MoSys, Inc. (Form: 10-Q, Received: 11/12/2021 11:17:07)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

☒

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

For the quarterly period ended September 30, 2021

☐

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)

2309 Bering Drive

San Jose, California, 95131

(Address of principal executive office and zip code)

(408) 418-7500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

MOSY

The Nasdaq Stock Market, LLC

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 ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 8,704,723 as of November 8, 2021.

MOSYS, INC.

FORM 10-Q

September 30, 2021

TABLE OF CONTENTS

PART I —	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited):	3

	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020	4

	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 4.	Controls and Procedures	25

PART II —	OTHER INFORMATION	25

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 6.	Exhibits	27

	Signatures	28

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

MOSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

	September 30,			December 31,
	2021			2020
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	9,820		$	5,889
Short-term investments		8,213			—
Accounts receivable, net		749			701
Inventories		1,153			599
Prepaid expenses and other		694			668
Total current assets		20,629			7,857
Long-term investments		3,203			—
Property and equipment, net		89			121
Right-of-use lease asset, net		155			303
Other		18			17
Total assets	$	24,094		$	8,298
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	144		$	76
Accrued expenses and other		1,562			1,300
Deferred revenue		162			15
Short-term lease liability		163			201
PPP note payable, current		—			244
Total current liabilities		2,031			1,836
Convertible notes payable		—			3,092
PPP note payable		—			335
Long-term lease liability		—			103
Total liabilities		2,031			5,366
Commitments and contingencies (Note 5)
Stockholders’ equity
Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.001 par value; 120,000 shares authorized; 8,686 shares and 3,554 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		9			3
Additional paid-in capital		268,967			245,548
Accumulated other comprehensive loss		(6	)		—
Accumulated deficit		(246,907	)		(242,619	)
Total stockholders’ equity		22,063			2,932
Total liabilities and stockholders’ equity	$	24,094		$	8,298

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

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Net revenue
Product	$	1,210		$	1,803		$	3,405		$	4,550
Royalty and other		127			168			438			649
Total net revenue		1,337			1,971			3,843			5,199
Cost of net revenue		376			677			1,315			1,811
Gross profit		961			1,294			2,528			3,388
Operating expenses
Research and development		1,281			972			3,662			2,918
Selling, general and administrative		1,398			955			3,756			3,054
Total operating expenses		2,679			1,927			7,418			5,972
Loss from operations		(1,718	)		(633	)		(4,890	)		(2,584	)
Interest expense		—			(70	)		(30	)		(181	)
Other income (expense), net		4			(4	)		632			14
Net loss		(1,714	)		(707	)		(4,288	)		(2,751	)
Deemed dividend for warrant exercise price adjustment		—			—			—			(392	)
Net loss attributable to common stockholders	$	(1,714	)	$	(707	)	$	(4,288	)	$	(3,143	)

Other comprehensive loss, net of tax:
Net unrealized loss on available-for-sale securities		(2	)		—			(6	)		—
Comprehensive loss	$	(1,716	)	$	(707	)	$	(4,294	)	$	(2,751	)


Net loss per share attributable to common stockholders
Basic and diluted	$	(0.20	)	$	(0.20	)	$	(0.63	)	$	(1.03	)
Shares used in computing net loss per share
Basic and diluted		8,676			3,546			6,812			3,037

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

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

								Accumulated
					Additional			Other
	Common Stock				Paid-In			Comprehensive			Accumulated
	Shares		Amount		Capital			Loss			Deficit			Total
Balance as of December 31, 2020		3,554	$	3	$	245,548		$	—		$	(242,619	)	$	2,932
Issuance of common stock under stock plan, net		16		—		(2	)		—			—			(2	)
Exercise of warrants		1,033		1		2,477			—			—			2,478
Issuance of common stock for payment of accrued interest		43		—		140			—			—			140
Sale of common stock, net of placement costs		1,488		2		6,815			—			—			6,817
Stock-based compensation		—		—		68			—			—			68
Unrealized loss on available-for-sale investments		—		—		—			(1	)		—			(1	)
Net loss		—		—		—			—			(1,369	)		(1,369	)
Balance as of March 31, 2021		6,134	$	6	$	255,046		$	(1	)	$	(243,988	)	$	11,063
Issuance of common stock under stock plan, net		2		—		—			—			—			—
Exercise of warrants		706		1		1,695			—			—			1,696
Sale of common stock, net of placement costs		1,818		1		11,968			—			—			11,969
Stock-based compensation		—		—		97			—			—			97
Unrealized loss on available-for-sale investments		—		—		—			(3	)		—			(3	)
Net loss		—		—		—			—			(1,205	)		(1,205	)
Balance as of June 30, 2021		8,660	$	8	$	268,806		$	(4	)	$	(245,193	)	$	23,617
Issuance of common stock under stock plan, net		20		—		(3	)		—			—			(3	)
Exercise of warrants		6		1		14			—			—			15
Stock-based compensation		—		—		150			—			—			150
Unrealized loss on available-for-sale investments		—		—		—			(2	)		—			(2	)
Net loss		—		—		—			—			(1,714	)		(1,714	)
Balance as of September 30, 2021		8,686	$	9	$	268,967		$	(6	)	$	(246,907	)	$	22,063

								Accumulated
					Additional			Other
	Common Stock				Paid-In			Comprehensive			Accumulated
	Shares		Amount		Capital			Loss			Deficit			Total
Balance as of December 31, 2019		2,179	$	2	$	243,281		$	—		$	(238,447	)	$	4,836
Issuance of common stock for release of awards		20		—		(1	)		—			—			(1	)
Exercise of pre-funded warrants		116		—		2			—			—			2
Stock-based compensation		—		—		68			—			—			68
Net loss		—		—		—			—			(1,405	)		(1,405	)
Balance as of March 31, 2020		2,315	$	2	$	243,350		$	—		$	(239,852	)	$	3,500
Issuance of common stock for release of awards		1		—		—			—			—			—
Sale of common stock, net of placement costs		1,218		1		1,618			—			—			1,619
Deemed dividend for warrant exercise price adjustment		—		—		392			—			(392	)		—
Stock-based compensation		—		—		66			—			—			66
Net loss		—		—		—			—			(639	)		(639	)
Balance as of June 30, 2020		3,534	$	3	$	245,426		$	—		$	(240,883	)	$	4,546
Issuance of common stock for release of awards		19		—		(1	)		—			—			(1	)
Stock-based compensation		—		—		63			—			—			63
Net loss		—		—		—			—			(707	)		(707	)
Balance as of September 30, 2020		3,553	$	3	$	245,488		$	-		$	(241,590	)	$	3,901

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

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended
	September 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(4,288	)	$	(2,751	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		51			121
Stock-based compensation		315			197
Accrued interest		30			181
Amortization of lease right-of-use asset		147			—
Change in operating lease liability		(141	)		(5	)
Gain on settlement of convertible notes payable and accrued interest, net		(48	)		—
Gain on extinguishment of PPP Note		(579	)		—
Changes in assets and liabilities:
Accounts receivable		(48	)		385
Inventories		(554	)		255
Prepaid expenses and other assets		(26	)		174
Accounts payable		68			(138	)
Deferred revenue and other liabilities		502			(35	)
Net cash used in operating activities		(4,571	)		(1,616	)
Cash flows from investing activities:
Purchases of property and equipment		(19	)		(14	)
Proceeds from maturities of short-term investments		1,250			300
Purchases of investments		(12,672	)		—
Net cash provided by (used in) investing activities		(11,441	)		286
Cash flows from financing activities:
Proceeds from sale of common stock, net		18,786			1,619
Proceeds from exercise of common stock warrants		4,189			2
Repayment of convertible notes payable		(3,027	)		—
Proceeds from PPP note		—			579
Taxes paid to net share settle equity awards		(5	)		(2	)
Net cash provided by financing activities		19,943			2,198
Net increase in cash and cash equivalents		3,931			868
Cash and cash equivalents at beginning of period		5,889			6,053
Cash and cash equivalents at end of period	$	9,820		$	6,921
Supplemental disclosure:
Issuance of convertible notes in settlement of accrued interest	$	—		$	234
Settlement of accrued interest through issuance of common shares	$	123		$	—
Fair value of warrant exercise price adjustment considered as deemed dividend	$	—		$	392

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

MOSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. The Company and Summary of Significant Accounting Policies

MoSys, Inc. (the Company) was incorporated in California in 1991 and reincorporated in 2000 in Delaware. The Company provides both integrated circuits (ICs) and intellectual property (IP) solutions that enable fast, intelligent data access and decision making for a wide range of markets. The Company’s primary product line is marketed under the Accelerator Engine name and includes the Bandwidth Engine IC products, which integrate the Company’s proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance. In 2020, the Company began offering for license the first of its Virtual Accelerator Engine IP solutions which comprise software, firmware and related IP. The Company’s VAE IP solutions will include multiple function accelerator platform products, which target specific application functions, such as packet classifications, and use a common software interface to allow performance scalability over multiple hardware environments.

The accompanying condensed consolidated financial statements of the Company have been prepared without audit.

The condensed consolidated balance sheet as of December 31, 2020 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 of the Securities and Exchange Commission (SEC). 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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 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 ends on December 31 of each calendar year.

Risks and Uncertainties

The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public markets.

COVID-19

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This has negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The full extent of the COVID-19 impact on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of the Company’s control, and cannot be predicted.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at

the date of the financial statements and the reported amounts of revenues and expenses recognized during the reported period. Actual results could differ from those estimates.

Cash Equivalents and Investments

The Company has invested its excess cash in money market accounts, certificates of deposit, commercial paper, corporate debt, government-sponsored enterprise bonds and municipal bonds and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. Management generally determines the appropriate classification of securities at the time of purchase. All securities are classified as available-for-sale. The Company’s available-for-sale short-term investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income. Realized gains and losses and declines in the value judged to be other than temporary are included in the other income, 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.

Fair Value Measurements

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

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

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

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

Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates and generally does not require collateral from its customers. A specific allowance of up to 100% of the invoice value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company grants credit only to customers deemed creditworthy in the judgment of management. There was no allowance for doubtful accounts at either September 30, 2021 or December 31, 2020.

Inventories

The Company values its inventories at the lower of cost, which approximates actual cost on a first-in, first-out basis, or net realizable 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. Charges for obsolete and slow-moving inventories are recorded based upon an analysis of specific identification of obsolete inventory items and

quantification of slow moving inventory items. The Company recorded no material write-downs of inventory during the nine months ended September 30, 2021 and recorded write-downs of $0.1 million for the nine months ended September 30, 2020.

Revenue Recognition

The Company generates revenue primarily from sales of IC products and licensing of its IP. Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.

IC products

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied.

The majority of the Company’s contracts have a single performance obligation to transfer products. Accordingly, the Company recognizes revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. The Company sells its products both directly to customers and through distributors generally under agreements with payment terms typically less than 60 days.

Royalty and other

The Company’s licensing contracts typically provide for royalties based on the licensee’s use of the Company’s memory technology in its currently shipping commercial products. The Company estimates its royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are generally received in the subsequent quarter.

Contract liabilities – deferred revenue

The Company’s contract liabilities consist of advance customer payments and deferred revenue. The Company classifies advance customer payments and deferred revenue as current or non-current based on the timing of when the Company expects to recognize revenue.

During the nine months ended September 30, 2021, the Company recognized no revenue that had been included in deferred revenue as of December 31, 2020.

See Note 6 for disaggregation of revenue by geography.

Cost of Net Revenue

Cost of net revenue consists primarily of direct and indirect costs of IC product sales and engineering personnel costs directly related to maintenance and support services specified in licensing agreements. Maintenance and support typically includes engineering support to assist in the commencement of production of a licensee’s products.

Warrants

As of September 30, 2021, the Company had the following warrants outstanding (share amounts in thousands):


Type	Number of Shares		Exercise Price		Expiration
Common stock		33	$	47.00	January 2023
Common stock		101	$	2.40	October 2023

Per Share Amounts

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share gives effect to all potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares of common stock consist of incremental shares of common stock issuable upon the exercise of stock options, vesting of stock awards and shares issuable in conjunction with convertible notes.

The following table sets forth securities outstanding that were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive (in thousands):


	September 30,
	2021		2020
Options outstanding to purchase common stock		159		160
Unvested restricted common stock units		94		60
Convertible notes		—		271
Warrants		134		1,879
Total		387		2,370

Note 2: Proposed Arrangement with Peraso Technologies Inc.

On September 14, 2021, the Company and its newly formed subsidiaries, 2864552 Ontario Inc. (Callco) and 2864555 Ontario Inc. (Canco), both corporations existing under the laws of the province of Ontario, entered into an Arrangement Agreement (the Agreement) with Peraso Technologies Inc., a corporation existing under the laws of the province of Ontario (Peraso). Under the Agreement, the Company, indirectly through Canco, is to acquire all of the issued and outstanding common shares of Peraso (Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures of Peraso and common share purchase warrants of Peraso, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario) (the OBCA), on and subject to the terms and conditions of the Agreement.

The Agreement provides that the Peraso stockholders may elect to receive either shares of the Company’s common stock or shares of the capital stock of Canco (the Exchangeable Shares) in exchange for such holder’s Peraso Shares, in each case based on an exchange ratio (the Exchange Ratio) to be determined based on the number of Peraso Shares and Company’s common stock outstanding as of immediately prior to the effective time of the Arrangement (the “Effective Time”). Pursuant to the terms of the Agreement, at the Effective Time, the Company shall hold an aggregate of 1,815,445 Exchangeable Shares and its common stock (collectively, the Earnout Shares). Such Earnout Shares shall be escrowed pursuant to the terms of an escrow agreement on a pro rata basis from the aggregate consideration to be received by the Peraso stockholders, subject to the offset by the Company for any losses in accordance with the Agreement. Such Earnout Shares shall be released, subject to any offset claim, upon the satisfaction of the earlier of: (a) any date following the first anniversary of the Effective Time and prior to the third anniversary of the Effective Time where the volume weighted average price of the Common Stock for any 20 trading days within a period of 30 consecutive trading days is at least $8.57 per share, subject to adjustment for stock splits or other similar transaction; (b) the date of any sale of all or substantially all of the assets or shares of the Company; or (c) the date of any bankruptcy, insolvency, restructuring, receivership, administration, wind-up, liquidation, dissolution, or similar event involving the Company.

Following the Effective Time, each Exchangeable Share will be exchangeable by the holder for one share of Common Stock (subject to customary adjustments for stock splits or other reorganizations). In addition, the Company may require all outstanding Exchangeable Shares to be exchanged upon the occurrence of certain events and at any time following the seventh anniversary of the closing of the Arrangement. While outstanding, holders of Exchangeable Shares will be entitled to cast votes on matters for which holders of Common Stock are entitled to vote and will be entitled to receive dividends economically equivalent to the dividends declared by the Company with respect to the Common Stock. Eligibility to receive Exchangeable Shares will be subject to certain Canadian residency restrictions and tax statuses.

The Agreement also provides that Peraso stock options, which are exercisable for Peraso Shares, will be replaced with an option to acquire Common Stock to be issued by the Company in consideration for cancellation of the Peraso

options and exercisable for shares of Common Stock after the Effective Time, in each case with adjustments based on the Exchange Ratio. The exact number of shares of Common Stock that will be issued pursuant to the Arrangement will be determined at the Effective Time in accordance with the Exchange Ratio.

Immediately following the Effective Time, based on the Exchange Ratio, the former stockholders of Peraso are anticipated to own approximately 61% of the economic and voting interest of the combined company with the Company’s current stockholders holding the remaining 39% economic and voting interest, as calculated on a fully-diluted basis and including the Earnout Shares.

The consummation of the Arrangement is subject to certain closing conditions precedent, including both the Company’s and Peraso’s stockholders approval of the Agreement and transactions contemplated therein; the order of the Ontario Superior Court of Justice (Commercial List) granted pursuant to Section 182(5) of the Business Corporations Act (Ontario); all regulatory approvals; the continuing listing of the Common Stock on Nasdaq; and other customary closing conditions.

The transaction is expected to close in the fourth calendar quarter of 2021 and to be implemented by way of an arrangement under the OBCA. The Agreement provides for customary representations, warranties and covenants, including covenants of each party to (i) subject to certain exceptions, carry on its business in the ordinary course of business consistent with past practice during the period between the execution of the Agreement and the Effective Time and (ii) not solicit any alternate transactions or, subject to certain exceptions, to engage in any discussions or negotiations with respect thereto. Subject to certain terms and conditions, the Agreement may be terminated if the Effective Time does not occur on or before November 30, 2021, subject to certain automatic extensions. The Agreement may also be terminated by either party, if the respective stockholders’ approval is not obtained, in the event of material adverse effect, or a superior proposal in connection with an alternative acquisition. The Agreement subjects the parties to certain termination payment obligations. If the Agreement is terminated because of the failure to obtain stockholders’ approval, the party that failed to obtain such approval will be obligated to pay a fee of $750,000 to the other party. If the Agreement is terminated by either party as a result of obtaining a superior proposal from a third party, breach of non-solicitation covenants of the Agreement, or because either party’s board of directors fails to unanimously recommend to proceed with the Arrangement or withdraws its recommendation, the breaching party will be required to pay a termination fee of $3,500,000.

Note 3: Fair Value of Financial Instruments

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

	September 30, 2021
			Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Cash and cash equivalents	$	9,820	$	—	$	—		$	9,820
Short-term investments		8,216		—		(3	)		8,213
Long-term investments		3,206		—		(3	)		3,203
	$	21,242	$	—	$	(6	)	$	21,236

	December 31, 2020
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash and cash equivalents	$	5,889	$	—	$	—	$	5,889

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) (in thousands):

	September 30, 2021
	Fair Value		Level 1		Level 2		Level 3
Money market funds	$	7,948	$	7,948	$	—	$	—
Corporate notes and commercial paper (1)	$	11,916	$	—	$	11,916	$	—
	$	19,864	$	7,948	$	11,916	$	—

	December 31, 2020
	Fair Value		Level 1		Level 2		Level 3
Money market funds	$	3,893	$	3,893	$	—	$	—

(1) Includes $0.5 million in cash and cash equivalents on the accompanying condensed consolidated balance sheet due to original maturities of less than three months. There were no transfers in or out of Level 1 and Level 2 securities during the nine months ended September 30, 2021 or 2020.

Note 4. Balance Sheet Detail

	September 30,		December 31,
	2021		2020
	(in thousands)
Inventories:
Work-in-process	$	707	$	414
Finished goods		446		185
	$	1,153	$	599

Note 5. Commitments and Contingencies

Indemnification

In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising from certain events as outlined within the particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. The Company has also entered into indemnification agreements with its officers and directors. No material amounts were reflected in the Company’s condensed consolidated financial statements for the nine months ended September 30, 2021 or 2020 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 material payments related to these indemnification agreements.

Legal Matters

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

Note 6. Business Segments, Concentration of Credit Risk and Significant Customers

The Company operates in one business segment and uses one measurement of profitability for its business. Net revenue is attributed to the United States and to all foreign countries based on the geographical location of the customer.

The Company recognized revenue from shipment of product and licensing of its technologies to customers by geographical location as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
North America	$	906	$	1,494	$	2,825	$	4,112
Japan		274		343		548		593
Taiwan		103		93		299		340
Rest of world		54		41		171		154
Total net revenue	$	1,337	$	1,971	$	3,843	$	5,199

Customers who accounted for at least 10% of total net revenue were:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021	2020	2021	2020
Customer A	31%	24%	35%	26%
Customer B	21%	17%	14%	11%
Customer C	20%	11%	25%	*
Customer D	14%	*	*	*

*	Represents less than 10%

Four customers accounted for 88% of accounts receivable as of September 30, 2021. Three customers accounted for 86% of accounts receivable as of December 31, 2020.

Note 7. 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. All tax returns from 2015 to 2020 may be subject to examination by the Internal Revenue Service, California and other states. Returns filed in foreign jurisdictions may be subject to examination for the years 2011 to 2020. As of September 30, 2021, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions.

Note 8. Stock-Based Compensation

Common Stock Equity Plans

In 2010, the Company adopted the 2010 Equity Incentive Plan and later amended it in 2014, 2017 and 2018 (the Amended 2010 Plan). The Amended 2010 Plan was terminated in August 2019 and remains in effect as to outstanding equity awards granted prior to the date of expiration. As of September 30, 2021, no new awards may be made under the Amended 2010 Plan, and equity awards for approximately 94,224 shares were outstanding.

In August 2019, the Company’s stockholders approved the 2019 Stock Incentive Plan (the 2019 Plan), and it replaced the Amended 2010 Plan. The 2019 Plan authorizes the board of directors or the compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units. Under the 2019 Plan, 182,500 shares have been reserved for issuance. The 2019 Plan provides for annual option grants or other awards to the Company’s non-employee directors to acquire up to 2,000 shares and for a one-time grant of an option or other award to a non-employee director to acquire up to 6,000 shares upon his or her initial appointment or election to the board of directors.

Under the 2019 Plan, the term of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the Company’s stock may not exceed five years. The exercise price of stock options granted under the 2019 Plan must be at least equal to the fair market value of the shares on the date of grant. Generally, awards under the 2019 Plan will vest over a three to four-year period, and options will have a term of 10 years from the date of grant. In addition, the 2019 Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control of the Company.

The Amended 2010 Plan and the 2019 Plan are referred to collectively as the “Plans.”

The expense relating to stock options 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, as of September 30, 2021, was $0.1 million related to stock options and is expected to be recognized as expense over a weighted-average period of approximately 0.9 years. The expense related to restricted stock units (RSUs) is generally recognized over a three-year vesting period and is based on the fair value of the underlying stock on the dates of grant. The unamortized compensation cost, as of September 30, 2021, was $0.4 million related to RSUs and is expected to be recognized as expense over a weighted-average period of approximately 0.7 years.

For the three and nine months ended September 30, 2021 and 2020, there were no excess tax benefits associated with the exercise of stock options due to the Company’s historical loss positions.

Valuation Assumptions

There were no stock options granted during the nine months ended September 30, 2021 and 2020.

Common Stock Options and Restricted Stock

The term of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the Company’s stock may not exceed five years. The exercise price of stock options granted under the 2019 Plan must be at least equal to the fair market value of the shares on the date of grant. Generally, options granted under the 2019 Plan will vest over a three to four-year period and have a term of 10 years from the date of grant. In addition, the 2019 Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control of the Company.

The following table summarizes the activity in the shares available for grant under the Plans during the nine months ended September 30, 2021 (in thousands, except exercise price):

				Options outstanding
						Weighted
	Shares					Average
	Available			Number of		Exercise
	for Grant			Shares		Prices
Balance as of January 1, 2021		81			159	$	10.82
RSUs granted		(10	)		—		—
Balance as of March 31, 2021		71			159	$	10.82
RSUs granted		(59	)		—		—
Balance as of June 30, 2021		12			159	$	10.82
RSUs granted		—			—		—
Balance as of September 30, 2021		12			159	$	10.82

A summary of RSUs activity under the Plans is presented below (in thousands, except for fair value):

				Weighted
				Average
	Number of			Grant-Date
	Shares			Fair Value
Non-vested shares as of January 1, 2021		65		$	3.48
Granted		10		$	3.25
Vested		(17	)	$	3.78
Non-vested shares as of March 31, 2021		58		$	3.35
Granted		59		$	6.70
Vested		(2	)	$	3.11
Non-vested shares as of June 30, 2021		115		$	5.08
Vested		(20	)	$	3.49
Cancelled		(1	)	$	4.55
Non-vested shares as of September 30, 2021		94		$	5.43

The fair value of the RSUs granted during the nine months ended September 30, 2021 was $0.5 million.

The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2021 (in thousands, except contractual life and exercise price):

	Options Outstanding						Options Exercisable
			Weighted
			Average
			Remaining		Weighted				Weighted
			Contractual		Average				Average		Aggregate
	Number		Life		Exercise		Number		Exercise		Intrinsic
Range of Exercise Price	Outstanding		(in Years)		Price		Exercisable		Price		value
$1.57 - $14.99		143		7.51	$	2.62		101	$	2.80	$	219
$15.00 - $25.59		8		1.99	$	15.00		8	$	15.00	$	—
$25.60 - $143.99		2		2.60	$	41.81		2	$	41.81	$	—
$144.00 - $409.99		5		4.90	$	144.00		5	$	144.00	$	—
$410.00 - $924.00		1		3.44	$	430.64		1	$	430.64	$	—
$1.57 - $924.00		159		7.05	$	10.82		117	$	13.91	$	219

There was no stock options exercised during the nine months ended September 30, 2021 and 2020.

Note 9: Stockholders’ Equity

In February 2021, the Company completed a registered direct offering of securities under an effective registration statement filed with the SEC pursuant to the Securities Act of 1933, as amended. In the offering, the Company sold 1,487,601 shares of common stock at a price of $5.00 per share to institutional investors. Net proceeds of the offering, after placement agent and other fees and expenses paid by the Company, were approximately $6.8 million.

In June 2021, the Company completed a registered direct offering of securities under an effective registration statement filed with the SEC pursuant to the Securities Act of 1933, as amended. In the offering, the Company sold 1,818,181 shares of common stock at a price of $7.15 per share to institutional investors. Net proceeds of the offering, after placement agent and other fees and expenses paid by the Company, were approximately $12.0 million.

During the nine months ended September 30, 2021, the Company received a total of $4,189,000 of proceeds from the exercise of 1,744,769 warrants to purchase shares of common stock at a price of $2.40 per share.

Note 10. Notes Payable

Convertible Notes

In March 2016, the Company entered into a 10% Senior Secured Convertible Note Purchase Agreement (the Purchase Agreement) with the purchasers of $8,000,000 principal amount of 10% Senior Secured Convertible Notes due August 15, 2018 (the Notes), at par, in a private placement transaction effected pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended. Pursuant to amendments to the Notes and related documents in February and October 2018, the interest rate was reduced to 8%, the maturity date of the Notes was extended to August 15, 2023, and the optional conversion price was reduced from $170.00 of Note principal per share of common stock to $11.434 of Note principal per share of common stock.

In accordance with the October 2018 amendment to the Notes, the Company used $7.4 million of the proceeds from a public offering of securities effected in October 2018 to repay a portion of the Notes. Semi-annual interest payments have been made in each of February 2019, August 2019, February 2020 and August 2020 for approximately $78,000, $109,000, $112,000 and $122,000, respectively, in-kind with the issue of additional notes (Interest Notes) to the Purchasers. The Interest Notes have terms identical to the Notes.

During the nine months ended September 30, 2021 the Company issued 42,672 shares of its common stock valued at $139,964 to the Note holder in settlement of accrued interest of $123,066. The Company recorded a loss of $16,898 on this payment, which was recorded in other income in the condensed consolidated statements of operation.

In January and February 2021, a holder of warrants, who was also the holder of the Notes, exercised warrants to purchase 613,791 shares of the Company’s common stock at an exercise price of $2.40 per share for total proceeds of $1,473,098. The proceeds from the exercise of these warrants were used to repay a portion of the principal amount of the Notes.

In March 2021, the Company made a repayment of $1,554,173 in settlement of the outstanding principal amount of the Notes, and the Note holder’s security interest was terminated. The Company recorded a gain of $64,757 on the Note settlement, and the gain was recorded in other income in the condensed consolidated statements of operations.

PPP Note

On May 7, 2020, the Company entered into a Promissory Note with Wells Fargo Bank, N.A. (the Lender) in an aggregate principal amount of $579,330 (the PPP Note), pursuant to the Paycheck Protection Program (the PPP) under the CARES Act.

The Company applied to the Lender for forgiveness of the PPP Note, under the terms of the PPP, and, in May 2021, obtained forgiveness for the full amount of the PPP Note and recognized the forgiven amount in other income in the condensed consolidated statements of operations.

Note 11. Leases

The Company has one lease, which is the lease for its corporate facility that expires in July 2022, that it accounts for under Accounting Standards Update No. 2016-02. The right-of-use asset and corresponding liability for the facility lease have been measured at the present value of the future minimum lease payments. The discount rate used to measure the lease asset and liability represents the interest rate on the Notes (8%). Lease expense is recognized on a straight-line basis over the lease term, and operating lease expense was approximately $0.2 million and $0.2 million for the nine months ended September 30, 2021 and 2020, respectively. The Company does not have an option to extend the lease term beyond the current extension.

Future minimum payments under the facility operating lease at September 30, 2021 were as follows (in thousands):

	Operating
Year ending December 31,	lease
2021	$	52
2022		113
Total future lease payments		165
Less: imputed interest		(2	)
Present value of lease liabilities	$	163

Supplemental cash flow information related to the operating lease was as follows (in thousands):

		Nine Months Ended
		September 30,
		2021		2020

Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows for lease	$	153	$	168
Non-cash activity:
	Recognition of additional right-of-use asset and liability upon lease modification	$	—	$	352

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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising efforts, risks inherent in our ability to consummate the proposed business combination with Peraso Technologies, Inc., the impacts of COVID-19 on our business, 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 18, 2021 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 under Item 1A of our annual report on Form 10-K for the year ended December 31, 2020 and the risk factors described below under Item 1A of this Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason, except as required by law, even as new information becomes available or events occur in the future.

Company Overview

Our strategy and primary business objective is to be a profitable, intellectual property-rich, fabless semiconductor company offering integrated circuits, or ICs, and related software, firmware and intellectual property, or IP, that deliver unparalleled memory bandwidth and access rate performance for high-performance data processing in cloud networking, communications, security appliances, video, test and monitoring, and data center systems. Our solutions deliver time-to-market, performance, power, area and economic benefits for system original equipment manufacturers, or OEMs. Our primary product line is marketed under the Accelerator Engine name and comprises our Bandwidth Engine and Programmable HyperSpeed Engine IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance. Our second-generation Bandwidth Engine, or Bandwidth Engine 2, products are expected to be our primary revenue source through at least 2023, and we expect these products to continue to generate significant revenue thereafter. As we are not developing new IC products, from a product development perspective, we continue to leverage our current technologies and core competencies to expand our product offerings without incurring significant additional R&D expenses. We are developing our Virtual Accelerator Engine, or VAE, IP solutions which consist of software, firmware and other IP available for license. This product line will include multiple function accelerator platform products, which target specific application functions and will use a common software interface to allow performance scalability over multiple hardware environments. These function accelerator platform products are hardware agnostic and operate with or without one of our Accelerator Engine ICs. This software-defined, hardware-accelerated platform architecture utilizes an internally developed graphical memory engine architecture to provide flexible data classification and analysis capability. We believe the technology will generate new opportunities that require less up-front architectural changes by system designers and provide a scalable performance roadmap of options using our Accelerator Engine ICs. Despite our limited new IC product development efforts, we believe our current hardware and software/firmware product portfolio positions us for future growth and profitability.

We incurred net losses of approximately $4.3 million for the nine months ended September 30, 2021 and $3.8 million and $2.6 million for the years ended December 31, 2020 and 2019, respectively, and had an accumulated deficit of approximately $246.9 million as of September 30, 2021. These and prior year losses have resulted in significant negative cash flows for almost a decade and have necessitated that we raise substantial amounts of additional capital during this period. To date, we have primarily financed our operations through multiple offerings of common stock to investors and affiliates, as well as asset sale transactions and one offering of convertible notes.

We may continue to incur operating losses and will need to increase revenues substantially beyond levels that we have attained in the past in order to generate sustainable operating profit and sufficient cash flows to continue doing business without raising additional capital from time to time.

Recent Developments – Proposed Arrangement with Peraso Technologies Inc.

On September 14, 2021, we and our newly formed subsidiaries, 2864552 Ontario Inc. (Callco) and 2864555 Ontario Inc. (Canco), both corporations existing under the laws of the province of Ontario, entered into an Arrangement Agreement (the Agreement) with Peraso Technologies Inc., a corporation existing under the laws of the province of Ontario (Peraso). Under the Agreement, we, indirectly through Canco, are to acquire all of the issued and outstanding common shares of Peraso (Peraso Shares), including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures of Peraso and common share purchase warrants of Peraso, as applicable, by way of a statutory plan of arrangement (the Arrangement) under the Business Corporations Act (Ontario) (the OBCA), on and subject to the terms and conditions of the Agreement

The Agreement provides that the Peraso stockholders may elect to receive either shares of our common stock or shares of the capital stock of Canco (the Exchangeable Shares) in exchange for such holder’s Peraso Shares, in each case based on an exchange ratio (the Exchange Ratio) to be determined based on the number of Peraso Shares and shares of our common stock outstanding as of immediately prior to the effective time of the Arrangement (the Effective Time). Pursuant to the terms of the Agreement, at the Effective Time, we shall hold an aggregate of 1,815,445 Exchangeable Shares and Common Stock (collectively, the Earnout Shares). Such Earnout Shares shall be escrowed pursuant to the terms of an escrow agreement on a pro rata basis from the aggregate consideration to be received by the Peraso stockholders, subject to the offset by us for any losses in accordance with the Agreement. Such Earnout Shares shall be released, subject to any offset claim, upon the satisfaction of the earlier of: (a) any date following the first anniversary of the Effective Time and prior to the third anniversary of the Effective Time where the volume weighted average price of our common stock for any 20 trading days within a period of 30 consecutive trading days is at least $8.57 per share, subject to adjustment for stock splits or other similar transaction; (b) the date of any sale of all or substantially all of the assets or shares of us; or (c) the date of any bankruptcy, insolvency, restructuring, receivership, administration, wind-up, liquidation, dissolution, or similar event involving us.

Following the Effective Time, each Exchangeable Share will be exchangeable by the holder for one share of common stock (subject to customary adjustments for stock splits or other reorganizations). In addition, we may require all outstanding Exchangeable Shares to be exchanged upon the occurrence of certain events and at any time following the seventh anniversary of the closing of the Arrangement. While outstanding, holders of Exchangeable Shares will be entitled to cast votes on matters for which holders of our common stock are entitled to vote and will be entitled to receive dividends economically equivalent to the dividends declared by us with respect to our common stock. Eligibility to receive Exchangeable Shares will be subject to certain Canadian residency restrictions and tax statuses.

The Agreement also provides that Peraso stock options, which are exercisable for Peraso Shares, will be replaced with an option to acquire common stock to be issued by us in consideration for cancellation of the Peraso options and exercisable for shares of our common stock after the Effective Time, in each case with adjustments based on the Exchange Ratio. The exact number of shares of common stock that will be issued pursuant to the Arrangement will be determined at the Effective Time in accordance with the Exchange Ratio.

Immediately following the Effective Time, based on the Exchange Ratio, the former stockholders of Peraso are anticipated to own approximately 61% of the economic and voting interest of the combined company with our current stockholders holding the remaining 39% economic and voting interest, as calculated on a fully-diluted basis and including the Earnout Shares.

The consummation of the Arrangement is subject to certain closing conditions precedent, including both our and Peraso’s stockholders approval of the Agreement and transactions contemplated therein; the order of the Ontario Superior Court of Justice (Commercial List) granted pursuant to Section 182(5) of the Business Corporations Act (Ontario); all regulatory approvals; the continuing listing of our common stock on the Nasdaq Capital Market; and other customary closing conditions.

Effective Time does not occur on or before November 30, 2021, subject to certain automatic extensions. The Agreement may also be terminated by either party, if the respective stockholders’ approval is not obtained, in the event of material adverse effect, or a superior proposal in connection with an alternative acquisition. The Agreement subjects the parties to certain termination payment obligations. If the Agreement is terminated because of the failure to obtain stockholders’ approval, the party that failed to obtain such approval will be obligated to pay a fee of $750,000 to the other party. If the Agreement is terminated by either party as a result of obtaining a superior proposal from a third party, breach of non-solicitation covenants of the Agreement, or because either party’s board of directors fails to unanimously recommend to proceed with the Arrangement or withdraws its recommendation, the breaching party will be required to pay a termination fee of $3,500,000.

COVID-19

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This has negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control, and cannot be predicted.

In March 2020, Santa Clara County in California, where we are based, issued a ”shelter-in-place” order (the Order) that was effective through the first quarter of 2021. We have been complying with the Order and have minimized business activities at our San Jose headquarters facility (our only facility) since March 2020. We have implemented a teleworking policy for our employees and contractors to reduce on-site activity at our facility.

We remain diligent in continuing to identify and manage risks to our business given the changing uncertainties related to COVID-19. The ultimate impact of the Covid-19 pandemic on our business and results of operations is uncertain and difficult to predict, and we are closely monitoring impacts, especially to customer programs and our supply chain. We expect that the impacts of the COVID-19 pandemic will continue to have a negative impact on our revenues for the remainder of 2021, although we are not in a position to quantify such impacts. In addition, we have and continue to experience shortages and longer lead times for certain components used to manufacture our IC products. While we believe that our operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, we recognize that unpredictable events could create difficulties in the months ahead. We may not be able to address these difficulties in a timely manner, which could negatively impact our business, results of operations, financial condition and cash flows.

The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets. During the nine months ended September 30, 2021, we were able to raise additional capital and make full repayment of our convertible notes payable (see discussion below under Liquidity and in Notes 8 and 9 to the condensed consolidated financial statements included in Part I, Item I of this Form 10-Q), however, if we need to raise additional capital to support operations in the future, we may be unable to access the capital markets and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.

For additional information on risks that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A. of this quarterly report on Form 10-Q.

Sources of Revenue

Product. Product revenue is generally recognized at the time of shipment to our customers. An estimated allowance may be recorded, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale.

Royalty and other. Our licensing contracts typically provide for royalties based on the licensee’s use of our memory technology in their currently shipping commercial products. We estimate royalty revenue in the period in which the licensee uses the licensed technology. Payments are received in the following period.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated 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, 2020. As of September 30, 2021, there have been no material changes to our significant accounting policies and estimates.

Results of Operations

Net Revenue

	September 30,						Change
	2021			2020			2020 to 2021
	(dollar amounts in thousands)
Product -three months ended	$	1,210		$	1,803		$	(593	)	(33	)%
Percentage of total net revenue		91	%		91	%
Product -nine months ended	$	3,405		$	4,550		$	(1,145	)	(25	)%
Percentage of total net revenue		89	%		88	%

Product revenue decreased for the three and nine months ended September 30, 2021 compared with the same period of 2020 primarily due to lower sales of our Bandwidth Engine 2 and LineSpeed IC products.

	September 30,						Change
	2021			2020			2020 to 2021
	(dollar amounts in thousands)
Royalty and other -three months ended	$	127		$	168		$	(41	)	(24	)%
Percentage of total net revenue		9	%		9	%
Royalty and other -nine months ended	$	438		$	649		$	(211	)	(33	)%
Percentage of total net revenue		11	%		12	%

Royalty and other includes license, royalty and related revenues generated from licensing agreements. The decrease in royalty and other revenue for the three months ended September 30, 2021 compared with the same period of 2020 was due to a decrease in legacy royalty revenues. The decrease in royalty and other revenue for the nine months ended September 30, 2021 compared with the same period of 2020 was due to a decrease in royalty revenues and $0.1 million of non-recurring license revenues recognized during the three months ended June 30, 2020.

Cost of Net Revenue and Gross Profit

	September 30,						Change
	2021			2020			2020 to 2021
	(dollar amounts in thousands)
Cost of net revenue -three months ended	$	376		$	677		$	(301	)	(44	)%
Percentage of total net revenue		28	%		34	%
Cost of net revenue -nine months ended	$	1,315		$	1,811		$	(496	)	(27	)%
Percentage of total net revenue		34	%		35	%

	September 30,						Change
	2021			2020			2020 to 2021
	(dollar amounts in thousands)
Gross profit -three months ended	$	961		$	1,294		$	(333	)	(26	)%
Percentage of total net revenue		72	%		66	%
Gross profit -nine months ended	$	2,528		$	3,388		$	(860	)	(25	)%
Percentage of total net revenue		66	%		65	%

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

Cost of net revenue decreased for the three and nine months ended September 30, 2021 when compared with the same periods in 2020, primarily due to decreased shipment volumes of our LineSpeed and Bandwidth Engine IC products.

Gross profit decreased for the three and nine months ended September 30, 2021 compared with the same period of 2020 due to the decrease in gross profit attributable to the decreases in revenues.

Research and Development

	September 30,						Change
	2021			2020			2020 to 2021
	(dollar amounts in thousands)
Research and development -three months ended	$	1,281		$	972		$	309	32	%
Percentage of total net revenue		96	%		49	%
Research and development -nine months ended	$	3,662		$	2,918		$	744	25	%
Percentage of total net revenue		95	%		56	%

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

The increase for the three and nine months ended September 30, 2021 compared with the same period of 2020 was primarily due to increases in personnel costs due to headcount increases and increases in consulting costs for development of our VAE IP. We expect that total research and development expenses will increase in 2021 compared with 2020 as we incur increased development costs for our VAE IP.

Selling, General and Administrative

	September 30,						Change
	2021			2020			2020 to 2021
	(dollar amounts in thousands)
SG&A -three months ended	$	1,398		$	955		$	443	46	%
Percentage of total net revenue		105	%		48	%
SG&A -nine months ended	$	3,756		$	3,054		$	702	23	%
Percentage of total net revenue		98	%		59	%

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

The increase for the three and nine months ended September 30, 2021 compared with the same period of 2020 was primarily due to increases in transaction costs related to the Arrangement with Peraso. Transaction costs incurred in connection with the Arrangement were $0.3 million and $0.7 million for the three and nine months ended September 30, 2021, respectively. We expect total SG&A expenses to remain relatively consistent for the remainder of 2021.

Interest expense

	September 30,						Change
	2021			2020			2020 to 2021
	(dollar amounts in thousands)
Interest expense - three months ended	$	—		$	54		$	(54	)	(100	)%
Percentage of total net revenue		—			3	%
Interest expense - nine months ended	$	30		$	164		$	(134	)	(82	)%
Percentage of total net revenue		1	%		3	%

Interest expense consisted of interest expense on our senior secured convertible notes (the Notes). As of March 31, 2021, we had repaid the full remaining principal amount of the Notes and accrued interest. We do not expect to incur interest expense during the remainder of 2021. See Note 10 to the condensed consolidated financial statements included in this report for additional disclosure.

Liquidity and Capital Resources; Changes in Financial Condition

Cash Flows

As of September 30, 2021, we had cash, cash equivalents and investments of $21.2 million and working capital of $18.6 million. We believe that cash generated from our liquidity sources will be sufficient to meet both our short-term and long-term working capital and capital expenditure needs for the foreseeable future.

Net cash used in operating activities was $4.6 million for the first nine months of 2021, which primarily resulted from our net loss of $4.3 million, adjusted for a $0.6 million of gains for debt extinguishment and $0.1 million in net changes in assets and liabilities, which was partially offset by non-cash charges of $0.4 million. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, purchases of inventory and other vendor payables and prepayments.

Net cash used in operating activities was $1.6 million for the first nine months of 2020, which primarily resulted from our net loss of $2.8 million, which was partially offset by $0.7 million in net changes in assets and liabilities and non-cash charges of $0.2 million of stock-based compensation, depreciation and amortization expenses and $0.2 million of accrued interest. The changes in assets and liabilities primarily related to the timing of accounts receivable collections, and inventory and other vendor payables and prepayments.

Net cash used in investing activities of $11.4 million for the nine months ended September 30, 2021 represented $12.7 million in purchases of short and long-term investments, partially offset by $1.3 million in proceeds from maturities of short-term investments. Net cash provided by investing activities for the nine months ended September 30, 2020 was mainly due to the proceeds from maturities of short-term investments of $0.3 million.

Net cash provided by financing activities of $19.9 million for the nine months ended September 30, 2021 primarily consisted of $6.8 million and $12.0 million in net proceeds received from the registered direct offerings of our common stock completed in February 2021 and June 2021, respectively, and $4.2 million of proceeds from the exercise of warrants to purchase shares of common stock at a price of $2.40 per share. We used approximately $3 million of these proceeds to repay in full the outstanding balance of the Notes.

Net cash provided by financing activities of $2.2 million for the nine months ended September 30, 2020 primarily consisted of $1.6 million in net proceeds received from the sale of common stock in a registered direct offering of securities completed in April 2020 and $0.6 million of proceeds from an unsecured loan under the Paycheck Protection Program.

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

•

level of revenue;

•

cost, timing and success of technology development efforts, especially for our VAE IP;

•

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

•

variations in manufacturing yields, material lead time and costs and other manufacturing risks;

•

profitability of our business;

•

impacts of our proposed Arrangement with Peraso; and

•

costs of acquiring other businesses and integrating the acquired operations.

Working Capital

Our primary need for liquidity is to fund working capital requirements of our business and capital expenditures, as well as for general corporate purposes. We expect our cash expenditures to exceed receipts in 2021, as our revenues will not be sufficient to offset our working capital requirements. During the nine months ended September 30, 2021, we completed two registered direct offerings of our common stock that generated net proceeds of approximately $18.8 million. Also, during 2021, we received proceeds of $4.2 million from the exercise of common stock warrants. During the three months ended March 31, 2021, we repaid in full the outstanding principal balance of our Notes. In May 2020, we entered into a Promissory Note with Wells Fargo Bank, N.A. (the Lender) in an aggregate principal amount of approximately $0.6 million (the PPP Note), pursuant to the Paycheck Protection Program (the PPP) under the CARES Act. In March 2021, we applied for forgiveness of the PPP Note under the terms of the PPP, and, in May 2021, we obtained forgiveness of the full amount of the PPP Note from the Lender. As a result of these activities, at September 30, 2021, we had approximately $21.2 million in cash and investments and no debt.

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

•

develop or enhance our products;

•

expand our product development and sales and marketing organizations;

•

acquire complementary technologies, products or businesses;

•

expand operations;

•

hire, train and retain employees; or

•

respond to competitive pressures or unanticipated working capital requirements.

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

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.

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 September 30, 2021, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting. During the nine months ended September 30, 2021, there was no change in our internal control over financial reporting that has materially affected, or is 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. Except as set forth below, there have been no material changes with respect to the risk factors disclosed under Item 1A of our annual report on Form 10-K for the year ended December 31, 2020, which we filed with the SEC on March 18, 2021.

Our planned Arrangement with Peraso in accordance with the terms of Agreement as well as the Agreement itself presents considerable uncertainties and risks, including:

•

Our ability to obtain stockholder approval for the Agreement and related proposals necessary to effect the Arrangement;

•

The ability of the combined company to successfully maintain a Nasdaq Capital Market listing;

•

The ability of the combined company to successfully access the capital markets and operate profitably;

•

Conditions to the closing of the Agreement may not be satisfied or the Arrangement may involve unexpected costs, liabilities or delays;

•

The occurrence of any other risks to consummation of the Arrangement, including the risk that the Arrangement will not be consummated within the expected time period or any event, change or other circumstances that could give rise to the termination of the Agreement;

•

Risks that the Arrangement disrupts our current plans and operations or that our business or stock price may suffer as a result of uncertainty surrounding the Arrangement; and

•

We and/or the combined company may be adversely affected by other economic, business, or competitive factors.

Furthermore, there can be no assurance that regulators, including foreign regulatory authorities will not impose conditions, terms, obligations or restrictions, or that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the Arrangement or imposing additional material costs on or materially limiting the revenues of the combined company following the Arrangement. In addition, we can provide no assurance that any such conditions, obligations or restrictions will not result in the delay or abandonment of the Arrangement.For additional information on the risks associated with our proposed Arrangement with Peraso please review the risks beginning on page 49 of the definitive proxy statement filed with the Securities and Exchange Commission on October 18, 2021, which risks are incorporated by reference herein and included as Exhibit 99.1 to this report.

The full effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events are uncertain and could have a material and adverse effect on our business, financial condition, operating results and cash flows.

The global outbreak of the coronavirus disease 2019, or COVID-19, was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This has negatively affected the world economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The extent of the impact on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions U.S. and foreign government agencies continue to take to prevent disease spread, all of which are uncertain, out of our control and cannot be predicted.

In accordance with applicable U.S. governmental ordinances generally exempting essential businesses and/or critical infrastructure workforces from mandated closures and orders to “shelter-in-place,” we are operating in support of essential products and services, subject to limitations and requirements in applicable state and county orders. We have been complying with county and state orders and have implemented a teleworking policy for our employees and contractors and significantly minimized the number of employees who visit our office. Since the outbreak of COVID-19, while we have experienced increased lead times for wafers, substrates and assembly services, and, more recently, shortages, we have experienced minimal impact on our production operations and, to date, have been able to satisfy all customer purchase orders timely. However, a facility closure, work slowdowns or temporary stoppage at one of our manufacturing suppliers could occur, which could have a longer-term impact and could delay our production and ability to conduct business and negatively impact our business, financial condition, operating results and cash flows.

If our workforce is unable to work effectively, including because of illness, quarantines, absenteeism, government actions, facility closures, travel restrictions or other restrictions in connection with the COVID-19 pandemic, our operations will be negatively impacted. We may be unable to produce and sell our IC products, and our costs may increase as a result of the COVID-19 outbreak. The impacts could worsen if there is an extended duration of any COVID-19 outbreak or a resurgence of COVID-19 infection in affected regions after they have begun to experience improvement.

The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets. Although we were able to access the capital markets in connection with our February 2021 and June 2021 registered direct offerings, we may be unable to access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.

We are working with our stakeholders, including customers, suppliers and employees, to address the impact of this global pandemic. We continue to monitor the situation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. Should such disruption continue for an extended period of time, or if and when the pandemic ends, the resumption of normal business operations may be delayed or constrained by lingering effects of the pandemic (including limitations imposed by governmental authorities on our ability to return to normal operating practices). These effects, alone or taken together, could have a material adverse impact on our business, results of operations or financial condition.

ITEM 6. Exhibits

(a)	Exhibits

	2.1 (1)	Arrangement Agreement with Peraso Technologies, Inc.
	2.2 (2)	First Amending Agreement dated October 21, 2021
	10.1*	Waiver Letter dated August 2, 2021
	10.2 (3)	Form of Peraso Technologies, Inc. Voting Agreement
	10.3 (4)	Form of MoSys, Inc. Voting Agreement
	31.1*	Rule 13a-14 certification
	31.2*	Rule 13a-14 certification
	32.1**	Section 1350 certifications
	99.1*	Risk factors in connection with the Arrangement
	101*	The following financial information from MoSys, Inc.’s quarterly report on Form 10-Q for the period ended September 30, 2021, filed with the SEC on November 12, 2021, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020, (ii) the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, (iii) the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, and (v) Notes to Condensed Consolidated Financial Statements.
	104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

	(1)	Incorporated by reference to Exhibit 2.1 to Form 8-K filed by the Company on September 15, 2021 (Commission File No. 000-32929)
	(2)	Incorporated by reference to Exhibit 2.1 to Form 8-K filed by the Company on October 22, 2021 (Commission File No. 000-32929)
	(3)	Incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on September 15, 2021 (Commission File No. 000-32929)
	(4)	Incorporated by reference to Exhibit 10.2 to Form 8-K filed by the Company on September 15, 2021 (Commission File No. 000-32929)

*Filed herewith.

**Furnished herewith.

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: November 12, 2021		MOSYS, INC.

	By:	/s/ Daniel Lewis
		Daniel Lewis
		President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ James W. Sullivan
		James W. Sullivan
		Vice President of Finance and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.1

July 30, 2021

MoSys, Inc.

2309 Bering Drive

San Jose, CA 95131

Attn: James Sullivan, Vice President of Finance and Chief Financial Officer

RE: Waiver of Restriction on Subsequent Equity Issuances
Ladies and Gentlemen:

We refer to the Securities Purchase Agreement, dated as of June 7, 2021 (the “Purchase Agreement”), among MoSys, Inc. (the “Company”) and the purchasers identified therein (the “Purchasers”). Capitalized terms used and not defined herein shall have the meanings assigned thereto in the Purchase Agreement.

Section 4.10 of the Purchase Agreement prohibits the Company from (i) issuing, or entering into any agreement to issue any shares of Common Stock or (ii) filing any registration statement or amendment or supplement thereto until 90 days after the Closing Date (the “Restricted Period”), other than pursuant to certain exceptions.

The Company intends to file a shelf registration statement on Form S-3 (the “Registration Statement”) with the U.S. Securities and Exchange Commission (the “Commission”) during the Restricted Period. There will be up to $100 Million of Common Stock, Preferred Stock, Warrants, Units and Subscription Rights issuable as part of the Registration Statement.

The Company covenants and agrees that it shall either publicly file the Registration Statement with the Commission or otherwise provide notice to the Purchasers of the abandonment of the filing no later than August 2, 2021. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company and such covenant is a material inducement to the Purchasers executing this waiver.

Subject to the immediately following paragraph, the undersigned, constituting one of the purchasers under the Purchase Agreement, hereby waives the prohibition under Section 4.10 of the Purchase Agreement with respect to the filing of the Registration Statement during the Restricted period. The waiver granted is limited strictly to its terms and shall not be deemed to be a waiver or modification of any other provision of the Purchase Agreement.

In consideration of and as a condition to the Purchasers executing this Agreement and providing the above waiver, the Company covenants and agrees that in the next registered offering of securities of the Company (other than on Form S-8, S-4 or their successor forms) in which A.G.P./Alliance Global Partners is a placement agent or underwriter, the Company shall allocate in the aggregate thirty (30%) percent of the aggregate amount of Company securities to be offered and sold to investors in such offering to the Purchasers, with each Purchaser having

the right to purchase seven and one-half (7.5%) percent of the aggregate amount of Company securities offered therein on the same terms and conditions as the other investors in the offering.

[Signature Page Follows]


		Sincerely yours,
		CVI INVESTMENTS, INC.
		By: /s/ Martin Kobinger
		Name: Martin Kobinger
		Title: Investment Manager

*Authorized Signatory Hudson Bay Capital Management LP		HUDSON BAY MASTER FUND LTD.
not individually, but solely as Investment Advisor to Hudson Bay Master Fund Ltd.		By: /s/Richard Allison
		Name: Richard Allison
		Title: Authorized Signatory*

		FIVET INVESTMENT MANAGEMENT LTD.
		By: /s/ Wieland Kruger
		Name: Wieland Kreuder
		Title: Authorized Person


		Sincerely yours,

		EMPERY ASSET MASTER, LTD.
		By: Empery Asset
		Management, LP, its
		Authorized agent

		By: /s/ Brett Director
		Name: Brett Director
		Title: General Counsel

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

I, Daniel Lewis, certify that:

I have reviewed this quarterly report on Form 10-Q of MoSys, Inc. for the period ended September 30, 2021;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

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

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: November 12, 2021

/s/ Daniel Lewis
Daniel Lewis
President and Chief Executive Officer (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934

I, James W. Sullivan, certify that:

I have reviewed this quarterly report on Form 10-Q of MoSys, Inc. for the period ended September 30, 2021;

(a)

(b)

(c)

(d)

(a)

(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: November 12, 2021

/s/ James W. Sullivan
James W. Sullivan
Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting 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 September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of Daniel Lewis, Chief Executive Officer of the Company, and James W. Sullivan, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Daniel Lewis
	Daniel Lewis
	President and Chief Executive Officer (Principal Executive Officer)
	November 12, 2021

	/s/ James W. Sullivan
	James W. Sullivan
	Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)
	November 12, 2021

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.

Exhibit 99.1

EXPLANATORY NOTE

These risk factors appear on pages 49 through 62 of the definitive proxy statement filed by MoSys with the Securities and Exchange Commission on October 18, 2021 (File No. 000-32929). For the readers’ convenience, the glossary of selected defined terms is added. Cross references to page numbers or exhibits in this Exhibit 99.1 refer to other pages or exhibits of the definitive proxy statement referenced above. Cross referenced sections of the definitive proxy statement are incorporated by reference into this Exhibit 99.1.

RISK FACTORS

In evaluating the Arrangement, MoSys stockholders should carefully consider the following risk factors relating to the Arrangement and the Combined Company. The following risk factors are not a definitive list of all risk factors associated with the Arrangement and the Combined Company. Additional risks and uncertainties, including those currently unknown or considered immaterial by MoSys, may also adversely affect the shares of Common Stock, and/or the business of the Combined Company following the Arrangement.

Risks Related to the Arrangement

The Arrangement may not be completed due to failure to obtain the necessary court and/or regulatory approvals.

To complete the Arrangement, each of Peraso and MoSys must make certain filings with and obtain certain consents and approvals from various governmental and regulatory authorities including the Court, and the approval of Nasdaq of the listing of the shares of Common Stock to be issued pursuant to the Arrangement. Peraso and MoSys have not yet obtained these approvals, all of which are required to complete the Arrangement. The regulatory approval processes may take a lengthy period of time to complete which could delay completion of the Arrangement. The approval processes, including the undertakings and conditions that may be required for approval or whether the court and regulatory approvals, may not be obtained.

Uncertainty surrounding the Arrangement could adversely affect MoSys’ retention of customers, strategic partners and personnel and could negatively impact MoSys’ future business and operations.

Because the Arrangement is dependent upon satisfaction of certain conditions, its completion is subject to uncertainty. In response to this uncertainty, MoSys’ customers and strategic partners may delay or defer decisions concerning MoSys. Any delay or deferral of those decisions by customers and strategic partners could have a material adverse effect on the business and operations of MoSys, regardless of whether the Arrangement is ultimately completed.

The Parties could fail to complete the Arrangement or the Arrangement may be completed on different terms.

The Arrangement may not be completed as there are certain conditions that are outside the control of Peraso and MoSys, or if completed, that the Arrangement will be completed on the same or similar terms to those set out in the Arrangement Agreement. The completion of the Arrangement is subject to the satisfaction of a number of conditions which include, among others, (a) obtaining necessary approvals of securityholders of Peraso and MoSys, (b) grant of the Interim Order and the Final Order; and (c) performance by Peraso and MoSys of their respective obligations and covenants in the Arrangement Agreement. There can be no assurance that these conditions will be satisfied or, if satisfied, when they will be satisfied.

In addition, each of Peraso and MoSys has the right to terminate the Arrangement Agreement in certain circumstances. Accordingly, there is no certainty that the Arrangement Agreement will not be terminated by either Peraso or MoSys before the completion of the Arrangement. For example, MoSys has the right, in certain circumstances, to terminate the Arrangement Agreement if changes occur that, in the aggregate, have a Peraso Material Adverse Effect. Although a Peraso Material Adverse Effect excludes certain events that are beyond the control of Peraso and MoSys, there is no assurance that a change having a Peraso Material Adverse Effect on Peraso will not occur before the Effective Date, in which case MoSys could elect to terminate the Arrangement Agreement

and the Arrangement would not proceed. In addition, if the Arrangement is not completed by Outside Date, Peraso or MoSys may choose to terminate the Arrangement Agreement in accordance with its terms.

If the Arrangement is not completed, the ongoing business of MoSys may be adversely affected as a result of the costs (including opportunity costs) incurred in respect of pursuing the Arrangement, and MoSys could experience negative reactions from the financial markets, which could cause a decrease in the market price of the shares of Common Stock, particularly if the market price reflects market assumptions that the Arrangement will be completed or completed on certain terms. MoSys may also experience negative reactions from its partners and there could be a negative impact on MoSys’ ability to attract future acquisition opportunities. Failure to complete the Arrangement or a change in the terms of the Arrangement could each have a material adverse effect on MoSys’ business, financial condition and results of operations.

If the Arrangement is not completed and the MoSys Board decides to seek another merger or business combination, it may not be able to find a party willing to engage in a transaction that is equivalent to, or more attractive than, the Arrangement. In addition, in certain circumstances, MoSys may be required to pay the Termination Payment to Peraso.

The Termination Payment, if triggered, may discourage other parties from attempting to acquire MoSys.

Under the Arrangement Agreement, MoSys is required to pay a Termination Payment of $3.5 million to Peraso in the event the Arrangement Agreement is terminated in certain circumstances (see “The Arrangement Agreement — Termination Payment”). The Termination Payment may discourage other parties from attempting to acquire the engage in a transaction with MoSys or otherwise making an Acquisition Proposal, even if those parties would otherwise be willing to offer greater value to the MoSys stockholder than that offered by Peraso under the Arrangement.

MoSys has and will continue to incur substantial transaction-related costs in connection with the Arrangement even if the Arrangement is not completed.

Certain costs related to the Arrangement, such as legal, accounting and certain financial adviser fees have been and will be incurred by MoSys even if the Arrangement is not completed, and some of such costs may be unanticipated or underestimated by MoSys’ management. Also, if the Arrangement is not completed, MoSys may be required to pay the Termination Payment to Peraso in certain circumstances. In addition, if the Arrangement is terminated due to the payment due to the failure to obtain a stockholder approval by MoSys, MoSys will be obligated to remit a payment in the amount of $750,000 to Peraso. Further, MoSys may be required to pay the Termination Payment to Peraso in certain circumstances, including the breach of non-solicitation covenants and other events of default. Such costs may offset any expected cost savings and other synergies from the Arrangement.

While the Arrangement is pending, MoSys is restricted from taking certain actions.

The Arrangement Agreement restricts MoSys from taking specified actions until the Arrangement is completed without the consent of Peraso, which may adversely affect the ability of MoSys to execute certain business strategies including, but not limited to, the ability in certain cases to issue, deliver, sell, pledge, lease, dispose of or encumber, or agree or offer to issue, deliver sell, pledge, lease, dispose of or encumber, any shares of Common Stock or securities of its subsidiaries, or any securities convertible or exchangeable thereto, or amend its securities arrangements entered prior to the Arrangement Agreement, amend or propose to amend its charter documents, declare or pay dividends, sell, pledge, lease, transfer, dispose of or encumber any assets, rights or properties of MoSys or its subsidiaries other than in ordinary course of business, enter acquisition agreements, make any material changes to MoSys’ business, enter into any joint venture, strategic alliance, partnership, or similar agreement, make any capital expenditures exceeding $100,000, etc. These restrictions may prevent MoSys from pursuing attractive business opportunities that may arise prior to the completion of the Arrangement. See Section 5.3 of the Arrangement Agreement to address the complete list of MoSys’ limitations in connection with the Arrangement Agreement.

The pending Arrangement may divert the attention of MoSys’ management.

The pending Arrangement could cause the attention of MoSys’ management to be diverted from the day-to-day operations. These disruptions could be exacerbated by a delay in the completion of the Arrangement and could have an adverse effect on the business, operating results or prospects of MoSys regardless of whether the Arrangement is ultimately completed.

Following the completion of the Arrangement, the Combined Company may issue additional securities.

Following the completion of the Arrangement, the Combined Company may issue additional securities (including equity securities) to finance its activities, including in order to finance acquisitions. If the Combined Company were to issue additional equity securities, the ownership interest of existing MoSys stockholders may be diluted and some or all of the Combined Company’s financial measures on a per share basis could be reduced. Moreover, as the Combined Company’s intention to issue additional equity securities becomes publicly known, the Combined Company’s share price may be materially adversely affected.

Although an application has been filed to list the Common Stock on Nasdaq, there can be no assurance that the common stock will be so listed or, if listed, that the Combined Company will be able to comply with the continued listing standards.

Nasdaq has determined (or will determine) that the proposed transaction constitutes a business combination that results in a change of control pursuant to its listing rules. Accordingly, the Combined Company will be required to satisfy all of Nasdaq’s initial listing criteria and to complete Nasdaq’s initial listing process in order for the Common Stock to be listed on Nasdaq. An application to list the Common Stock on Nasdaq upon consummation of the Arrangement has been filed as required by Nasdaq. MoSys is currently in compliance with the continued listing standards of Nasdaq.

Nasdaq’s approval of the listing application is a condition to the closing of the Arrangement and while Peraso and MoSys can each terminate the Arrangement Agreement if the condition is not satisfied, the parties can also each choose to waive the condition and consummate the Arrangement without Nasdaq’s approval of the listing application. If the parties waive that condition and consummate the Arrangement without Nasdaq’s approval of the listing application, the Combined Company would not be listed on Nasdaq.

In addition, if, after listing, Nasdaq delists the Common Stock from trading on its exchange for failure to meet the continued listing standards, the Combined Company and its stockholders could face significant material adverse consequences including:

•

a limited availability of market quotations for its securities;

•

a determination that its common stock is a “penny stock” which will require brokers trading in its common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for its common stock;

•

an inability to obtain analyst coverage; and

•

a decreased ability to issue additional securities or obtain additional financing in the future.

MoSys’ directors and executive officers have interests in the Arrangement that may be different from, or in addition to, the interests of Peraso stockholders and MoSys stockholders.

Certain of the directors and executive officers of Peraso and certain of the directors and executive officers of MoSys negotiated the terms of the Arrangement Agreement and these individuals have interests in the Arrangement that may be different from, or in addition to, those of Peraso stockholders and MoSys stockholders, respectively. These interests include, but are not limited to, the continued service of certain of these Peraso individuals as directors and executive officers of MoSys after the date of the consummation of the Arrangement, certain other compensation arrangements with the MoSys directors and executive officers, and provisions in the Arrangement Agreement regarding continued indemnification of and advancement of expenses of the directors and executive officers of Peraso and MoSys. Peraso stockholders and MoSys stockholders should be aware of these interests when they consider their respective Boards of Directors’ recommendations that they vote in favor of the Arrangement-related proposals. The members of the MoSys Board were aware of and considered these interests relating to the Combined Company, among other matters, in evaluating the Arrangement Agreement and the Arrangement, and in

recommending the approval of the Arrangement. The interests of MoSys directors and executive officers are described under “The Arrangement — Interests of Certain Persons in the Arrangement.”

Following the Closing, the composition of the board of directors and management of the Combined Company will be comprised of the certain directors of the current board of directors and management of MoSys and directors appointed pursuant to the Arrangement, which may affect the strategy and operations of the Combined Company.

Following the Closing of the Arrangement, all members of the Combined Company’s board of directors other than Daniel Lewis and Robert Newell will resign, and the Combined Company’s board of directors will be reconstituted such that two (2) of the initial post-Effective Time directors will be designated by Peraso, which directors will be independent in accordance with Nasdaq requirements, and one of the initial post-Effective Time directors will be the Combined Company’s Chief Executive Officer.

This composition of the Combined Company’s board of directors may affect the Combined Company’s business strategy and operating decisions following the consummation of the Arrangement, as compared to the MoSys Board prior to the Arrangement. In addition, immediately following completion of the Arrangement and the issuance of the Consideration Shares to the Peraso stockholders at the Effective Time, MoSys’ current stockholders in the aggregate will not have a majority ownership and voting interest in the Combined Company, which may result in MoSys stockholders having less influence on the Combined Company’s management and policies. Immediately following completion of the Closing, MoSys’ stockholders and Peraso’s stockholders are expected to own 39% and 61%, respectively, of the Combined Company’s outstanding shares (on a Fully-Diluted basis). As a result, current MoSys stockholders may have less influence on the Combined Company’s management and policies than they currently have.

Risks Related to the Combined Company

Combining the two companies may be more difficult, costly or time consuming than expected, and MoSys may not realize all of the anticipated benefits of the Arrangement.

Peraso and MoSys have operated and, until the consummation of the Arrangement, will continue to operate, independently. The success of the Arrangement will depend on, among other things, the Combined Company’s ability to integrate the businesses of Peraso and MoSys in a timely fashion. Additionally, the Combined Company may not be able to successfully achieve the level of cost savings, revenue enhancements and synergies that it expects. If the Combined Company is not able to successfully achieve these objectives, the anticipated benefits of the Arrangement may not be realized fully or at all or may take longer to realize than expected. In addition, failure to successfully integrate the businesses in the expected timeframe may adversely affect the Combined Company’s business, financial condition, results of operations or cash flows. In addition, the combined operation of two businesses may be a complex, costly and time-consuming process. The difficulties of combining the operations of the companies include, inter alia:

•

the ability of officers and directors to, as required, effectively transfer operational knowledge of MoSys, especially the production of the MoSys products, to the new management team;

•

the diversion of management attention to integration matters;

•

difficulties in integrating functions, personnel, and systems;

•

difficulties in assimilating employees and in attracting and retaining key personnel;

•

difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects from the combination;

•

challenges of managing a larger Combined Company following the Arrangement, including challenges of conforming standards, controls, procedures, and accounting and other policies and compensation structures;

•

declines in MoSys’ results of operations, financial condition or cash flows;

•

a decline in the market price of the Common Stock;

•

contingent liabilities that are larger than expected;

•

potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the Arrangement;

•

disruption of existing relationships, with existing customers, business partners, and other constituencies; and

•

the disruption of, or the loss of momentum in, ongoing research and development.

Many of these factors are outside the control of MoSys, and any one of them could result in increased costs, decreased expected revenues and diversion of management time and energy, which could materially impact the business, financial condition, results of operations and cash flows of the Combined Company. These factors could cause dilution to the earnings per share of the Combined Company, decrease or delay the expected benefits of the Arrangement and negatively impact the price of Common Stock. As a result, it cannot be assured that the Combined Company will realize the full benefits anticipated from the Arrangement within the anticipated time frames, or at all.

Even if the Arrangement is successfully consummated and the businesses integrated, there can be no assurance that the Arrangement will result in the realization of the full benefit of the anticipated synergies and cost savings or that these benefits will be realized within the expected time frames or at all. Difficulties in integrating the businesses could harm the reputation of the Combined Company. In addition, by engaging in the Arrangement, MoSys and Peraso may forego or delay the pursuit of other opportunities that may have proven to have greater commercial potential.

The Combined Company’s inability to raise additional financing would limit its growth and may have a material adverse effect upon future profitability.

The Combined Company may require additional funding, likely through equity or debt financing, in order to execute its business plan. The Combined Company’s inability to raise financing in the future would limit its growth and may have a material adverse effect upon future profitability.

If additional funds are raised through further issuances of equity or convertible debt securities, holders of Combined Company Shares could suffer significant dilution. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Combined Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.

The Combined Company may need additional financing, which may dilute its stockholders.

In order to execute its business plan, the Combined Company may require additional funding in the form of debt or equity financing. If additional funds are raised through further issuances of equity or debt, the Combined Company’s stockholders could suffer significant dilution. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Combined Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.

The Combined Company’s market development efforts may be unsuccessful, any failure of which may materially affect the Combined Company’s business.

Although the Combined Company is committed to researching and developing new markets and products and improving existing products, there can be no assurances that such research and market development activities will prove profitable or that the resulting markets and/or products, if any, will be commercially viable or successfully produced and marketed.

A failure in the demand for products to materialize as a result of competition, technological changes or other factors could have a material adverse effect on the business, results of operations, and financial condition of the companies in which Peraso has or will invest in, and consequently, on the Combined Company.

The Combined Company will incur significant costs, and the Combined Company’s management will expel a significant amount of energy and resources, to maintain the Combined Company’s Nasdaq listing, which may detract from the Combined Company from furthering its other business objectives.

As a public company, there are costs associated with legal, accounting, and other expenses related to regulatory compliance. Securities legislation and the rules and policies of the SEC require listed companies to, among other

things, adopt corporate governance and related practices, and to continuously prepare and disclose material information, all of which add to a company’s legal and financial compliance costs. The Combined Company may also elect to devote greater resources than it otherwise would have on communication and other activities typically considered important by publicly traded companies.

The Combined Company’s success relies heavily on its management, the loss of any of whom may have a material adverse effect on the Combined Company’s business.

The success of the Combined Company is dependent upon the ability, expertise, judgment, discretion, and good faith of the senior management of the Combined Company. Any loss of the services of such individuals could have a material adverse effect on the Combined Company’s business, operating results, or financial condition.

There may not be an active market for the Combined Company Shares, which may adversely affect the price of the Combined Company Shares.

An active and liquid market for the Combined Company Shares may not be developed or maintained following the completion of the Arrangement will develop or be maintained and an investor may find it difficult to resell any securities of the Combined Company. In addition, there can be no assurance that the publicly-traded price of the Combined Company shares following the completion of the Arrangement will be high enough to create a positive return for investors. Further, there can be no assurance that the Combined Company shares will be sufficiently liquid so as to permit investors to sell their position in the Combined Company without adversely affecting the stock price. In such event, the probability of resale of the Combined Company Shares would be diminished.

The Combined Company shares may be subject to substantial price volatility which may have a negative effect on the value of such shares.

In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. There can be no assurance that continuing fluctuations in price will not occur. It may be anticipated that any quoted market for the Combined Company Shares will be subject to market trends generally, notwithstanding any potential success of the Combined Company in creating revenues, cash flows, or earnings. The value of the Combined Company Shares will be affected by such volatility.

It is not anticipated that the Combined Company will pay any dividends.

Peraso has not paid dividends in the past, and it is not anticipated that the Combined Company will pay any dividends in the foreseeable future. Dividends paid by the Combined Company would be subject to tax and, potentially, withholdings.

The Combined Company will be required to maintain insurance coverage to cover certain risks associated with the Combined Company’s business, the total coverage of which may not be sufficient to cover all claims and losses that the Combined Company becomes subject to.

The Combined Company will require insurance coverage for a number of risks. Although the management of the Combined Company believes that the events and amounts of liability covered by its insurance policies will be reasonable, taking into account the risks relevant to its business, and the fact that agreements with customers contain limitations of liability, there can be no assurance that such coverage will be available or sufficient to cover claims to which the Combined Company may become subject. If insurance coverage is unavailable or insufficient to cover any such claims, the Combined Company’s financial resources, results of operations and prospects could be adversely affected.

The Combined Company might be involved in litigation claims and legal proceedings.

The Combined Company may become party to litigation from time to time in the ordinary course of business which could adversely affect its business. Should any litigation in which the Combined Company becomes involved be

determined against the Combined Company, such a decision could adversely affect the Combined Company’s ability to continue operating and the market price for its shares and could use significant resources. Even if the Combined Company is involved in litigation and wins, litigation can redirect significant resources.

Certain directors and officers of the Combined Company may have conflicts of interest that are unfavorable to the Combined Company.

Certain of the Combined Company’s directors and officers are, and may continue to be, involved in other business ventures through their direct and indirect participation in corporations, partnerships, joint ventures, etc. that may become potential competitors of the technologies, products and services the Combined Company intends to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers conflict with or diverge from the Combined Company’s interests. In accordance with applicable corporate law, directors who have a material interest in or who are a party to a material contract or a proposed material contract with the Combined Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors and officers are required to act honestly and in good faith with a view to the Combined Company’s best interests. However, in conflict of interest situations, the Combined Company’s directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Combined Company. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Combined Company.

Risks Related to Peraso

Peraso has a history of losses and Peraso will be required to raise additional capital in the future.

Peraso recorded a net loss of approximately $9.6 million for the six months ended June 30, 2021 and ended the period with an accumulated deficit of approximately $115.8 million. Peraso recorded a net loss of approximately $10.2 million for the year ended December 31, 2020. These and prior fiscal year losses have resulted in significant negative cash flows and have required Peraso to raise substantial amounts of additional capital during this period. To remain competitive and expand its product offerings to customers, Peraso will be required to increase revenues substantially beyond levels that Peraso has attained in the past. Peraso must be able to generate sustainable operating profit and sufficient cash flow to continue its operations without raising additional capital. Given its history of fluctuating revenues and operating losses, and the challenges Peraso faces in securing customers for its products, Peraso cannot be certain that it will be able to achieve and maintain profitability on either a quarterly or annual basis. As a result, Peraso may be required to raise additional capital in the future, which can potentially not be available or only be offered with unfavorable terms.

Peraso’s failure to raise additional capital or generate the significant capital necessary to expand its operations and invest in new products could reduce its ability to compete and could harm its business.

Peraso intends to continue spending to grow its business. Peraso may still be required to obtain additional financing to pursue its business strategy, develop new products, respond to competition and market opportunities and acquire complementary businesses or technologies. There can be no assurance that such additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital will be offered on appropriate terms and conditions.

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

	•		develop or enhance its products;
	•		continue to expand its product development and sales and marketing organizations;

•

acquire complementary technologies, products, or businesses;

•

expand operations, in Canada, the United States, or other countries;

•

hire, train and retain employees;

•

respond to competitive pressures or unanticipated working capital requirements; or

•

continue as a going concern.

Peraso’s failure to successfully market its products could seriously harm its ability to execute its business strategy and may force it to curtail its research and development (R&D) plans or existing operations.

Peraso’s success depends on the acceptance of its products by equipment suppliers. Peraso’s prospective customers may be unwilling to adopt its products due to the uncertainties and risks surrounding designing a new chip into their systems. In the past, Peraso has experienced reluctance by potential customers to adopt its technology. Thus, currently, Peraso is not able to predict whether it will be able to generate adequate profit from making and selling its products.

Peraso’s future revenue growth depends on its winning designs with existing and new customers, retaining current customers, and having those customers design Peraso’s solutions into their product offerings and successfully selling and marketing such products. If Peraso does not continue to win designs in the short term, its product revenue in the following years will not grow. In addition, Peraso may enter into alternative arrangements with customers which could have a negative effect on Peraso’s financial performance.

Peraso sells its products to original equipment manufacturer, or OEM, customers that include its chips in their products. Peraso’s technology is generally incorporated into products at the design stage, which Peraso refers to as a design win, and which Peraso defines as the point at which a customer has made a commitment to build a board against a fixed schematic for its system, this board will utilize its chips and the customer has purchased at least $25,000 of chips for pre-production purposes. As a result, Peraso’s future revenue depends on OEM customers designing chips into their products, and on those products being produced in volume and successfully commercialized. If Peraso fails to retain its current customers or convince its current or prospective customers to include its chips in their products and fails to achieve a consistent number of design wins, Peraso’s results of operations and business will be harmed. In addition, if a current or prospective customer designs a competitor’s offering into its product, it becomes significantly more difficult for Peraso to sell its chip solutions to that customer because changing suppliers involves significant cost, time, effort, and risk for the OEM. Peraso may also enter into alternative arrangements with some of its largest customers from time to time including licensing and manufacturing arrangements which have the potential of adversely impacting Peraso including its financial performance.

The design win process is generally a lengthy, expensive and competitive process, with no guarantee of revenue, and, if Peraso fails to generate sufficient revenue to offset expenses, its business and operating results will suffer.

Achieving a design win is typically a lengthy, expensive and competitive process as Peraso’s customers generally take a considerable amount of time to evaluate Peraso’s products. In the markets Peraso serves, the time from initial customer engagement to design win, to production volume shipments, can range from two to three years, with a lengthier process for new customers or markets. In order to win designs for a customer, Peraso is required to incur design and development costs, and dedicate substantial engineering resources. Notwithstanding the costs incurred to win designs for a customer, Peraso may still not be successful in the competitive selection process. In addition, even if Peraso does achieve a design win, it may not generate sufficient, or any, revenue to offset its development expenditures. Peraso’s customers have the option to decide whether or not to utilize Peraso’s solutions into production after initially designing its products in the specification. The customer can also make changes to its product after a design win has been awarded to Peraso, which will lead to additional costs for Peraso.

Peraso may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries, and increased costs.

Peraso aims to use the most advanced manufacturing process technology appropriate for its solutions. As a result, Peraso periodically evaluates the benefits of migrating its solutions to other technologies in order to improve performance and reduce costs. These ongoing efforts to modify the manufacturing processes or redesign products from time to time may result in delays in product deliveries.

Because the manufacturing of integrated circuits is extremely complex, the process of qualifying a new foundry is a lengthy process and there can be no assurance that Peraso will be able to find and qualify replacement suppliers without materially adversely affecting its business, financial condition, results of operations and prospects for future growth. Peraso cannot provide assurance that it will maintain its relationship with its current foundry or develop relationships with new foundries.

Peraso’s failure to continue to develop new products and enhance its products on a timely basis could diminish its ability to attract and retain customers.

The existing and potential markets for Peraso’s products are characterized by ever-increasing performance requirements, evolving industry standards, rapid technological change and product obsolescence. These characteristics lead to periodic changes in customer requirements, shorter product life cycles and changes in industry demands and mandate new product introductions and enhancements to maintain customer engagements and design wins. In order to attain and maintain a significant position in the market, Peraso will be required to continue to enhance and evolve its products and the underlying proprietary technologies in anticipation of these market trends, utilizing a small engineering staff.

Peraso’s future performance depends on a number of factors, including its ability to:

•

identify target markets and relevant emerging technological trends;

•

develop and maintain competitive technology by improving performance and adding innovative features that differentiate its products from alternative technologies;

•

enable the incorporation of its products into customers’ products on a timely basis and at competitive prices;

•

develop products to be manufactured at smaller process geometries; and

•

respond effectively to new technological developments or new product introductions by others.

The semiconductor industry is cyclical in nature and subject to periodic downturns, which can negatively affect revenue.

The semiconductor industry is cyclical and has experienced pronounced downturns for sustained periods of up to several years. To respond to any downturn, many semiconductor manufacturers and their customers will slow their R&D activities, cancel or delay new product developments, reduce their workforces and inventories and take a cautious approach to acquiring new equipment and technologies. As a result, Peraso’s business has been in the past and could be adversely affected in the future by an industry downturn which could negatively impact its future revenue and profitability. The cyclical nature of the semiconductor industry may also cause Peraso’s operating results to fluctuate significantly from year-to-year.

Peraso’s revenue has been highly concentrated among a small number of customers, and its results of operations could be harmed if Peraso loses a key customer.

Peraso’s overall revenue has been highly concentrated, with a few customers accounting for a significant percentage of its total revenue. As a result of this revenue concentration, its results of operations could be adversely affected by the loss of a key customer, or substantial reduction in sales due to a key customer ceasing to use Peraso’s technology, or products or by a decline in the number of products that incorporate its technology that are sold by a single licensee or customer or by a small group of licensees or customers.

Peraso’s revenue concentration may also pose credit risks which could negatively affect cash flow and financial condition.

Peraso might also face credit risks associated with the concentration of its revenue among a small number of licensees and customers. Failure to collect receivables from any customer that represents a large percentage of receivables on a timely basis, or at all, could adversely affect Peraso’s cash flow or results of operations.

Peraso’s products must meet exact specifications and defects and failures may occur, which may cause customers to return or stop buying its products.

Peraso’s customers generally establish demanding specifications for quality, performance, and reliability that its products must meet. However, its products are highly complex and may contain defects and failures when they are first introduced, or as new versions are released. If defects and failures occur in Peraso’s products during the design phase or after, Peraso could experience lost revenues, increased costs, including warranty and customer support expenses and penalties for non-performance stipulated in customer purchase agreements, delays in or cancellations or rescheduling of orders or shipments, product returns or discounts, diversion of management resources or damage to its reputation and brand equity, and in some cases consequential damages, any of which would harm its operating results. In addition, delays in its ability to fill product orders as a result of quality control issues may negatively impact relationships with customers. Peraso cannot provide assurance that it will have sufficient resources to satisfy any asserted claims. Furthermore, any such defects, failures, or delays may be particularly damaging to it as Peraso attempts to establish its reputation as a reliable provider.

Inaccurate forecasts can adversely affect Peraso’s business provided that Peraso sells its products on a purchase order basis and relies on estimated forecasts of its customers’ needs.

Peraso sells its products pursuant to individual purchase orders rather than long-term purchase commitments. Therefore, Peraso will rely on estimated demand forecasts, based on input from its customers, to determine how much product to manufacture. Given that Peraso’s sales are based primarily on purchase orders, customers may cancel, delay or otherwise modify their purchase commitments with little or no notice. As such, Peraso will generally have limited visibility regarding its customers’ product needs. In addition, the product design cycle for networking OEMs is lengthy and it may be difficult for Peraso to accurately anticipate when it will commence commercial shipments of products that include its integrated circuits (“ICs”).

Furthermore, if Peraso experiences substantial warranty claims, its customers may cancel existing orders or cease to place future orders. Any cancellation, delay, or other modification in its customers’ orders could significantly reduce revenue, cause operating results to fluctuate from period to period and make it more difficult for Peraso to predict its revenue. In the event of a cancellation or reduction of the number of orders, Peraso may not have enough time to reduce operating expenses to mitigate the effect of the lost revenue on its business.

If Peraso overestimates customer demand for products, it may purchase products from its manufacturers that it cannot sell. Conversely, if Peraso underestimates customer demand or if sufficient manufacturing and testing capacity are unavailable, Peraso would forego revenue opportunities and could lose market share in the markets served by its products, as well as potentially incurring penalty payments under its customer purchase agreements. In addition, Peraso’s inability to meet customer requirements for its products could lead to delays in product shipments, force customers to identify alternative sources and otherwise adversely affect its ongoing relationships with customers.

Peraso relies on independent foundries and contractors for the manufacture, assembly, testing, and packaging of its integrated circuits, and the failure of any of these third parties to deliver products or otherwise perform as requested could damage relationships with customers and harm sales and financial results.

As a fabless semiconductor company, Peraso relies on third parties for substantially all of its manufacturing operations. Peraso depends on third parties to supply material in a timely manner that meets Peraso’s standards for yield, cost, and quality. Peraso does not have long-term supply contracts with any of its suppliers or manufacturing service providers, and therefore, suppliers or manufacturing service providers are under no obligation to manufacture products during any specific period, in any specific quantity or at any specified price except as may be provided in a particular purchase order. Any issues encountered in the manufacturing supply chain could adversely impact Peraso’s ability to ship products to customers on time and in the quantity required. This can damage its customer relationships and impede market acceptance of its product solutions.

Peraso’s third-party wafer foundries and testing and assembly vendors are located in regions at high risk for earthquakes and other natural disasters. Any disruption to the operations of these foundries and vendors resulting from earthquakes or other natural disasters could cause significant delays in the development, production, shipment, and sales of Peraso’s products.

Peraso’s foundries and some other product suppliers are located in Asia. The risk of an earthquake in the Pacific Rim region is significant due to the proximity of major earthquake fault lines. The occurrence of earthquakes or other natural disasters could result in the disruption of the wafer foundry or assembly and test capacity of the third parties that supply these services and may impede R&D efforts as well as Peraso’s ability to market and sell its products. Peraso may not be able to obtain alternate capacity on favorable terms, if at all.

Peraso faces risks related to health epidemics which could adversely affect its operations and overall business.

Peraso’s business could be materially adversely affected by a widespread outbreak of a health pandemic. The effects of outbreaks could include disruptions or restrictions on employees’ ability to travel, and temporary closures of facilities of suppliers, customers, or other vendors in Peraso’s supply chain. This can impact Peraso’s interactions and relationships with customers, and third-party suppliers and contractors. In addition, a significant outbreak of contagious diseases as a result of a health pandemic could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could reduce the overall demand for Peraso’s products and impact Peraso’s results of operations.

Any claim that Peraso’s products or technology have infringed third-party intellectual property rights could increase costs of operations, distract management, or lease to the discontinuance of technology licensing or product offerings. In addition, Peraso may incur substantial litigation or settlements costs which would adversely affect its profitability.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions which has resulted in often protracted and expensive litigation. Peraso is not aware of any third-party intellectual property that its products or technology could potentially infringe. However, similar to many companies of its size with limited resources, Peraso has not searched for all potentially applicable intellectual property in the public databases. It is possible that a third-party now has, or may in the future obtain, patents or other intellectual property rights that its products or technology may now, or in the future, infringe. Peraso or its customer may, from time to time, receive notice of claims that Peraso has infringed patents or other intellectual property rights of others. Litigation against Peraso can result in significant expenses and divert the efforts of its technical and management personnel, regardless of whether the litigation has merit.

The discovery of defects in technology and products could expose Peraso to liability for damages, which may not be covered by its insurance coverage.

The discovery of a defect in Peraso’s technologies and products could lead customers to seek damages. Many of Peraso’s agreements with customers include provisions waiving implied warranties regarding its technology and products and limiting its liability to its customers. Peraso cannot be certain, however, that the waivers or limitations of liability contained in its agreements with customers will be enforceable. In addition, Peraso’s insurance coverage has certain exclusions or may not adequately cover liabilities incurred. Peraso’s insurance providers may be unable or unwilling to pay a claim, and losses not covered by insurance could be large, which could harm Peraso’s financial condition.

Peraso may not be able to protect and enforce its intellectual property rights, including confidentiality and trade secrets, which could impair its ability to compete and reduce the value of its technology.

Peraso’s technology is complex and is intended for use in complex systems. Policing the unauthorized use of its intellectual property is difficult and expensive. Peraso cannot be certain that it will be able to detect unauthorized use of its technology or prevent other parties from designing and marketing unauthorized products based on its technology. In the event, Peraso identifies any past or present infringement of its patents, copyrights or trademarks, or any violation of its trade secrets, confidentiality procedures, or licensing agreements, Peraso cannot provide assurance that the steps taken by it to protect its proprietary information will be adequate to prevent misappropriation of its technology. Peraso’s inability to adequately protect its intellectual property would significantly reduce the barriers of entry for directly competing technologies and could reduce the value of its technology. Furthermore, Peraso might initiate claims or litigation against third parties for infringement of its proprietary rights or to establish the validity of its proprietary rights. Litigation commenced by Peraso could result in significant expense and divert the efforts of its technical and management personnel.

Peraso’s existing patents may not provide sufficient protection of intellectual property, and patent applications might not result in the issuance of patents, either of which could potentially reduce the value of its technology.

Peraso utilizes a combination of patents, trademarks, trade secret laws and confidentiality procedures to protect its intellectual property rights. Peraso cannot be sure that any patents will be issued from its pending applications or that any claims allowed from pending applications will be of sufficient scope or strength, or issued in all countries where its products can be sold, to provide protection or commercial advantage to Peraso.

If Peraso fails to retain key personnel, its business and growth could be negatively affected.

Peraso’s business has been dependent to a significant degree on the services of a small number of executives and technical employees. The loss of key personnel could negatively impact technology development efforts, ability to deliver products under existing agreements, maintain strategic relationships with partners and obtain new customers. Peraso generally has not entered into employment or non-competition agreements with any of its employees and does not maintain key-man life insurance on the lives of any of its key personnel.

Peraso may not be able to attract and retain qualified employees and its future success depends on the continued service of its executive officers and other key management and technical personnel, and on its ability to continue to identify, attract, retain and motivate them. The market for employees in Peraso’s industry is extremely competitive and a number of competitors for talent are significantly larger than Peraso and may be able to offer compensation in excess of what Peraso may be able to offer.

Disruptions in Peraso’s supply chain due to shortages in the global semiconductor business could cause delays for customers and impact revenue.

Peraso may experience disruptions in its global semiconductor supply chain, with suppliers increasing lead times or placing products on allocation, including procuring necessary components, wafers, substrates and assembly services in a timely fashion. As a result of these potential supply chain disruptions, Peraso may be required to increase customer order lead times and placed some products on allocation. Peraso may be unable to satisfy all of the demand for its products, which may adversely affect customer relationships and impact revenue.

Price increases from Peraso’s supply chain can adversely impact revenue or reduce margins.

Peraso’s suppliers can increase the price of products and services provided to Peraso. Finding and qualifying alternate or additional suppliers in response to increased pricing from suppliers can be a lengthy process and can lead to production delays or additional costs, and such alternatives are sometimes not available. If Peraso is unable to increase the price of its products to its customers in response to its increased costs, it may face reduced margins.

GLOSSARY OF SELECT DEFINED TERMS

“Acquisition Proposal”

means, with respect to Peraso, a Peraso Acquisition Proposal, and, with respect to MoSys, a MoSys Acquisition Proposal.

“Arrangement Agreement”

means the Arrangement Agreement, dated September 14, 2021, by and among MoSys, Canco, Callco, and Peraso, as may be amended from time to time, substantially in the form attached as Annex B.

“Arrangement”

means the arrangement of Peraso under Section 182 of the OBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations to the Plan of Arrangement made in accordance with the terms of the Arrangement Agreement or Article 6 of the Plan of Arrangement or made at the direction of the Court in the Final Order with the consent of the Parties, each acting reasonably.

“Closing”means the completion of the Arrangement.

“Combined Company”

means the consolidated businesses of MoSys and Peraso following the Effective Time.

“Combined Company Shares”means the shares of Common Stock of the Combined Company.

“Common Stock”

means the common stock of MoSys.

“Consideration Shares”

means up to 15,000,000 shares of Common Stock to be issued in connection with the Arrangement, prior to effecting any reverse stock split of shares of Common Stock as contemplated herein, which includes shares of Common Stock that would be issuable upon exchange of the Exchangeable Shares.

“Consideration”

means, collectively: (i) consideration to be received by Peraso Shareholders pursuant to the Plan of Arrangement in respect of each Peraso Share that is issued and outstanding immediately prior to the Effective Time, being either the MoSys Share Consideration or the Exchangeable Share Consideration as elected in accordance with the Plan of Arrangement by a Peraso Shareholder in respect of each Peraso Share held, and (ii) the MoSys Replacement Options.

“Court”means the Ontario Superior Court of Justice (Commercial List).

“Effective Date”

means the date shown on the Certificate of Arrangement giving effect to the Arrangement, which shall be no later than the Outside Date.

“Effective Time”means 12:01 a.m. (Toronto time) on the Effective Date.

“Election Deadline”

means 4:00 p.m. (Toronto time) on the Business Day which is not less than five (5) Business Days preceding the Effective Date, unless otherwise agreed in writing by MoSys and Peraso.

“Exchange Ratio”

means the amount calculated as follows:

((A / B) – C) / D

Where:

A = The total issued and outstanding MoSys Shares on a Fully-Diluted basis immediately prior to the Effective Time

B = 39%

C = The total issued and outstanding MoSys Shares on a Fully-Diluted basis immediately prior to the Effective Time

D = The total issued and outstanding Peraso Shares on a Fully-Diluted basis (including the Peraso Shares issuable on the conversion or exercise of Peraso Convertible Securities) immediately prior to the Effective Time.

“Final Order”

means an order of the Court granted pursuant to Section 182(5) of the OBCA, in form and substance acceptable to each of the Parties, each acting reasonably, approving the Arrangement after a hearing upon the procedural and substantive fairness of the terms and conditions of the Arrangement, as such order may be affirmed, amended, modified, supplemented or varied by the Court (with the consent of the Parties, each acting reasonably) at any time prior to the Effective Date or, if appealed, as affirmed or amended (provided, however, that any such amendment is acceptable to the Parties, each acting reasonably) on appeal, unless such appeal is withdrawn, abandoned or denied.

“Interim Order”

means an order of the Court in form and substance acceptable to each of the Parties, acting reasonably, providing for, among other things, the calling and holding of the Peraso Meeting, as the same may be amended by the Court with the consent of the Parties, each acting reasonably.

“Law” or “Laws”

means, with respect to any Person, any and all applicable law (statutory, common, civil or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement, whether domestic or foreign, enacted, adopted, promulgated or applied by a Governmental Entity that is binding upon or applicable to such Person or its business, property or securities, and to the extent that they have the force of law, policies, guidelines, notices and protocols of any Governmental Entity, as amended.

“Material Adverse Effect”

means a Peraso Material Adverse Effect or a MoSys Material Adverse Effect, as applicable.

“Material Contract”means any of the following for a Party:

(a)any material management, employment, severance, retention, transaction bonus, change in control, consulting, relocation, repatriation or expatriation agreement or other similar Contract;

(b)any Contract with any distributor, reseller or sales representative with an annual value in excess of $100,000;

(c)any Contract with any manufacturer, vendor, or other Person for the supply of materials or performance of services by such third party to the Party in relation to the manufacture of the Party’s products or product candidates with an annual value in excess of $100,000;

(d)any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of

benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by the Arrangement Agreement

(e)

any Contract incorporating or relating to any guaranty, any sharing of liabilities or any indemnity not entered into in the ordinary course of business, including any indemnification agreements between a Party and any of its officers ordirectors;

(f)any Contract imposing any restriction on the right or ability of the Party or that would by the terms of the Contract would impose any restriction on the right or ability of the Party: (i) to compete with any other Person; (ii) to acquire any product or other asset or any services from any other Person; (iii) to solicit, hire or retain any Person as a director, an officer or other employee, a consultant or an independent contractor; (iv) to develop, sell, supply, distribute, offer, support or service any product or any technology or other asset to or for any other Person; (v) to perform services for any other Person; or (vi) to transact business with any other Person;

(g)any Contract currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise;

(h)any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit;

(i)

any joint marketing or development agreement;

(j)any Contract that provides for: (i) any right of first refusal, right of first negotiation, right of first notification or similar right with respect to any securities or assets of the Party; (ii) any “no shop” provision or similar exclusivity provision with respect to any securities or assets of the Party; or (iii) contains most favored nation pricing provisions with any third party or any requirements or minimum purchase obligations of the Party;

(k)any Contract that contemplates or involves the payment or delivery of cash or other consideration in an amount or having a value in excess of $100,000 or more in the aggregate, or contemplates or involves the performance of services having a value in excess of $100,000 in the aggregate other than any arrangement or agreement expressly contemplated or provided for under the Arrangement Agreement;

(l)any Contract that does not allow the Party to terminate the Contract for convenience with no more than ninety (90) days prior notice to the other party and without the payment of any rebate, chargeback, penalty or other amount to such third party in connection with any such termination in an amount or having a value in excess of $100,000 in the aggregate;or

(m)that is a “material contract” (with respect to MoSys, as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC).

“MoSys”

means the Board of Directors of MoSys as the same is constituted from time to time.

“MoSys Financial Adviser”means Cassel Salpeter & Co., LLC, financial adviser to MoSys.

“MoSys Material Adverse Effect”

means any effect, fact, change, event, occurrence or circumstance that is, or would reasonably be expected to be, material and adverse to the business, condition (financial or otherwise), properties, assets (tangible or intangible), liabilities (whether absolute, accrued, conditional, or otherwise), capital, operations or results of operations of MoSys and its subsidiaries, taken as a whole, other than any effect arising from, relating to or resulting from, as applicable: (i) the global economy, political conditions (including the outbreak of war or any acts of terrorism), international trade or securities, financial or credit markets in general, natural disasters or other acts of God; (ii) the semiconductor industry in general, (iii) any generally applicable change in applicable Law (other than orders, judgments, claims or decrees against MoSys or any of its subsidiaries), or accounting standards or the enforcement or interpretation thereof; (iv) a change in the market trading price or trading volume of MoSys Shares (it being understood that the underlying cause of any such change may be taken into consideration when determining whether a MoSys Material Adverse Effect has occurred, unless otherwise excepted under this definition); (v) the announcement of the Arrangement Agreement, including the impact thereof on the relationships, contractual or otherwise, on MoSys or its subsidiaries with customers, suppliers, business partners, regulators, vendors, Governmental Entities or other third Persons; (vi) any action taken or refrained from being taken by MoSys or its subsidiaries in connection with the Arrangement Agreement, to the extent Peraso has expressly consented to, approved or requested such action in writing following the date of the Arrangement Agreement; and (vii) any disease outbreaks, pandemics or epidemics or other related condition including COVID-19; provided, however, that (x) in the event that MoSys and its subsidiaries, taken as a whole, are materially and disproportionately affected by an effect described in clause (i), (ii), (iii), or (vi) above relative to other participants in the industries in which MoSys and its subsidiaries operate, the extent (and only the extent) of such effect, relative to such other participants, on MoSys or any of its subsidiaries, taken as a whole, may be taken into account in determining whether there has been a MoSys Material Adverse Effect; and (y) references in certain sections of the Arrangement Agreement to dollar amounts are not intended to be, and shall not be deemed to be, illustrative or interpretive for the purposes of determining whether a “MoSys Material Adverse Effect” has occurred.

“MoSys Share”means a share of Common Stock.

“MoSys Share Consideration”means the consideration in the form of Combined Company Shares elected or deemed to be elected

for each Peraso Share by a Peraso Shareholder (other than a Dissenting Shareholder) pursuant to the Plan of Arrangement, which shall be that number of Combined Company Shares equal to the Exchange Ratio for each Peraso Share held immediately prior to the Effective Time.

“Nasdaq”

means the Nasdaq Stock Market LLC, including the Nasdaq Capital Market.

“Ordinary Course”

means, with respect to an action taken by a Person, that such action is consistent with the past practices (in terms of nature, scope and magnitude) of such Person and is taken in the ordinary course of the normal day-to-day operations of the business of such Person.

“Outside Date”

means November 30, 2021 or such later date as may be agreed to in writing by the Parties.

“Parties”

means, collectively, MoSys, Peraso, Canco and Callco, and “Party” means any one of them.

“Peraso Financial Adviser”means Evans & Evans, Inc., financial adviser to Peraso.

“Peraso Material Adverse Effect”

means any effect, fact, change, event, occurrence or circumstance that is, or would reasonably be expected to be, material and adverse to the business, condition (financial or otherwise), properties, assets (tangible or intangible), liabilities (whether absolute, accrued, conditional or otherwise), capital, operations or results of operations of Peraso and its subsidiaries, taken as a whole, other than any effect arising from, relating to or resulting from, as applicable: (i) the global economy, political conditions (including the outbreak of war or any acts of terrorism), international trade or securities, financial or credit markets in general, natural disasters or other acts of God; (ii) the semiconductor industry in general, (iii) any generally applicable change in applicable Law (other than orders, Judgments, claims or decrees against Peraso or any of its subsidiaries), or accounting standards or the enforcement or interpretation thereof; (iv) the announcement of the Arrangement Agreement, including the impact thereof on the relationships, contractual or otherwise, on Peraso or its subsidiaries with customers, suppliers, business partners, regulators, vendors, Governmental Entities or other third Persons; (v) any action taken or refrained from being taken by Peraso or its subsidiaries in connection with the Arrangement Agreement, to the extent MoSys has expressly consented to, approved or requested such action in writing following the date of the Arrangement Agreement and (vii) any disease outbreaks, pandemics or epidemics or other related condition including COVID-19; provided, however, that (x) in the event that Peraso and its subsidiaries, taken as a whole, are materially and disproportionately affected by an effect described in clause (i), (ii), (iii) or (vi) above relative to other participants in the industries in which Peraso and its subsidiaries operate, the extent (and only the extent) of such effect, relative to such other participants, on Peraso or any of its subsidiaries, taken as a whole,

may be taken into account in determining whether there has been a Peraso Material Adverse Effect; and (y) references in certain sections of the Arrangement Agreement to dollar amounts are not intended to be, and shall not be deemed to be, illustrative or interpretive for the purposes of determining whether a “Peraso Material Adverse Effect” has occurred.

“Peraso”

Peraso Technologies Inc., a corporation existing under the laws of the Province of Ontario.

“Person”

includes any individual, firm, partnership, limited partnership, limited liability partnership, joint venture, venture capital fund, limited liability company, unlimited liability company, association, trust, trustee, executor, administrator, legal personal representative, estate, body corporate, corporation, company, unincorporated association or organization, Governmental Entity, syndicate or other entity, whether or not having legal status.

“Plan of Arrangement”

means the plan of arrangement of Peraso, substantially in the form attached as Annex B, and any amendments or variations thereto made from time to time in accordance with the Arrangement Agreement, the plan of arrangement or upon the direction of the Court in the Final Order with the consent of the Parties, each acting reasonably.

“SEC”means the United States Securities and Exchange Commission.

“Securities Act”

means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder from time to time.

“Termination Payment”means an amount equal to $3,500,000.