, is administered by the board of directors or the compensation committee of the board of directors. The ESPP provides that eligible employees may purchase up to $25,000 worth of the Company’s common stock annually over the course of two six-month offering periods. The purchase price to be paid by participants is 85% of the price per share of the Company’s common stock either at the beginning or the end of each six-month offering period, whichever is less.  As of June 30, 2012, there were approximately 1,500,000 shares authorized and unissued under the ESPP.

 

Note 8. Related Party Transactions

 

In February 2012, the Company entered into a strategic development and marketing agreement with Credo Semiconductor (Hong Kong) Ltd. (Credo), a privately-funded fabless semiconductor company, to develop, market and sell integrated circuits.  Two of the Company’s executive officers are investors in Credo.  The agreement calls for the Company to pay approximately $1.4 million to Credo and its hardware vendors upon Credo achieving certain development and verification milestones, of which the Company paid $0.3 million in the first half of 2012, which was accounted for as research and development expense.  The first $1.2 million of gross profits generated by the sale of these integrated circuits will be retained by the Company.  Thereafter, the gross profits will be shared equally by the two companies.

 

Note 9. Subsequent Events

 

The Company has evaluated subsequent events through the date the preparation of these unaudited condensed consolidated financial statements was complete and did not identify any material recognizable subsequent events.

 

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

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this report. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance, all information disclosed under Item 3 of this Part I, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2012 and in other reports that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described below in Risk Factors and elsewhere in this report and under Item 1A of our annual report on Form 10-K for the year ended December 31, 2011. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or events occur in the future.

 

15



Table of Contents

 

Overview

 

Our strategy and primary business objective is to become a fabless semiconductor company focused on the development and sale of Bandwidth Engine integrated circuits (ICs) to networking equipment systems providers and their subsystem and component vendors. Our Bandwidth Engine family of ICs combines our 1T-SRAM high-density embedded memory and high-speed 10 Gigabits per second (Gbps) serial interface (I/O) technology with our intelligent access technology and a highly efficient interface protocol and is initially being marketed to networking systems companies. Bandwidth Engine ICs have been designed to increase system performance by using a serial I/O to increase the accesses per second between the processor and memory components in networking systems.

 

Since the beginning of 2010, we have invested an increasing amount of our financial and engineering resources towards the development of our Bandwidth Engine family of ICs. We shipped initial samples of our first Bandwidth Engine ICs to prospective customers in December 2010, and, in May 2012, we announced our first design wins for low volume applications with original equipment manufacturers. Our future success and ability to achieve and maintain profitability will be dependent on our success in developing a market for our Bandwidth Engine ICs.

 

Historically, our primary business has been defining, designing, marketing and licensing differentiated embedded memory and high-speed parallel and serial interface intellectual property (IP) for advanced systems on chip (SoCs) designs. However, our competitiveness and the demand for licenses to our IP have declined since the beginning of 2011 when we began dedicating more of our engineering and marketing resources to our IC efforts. This trend will continue as we place far more emphasis on IC product sales than on IP transactions.

 

As a result of our reduced licensing activities, we expect our licensing and royalty revenue to decrease in future periods. We do not expect to generate significant revenue from our Bandwidth Engine ICs until 2013, at the earliest, and do not believe that the growth in our IC revenues will offset the decline in our IP revenues and gross margin from historical levels until some time thereafter.. Accordingly, we expect our losses from operations to increase in the near future.

 

Sources of Revenue

 

Licensing.   Licensing revenue consists of fees earned from license agreements, development services, prepaid pre-production royalties, and support and maintenance. Our licensing revenue consists primarily of fees for providing circuit design, layout and design verification and granting licenses to customers that embed our technology into their products. License fees generally range from $100,000 to several million dollars per contract, depending on the scope and complexity of the development project, and the extent of the licensee’s rights. The vast majority of our contracts allow for milestone billing based on work performed. Fees billed prior to revenue recognition are recorded as deferred revenue.

 

Royalty.   Royalty revenue represents amounts earned under provisions in our memory licensing contracts that require our licensees to report royalties and make payments at a stated rate based on actual units manufactured or sold by licensees for products that include our memory IP. Our license agreements require the licensee to report the manufacture or sale of products that include our technology after the end of the quarter in which the sale or manufacture occurs, and we recognize royalties in the quarter in which we receive the licensee’s report.

 

The timing and level of royalties are difficult to predict. They depend on the licensee’s ability to market, produce and sell products incorporating our technology. Many of the products of our licensees that are currently subject to licenses from us are used in consumer products, such as electronic game consoles, for which demand can be seasonal.

 

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

 

16



Table of Contents

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates, and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2011.  As of June 30, 2012, there have been no material changes to our significant accounting policies and estimates.

 

Results of Operations

 

Net Revenue .

 

 

 

June 30,

 

Change

 

 

 

2012

 

2011

 

2011 to 2012

 

 

 

(dollar amounts in thousands)

 

Licensing and other — three months ended

 

$

644

 

$

1,216

 

$

(572

)

(47

)%

Percentage of total net revenue

 

37

%

37

%

 

 

 

 

Licensing and other — six months ended

 

$

865

 

$

2,563

 

$

(1,698

)

(66

)%

Percentage of total net revenue

 

27

%

38

%

 

 

 

 

 

Licensing and other revenue decreased for the three and six months ended June 30, 2012, compared with the same periods of 2011, primarily due to the decline in the number and value of new license agreements.  In the first half of 2012, all licensing revenue was generated from agreements entered into in 2011 and prior years. We do not expect to enter into any new license agreements during the remainder of 2012.

 

 

 

June 30,

 

Change

 

 

 

2012

 

2011

 

2011 to 2012

 

 

 

(dollar amounts in thousands)

 

Royalty — three months ended

 

$

1,092

 

$

2,076

 

$

(984

)

(47

)%

Percentage of total net revenue

 

63

%

63

%

 

 

 

 

Royalty — six months ended

 

$

2,295

 

$

4,268

 

$

(1,973

)

(46

)%

Percentage of total net revenue

 

73

%

62

%

 

 

 

 

 

Royalty revenue decreased for the three and six months ended June 30, 2012, compared with the same period of 2011, primarily due to a decrease in shipments by an IDM licensee whose product is used in the Nintendo Wii® game console and a decrease in royalties received from a major foundry partner.

 

Cost of Net Revenue and Gross Profit.

 

 

 

June 30,

 

Change

 

 

 

2012

 

2011

 

2011 to 2012

 

 

 

(dollar amounts in thousands)

 

Cost of net revenue — three months ended

 

$

179

 

$

469

 

$

(290

)

(62

)%

Percentage of total net revenue

 

10

%

14

%

 

 

 

 

Cost of net revenue — six months ended

 

$

236

 

$

1,159

 

$

(923

)

(80

)%

Percentage of total net revenue

 

7

%

17

%

 

 

 

 

 

 

 

June 30,

 

Change

 

 

 

2012

 

2011

 

2011 to 2012

 

 

 

(dollar amounts in thousands)

 

Gross profit — three months ended

 

$

1,557

 

$

2,823

 

$

(1,266

)

(45

)%

Percentage of total net revenue

 

90

%

86

%

 

 

 

 

Gross profit — six months ended

 

$

2,924

 

$

5,672

 

$

(2,748

)

(48

)%

Percentage of total net revenue

 

93

%

83

%

 

 

 

 

 

Cost of net revenue consists of personnel and related overhead allocation costs for engineers assigned to revenue-generating licensing arrangements and direct and indirect costs related to the sale of IC products.

 

17



Table of Contents

 

Cost of net revenue decreased for the three and six months ended June 30, 2012, compared with the same periods of 2011, primarily due to the lack of new licensing agreements and limited engineering services required on existing contracts during the period.  Cost of net revenue included stock-based compensation expense of $38,000 and $46,000 for the three months ended June 30, 2012 and 2011, respectively, and $46,000 and $107,000 for the six months ended June 30, 2012 and 2011, respectively.

 

Gross profit decreased for the three and six months ended June 30, 2012, compared with the same periods of 2011, primarily due to the decrease in our revenue.  Gross margin percentage increased for the three months ended June 30, 2012, compared with the same period of 2011, primarily due to a fewer number of license agreements requiring customization. Gross margin percentage increased for the six months ended June 30, 2012, compared with the same period of 2011, primarily due to the increase in royalty revenue, which has no related costs, as a percentage of total net revenue, along with a fewer number of license agreements requiring customization.

 

Research and Development.

 

 

 

June 30,

 

Change

 

 

 

2012

 

2011

 

2011 to 2012

 

 

 

(dollar amounts in thousands)

 

Research and development — three months ended

 

$

6,688

 

$

6,566

 

$

122

 

2

%

Percentage of total net revenue

 

385

%

199

%

 

 

 

 

Research and development — six months ended

 

$

14,194

 

$

12,721

 

$

1,473

 

12

%

Percentage of total net revenue

 

449

%

186

%

 

 

 

 

 

Our research and development expenses include development and design of variations of our 1T-SRAM and I/O technologies for use in different manufacturing processes used by licensees, costs related to the development of our IC products and amortization of technology-based intangible assets. We expense research and development costs as they are incurred.

 

The $0.1 million increase for the three months ended June 30, 2012, compared with the same period a year ago, was primarily due to an increase in stock-based compensation expense, offset by a decrease in costs related to the development of our Bandwidth Engine IC.

 

Research and development expenses included stock-based compensation expense of $0.7 million and $0.5 million for the three months ended June 30, 2012 and 2011, respectively.

 

The $1.5 million increase for the six months ended June 30, 2012, compared with the same period a year ago, was primarily related to an increase in stock-based compensation expense and less costs allocated to license agreements requiring customization, offset by decreases in personnel costs resulting from lower headcount.

 

Research and development expenses included stock-based compensation expense of $1.5 million and $0.8 million for the six months ended June 30, 2012 and 2011, respectively.

 

Selling, General and Administrative (SG&A).

 

 

 

June 30,

 

Change

 

 

 

2012

 

2011

 

2011 to 2012

 

 

 

(dollar amounts in thousands)

 

SG&A — three months ended

 

$

1,428

 

$

1,917

 

$

(489

)

(26

)%

Percentage of total net revenue

 

82

%

58

%

 

 

 

 

SG&A — six months ended

 

$

4,354

 

$

4,631

 

$

(277

)

(6

)%

Percentage of total net revenue

 

138

%

68

%

 

 

 

 

 

SG&A expenses consist primarily of personnel and related overhead costs for sales, marketing, application engineering, finance, human resources and general management.

 

The $0.5 million decrease for the three months ended June 30, 2012, compared with the same period a year ago, was primarily due to lower personnel and legal costs.

 

The $0.3 million decrease for the six months ended June 30, 2012, compared with the same period a year ago, was primarily due to lower personnel costs, commissions and stock-based compensation expense.

 

Selling, general and administrative expenses included stock-based compensation expense of $0.3 million for both the three months ended June 30, 2012 and 2011. Selling, general and administrative expenses included stock-based compensation expense of $0.5 million and $0.6 million for the six months ended June 30, 2012 and 2011, respectively.

 

18



Table of Contents

 

We expect total selling, general and administrative expenses to decrease in absolute dollars in the second half of 2012 as the arbitration costs incurred in the first quarter are not expected to recur.

 

Other Income and Expense, net.

 

 

 

June 30,

 

Change

 

 

 

2012

 

2011

 

2011 to 2012

 

 

 

(dollar amounts in thousands)

 

Other income and expense, net — three months ended

 

$

36

 

$

25

 

$

11

 

44

%

Percentage of total net revenue

 

2

%

1

%

 

 

 

 

Other income and expense, net — six months ended

 

$

60

 

$

34

 

$

26

 

76

%

Percentage of total net revenue

 

2

%

 

 

 

 

 

 

Other income and expense, net primarily consisted of interest income on our investments, which was $0.1 million for each of the six months ended June 30, 2012 and 2011, respectively. Interest income was partially offset by expenses, including foreign exchange transaction losses and other non-operating expenses, for the six months ended June 30, 2012 and 2011.

 

Income Tax Provision.

 

 

 

June 30,

 

Change

 

 

 

2012

 

2011

 

2011 to 2012

 

 

 

(dollar amounts in thousands)

 

Income tax provision — three months ended

 

$

30

 

$

17

 

$

13

 

76

%

Percentage of total net revenue

 

2

%

1

%

 

 

 

 

Income tax provision — six months ended

 

$

60

 

$

35

 

$

25

 

71

%

Percentage of total net revenue

 

2

%

1

%

 

 

 

 

 

The provision for the three and six months ended June 30, 2012 and 2011 was attributable to taxes for our foreign subsidiaries and branches and minimum U.S. state income tax liabilities. We believe that, based on the history of our operating losses and other factors, the weight of available evidence indicates that it is more likely than not that we will not be able to realize the benefit of our net operating losses. Accordingly, a full valuation reserve has been recorded against our net deferred tax assets.

 

Liquidity and Capital Resources; Changes in Financial Condition

 

Cash Flows

 

As of June 30, 2012, we had cash, cash equivalents and long and short-term investments of $48.9 million and had total working capital of $28.7 million. Our principal source of cash and investments in 2011 was the sale of patents for $35 million in December 2011.  Our primary capital requirements are to fund working capital, including development of Bandwidth Engine ICs, and any acquisitions that we make that require cash considerations or expenditures.

 

Net cash used in operating activities was $11.2 million for the first six months of 2012, which primarily resulted from the net loss of $13.8 million, increased by the $1.9 million gain on the sale of assets and adjusted for non-cash charges consisting of stock-based compensation of $2.1 million and depreciation and amortization of $1.7 million.  The changes in assets and liabilities primarily related to the timing of billing our customers, collection of receivables and payments to vendors.

 

Net cash used in operating activities was $7.3 million for the first six months of 2011 and was primarily attributable to our net loss of $11.7 million, partially offset by $0.8 million in changes in assets and liabilities, non-cash charges, including stock-based compensation expense of $1.6 million, depreciation and amortization expense of $1.9 million and a provision for doubtful accounts of $0.1 million.  The changes in assets and liabilities primarily related to the timing of billing our customers, collection of receivables and payments to vendors.

 

Net cash used in investing activities was $24.9 million for the first six months of 2012, and included net amounts transferred from cash to marketable securities of $27.0 million that did not impact our liquidity and $2.2 million in proceeds from the sale of SerDes technology in March 2012.

 

19



Table of Contents

 

Net cash used in investing activities was $5.0 million for the first six months of 2011, and included net amounts transferred from cash to marketable securities of $3.7 million that did not impact our liquidity, a $1.0 million earn-out payment related to the MagnaLynx acquisition and $0.3 million for purchases of fixed assets.

 

Our financing activities for the first six months of 2012 primarily consisted of proceeds from the exercise of stock options and our employee stock purchase plan, offset by a payment made to repurchase shares of common stock to comply with an arbitration judgment.  Our proceeds from financing activities for the first six months of 2011 of $2.4 million consisted primarily of funds received from issuance of common stock related to the exercise of stock options and 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 and timing of licensing, royalty and IC product revenue;

 

·                   cost, timing and success of technology development efforts, including meeting customer design specifications;

 

·                   fabrication costs, including mask costs of our Bandwidth Engine ICs, currently under development;

 

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

 

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

 

·                   profitability of our business.

 

We expect our cash expenditures to continue to exceed receipts in 2012 as we will generate minimal revenue from IC sales and expect reduced licensing and royalty revenues compared with 2011, while we continue our research and development efforts for the expansion and fabrication of the Bandwidth Engine IC product line. 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 operating cash requirements through the remainder of 2012 and for the foreseeable future. Should our cash resources prove inadequate, we may seek additional funding through public or private equity or debt financing, and have a shelf registration allowing us to sell up to approximately $30 million of our securities from time to time until November 2013. We also might decide to raise additional capital at such times and upon such terms as management considers favorable and in our interests, including, but not limited to, from the sale of our debt and/or equity securities under our existing shelf registration statement. There can be no assurance that such additional funding will be available to us on favorable terms, if at all. The failure to raise capital when needed could have a material adverse effect on our business and financial condition.

 

Contractual Obligations

 

The impact that our contractual obligations as of June 30, 2012 are expected to have on our liquidity and cash flow in future periods is as follows (in thousands):

 

 

 

Payment Due by Period

 

 

 

Total

 

Less than 1 year

 

1-3 years

 

3-5 years

 

More than
5 years

 

Operating Leases

 

$

6,001

 

$

820

 

$

1,489

 

$

1,387

 

$

2,305

 

Purchase Commitments

 

2,468

 

2,468

 

 

 

 

Capital Lease

 

40

 

40

 

 

 

 

 

 

$

8,509

 

$

3,328

 

$

1,489

 

$

1,387

 

$

2,305

 

 

As of June 30, 2012, we had purchase commitments, primarily related to computer-aided design tools, payable through March 2013 and capital lease obligations for testing equipment.

 

ITEM 3. Qualitative and Quantitative Disclosures about Market Risk

 

Our investment portfolio consists of money market accounts, certificates of deposit, corporate debt, commercial paper, government agency and municipal debt securities. The portfolio dollar-weighted average maturity of these investments is within 12 months.  Our primary objective with this investment portfolio is to invest available cash while preserving principal and meeting liquidity needs. No single security should exceed 5% of the portfolio at the time of purchase. In accordance with our investment policy, we place investments with high credit quality issuers and limit the amount of credit exposure to any one issuer. These

 

20



Table of Contents

 

securities, which approximated $48.4 million as of June 30, 2012 and earned an average annual interest rate of approximately 0.3% during the first six months of 2012, are subject to interest rate and credit risks. We do not have any investments denominated in foreign currencies, and, therefore, are not subject to foreign currency risk on such investments.

 

ITEM 4. Controls and Procedures

 

Disclosure Controls and Procedures.  Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Because of 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.

 

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 June 30, 2012, our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting.   During the second quarter of 2012, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II—OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

The discussion of legal matters in Note 4 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report under the heading “Legal Matters” is incorporated by reference in response to this Part II, Item 1.

 

ITEM 1A. Risk Factors

 

We face many significant risks in our business, some of which are unknown to us and not presently foreseen.  These risks could have a material adverse impact on our business, financial condition and results of operations in the future.  We have disclosed a number of material risks under Item 1A of our annual report on Form 10-K for the year ended December 31, 2011, which we filed with the Securities and Exchange Commission on March 15, 2012.

 

ITEM 5. Other Information

 

At the Company’s 2012 Annual Meeting of Stockholders held on June 5, 2012, Messrs. Stephen L. Domenik and Victor K. Lee were elected to the Company’s board of directors.  Messrs. Domenik and Lee entered into Indemnification Agreements with the Company effective as of June 5, 2012, under which the Company agreed to indemnify the new directors from claims arising from certain events in connection with their service on the board of directors. The form of indemnification agreement was substantially similar to the form of agreement we have previously used to provide indemnification to our other directors and officers.

 

ITEM 6. Exhibits

 

(a)

Exhibits

 

 

 

 

 

10.22

Form of Indemnification Agreement used from June 5, 2012

 

31.1

Rule 13a-14 certification

 

31.2

Rule 13a-14 certification

 

32.1

Section 1350 certification

 

101

The following financial information from MoSys, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2012, filed with the SEC on August 9, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2012 and 2011, (ii) the Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, and (iv) Notes to Condensed Consolidated Financial Statements.

 

21



Table of Contents

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: August 9, 2012

 

MOSYS, INC.

 

 

 

 

 

 

 

By:

/s/ Leonard Perham

 

 

Leonard Perham

 

 

President and Chief Executive Officer

 

 

 

 

By:

/s/ James W. Sullivan

 

 

James W. Sullivan

 

 

Vice President of Finance and Chief Financial Officer

 

 

(Principal Financial Officer)

 

22



Table of Contents

 

EXHIBIT INDEX

 

10.22

 

Form of Indemnification Agreement used from June 5, 2012

31.1

 

Rule 13a-14 certification

31.2

 

Rule 13a-14 certification

32.1

 

Section 1350 certification

101

 

The following financial information from MoSys, Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2012, filed with the SEC on August 9, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2012 and 2011, (ii) the Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011, and (iv) Notes to Condensed Consolidated Financial Statements.

 

23


Exhibit 10.22

 

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (the “Agreement” ) is made as of [                  ], 20    , by and between MoSys, Inc. , a Delaware corporation (the “Company” ), and [                      ] ( “Indemnitee” ).

 

RECITALS

 

The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance.  The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited.  Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection.  The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law.

 

AGREEMENT

 

In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows:

 

1.              Certain Definitions; Construction of Phrases.

 

(a)           “Change in Control” shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the then outstanding securities of the Company that vote generally at elections ( “Voting Securities” ), (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the

 



 

Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company’s assets.

 

(b)           References to the “Company” shall include, in addition to the Company, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which the Company (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

 

(c)           “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).

 

(d)           For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

 

(e)           “Reviewing Party” shall mean (i) a majority of the Company’s Board of Directors who are not parties to the particular claim (even if less than a quorum) for which Indemnitee is seeking indemnification, (ii) a committee of the Company’s Board of Directors comprised of directors who are not parties to the particular claim for which Indemnitee is seeking indemnification, designated by a majority vote of such disinterested directors, or (iii) Independent Legal Counsel.

 

2.     Indemnification.

 

(a)           Third Party Proceedings.   The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, partner or manager or person acting in a similar capacity) of another corporation, partnership, joint venture, trust or other enterprise, against

 

2



 

expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) and other amounts actually and reasonably incurred by, or on behalf of, Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

 

(b)           Proceedings By or in the Right of the Company.   The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by, or on behalf of, Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders.  Termination of any action, suit or proceeding by judgment or settlement shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interest of the Company. Notwithstanding the foregoing, no indemnification under this Section 2(b) shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee’s duty to the Company and its stockholders unless and only to the extent that the Delaware Court of Chancery or the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall determine.

 

(c)           Review of Indemnification.   Notwithstanding the foregoing, (i) the obligations of the Company under Sections 2(a) and 2(b) (unless ordered by a court) shall be subject to the condition that the Reviewing Party shall authorize (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 2(d) hereof is involved) indemnification in the specific case, upon a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct set forth in Sections 2(a) and 2(b), (ii) the obligation of the Company to make an advance of expenses pursuant to Section 4(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that

 

3



 

Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any advance of expenses until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed).  Indemnitee’s obligation to reimburse the Company for any advance of expenses shall be unsecured and no interest shall be charged thereon.  If there has not been a Change in Control, the Reviewing Party shall be selected by a majority of the Company’s directors who are not parties to the particular claim (even if less than a quorum) for which Indemnitee is seeking indemnification, if there are any such disinterested directors.  If there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control) or if there are no such disinterested directors, the Reviewing Party shall be the Independent Legal Counsel.  If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding.  Absent such litigation, any determination by the Reviewing Party shall be conclusive and binding on the Company and Indemnitee.

 

(d)           Change in Control.   The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change in Control), then, with respect to all matters arising prior to the Change in Control, the rights of Indemnitee to payments of expenses and advances of expenses under this Agreement or any other agreement or under the Company’s Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel, if desired by Indemnitee, shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld).  Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law and the Company agrees to abide by such opinion.  The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.  Notwithstanding any other provision of this Agreement, the Company shall not be required to pay expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees.

 

(e)           Mandatory Payment of Expenses.   Notwithstanding the other provisions of this Section 2, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 2(a) or Section 2(b) or the defense of any claim, issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by, of on behalf of, Indemnitee in connection therewith.  For purposes of this Agreement and without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to Indemnitee, (ii) an adjudication that Indemnitee was liable to the Company, (iii) a plea of guilty or nolo contendere by

 

4



 

Indemnitee, (iv) an adjudication that Indemnitee did not act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and (v) with respect to any criminal proceeding, an adjudication that Indemnitee had reasonable cause to believe Indemnitee’s conduct was unlawful, Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto.

 

3.     No Employment Rights.   Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.

 

4.     Expenses; Indemnification Procedure.

 

(a)           Advancement of Expenses.   Except as otherwise determined pursuant to Section 2(c), the Company shall promptly advance all expenses incurred by, or on behalf of, Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section 2(a) or Section 2(b) (including amounts actually paid in settlement of any such action, suit or proceeding).  Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.

 

(b)           Notice/Cooperation by Indemnitee.   Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement.  Notice to the Company shall be directed to the Chief Executive Officer of the Company, or to the Chairman of the Board of Directors or Secretary of the Company if Indemnitee is the Chief Executive Officer, and shall be given in accordance with the provisions of Section 11(d) below.  In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.  Notwithstanding the foregoing, any failure of Indemnitee to provide such notice or information, or to provide such notice or information in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee, except to the extent that such failure actually and materially prejudices the interests of the Company.

 

(c)           Procedure.   If a claim under this Agreement, under any statute, or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within 30 days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 9 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees) of bringing such action.  It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed.  It is the parties’ intention that, if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its

 

5



 

stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

 

(d)           Notice of Insurers.   If, at the time of the receipt of a notice of a claim pursuant to Section 4(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(e)           Selection of Counsel.   In the event the Company shall be obligated under Section 4(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company shall be entitled to assume the defense of such proceeding, with counsel reasonably acceptable to Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of other counsel subsequently incurred by, or on behalf of, Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ additional counsel in any such proceeding at Company’s expense if:  (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) counsel to the Company or Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding.  The Company shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company or as to which counsel to the Company or Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above.

 

5.     Additional Indemnification Rights; Nonexclusivity.

 

(a)           Scope.   Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, the Company’s Bylaws or by statute, including, but not limited to, Section 102(b)(7) of the Delaware General Corporation Law.  In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee’s rights and the Company’s obligations under this Agreement.  In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

 

(b)           Nonexclusivity.   The indemnification provided by this Agreement shall not be deemed exclusive of any additional rights to indemnification to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company’s Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office.  The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken

 

6



 

while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding.

 

6.     Partial Indemnification.   If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments,  fines or penalties to which Indemnitee is entitled.

 

7.     Mutual Acknowledgment.   Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise.  For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the “SEC” ) has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

 

8.     Severability.   Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law.  The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement.  The provisions of this Agreement shall be severable as provided in this Section 8.  If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

 

9.     Exceptions.   Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

 

(a)           Claims Initiated by Indemnitee.   To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate;

 

(b)           Lack of Good Faith.   To indemnify Indemnitee for any expenses incurred by, or on behalf of, Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous;

 

(c)           Insured Claims.   To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to

 

7



 

Indemnitee by an insurance carrier under a policy of officers’ and directors’ liability insurance maintained by the Company;

 

(d)           Non-compete and Non-disclosure.   To indemnify Indemnitee in connection with proceedings or claims involving the enforcement of non-compete and/or non-disclosure agreements or the non-compete and/or non-disclosure provisions of employment, consulting or similar agreements the Indemnitee may be a party to with the Company, any subsidiary of the Company or any other applicable foreign or domestic corporation, partnership, joint venture, trust or other enterprise, if any; or

 

(e)           Claims Under Section 16(b).   To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

 

10.  Attorneys’ Fees.   In the event that any action is instituted by either Indemnitee or by or in the name of the Company under this Agreement, the prevailing party shall be entitled to such party’s costs of suit and reasonable attorneys’ fees, which shall be payable whether or not such action or proceeding is prosecuted to judgment.

 

11.  Miscellaneous.

 

(a)           Governing Law.   This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of Delaware, without giving effect to principles of conflicts of laws.

 

(b)           Entire Agreement; Enforcement of Rights.   This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them.  No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement.  The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

 

(c)           Construction.   This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any;  accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto.

 

(d)           Notices.   Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by confirmed facsimile or 24 hours after being deposited with a nationally recognized overnight courier or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party’s address or facsimile number as set forth below or as subsequently modified by written notice.

 

(e)           Counterparts.   This Agreement may be executed in two or more counterparts, and delivery of a signed counterpart by facsimile transmission will constitute due execution and delivery of this Agreement.

 

8



 

(f)            Successors and Assigns.   This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee’s heirs and legal representatives.

 

(g)           Subrogation.   In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights.  The Company shall pay or reimburse all expenses actually and reasonably incurred by, or on behalf of, Indemnitee in connection with such subrogation.

 

The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement.

 

 

MOSYS, INC.

 

a Delaware corporation

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

 

 

Address:

 

 

 

3301 Olcott Street

 

Santa Clara, CA 95054

 

 

 

 

AGREED TO AND ACCEPTED:

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

 

 

Name

 

 

 

Address:

 

 

9


Exhibit 31.1

 

CERTIFICATION PURSUANT TO

 

RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

 

I, Leonard Perham, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of MoSys, Inc. for the period ended June 30, 2012;

 

2.               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 ;

 

3.               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 ;

 

4.               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)                                  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;

 

(b)                                  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;

 

(c)                                   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

 

(d)                                  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)                                  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

 

(b)                                  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: August 9, 2012

 

 

 

/s/ Leonard Perham

 

Leonard Perham

 

President and Chief Executive Officer

 

 


Exhibit 31.2

 

CERTIFICATION PURSUANT TO

 

RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

 

I, James W. Sullivan, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of MoSys, Inc. for the period ended June 30, 2012;

 

2.               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;

 

3.               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;

 

4.               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)                                  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;

 

(b)                                  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;

 

(c)                                   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

 

(d)                                  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)                                  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

 

(b)                                  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: August 9, 2012

 

 

 

/s/ James W. Sullivan

 

James W. Sullivan

 

Vice President of Finance and Chief Financial Officer

 

 


Exhibit 32.1

 

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

 

In connection with the Quarterly Report on Form 10-Q of MoSys, Inc. (the “Company”) for the quarterly period ended June 30, 2012 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, Vice President of Finance and 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

 

August 9, 2012

 

 

 

/s/ James W. Sullivan

 

James W. Sullivan

 

Vice President of Finance and Chief Financial Officer

 

August 9, 2012

 

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.