MOSYS, INC.

FORM 10-Q

~~September 30, 2017~~March 31, 2018

TABLE OF CONTENTS

PART I —	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited):	3

	Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017	3

	Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	4

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19 18

Item 3.4.	~~Qualitative~~Controls and ~~Quantitative Disclosures About Market Risk~~Procedures	24 23

~~Item 4.~~PART II —	~~Controls and Procedures~~OTHER INFORMATION	25 23

~~PART II —~~Item 1.	~~OTHER INFORMATION~~Legal Proceedings	25 23

Item 1.1A.	~~Legal Proceedings~~Risk Factors	25 23

~~Item 1A.~~	~~Risk Factors~~	25

Item 6.	Exhibits	25 24

	Signatures	27 26

~~Table of Contents~~

~~PART I—FINANCIAL INFORMATION~~PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

MOSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value)


	September 30,		December 31,		March 31,			December 31,
	2017		2016		2018			2017
ASSETS
Current assets
Cash and cash equivalents	$	2,784	$	8,766	$	3,501		$	3,868
Short-term investments		—		1,002
Accounts receivable, net		1,719		559
Accounts receivable						1,505			1,681
Inventories		1,246		1,451		1,900			1,766
Prepaid expenses and other		1,815		473		1,255			1,347
Total current assets		7,564		12,251		8,161			8,662

Property and equipment, net		748		1,274		658			827
Goodwill		13,276		13,276		13,276			13,276
Intangible assets, net		139		223		84			111
Other		68		121		262			263
Total assets	$	21,795	$	27,145	$	22,441		$	23,139

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	203	$	561	$	233		$	170
Deferred revenue		2,360		271		2,702			3,938
Convertible notes payable		9,148		—
Accrued expenses and other		2,061		2,502		1,886			2,507
Total current liabilities		13,772		3,334		4,821			6,615

Long-term liabilities						18			18
Convertible notes payable		—		8,250		9,635			9,160
Other long-term liabilities		296		233
Total liabilities		14,068		11,817		14,474			15,793

Commitments and contingencies (Note 4)

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; 8,068 shares and 6,630 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		8		7
Common stock, $0.001 par value; 120,000 shares authorized; 8,171 shares and 8,068 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively						8			8
Additional paid-in capital		231,881		229,341		232,069			232,026
Accumulated deficit		(224,162)		(214,020)		(224,110	)		(224,688	)
Total stockholders’ equity		7,727		15,328		7,967			7,346
Total liabilities and stockholders’ equity	$	21,795	$	27,145	$	22,441		$	23,139

3

~~Table of Contents~~

MOSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS AND COMPREHENSIVE LOSS~~CASH FLOWS

(Unaudited)

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

Three Months Ended

Nine Months Ended

September 30,

September 30,


2017

2016

2017

2016

Net revenue

Product

$
2,231

$
1,205

$
4,297

$
3,612

Royalty and other

222

368

752

1,045

Total net revenue

2,453

1,573

5,049

4,657

Cost of net revenue

1,256

658

2,590

2,484

Gross profit

1,197

915

2,459

2,173

Operating expenses

Research and development

1,436

3,927

7,234

14,043

Selling, general and administrative

1,244

1,450

3,659

4,543

Restructuring charges

50

—

1,052

676

Total operating expenses

2,730

5,377

11,945

19,262

Loss from operations

(1,533)

(4,462)

(9,486)

(17,089)

Interest expense

(238)

(217)

(685)

(464)

Other income (expense), net

32

(2)

45

43

Loss before income taxes

(1,739)

(4,681)

(10,126)

(17,510)

Income tax provision

4

20

16

60

Net loss

$
(1,743)

$
(4,701)

$
(10,142)

$
(17,570)

Other comprehensive income, net of tax:

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

—

(1)

—

15

Comprehensive loss

$
(1,743)

$
(4,702)

$
(10,142)

$
(17,555)

Net loss per share

Basic and diluted

$
(0.22)

$
(0.71)

$
(1.43)

$
(2.66)

Shares used in computing net loss per share

Basic and diluted

7,938

6,609

7,092

6,592

	Three Months Ended
	March 31,
	2018			2017
Cash flows from operating activities:
Net income (loss)	$	348		$	(4,405	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		169			196
Stock-based compensation		94			185
Amortization of intangible assets		27			28
Amortization of debt issuance costs		12			11
Accrued interest		209			210
Changes in assets and liabilities:
Accounts receivable		406			(151	)
Inventories		(134	)		396
Prepaid expenses and other assets		93			173
Accounts payable		63			(219	)
Deferred revenue and other liabilities		(1,604	)		(602	)
Net cash used in operating activities		(317	)		(4,178	)
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities		—			2,364
Purchases of marketable securities		—			(1,602	)
Net cash provided by investing activities		—			762
Cash flows from financing activities:
Issuance costs for sale of common stock		(12	)		(20	)
Taxes paid to net share settle equity awards		(38	)		—
Net cash used in financing activities		(50	)		(20	)
Net decrease in cash and cash equivalents		(367	)		(3,436	)
Cash and cash equivalents at beginning of period		3,868			8,766
Cash and cash equivalents at end of period	$	3,501		$	5,330
Supplemental disclosure:
Issuance of convertible notes in settlement of accrued interest	$	463		$	420

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

4

~~Table of Contents~~

MOSYS, INC.

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

~~(In thousands)~~

Nine Months Ended

September 30,

2017

2016

Cash flows from operating activities:

Net loss

$
(10,142)

$
(17,570)

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

Depreciation and amortization

573

780

Stock-based compensation

552

1,794

Amortization of intangible assets

84

83

Amortization of debt issuance costs

33

23

Accrued interest

656

440

(Gain)/loss on disposal of assets

(12)

5

Changes in assets and liabilities:

Accounts receivable

(1,160)

103

Inventories

205

173

Prepaid expenses and other assets

(1,289)

343

Accounts payable

(390)

(759)

Deferred revenue and other liabilities

1,931

(383)

Net cash used in operating activities

(8,959)

(14,968)

Cash flows from investing activities:

Purchases of property and equipment

(26)

(646)

Net proceeds from sale of assets

12

—

Proceeds from sales and maturities of marketable securities

2,604

40,612

Purchases of marketable securities

(1,602)

(28,749)

Net cash provided by investing activities

988

11,217

Cash flows from financing activities:

Net proceeds from issuance of common stock

1,989

363

Proceeds from the issuance of notes payable, net of issuance costs

—

7,879

Payments on capital lease obligations

—

(123)

Net cash provided by financing activities

1,989

8,119

Net increase (decrease) in cash and cash equivalents

(5,982)

4,368

Cash and cash equivalents at beginning of period

8,766

5,640

Cash and cash equivalents at end of period

$
2,784

$
10,008

Supplemental disclosure:

Issuance of convertible notes in settlement of accrued interest

$
854

$
336

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

5

~~Table of Contents~~

~~MOSYS, INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. The Company and Summary of Significant Accounting Policies

MoSys, Inc. (the Company) was incorporated in California in September 1991 and reincorporated in September 2000 in Delaware. The Company’s strategy and primary business objective is to be an ~~intellectual property (IP)-rich~~IP-rich fabless semiconductor company focused on the development and sale of integrated circuit (IC) products. The Company’s solutions deliver time-to-market, performance, power, area and economic benefits for system original equipment manufacturers. The Company has developed two families of ICs under the Bandwidth Engine® and LineSpeed™ product names.Its Bandwidth Engine ICs combine the Company’s proprietary ~~1T-SRAM®~~ high-density embedded memory ~~integrated macro functions and high-speed serial interface~~ with its ~~intelligent access technology~~high-speed 10 gigabits per second and ~~a highly efficient~~higher interface protocol. The LineSpeed IC product line is comprised of non-memory, high-speed serial interface devices with clock data recovery, gearbox and retimer functionality, which convert lanes of data received on line cards or by optical modules into different configurations and/or ensure signal integrity. In the quarter ended September 30, 2017, the Company notified its customers that it intends to discontinue the LineSpeed IC product line. The Company is currently supporting existing LineSpeed IC customers and accepting last-time product orders. Going forward, the Company expects to focus all of our efforts on the Bandwidth Engine IC product line. Historically, the Company’s primary business was the design, development, marketing, sale and support of differentiated IP, including embedded memory and high-speed parallel and SerDes I/O used in advanced systems-on-chips.technology. The Company’s future success and ability to ~~achieve and~~ maintain profitability depends on its success in developing a market for its ICs.

The accompanying condensed consolidated financial statements of the Company have been prepared on a basis that assumes that the Company will continue as a going concern and contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business and have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission (SEC).

The condensed consolidated balance sheet as of December 31, ~~2016~~2017 has been derived from the audited consolidated financial statements at that date. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted in accordance with these rules and regulations. The information in this report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its most recent annual report on Form 10-K filed with the SEC.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the ~~the~~ three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017~~2018 or for any other future period.

~~Liquidity~~

The Company incurred a net loss of $10.1 million for the nine months ended September 30, 2017 and had an accumulated deficit of $224.2 million as of September 30, 2017. In addition, the Company incurred net losses of approximately $32.0 million and $31.5 million for the years ended December 31, 2016 and 2015, respectively. ~~These and prior year losses have resulted in significant negative cash flows for almost a decade and have required the Company to raise substantial amounts of additional capital.~~ To date, the Company has primarily financed its operations through multiple offerings of common stock to investors and affiliates, as well as asset sale transactions. In March 2016, the Company entered into a 10% Senior Secured Convertible Note Purchase Agreement with the purchasers of $8.0 million principal amount of 10% Senior Secured Convertible Notes due August 15, 2018 (the Notes), at par, in a private placement transaction. The Notes bear interest at the annual rate of 10%. Accrued interest is payable semi-annually in cash or in-kind through the issuance of identical new Notes, or with a combination of the two, at the Company’s option. Since issuance of the Notes, the Company has made the interest payments in-kind through the issuance of additional notes totaling approximately $1.2 million. Further, the Notes restrict the ability of the Company to incur any indebtedness for borrowed money, unless such indebtedness by its terms is expressly subordinated to the Notes in right of payment and to the security interest of the Note holder(s) in respect to the priority and enforcement of any security

6

~~Table of Contents~~

interest in property of the Company securing such new debt; provided that the Note holder(s) security interest and cash payment rights under the Notes shall be subordinate to a maximum of $5 million of indebtedness for a secured accounts receivable line of credit facility under certain conditions (See Note 8). The Notes are payable in full in August 2018.

The Company expects to continue to incur operating losses for the foreseeable future as it secures customers for and continues to invest in the commercialization of its IC products. The Company will need to increase revenues substantially beyond levels that it has 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. As a result of the Company’s expected operating losses and cash burn for the foreseeable future, recurring losses from operations, and the need to repay the Notes and accrued interest in 2018, if the Company is unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. These condensed consolidated financial statements do not include any adjustments that might result from this uncertainty. 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 terms and conditions acceptable to the Company. As further discussed in Note 10, in April 2017, the Company initiated restructuring activities and has effected reductions in its workforce and associated operating expenses, net loss and cash burn as part of its efforts to sustain its business. The Company’s primary focus is producing and selling its Bandwidth Engine products, and it has substantially curtailed new product development. If the Company is unsuccessful in these efforts, it will need to implement additional cost reduction strategies, which could further affect its near- and long-term business plan. These efforts may include, but are not limited to, further reducing headcount and curtailing business ~~activities.~~

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.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses recognized during the reported period. Actual results could differ from those estimates.

Cash Equivalents and Investments

The Company ~~has invested~~invests 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 loss. Realized gains and losses and declines in the value judged to be other than temporary are included in the other income, net line item in the 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.

7

~~Table of Contents~~

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 receivable at either ~~September 30, 2017~~March 31, 2018 or December 31, ~~2016.~~2017.

~~Inventory~~

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~~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 inventory write-downs during the three ~~or nine~~ months ended ~~September 30, 2017~~March 31, 2018 or ~~2016.~~2017.

Revenue Recognition

~~General~~On January 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective (cumulative effect) transition method. Under this transition method, results for reporting periods beginning January 1, 2018 or later are presented under ASC 606, while prior period results continue to be reported in accordance with previous guidance. The cumulative effect of the initial application of ASC 606 was recognized as an adjustment to accumulated deficit as of January 1, 2018 of $230,000. Overall, the adoption of ASC 606 did not have a material impact on the Company’s condensed consolidated balance sheet, statement of operations and comprehensive income and statement of cash flows for the three months ended March 31, 2018. ASC 606 also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. As described below, the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent with the Company’s historical practice of recognizing product revenue when title and risk of loss pass to the customer.

Revenue is recognized when control over a product or service is transferred to a customer. Revenue is measured at the transaction price which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised goods or services to the customer and excludes any amounts collected on behalf of third parties. The Company enters into contracts that may include both products and services, which are generally capable of being distinct and accounted for as separate performance obligations.

The Company does not have significant financing components, as payments from customers are typically due within 60 days of invoicing and the Company has elected the practical expedient to net value financing components that are less than one year. Shipping and handling costs are incurred by the customer, and, therefore, are not recorded as revenue.

The following table summarizes the cumulative effect of the changes to the Company’s unaudited condensed consolidated balance sheet as of January 1, 2018 due to the adoption of ASC 606 (in thousands):

	Balance as of December 31, 2017			Adjustments due to ASC 606		Balance as of January 1, 2018
Assets
Accounts receivable, net	$	1,681		$	230	$	1,911
Equity
Accumulated deficit	$	(224,688	)	$	230	$	(224,458	)

The following tables summarize the current-period impacts of adopting ASC 606 on the Company’s unaudited condensed consolidated balance sheet and statement of operations and comprehensive income:

	March 31, 2018
	As Reported			Effect of adoption			Balances without adoption of ASC 606
Assets
Accounts receivable, net	$	1,505		$	(220	)	$	1,285
Equity
Accumulated deficit	$	(224,110	)	$	(220	)	$	(224,330	)

	For the Three Months Ended March 31, 2018
	As Reported		Effect of adoption		Balances without adoption of ASC 606
Product sales	$	3,704	$	—	$	3,704
Royalty and other		504		10	514
Cost of net revenue		1,601		—		1,601
Operating expenses		2,040		—		2,040
Interest expense		221		—		221
Other income, net		3		—		3
Income tax provision		1		—		1
Net income		348		10		358
Net income per share:
Basic	$	0.04	$	—	$	0.04
Diluted	$	0.04	$	—	$	0.04

Additionally, as a result of the adoption of ASC 606, the Company changed its accounting policy for revenue recognition.

Critical Accounting Policy – Revenue Recognition

The Company generates revenue primarily from ~~the~~ sales of IC products and licensing of its IP. ~~The~~Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company ~~recognizes~~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 ~~persuasive evidence of an arrangement exists, delivery~~ or as a performance ~~has occurred, the sales price~~obligation is ~~fixed or determinable, and collectibility is reasonably assured. Evidence of an arrangement generally consists of signed agreements or customer purchase orders.~~

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 ~~as well as~~ and through ~~distributors. Revenue from sales directly to customers is~~ distributors generally ~~recognized at the time of shipment.~~ under agreements with payment terms typically less than 60 days.

The Company may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale. IC product revenue and costs relating to sales made through distributors with rights of return or stock rotation are generally deferred until the distributors sell the product to end customers due to the Company’s inability to estimate future returns and credits to be issued. Distributors are generally able to return up to 10% of their purchases for slow, non-moving or obsolete inventory for credit every six months. At the time of shipment to distributors, an accounts receivable for the selling price is recorded, as there is a legally enforceable right to receive payment, and inventory is relieved, as legal title

8

~~Table of Contents~~

to the inventory is transferred upon shipment. Revenues are recognized upon receiving notification from the distributors that products have been sold to end customers. Distributors provide information regarding products and quantity, end customer shipments and remaining inventory on hand. The associated deferred margin is included in the accrued expenses and other line item in the condensed consolidated balance sheets.

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 ~~their~~its currently shipping commercial products. ~~The~~With the adoption of ASC 606 in January 2018, the Company ~~recognizes royalties~~estimates its royalty revenue in the calendar quarter in which ~~it receives~~ the ~~licensee’s report.~~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. For the three months ended March 31, 2018 contract liabilities were in a current position and included in deferred revenue.

During the three months ended March 31, 2018, the Company recognized revenue of $1.4 million that had been included in deferred revenue at December 31, 2017.

See Note 5 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 include engineering support to assist in the commencement of production of a licensee’s products.

Goodwill

In January 2017, the ~~Financial Accounting Standards Board (FASB)~~FASB issued Accounting Standards Update (ASU) No. 2017-04, Simplifying the Test for Goodwill Impairment (ASU No. 2017-04), which ~~eliminates~~eliminated step 2, the computation of the implied fair value of goodwill to determine the amount of impairment, from the goodwill impairment test. ~~In computing the implied fair value of goodwill for step 2 under current accounting standards,~~Under ASU No. 2017-04, the Company calculates the fair value of its assets and liabilities (including unrecognized assets and liabilities) as if acquired or assumed in a business combination. Under the amendments in this update, the Company will determinedetermines the amount of goodwill impairment by comparing the fair value of the reporting unit with its carrying amount. To the extent the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge is recognized. The Company early-adopted ASU No. 2017-04 ~~is effective for the Company for annual and interim impairment tests beginning January 1, 2020 with early adoption permitted. The Company has elected to early adopt the new standard~~ effective January 1, 2017, because the ASU significantly simplifies the evaluation of goodwill for impairment.

The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to determine the step one fair value, the price of its common stock is an important component of the fair value calculation. If the Company’s stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying ~~amount as a basis for determining whether it is necessary to perform an impairment test.~~amount. If the qualitative assessment warrants further analysis, the Company compares the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the market approach. If the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit, goodwill is not impaired. If the carrying value of the reporting unit’s goodwill exceeds its fair value, then the Company must record an impairment charge equal to the difference. The Company performed its annual test for goodwill impairment as of September 1, 2017, and performed a subsequent test on ~~September 30, 2017.~~March 31, 2018. In both tests, the Company’s fair value exceeded its carrying value of net assets and, as such, there was no additional impairment of goodwill.

~~Reverse Stock Split~~

On February 14, 2017, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect a one-for-ten reverse stock split of the Company’s shares of common stock. Such amendment and ratio were previously approved by the Company’s stockholders and board of directors, respectively.

9

~~Table of Contents~~

On February 16, 2017, the Company effected the one-for-ten reverse stock split. As a result of the reverse stock split, every ten shares of the Company’s pre-reverse split outstanding common stock was combined and reclassified into one share of common stock. Proportionate voting rights and other rights of common stock holders were not affected by the reverse stock split. No fractional shares were issued in connection with the reverse stock split; stockholders who would otherwise hold a fractional share of common stock received cash in an amount equal to the product obtained by multiplying (i) the closing sale price of the Company’s common stock on the effective date of the reverse stock split, by (ii) the number of shares of the Company’s common stock held by the stockholder that would otherwise have been exchanged for the fractional share interest. All stock options and restricted stock units outstanding and common stock reserved for issuance under the Company’s equity incentive plans immediately prior to the reverse stock split were adjusted by dividing the number of affected shares of common stock by 10 and, as applicable, multiplying the exercise price by 10, as a result of the reverse stock split. The common stock par value was adjusted to $0.001 in conjunction with the reverse stock split.

Per Share Amounts

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

The following table sets forth the ~~employee stock purchase plan.~~computation of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

	Three months ended
	March 31,
	2018		2017
Numerator:
Net income (loss)	$	348	$	(4,405	)
Denominator:
Add: weighted-average common shares outstanding		8,130		6,647
Total shares: basic		8,130		6,647
Add: weighted-average stock options outstanding		63		—
Add: weighted-average unvested restricted stock units		154		—
Total shares: diluted		8,347		6,647
Net income (loss) per share:
Basic	$	0.04	$	(0.66	)
Diluted	$	0.04	$	(0.66	)

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


	September 30,		Three months ended
	2017	2016	March 31,		March 31,
			2018		2017
Options outstanding to purchase common stock	248	558		186		508
Employee stock purchase plan	—	47
Unvested restricted common stock units	385	150		-		89
Convertible debt	1,021	926		2,272		973
Outstanding warrants	663	—
Total	2,317	1,681		2,458		1,570

~~Comprehensive Loss~~

Comprehensive loss includes unrealized gains and losses on available-for-sale securities. Realized gains and losses on available-for-sale securities are reclassified from accumulated other comprehensive loss and included in other income, net in the condensed consolidated statements of operations and comprehensive loss. All amounts recorded in the three and nine months ended September 30, 2017 and 2016 were not considered significant.

Debt Issuance Costs

Debt issuance costs are capitalized and amortized to interest expense using the effective interest method. Unamortized debt ~~issuances~~issuance costs are presented in the condensed consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability and accounted for as debt discounts.

Note 2: Fair Value of Financial Instruments

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

September 30, 2017

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Cash and cash equivalents

$
2,784

$
—

$
—

$
2,784

	March 31, 2018
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash and cash equivalents	$	3,501	$	—	$	—	$	3,501

10

~~Table of Contents~~

December 31, 2016

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Cash and cash equivalents

$
8,766

$
—

$
—

$
8,766

Short-term investments:

U.S. government-sponsored enterprise bonds

$
762

$
—

$
—

$
762

Corporate notes

240

—

—

240

Total short-term investments

$
1,002

$
—

$
—

$
1,002

	December 31, 2017
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash and cash equivalents	$	3,868	$	—	$	—	$	3,868

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) ~~as of September 30, 2017 and December 31, 2016~~ (in thousands):

September 30, 2017

Fair Value

Level 1

Level 2

Level 3

Money market funds

$
620

$
620

$
—

$
—

	March 31, 2018
	Fair Value		Level 1		Level 2		Level 3
Money market funds	$	622	$	622	$	—	$	—

December 31, 2016

Fair Value

Level 1

Level 2

Level 3

Money market funds

$
84

$
84

$
—

$
—

U.S. government-sponsored enterprise bonds

3,767

—

3,767

—

Municipal bonds

4,027

—

4,027

—

Corporate notes

480

—

480

—

Total assets

$
8,358

$
84

$
8,274

$
—

	December 31, 2017
	Fair Value		Level 1		Level 2		Level 3
Money market funds	$	621	$	621	$	—	$	—

There were no transfers in or out of Level 1 and Level 2 securities during the three ~~or nine~~ months ended ~~September 30, 2017~~March 31, 2018 or ~~2016.~~2017.

Note 3. Balance Sheet Detail


	September 30,		December 31,		March 31,		December 31,
	2017		2016		2018		2017
	(in thousands)				(in thousands)
Inventories:
Work-in-process	$	1,071	$	1,270	$	1,746	$	1,612
Finished goods		175		181		154		154
	$	1,246	$	1,451	$	1,900	$	1,766

11

~~Table of Contents~~

Identifiable intangible assets were (dollar amounts in thousands):

September 30, 2017




Gross



Net

Life

Carrying

Accumulated

Carrying

(years)

Amount

Amortization

Amount

Patent license

7

$ 780

$ 641

$ 139

March 31, 2018

Gross

Net

Life

Carrying

Accumulated

Carrying

(years)

Amount

Amortization

Amount

Patent license

7

$

780

$

696

$

84

December 31, 2016




Gross



Net

Life

Carrying

Accumulated

Carrying

(years)

Amount

Amortization

Amount

Patent license

7

$ 780

$ 557

$ 223

December 31, 2017

Gross

Net

Life

Carrying

Accumulated

Carrying

(years)

Amount

Amortization

Amount

Patent license

7

$

780

$

669

$

111

Amortization expense has been included in research and development expense in the condensed consolidated statements of ~~operations and comprehensive loss.~~operations. The remaining estimated aggregate amortization expense ~~to be recognized in future years~~ is less than $0.1 million ~~for the remainder of 2017~~ and ~~$0.1 million~~will be recognized in 2018.

Note 4. 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 three ~~or nine~~ months ended ~~September 30,~~March 31, 2018 or 2017 ~~or 2016~~ 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~~In October 2017, Trinity Technologies, Inc. (Trinity), the Company’s former sales representative in the San Francisco Bay Area, filed a ~~party to any material legal proceeding that~~lawsuit against the Company ~~believes is likely to have a material adverse effect on its consolidated financial position or results~~in the Superior Court of ~~operations. From time to time~~California alleging non-payment of commissions. In April 2018, the Company ~~may be subject~~and Trinity executed a settlement agreement, and Trinity dismissed the lawsuit. Under the terms of the settlement agreement, the Company agreed to ~~legal proceedings~~pay Trinity for commissions related to both 2017 and ~~claims~~2018. Commissions for the period prior to April 1, 2018 were accrued as of March 31, 2018. Pursuant to the settlement agreement, the Company will accrue additional commission expenses of approximately $250,000 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.~~quarter ending June 30, 2018.

Note 5. 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 is based on the geographical location of the customer.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short‑term investments and accounts receivable. Cash, cash equivalents and short‑term investments are deposited with high credit‑quality institutions.

12

~~Table of Contents~~

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				Three Months Ended
	September 30,				September 30,				March 31,
	2017		2016		2017		2016		2018		2017
North America	$	1,915	$	937	$	3,698	$	2,905	$	3,357	$	822
Japan		384		398		755		1,103		714		169
Taiwan		123		209		463		581		83		171
Rest of world		31		29		133		68		54		50
Total net revenue	$	2,453	$	1,573	$	5,049	$	4,657	$	4,208	$	1,212

13

~~Table of Contents~~

Valuation Assumptions

~~There were no stock options granted during the three months ended September 30, 2017.~~ The fair value of the Company’s stock options granted for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ was estimated on the grant dates using the Black-Scholes valuation option-pricing model with the following assumptions:



	Nine Months Ended
	September 30,
	2017	2016	2018			2017
Risk-free interest rate	1.6%	1.0% - 1.2%		2.2	%		1.6	%
Volatility	70.2%	61.4% - 63.8%		109.5	%		70.2	%
Expected life (years)	4.0	4.0 - 5.0		4.0			4.0
Dividend yield	0%	0%		—	%		—	%

14

~~Table of Contents~~

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

							Weighted
		Weighted					Average
		Average		Number of			Grant-Date
	Number of	Grant-Date		Shares			Fair Value
	Shares	Fair Value
Non-vested shares at January 1, 2017	148	$	8.13
Vested	(54)	$	11.64
Cancelled	(5)	$	5.30
Non-vested shares at March 31, 2017	89	$	6.16
Cancelled	(37)	$	5.75
Non-vested shares at June 30, 2017	52	$	6.46
Non-vested shares at January 1, 2018					376		$	1.58
Granted	407	$	0.93		60		$	1.16
Vested	(66)	$	0.95		(133	)	$	2.11
Cancelled	(8)	$	5.30		(1	)	$	0.94
Non-vested shares at September 30, 2017	385	$	1.58
Non-vested shares at March 31, 2018					302		$	1.27

15

~~Table of Contents~~

Note 8. Convertible Notes

On March 14, 2016, the Company entered into a 10% Senior Secured Convertible Note Purchase Agreement (the ~~Purchase Agreement)~~“Purchase Agreement”) with the purchasers of $8,000,000 principal amount of 10% Senior Secured Convertible Notes due August 15, 2018 (the ~~Notes)~~“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. ~~The conversion price~~Pursuant to an amendment to the Notes and related documents effective February 18, 2018, the interest rate was reduced to 8%, the maturity date of the Notes ~~is $9.00~~was extended to August 15, 2019, and the optional conversion price was reduced from $8.50 of Note principal per share ~~and~~of common stock to $4.25 of Note principal per share of common stock. The conversion price is subject to adjustment upon certain events, such as stock splits, reverse stock splits, stock dividends and similar kinds of transactions, as set forth in the Purchase Agreement. Pursuant to a security agreement entered into by the Company, the Notes are secured by a security interest in all of the assets of the Company.

The Notes ~~bear~~originally had an interest atrate of 10%, but from February 15, 2018, the annual rate of ~~10%~~interest is 8%. Accrued interest is payable semi-annually in cash or ~~in-kind~~in kind through the issuance of identical new Notes, or with a combination of the two, at the Company’s option. The Notes are noncallable and nonredeemable by the Company. The Notes are redeemable at the election of the holders if the Company experiences a fundamental change (as defined in the Notes), which generally would occur in the event (i) any person acquires beneficial ownership of shares of common

stock of the Company entitling such person to exercise at least 40% of the total voting power of all of the shares of capital stock of the Company entitled to vote generally in elections of directors, (ii) an acquisition of the Company by another person through a merger or consolidation, or the sale, transfer or lease of all or substantially all of the Company’s assets, or (iii) the Company’s current directors cease to constitute a majority of the board of directors of the Company within a 12-month period, disregarding for this purpose any director who voluntarily resigns as a director or dies while serving as a director. ~~The~~Pursuant to the amendment to the Notes, the redemption price iswas reduced from 120% to 100% of the principal amount of the Note to be repurchased plus accrued and unpaid interest as of the redemption date.

~~The conversion price~~No holder of ~~$9.00 per share of common stock shall be reset, if, prior to the maturity date, the Company sells new shares of capital stock, or other securities convertible into or exercisable for capital stock, in~~ a financing with one or more accredited investors that yields proceeds to the Company (net of transaction fees, expenses and discounts and commission) of at least $1,000,000 at a price lower than the then applicable conversion price in effect immediately before the closing of such financing; provided that in no event shall the applicable conversion price be reset to less than $8.50 per share of common stock. The Notes are subject to anti-dilution adjustments for stock splits, stock dividends, and the like.

No Note ~~holder shall be~~is entitled to convert such ~~holder’s Notes~~Note if effective upon the applicable conversion date (i) the holder would have beneficial ownership of more than 9.9% of the voting capital stock of the Company as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, (with exceptions specified in the Purchase Agreement), or (ii) if the shares are being acquired or held with a purpose or effect of changing or influencing control of the Company, or in connection with or as a participant in any transaction having that purpose or effect, as determined in the sole discretion of the board of directors of the Company. There is no required sinking fund for the Notes. The Notes have not been registered for resale, and the holder(s) do not have registration rights.

The Notes restrict the ability of the Company to incur any indebtedness for borrowed money, unless such indebtedness by its terms is expressly subordinated to the Notes in right of payment and to the security interest of the Note holder(s) in respect to the priority and enforcement of any security interest in property of the Company securing such new debt; provided that the Note holder(s) security interest and cash payment rights under the Notes shall be subordinate to a maximum of $5,000,000 of indebtedness for a secured accounts receivable line of credit facility provided to the Company by a bank or institutional lender; and, provided further, that in no event may the amount of indebtedness to which the security interest of the Note holder(s) is subordinated exceed the outstanding balance of accounts receivable less than 90 days old for which the Company has not recorded an allowance for doubtful accounts pledged under such credit facility.

The Notes define an event of default generally as any failure by the Company to pay an amount owed under the Notes when due (subject to cure periods), a default with respect to other indebtedness of the Company resulting in acceleration of such indebtedness, the commencement of bankruptcy or insolvency proceedings, or the cessation of business. If an event of default occurs under the Notes, the holder(s) of a majority-in-interest of the outstanding principal amount of the Notes may declare the outstanding principal amount thereof to be immediately due and payable and pursue all available remedies, including taking possession of the assets of the Company and selling them to pay the amount of debt then due, plus expenses, in accordance with applicable laws and procedures.

The Company incurred debt issuance costs of approximately $0.1 million, which were recorded as a debt discount and are being amortized to interest expense over the repayment period for the original loan using the effective interest

16

~~Table of Contents~~

rate method. The interest expense related to the debt discount during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 was approximately $12,000 and $11,000, respectively, and ~~$33,000, respectively. The~~the remaining unamortized debt discount was approximately ~~$42,000.~~$18,000.

InSemi-annual interest payments have been made in each of August 2016, ~~the first semi-annual interest payment was made~~February 2017, August 2017 and February 2018, for approximately $336,000, $420,000, $434,000 and $463,000, respectively, in-kind with the issue of an additional ~~note~~notes (Interest ~~Note)~~Notes) to the Purchasers. The Interest Note has a principal amount of approximately $336,000 and has terms identical to the Notes. In February 2017, the second semi-annual interest payment was made in-kind with the issue of an additional note (Second Interest Note) to the Purchasers. In August 2017, the third semi-annual interest payment was made in-kind with the issue of an additional note (Third Interest Note) to the Purchasers. The Second Interest Note and Third Interest Note have principal amounts of approximately $420,000 and $434,000, respectively, andNotes have terms identical to the Notes. As of ~~September 30, 2017,~~March 31, 2018, the Notes and Interest ~~Note, Second Interest Note and Third Interest Note~~Notes could be converted into a maximum of ~~1,081,166~~2,271,338 shares of common stock at ~~$8.50~~$4.25 per share, excluding the effects of future payments of interest ~~in-kind.~~

in-kind and beneficial ownership ceiling of 9.9%.

The outstanding convertible notes payable of ~~$9.2~~$9.7 million (excluding unamortized discount of approximately ~~$42,000~~$18,000 as of ~~September 30, 2017)~~March 31, 2018) are due in August ~~2018.~~2019.

~~Note 9. Stockholders’ Equity~~

On July 6, 2017, the Company sold to certain institutional investors an aggregate of 1,325,000 shares of common stock at a purchase price of $1.70 per share, for aggregate gross proceeds to the Company of $1,989,000, net of transaction expenses.

In a concurrent private placement, the Company also sold to each of the purchasers a warrant to purchase one half of a share of the common stock for each share purchased for cash in the offering, pursuant to a common stock purchase warrant, by and between the Company and each Purchaser (each, a “Warrant,” and collectively, the “Warrants”) representing in the aggregate rights to purchase 662,500 shares of common stock at the exercise price. The Warrants will be exercisable on January 6, 2018 at an exercise price of $2.35 per share and will expire on January 6, 2023.

The Warrants will be exercisable on a “cashless” basis if at any time after the six month anniversary there is not an effective registration statement for the resale of the warrant shares in place, or there is not a current resale prospectus then available.

Note ~~10.~~9. Restructuring Charges

In the second quarter of 2017, the Company effected a reduction in its workforce and associated operating expenses, net loss and cash burn. The Company reduced headcount by approximately 60% with the majority of the reductions occurring inat its ~~Santa Clara~~U.S. headquarters facility. As a result of the restructuring, the Company recorded approximately $1.0 million of charges for severance benefits and future obligations under computer-aided design software licenses. In the

third quarter of 2017, the Company closed its Japanese branch and Iowa locations and further reduced headcount resulting in additional expenses of ~~$0.1 million.~~ ~~The Company expects to incur future additional charges related to this restructuring activity in the range of $0.2 million to $0.3 million, primarily in the form of relocation costs, in~~approximately $50,000. In the fourth quarter of ~~2017.~~2017, the Company terminated its existing headquarters facility lease and incurred lease termination expenses of approximately $270,000.

Expenses related to the ~~restructuring activity~~restructure are included in the restructuring charges line onin the ~~condensed~~ consolidated statements of operations and ~~comprehensive loss. The short-term portion of~~ the remaining liability is included in accrued expenses and other ~~and the long-term portion in other long-term liabilities~~ on the ~~condensed~~ consolidated balance ~~sheet.~~ ~~Restructuring activity was as follows~~sheets consisting of (in thousands):

							Facility related			Contractual obligations and other termination costs			Total
			Contractual obligations
	Workforce		and other
	reduction		termination costs		Total
Balance as of March 31, 2017	$	—	$	—	$	—
Balance as of January 1, 2018							$	89		$	389		$	478
Restructuring charge		458		594		1,052		—			—			—
Cash payments		(458)		(119)		(577)		(89	)		(131	)		(220	)
Balance as of September 30, 2017	$	—	$	475	$	475
Balance as of March 31, 2018							$	—		$	258		$	258

17

~~Table of Contents~~

~~Note 11. Subsequent Events~~

~~Lease Termination~~

On October 3, 2017, the Company entered into a lease termination agreement with M West Propco XII LLC (“MWest”) under which the Company and MWest agreed to terminate the Company’s lease for its current headquarters facility located in Santa Clara, California effective October 31, 2017. In connection with the lease termination, the Company incurred fees of approximately $250,000, most of which will be paid in cash during the quarter ending December 31, 2017.

On October 3, 2017, the Company entered into a sublease agreement with Cyren, Inc. ("Cyren") under which the Company will sublease a new headquarters facility located in San Jose, California from Cyren for a term of 36 months commencing November 1, 2017. The monthly rent and common-area costs under the new facility lease will be approximately $21,600, and compare with monthly rent and common-area costs for the Santa Clara facility of approximately $88,930.

18

~~Table of Contents~~

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this report. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising efforts, all information disclosed under Item 3 of this Part I, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March ~~15, 2016~~12, 2018 and in other reports that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described ~~below in “Company Overview,” “Liquidity and Capital Resources; Changes in Financial Condition,” “Risk Factors” and elsewhere in this report and~~ under Item 1A of our annual report on Form 10-K for the year ended December 31, ~~2016.~~2017. 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

~~We are~~Our strategy and primary business objective is to become a profitable fabless semiconductor company focused on the development and sale of integrated circuits, or ICs, for the high-speed networking, communications, storage and data center markets. Our solutions deliver time-to-market, performance, power, area and economic benefits for system original equipment manufacturers, or OEMs. ~~We have developed two families of ICs under the Bandwidth Engine® and LineSpeed™ product names.~~Our Bandwidth Engine ICs combine our proprietary ~~1T-SRAM®~~1T-SRAM^® high-density embedded memory, integrated macro functions and high-speed serial interface, or SerDes ~~I/O,~~interface, with our intelligent access technology and a highly efficient interface protocol. The LineSpeed IC product line is comprised of non-memory, high-speed SerDes I/O devices with clock data recovery, gearbox and retimer functionality, which convert lanes of data received on line cards or by optical modules into different configurations and/or ensure signal integrity. In the quarter ended September 30, 2017, we notified our customers that we intend to discontinue our LineSpeed IC product line. We are currently supporting existing LineSpeed IC customers and accepting last-time product orders. Going forward, we expect to focus all of our efforts on our Bandwidth Engine IC product line. Historically, our primary business was the design, development, marketing, sale and support of differentiated intellectual property, or IP, including embedded memory and high-speed parallel and SerDes ~~I/O~~interfaces used in advanced systems-on-chips, or SoCs.In April 2017, we implemented restructuring initiatives to effect a reduction in our workforce and associated operating expenses, net loss and cash burn. Under these initiatives, we significantly reduced our headcount, closed our international sales offices and relocated and downsized our corporate headquarters. We are now focusing our resources primarily on producing and selling our existing products, and have substantially curtailed new product development. Our second-generation Bandwidth Engine, or Bandwidth Engine 2, products are expected to be our primary revenue source through at least 2019, and we expect these products to continue to generate significant revenue thereafter. We expect our third generation Bandwidth Engine products, Bandwidth Engine 3, to commence production in late 2018, and begin generating meaningful revenue in 2019. Despite our limited new product development efforts, we believe our current product portfolio positions us to pursue future growth and maintain profitability. We will continue to seek third-party funding for new product development efforts.

Our future success and ability to achieve and maintain profitability are dependent on the marketing and sales of our IC products into networking, communications and other markets requiring high-bandwidth memory access.

Accounting Change

On January 1, 2018, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective (cumulative effect) transition method Under this transition method, results for reporting periods beginning January 1, 2018 or later are presented under ASC 606, while prior period results continue to be reported in accordance with previous guidance. The cumulative effect of the initial application of ASC 606 was recognized as an adjustment to accumulated deficit of $0.2 million as of January 1, 2018. Overall, the adoption of ASC 606 did not have a material impact on the condensed consolidated balance sheet as of March 31, 2018, and statement of operations and comprehensive income and statement of cash flows for the three months ended March 31, 2018. ASC 606 also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. As described below, the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent with our historical practice of recognizing product revenue when title and risk of loss pass to the customer.

The following table summarizes the impact of the adoption of ASC 606 on revenue, operating expenses and operating profit for the three months ended March 31, 2018 (in millions):

	As Reported		Adjustments		Amounts without the Adoption of ASC 606
Revenue	$	4,208	$	10	$	4,218
Operating Expenses	$	2,040	$	-	$	2,040
Income from Operations	$	567	$	10	$	577

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. ~~IC product~~

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. With the adoption of ASC 606 in January 2018, we estimate royalty revenue and costs relating to sales made through distributors with rights of return and stock rotation are deferred until the distributors sell the product to end customers due to our inability to estimate future returns and credits to be issued. At the time of shipment to distributors, an account receivable for the selling price is recorded, as there is a legally enforceable right to receive payment, inventory is relieved, as legal title to the inventory is transferred upon shipment, and the associated deferred margin is recorded as deferred revenues in the ~~condensed consolidated balance sheets. Revenues are recognized upon receiving notification from the distributors that products have been sold to end customers.~~

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

19

~~Table of Contents~~

~~difficult to predict. They depend on the licensee’s ability to market, produce and sell products incorporating our technology.~~

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 ~~Generally Accepted Accounting Principles (GAAP).~~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, ~~2016.~~2017. As of ~~September 30, 2017,~~March 31, 2018, there have been no material changes to our significant accounting policies and estimates, except that we adopted ~~ASU No. 2017-04,~~ASC 606, ~~Simplifying the Test for Goodwill Impairment~~Revenue from Contracts with Customers, effective January 1, ~~2017,~~2018, as discussed in Note 1 to the Condensed Consolidated Financial Statements.

~~Recent Accounting Pronouncements~~

~~In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09 (ASU 2014-09),~~ ~~Revenue from Contracts with Customers~~, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods and services to customers. In March, April and May 2016, the FASB issued additional updates to the new revenue standard relating to reporting revenue on a gross versus net basis, identifying performance obligations and licensing arrangements, and narrow-scope improvements and practical expedients, respectively. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017. Early adoption is permitted for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. ASU 2014-09 provides for one of two methods of transition: retrospective application to each prior period presented; or recognition of the cumulative effect of retrospective application of the new standard in the period of initial application. We do not intend to early adopt this standard and plan to use the full retrospective approach to the transition. We do not expect that the adoption of ASU 2014-09 will have a material impact on our consolidated financial statements. However, assuming all other revenue recognition criteria have been met, it is likely that ASU 2014-09 would require us to recognize revenue and cost relating to distributor sales upon product delivery, subject to estimated allowances for distributor price adjustments and rights of return.

~~In February 2016, the FASB issued ASU No. 2016-02 (ASU 2016-02),~~ ~~Leases~~. ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liability equal to the present value of the lease payments for virtually all leases not classified as short term. Consistent with current U.S. GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depend on its classification as a finance or operating lease. The ASU also will require disclosures to provide additional qualitative and quantitative information about the amounts recorded in the financial statements. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. The new standard requires a modified retrospective transition for application at the beginning of the earliest comparative period presented. We are currently evaluating the impact that ASU 2016-02 will have on our consolidated financial statements and related disclosures.

Results of Operations

Net Revenue.


	September 30,						Change				March 31,						Change
	2017			2016			2016 to 2017				2018			2017			2017 to 2018
	(dollar amounts in thousands)										(dollar amounts in thousands)
Product -three months ended	$	2,231		$	1,205		$	1,026	85	%	$	3,704		$	955		$	2,749	288	%
Percentage of total net revenue		91	%		77	%						88	%		79	%
Product -nine months ended	$	4,297		$	3,612		$	685	19	%
Percentage of total net revenue		85	%		78	%

20

~~Table of Contents~~

Product revenue increased for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 compared with the same ~~periods~~period of ~~2016~~2017 primarily due to higher shipment volumes of our Bandwidth Engine ~~products.~~products, as well as higher average selling prices.


	September 30,						Change				March 31,						Change
	2017			2016			2016 to 2017				2018			2017			2017 to 2018
	(dollar amounts in thousands)										(dollar amounts in thousands)
Royalty and other -three months ended	$	222		$	368		$	(146)	(40)	%	$	504		$	257		$	247	96	%
Percentage of total net revenue		9	%		23	%						12	%		21	%
Royalty and other -nine months ended	$	752		$	1,045		$	(293)	(28)	%
Percentage of total net revenue		15	%		22	%

21

~~Table of Contents~~

~~(discussed~~ (discussed in Note 109 to the Condensed Consolidated Financial Statements), as we continue to primarily focus our resources on producing and selling our existing products, and have substantially ~~curtailed~~limited new product development.

Research and development expenses included stock-based compensation expense of ~~$0.1 million~~approximately $6,000 and ~~$0.5 million~~$109,000 for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016, respectively. Research and development expenses included stock-based compensation expense of $0.3 million and $2.2 million for the nine months ended September 30, 2017 and 2016,~~ respectively.

Selling, General and Administrative.


	September 30,						Change				March 31,						Change
	2017			2016			2016 to 2017				2018			2017			2017 to 2018
	(dollar amounts in thousands)										(dollar amounts in thousands)
SG&A -three months ended	$	1,244		$	1,450		$	(206)	(14)	%	$	989		$	1,314		$	(325	)	(25	)%
Percentage of total net revenue		51	%		92	%						24	%		108	%
SG&A -nine months ended	$	3,659		$	4,543		$	(884)	(19)	%
Percentage of total net revenue		72	%		98	%

22

~~Table of Contents~~

~~and other non-operating items. We~~the Notes. To date, we have paid ~~the~~all accumulated interest for ~~each~~the period from issuance of the ~~six-month periods ended February 15, 2017 and August 15, 2017~~Notes in March 2016 in-kind through the issuance of an identical new senior secured convertible notes.

See Note 8 to the condensed consolidated financial statements for additional disclosure.

Liquidity and Capital Resources; Changes in Financial Condition

Cash Flows

As of ~~September 30, 2017,~~March 31, 2018, we had cash and cash equivalents of ~~$2.8~~$3.5 million and ~~had a~~ working capital ~~deficit~~ of $6.2 million, as our senior secured notes of $9.2 million are payable in full in August 2018. Our primary capital requirements are to fund working capital, including development and distribution of our IC products.

$3.3 million.

Net cash used in operating activities was ~~$9.0~~$0.3 million for the first ~~nine~~three months of ~~2017,~~2018, which primarily resulted from ~~our net loss of $10.1 million, partially offset by $1.1~~$1.2 million in net reductions in assets and liabilities ~~and~~partially offset by net income of $0.3 million, non-cash charges, including stock-based compensation expense of ~~$0.6~~$0.1 million, ~~and~~ depreciation and amortization expenses of ~~$0.7~~$0.2 million and accrued interest of $0.2 million. The changes in assets and liabilities primarily related to the timing of customer collections and inventory prepayments ~~accrued restructuring liabilities,~~and the net change in ~~liabilities, property and equipment and intangibles.~~

liabilities.

Net cash used in operating activities was ~~$15.0~~$4.2 million for the first ~~nine~~three months of ~~2016,~~2017, which primarily resulted from our net loss of ~~$17.6~~$4.4 million, partially offset by non-cash charges, including stock-based compensation expense of ~~$1.8~~$0.2 million and depreciation and amortization expenses of ~~$0.9~~$0.2 million.

There were no cash flows from investing activities during the three months ended March 31, 2018. Net cash provided by investing activities was ~~$1.0~~$0.8 million for the first ~~nine~~three months of 2017, and included net amounts transferred to cash and cash equivalents from investments of ~~$1.0~~$0.8 million, which did not impact our liquidity.

Net cash provided by investing activities was $11.2 million for the first nine months of 2016, and included net amounts transferred to cash and cash equivalents from investments of $11.9 million, which did not impact our liquidity, and $0.6 million for purchases of fixed assets.

~~Net cash provided by~~used in financing activities for the first ~~nine~~three months of ~~2017~~2018 consisted ~~primarily~~ of ~~receipts from~~amounts paid for employee income taxes related to net share settlement of vested RSUs and costs incurred in connection with the sale of common stock and warrants to purchase common stock in an equity offering completed in July 2017.

~~Our proceeds from~~Net cash used in financing activities for the first ~~nine~~three months of ~~2016~~2017 consisted primarily of ~~net proceeds received from~~payments of income taxes related to the issuance of ~~senior secured convertible notes.~~common stock upon vesting of restricted stock units.

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

·

~~level of revenue;~~

level of revenue;

·

~~cost, timing and success of technology development efforts;~~

cost, timing and success of technology development efforts;

·

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

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

·

~~fabrication costs, including mask costs, of our ICs, currently under development;~~

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

·

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

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

·

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

costs of acquiring other businesses and integrating the acquired operations;

·

~~profitability of our business; and~~

profitability of our business; and

·

~~whether interest payments on the Notes are paid in cash or, at our election, in kind through the issuance of new Notes with identical terms for the accrued interest.~~

whether interest payments on the Notes are paid in cash or, at our election, in-kind through the issuance of new Notes with identical terms for the accrued interest.

~~Going Concern -~~ Working Capital

Our primary capital requirements are to fund working capital, capital expenditures and for general corporate purposes, including the repayment of the Notes in August 2019. To date, we have made accrued interest payments on the Notes in kind through the issuance of additional identical notes totaling approximately $1.7 million. WeAlthough we expect to be profitable for 2018, we expect our cash expenditures to continue to exceed receipts in 2018, due to the application of customer prepayments received in 2017 and ongoing working capital requirements. We incurred net losses of approximately $11 million and $32 million for the ~~foreseeable future,~~years ended December 31, 2017 and 2016, respectively, and had an accumulated deficit of approximately $224 million as ~~our revenues will not be sufficient to offset our operating expenses.~~ of March 31, 2018. ~~The condensed consolidated financial statements presented~~These and prior year losses have resulted in ~~Item 1 of~~

23

~~Table of Contents~~

this Report have been prepared assuming that we will continue as a going concern, and do not include any adjustments that might result from the outcome of this uncertainty. We have incurred recurring losses from operations, had recurringsignificant negative cash flows for almost a decade and have required us to 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.

We expect to raise additional capital for working capital and repayment of the Notes, but there can be no assurance that such funding will be available to us on favorable terms, if at all. The failure to raise capital when needed could have a ~~significant accumulated deficit,~~material adverse effect on our business and our senior secured notes are repayable in full in August 2018. These conditions raise substantial doubt about our ability to continue as a going concern. We are currently seeking additional financing in order to meet our cash requirements for the foreseeable future. financial condition. We may not be able to obtain additional financing as needed on acceptable terms, or at all, which may require us to further reduce our operating costs and other expenditures, including reductions of personnel, salaries and capital expenditures. ~~As further discussed~~Alternatively, or in ~~Note 10 of the Condensed Consolidated Financial Statements, in April 2017,~~addition to such potential measures, we committed to effect a reduction in our workforce and associated operating expenses, net loss and cash burn as part of our efforts to sustain our business. We are primarily focusing our resources on producing and selling our existing products, and have substantially curtailed new product development. ~~If we are unsuccessful in these efforts, we will need~~may elect to implement additional cost reduction ~~strategies, which could further affect~~actions as we may determine are necessary and in our ~~near- and long-term business plan. These efforts may include, but are not limited to, further reducing headcount and curtailing business~~ ~~activities.~~best interests. Any such actions undertaken might limit our opportunities to realize plans for revenue growth and we might not be able to reduce our costs in amounts sufficient to achieve break-even or profitable operations.

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

·

~~develop or enhance our products;~~

develop or enhance our products;

expand our product development and sales and marketing organizations;

acquire complementary technologies, products or businesses;

expand operations, in the United States or internationally;

·•

~~continue to expand our product development and sales and marketing organizations;~~

·

~~acquire complementary technologies, products or businesses;~~

·

~~expand operations, in the United States or internationally;~~

·

hire, train and retain employees; or

·

~~respond to competitive pressures or unanticipated working capital requirements.~~

respond to competitive pressures or unanticipated working capital requirements; or

repay the Notes when they are due.

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

Contractual Obligations

The impact that our contractual obligations as of ~~September 30, 2017~~March 31, 2018 are expected to have on our liquidity and cash flow in future periods is as follows (in thousands):

Payment Due by Period

Less than

More than


Total

1 year

1-3 years

3-5 years

5 years

Operating leases

$
2,185

$
728

$
1,457

$
—

$
—

	Payment Due by Period
		Less than						More than
	Total	1 year		1-3 years		3-5 years		5 years
Operating leases	565	$	214	$	351	$	—	$	—

~~(1)~~

The operating lease for our Santa Clara facility was terminated on October 31, 2017. We entered into a sublease for a new facility effective November 1, 2017, and under this sublease we have the following payment obligations: Less than one year - $0.2 million and 1-3 years $0.4 million.

~~ITEM 3. Qualitative and Quantitative Disclosures about Market Risk~~

Our investment portfolio consists of money market accounts, certificates of deposit, commercial paper, corporate debt, government-sponsored enterprise bonds and municipal bonds. The portfolio dollar-weighted average maturity of these investments is within 12 months. Our primary objective with this investment portfolio is to invest available cash

24

~~Table of Contents~~

while preserving principal and meeting liquidity needs. No single security should exceed 5% of the portfolio or $2.0 million at the time of purchase. In accordance with our investment policy, we place investments with high credit-quality issuers and limit the amount of credit exposure to any one issuer. These securities, which approximated $0.6 million as of September 30, 2017 and earned an average annual interest rate of approximately 0.7% during the first nine months of 2017, are subject to interest rate and credit risks. We do not have any investments denominated in foreign currencies, and, therefore, are not subject to foreign currency risk on such investments.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures. Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our management concluded that, as of ~~September 30, 2017,~~March 31, 2018, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting. During the first ~~nine~~three months of ~~2017,~~2018, 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. We have disclosed a number of material risks under Item 1A of our annual report on Form 10-K for the year ended December 31, ~~2016,~~2017, which we filed with the Securities and Exchange Commission on March ~~30, 2017.~~12, 2018.

ITEM 6. Exhibits

(a)	Exhibits

	31.1	Rule 13a-14 certification
	31.2	Rule 13a-14 certification
	32.1	Section 1350 certification
	~~99.1~~	~~Lease Termination Agreement dated October 3, 2017 between Registrant and M West Propco XII LLC~~
	~~99.2~~	~~Standard Sublease Multi-Tenant dated October 3, 2017 between Registrant and Cyren Inc.~~
	101	The following financial information from MoSys, Inc.’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2017,~~March 31, 2018, filed with the SEC on ~~November 14, 2017,~~May 11, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (ii) the Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, (iii) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ and (iv) Notes to Condensed Consolidated Financial Statements.

25

~~Table of Contents~~

EXHIBIT INDEX


31.1	Rule 13a-14 certification
31.2	Rule 13a-14 certification
32.1	Section 1350 certification
~~99.1~~	~~Lease Termination Agreement dated October 3, 2017 between Registrant and M West Propco XII LLC~~
~~99.2~~	~~Standard Sublease Multi-Tenant dated October 3, 2017 between Registrant and Cyren Inc.~~


101	The following financial information from MoSys, Inc.’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2017,~~March 31, 2018, filed with the SEC on ~~November 14, 2017,~~May 11, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ (ii) the Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, (iii) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ and (iv) Notes to Condensed Consolidated Financial Statements.

26

~~Table of Contents~~

~~Signatures~~Signa

tures

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 14, 2017~~May 11, 2018		MOSYS, INC.


	By:	/s/ Leonard Perham
		Leonard Perham
		President and Chief Executive Officer


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

26

27

Delaware		77-0291941
(State or other jurisdiction		(I.R.S. Employer
of Incorporation or organization)		Identification Number)

Large accelerated filer	☐		Accelerated filer ☐
		☐
Non-accelerated filer ☐	☐	~~Smaller reporting company ☒~~
(Do not check if a smaller reporting company)	Smaller reporting company
		☒
Emerging Growth Company	☐

	Three Months Ended
	March 31,
	2018	2017
Customer A	34%	55%
Customer B	24%	*%
Customer C	17%	14%


		Options outstanding
			Weighted
	Shares		Average
	Available	Number of	Exercise
	for Grant	Shares	Prices
Balance at January 1, 2017	114	522	$	13.88
Additional shares authorized under the Plan	50	—		—
RSUs cancelled and returned to the Plan	5	—		—
Options granted	(1)	1	$	2.36
Options cancelled and returned to the Plan	15	(15)	$	6.94
Balance at March 31, 2017	183	508	$	14.06
RSUs cancelled and returned to Plan	37	—		—
Options cancelled and returned to Plan	172	(172)	$	10.20
Balance at June 30, 2017	392	336	$	16.04
RSUs granted	(407)	—		—
RSUs cancelled and returned to Plan	8	—		—
Options cancelled and returned to Plan	88	(88)	$	14.83
Balance at September 30, 2017	81	248	$	16.47

				Awards outstanding
							Weighted
	Shares						Average
	Available			Number of			Exercise
	for Grant			Shares			Prices
Balance at January 1, 2018		231			307		$	4.81
Additional shares authorized under the Plan		50			—			—
RSUs granted		(60	)		—			—
RSUs cancelled and returned to the Plan		1			—			—
Options granted		(40	)		40		$	1.28
Options cancelled and returned to the Plan		2			(2	)	$	23.47
Balance at March 31, 2018		184			345		$	4.30


	September 30, 2017
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash and cash equivalents	$	2,784	$	—	$	—	$	2,784


	December 31, 2016
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash and cash equivalents	$	8,766	$	—	$	—	$	8,766
Short-term investments:
U.S. government-sponsored enterprise bonds	$	762	$	—	$	—	$	762
Corporate notes		240		—		—		240
Total short-term investments	$	1,002	$	—	$	—	$	1,002


	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
$2.36 - $7.19	19	6.44	$	5.07	12	$	5.30
$7.20 - $16.99	122	8.35	$	7.20	49	$	7.20
$17.00 - $20.49	4	3.79	$	17.00	4	$	17.00
$20.50 - $30.89	45	7.42	$	20.50	39	$	20.50
$30.90 - $41.89	41	0.61	$	36.44	41	$	33.41
$41.90 - $46.20	17	4.16	$	44.01	17	$	44.01
$2.36 - $46.20	248	6.40	$	16.47	162	$	21.34	$	—
Vested and expected to vest	240	6.32	$	16.77				$	—
Exercisable	162	5.11	$	21.34				$	—