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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

For the Fiscal Year December 31, 2010 or

Commission file number: 000-32929



MOSYS, INC.

(Exact name of registrant as specified in its charter)

Delaware

77-0291941(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification Number)


3301 Olcott Street
Santa Clara, California 95054(Address of principal executive offices)

(408) 418-7500(Registrant's telephone number, including area code)

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

Title of each classCommon Stock, par value $0.01 per share

Name of each exchange on which registeredGlobal Market of the NASDAQ Stock Market, LLCSecurities registered pursuant to Section 12(g) of the Act:Title of each classSeries AA Preferred Stock, par value $0.01 per share

Name of each exchange on which registered None


Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).    Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of "large accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


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

The aggregate market value of the common stock held by non-affiliates of the Registrant, as of June 30, 2010 was $130,546,349 based upon the
last sale price reported for such date on the Global Market of the NASDAQ Stock Market. For purposes of this disclosure, shares of common stock held by persons who beneficially own more than 5% of the
outstanding shares of common stock and shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination is not
necessarily conclusive.

As
of March 1, 2011, 37,587,046 shares of the registrant's common stock, $0.01 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement to be delivered to stockholders in connection with the registrant's 2011 Annual Meeting of Stockholders to be held on
or about June 7, 2011 are incorporated by reference into Part III of this Form 10-K. The registrant intends to file its proxy statement within 120 days after
its fiscal year end.



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ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010
TABLE OF CONTENTS



Part IItem 1.

Business


3Item 1A.

Risk Factors


15Item 1B.

Unresolved Staff Comments


27Item 2.

Properties


27Item 3.

Legal Proceedings


27Item 4.

Removed and Reserved


27Part IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


28Item 6.

Selected Financial Data


30Item 7.

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


31Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


42Item 8.

Financial Statements and Supplementary Data


42Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


43Item 9A.

Controls and Procedures


43Item 9B.

Other Information


44Part IIIItem 10.

Directors, Executive Officers and Corporate Governance


45Item 11.

Executive Compensation


45Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


45Item 13.

Certain Relationships and Related Transactions, and Director Independence


45Item 14.

Principal Accountant Fees and Services


45Part IVItem 15.

Exhibits and Financial Statement Schedules


46Signatures


49


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Part I

This Annual Report on Form 10-K and the documents incorporated herein by reference contain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, without limitation,
statements about the market for our technology, our strategy, competition, expected financial performance and other aspects of our business identified in this Annual Report, as well as other reports
that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Annual Report
that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "expects," "intends," "plans,"
"projects," or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements
as a result of various factors, including the risk factors described in Part I., Item 1A, "Risk Factors," and elsewhere in this report. We undertake no obligation to update publicly any
forward-looking statements for any reason, except as required by law, even as new information becomes available or other events occur in the future.

MoSys®, 1T-SRAM®and
1T-Flash®are registered trademarks of MoSys, Inc. The MoSys logo,
Bandwidth
Engineand GigaChipare trademarks of MoSys, Inc.

Item 1.    Business

Company Overview

MoSys, Inc. together with its subsidiaries ("MoSys", the "Company," "we" or "us") designs, develops, markets and licenses
embedded memory intellectual property, or IP, used by the semiconductor industry and electronic product manufacturers. We have developed a patented semiconductor memory technology, called
1T-SRAM, which offers a combination of high density, low power consumption and high-speed at performance and cost levels that other available memory technologies do not match.
We license this technology to companies that incorporate, or embed, memory on complex integrated circuits, or ICs, such as system-on-chips, or SoCs.

We
also design, develop, market and license high-speed parallel and serial interface, or I/O, IP used by the semiconductor industry and electronic product manufacturers.
Interface IP includes physical layer, or PHY, circuitry that allows ICs to communicate with each other or to discrete memory devices in networking, storage, computer and consumer devices. We support
serial I/O technologies such as 10G KR, XAUI, PCI Express and SATA, as well as parallel interfaces like DDR3.

We
generate revenue from the licensing of our memory and I/O technology, and our customers pay us fees for licensing, non-recurring engineering services, royalties, and
maintenance and support. Royalty revenues are typically earned under our license agreements when our licensees manufacture or sell products that incorporate any of our memory technologies. Generally,
we expect our total sales cycle, or the period from our initial discussion with a prospective licensee to our receipt of royalties from the licensee's use of our technologies, to run from 18 to
24 months. Historically, the portion of our sales cycle from the initial discussion to the receipt of license fees may run from 6 to 12 months, depending on the complexity of the
proposed project and degree of development services required.

In
February 2010, we announced a new product initiative to develop a family of integrated circuits products under the "Bandwidth Engine" product name. Our Bandwidth Engine family of ICs
combines our 1T-SRAM high-density embedded memory with our high-speed 10 Gigabits per second (Gbps) serial I/O technology and is initially being marketed to
networking systems companies and designers of advanced SoC designs. Bandwidth Engine ICs have been designed to increase system performance by using a serial I/O to increase the accesses per second
between the processor and memory component in networking systems. During 2010, we invested a significant amount of our financial and engineering

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resources
towards the development of our Bandwidth Engine IC, and we expect to continue to do so in 2011. We began shipping samples of our first Bandwidth Engine IC to prospective customers in
December 2010. We do not expect to generate significant revenue from our Bandwidth Engine ICs until 2012 or later.

Industry Background

The personal computer, wireless communications, networking equipment and consumer electronics markets are characterized by intensifying
competition, rapid innovation, increasing performance requirements and continuing cost pressures. To manufacture electronic products that achieve optimal performance and cost levels, semiconductor
companies must produce integrated circuits that offer higher performance, greater functionality and lower cost.

Two
important measures of performance are speed and power consumption. Higher speed ICs allow electronic products to operate faster, enabling the performance of more functions. Reducing
the power consumption of integrated circuits contributes to increased battery life and reduced heat and electro-magnetic field generation in electronic products. Reduced power consumption also enables
IC designers to overcome costly design hurdles, such as meeting the thermal limitations of low-cost packaging materials.

In
addition to offering high-performance products, semiconductor companies must produce ICs that are cost effective. High-density ICs require less silicon, thus
reducing their size and cost. Cost reductions also can be achieved by simplifying the IC's manufacturing process and improving the manufacturing yield.

To
avoid the high cost of substantial redesign, semiconductor companies typically use technology that is scalable, which means it can be readily incorporated into multiple generations of
manufacturing process technologies. Process technology generations are distinguished in terms of the dimension of the IC's smallest topographical features, as measured in nanometers (one billionth of
a meter) (nm). The
semiconductor industry has continuously developed advanced process technologies that enable the reduction of silicon area on ICs and consequently lower costs.

Importance of Integration

For decades, the semiconductor industry has continuously increased the value of ICs by improving their density, power consumption,
speed and cost. The main driver for these improvements has been the success of shrinking the size of the basic semiconductor building block, or transistor. Transistors have become small enough to make
it economical to combine multiple functions, such as microprocessors, graphics, memory, analog components and digital signal processors, on a single piece of silicon, resulting in a SoC. The size of
devices, such as cell phones, computers and other electronic devices, continues to get smaller, resulting in the need for smaller SoCs. Highly complex ICs, such as SoCs, often offer advantages in
density, power consumption, speed and cost that cannot be matched using separate, discrete ICs. SoCs are essential for most electronic products, such as cellular phones, video game consoles, portable
media players, communication and networking equipment and internet appliances, to achieve increasing performance requirements at a reasonable cost.

Many
large volume IC market opportunities, semiconductor companies and integrated device manufacturers, or IDMs, are developing and using a single complex SoC to replace two or three
ICs. Development costs for these complex SoCs continue to escalate at a rapid rate due to the use of lower process technology solutions (e.g., 40nm and below) resulting in greater demand for
licensed semiconductor intellectual property. Semiconductor companies and IDMs prefer to purchase verified IP from either an IP vendor, such as us, or a foundry that manufactures their ICs.
Foundries may have their own internally developed IP or may license the IP from an IP vendor, such as us.

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Importance of Embedded Memory

Historically, semiconductor companies implemented memory by using stand-alone ICs. Rather than using stand-alone memory chips, many
semiconductor companies today are embedding memory on SoCs in order to optimize performance and power consumption by eliminating the overhead and bottleneck of physical interfaces between separate,
discrete devices. At the same time, the increasing sophistication of electronic products is driving a rapid increase in the amount of memory required. The amount of embedded memory area on an SoC
continues to grow due
to the increasing complexity of embedded applications and the rich multimedia capabilities they support requiring more data and program code storage with corresponding system price and size
constraints. These constraints dictate that more information is processed in local memories on the chip rather than in discrete external memory devices.

The
high cost of incorporating the memory component represents a major challenge to achieving high levels of integration. As embedded memories account for an increasing percentage of the
size of highly complex ICs, they are often the slowest or limiting function in the circuit. ICs must not only contain a larger amount of embedded memory, but this memory must also be dense enough to
be economically attractive and must offer sufficiently high-speed and low power consumption. In many applications, embedded memory has become a crucial design consideration for determining
the overall cost and performance of highly ICs and the growing number of electronic products in which they are incorporated. In addition, embedded memory density requirements are continually
increasing.

The
most common form of embedded memory today is implemented using traditional static random access memory, which we refer to as traditional SRAM. This technology is in the public domain
and can be designed by any semiconductor company. As memory requirements increase, however, traditional SRAM becomes more expensive compared to the total cost of the integrated circuit because it
requires a substantial amount of silicon area due to its low density and consumes a significant amount of power when operating at high speeds.

To
overcome the density limitations of traditional SRAM, some SoC manufacturers have utilized embedded dynamic random access memory, or embedded DRAM. While embedded DRAM has its
limitations, such as being slower than traditional SRAM due to its density, requiring additional process steps that can result in lower yields and being more difficult to incorporate on ICs due to its
more complex interface requirements, our challenge is to find an embedded memory solution that combines high-density, low-power consumption, high-speed and low
cost.

Importance of Interface Technology

Along with embedded memory, high-speed I/Os are critical building blocks in any modern-day,
high-performance SoC. High speed, efficient I/Os are needed in nearly every application as the key interface to allow the SoC to communicate with all the other ICs in the system.
Historically, ICs communicated with each other through parallel I/Os, such as double data rate interfaces, including DDR2 and DDR3. As system performance requirements have increased with
multiple-core processors often being used in a system, the interface requirements for communication between ICs in the systems have increased significantly. In many cases, traditional
parallel I/Os are no longer optimal and become a bottleneck, limiting system performance as they can no longer keep up with the data transfer requirements the system needs at peak performance times.
In effect, the parallel I/O becomes a crowded highway at rush
hour where traffic can be stop-and-go and the speeds can run at less than 50% of the optimal speed.

Serial
I/O technology has been used for a number of years in the communications industry, primarily on application-specific integrated circuits, or ASICs, to enable higher data transfer
rates. ASICs are custom ICs developed specifically for a system manufacturer and the specific requirements of its product, and because of their custom nature, are expensive to produce. As IC
geometries have

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continued
to shrink, the silicon processing power has continued to increase at a fast rate with the I/O technology lagging behind. We believe the current system requirements are necessitating that the
industry move to serial I/Os to meet the performance and cost requirements of system manufacturers. As a result, semiconductor companies are increasingly incorporating serial I/O capability into their
ICs. For example, standard ICs and SoCs that are sold into wide markets, such as field programmable gate arrays, or FPGAs, and network processors are using serial I/Os to ensure they can match the
performance of, and compete with ASICS. Using serial I/O, chip developers are also able to reduce pin counts (the wired electrical I/Os that connect the SoC to the board in the system) on the SoC.
With reducing geometries, the size of most SoCs is dictated by the number of pins required rather than the amount of logic and memory embedded inside. As a result, the reduction of the number of pins
that comes with the use of serial I/O facilitates cost reduction and reduced system power consumption, while improving both SoC and system performance. The different types of serial I/Os are designed
to comply with industry-standard protocols, such as PCI Express, XAUI, USB and 10G KR. The protocol used is generally based on the type of system. For example, PCI Express is primarily used in
computers and related computing systems, XAUI and 10G KR are primarily used in networking applications, and SATA is used in storage systems.

A
challenge to developing serial I/O technology is putting together a team of skilled analog and mixed-signal designers with the requisite experience. Many large fabless semiconductor
companies maintain limited serial I/O technology expertise and prefer to outsource the design and license the technology rather than incurring the cost of maintaining full capability
in-house.

Our Solutions

1T-SRAM

Our innovative 1T-SRAM technologies provide major advantages over traditional SRAM in density, power consumption and cost,
making it more economical for designers to incorporate large amounts of embedded memory in their designs. In addition, our 1T-SRAM technologies offer all the benefits of traditional SRAM,
such as high-speed, simple interface and ease of manufacturability. Our 1T-SRAM technologies can achieve these advantages while utilizing standard logic manufacturing processes
and providing the simple, standard SRAM interface that designers are accustomed to.

High Density

The high density of our 1T-SRAM technologies stems from the use of a single-transistor, or 1T, which is similar to DRAM,
with a storage cell for each bit of information. Embedded memory utilizing our 1T-SRAM technologies is typically two to three times denser than the six-transistor storage cells
used by traditional SRAM, i.e., 6T-SRAM. Increased density enables manufacturers of electronic products, such as cellular phones, video game consoles and digital cameras and
camcorders, to incorporate additional functionality into a single integrated circuit, resulting in overall cost savings.

Low Power Consumption

Embedded memory utilizing our 1T-SRAM technologies can consume as little as one-half the active power and
generates less heat than traditional SRAM when operating at the same speed. This reduces system level heat dissipation costs and enables reliable operation using lower cost packaging.

High-speed

Embedded memory utilizing our 1T-SRAM technologies typically provides speeds equal to or greater than the speeds of
traditional SRAM, particularly for
larger memory sizes. Our 1T-SRAM memory designs can sustain random access cycle times of less than three nanoseconds, significantly faster than embedded 6T-SRAM technology.

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Demonstrate Manufacturing Process Independence

We have been able to implement our technology with minimal changes to the standard logic process flow. 1T-SRAM's portability, or the
ease with which it can be implemented in different semiconductor manufacturing facilities, has been proven operational in the fabrication of chips at the world's largest independent foundries,
including Silterra Ltd., Taiwan Semiconductor Manufacturing Co., Ltd., or TSMC, United Microelectronics Corporation, or UMC, Globalfoundries, Inc., and Semiconductor
Manufacturing International Corporation, or SMIC. It has also been proven in the manufacturing processes of IDMs, such as Fujitsu Microelectronics Limited, or Fujitsu, and Renesas Electronics
Corporation, or Renesas. 1T- SRAM's scalability, or the ease with which it can be implemented in different generations of manufacturing processes, has already been demonstrated in the fabrication of
chips in 0.25 micron, 0.18 micron, 0.15 micron, 0.13 micron, 90nm, and 65nm process generations, with smaller geometries under development. We expect our technology to continue to scale to future
process generations. This portability and scalability provides for wide availability, inexpensive implementation and quick product time to market for our licensees and has demonstrated our success
with the large foundries.

Parallel and Serial I/Os

High-speed

To meet increasing system performance requirements, which in many cases are being driven by the growth in the Internet and the need to
transmit data faster, systems are requiring both more memory and faster communication between the SoCs and ICs in the system. Due
to our acquisition of Prism Circuits in mid-2009, our offerings also include high-speed serial I/Os, called SerDes, and parallel double data rate, or DDR, interface technology.
The parallel and serial I/O technology allows for fast exchange of data between ICs in the system. Our lower-speed parallel interface technology is DDR3 and can support speeds of 1 to 3 Gbps in ICs in
networking, storage, computing and other applications. Our SerDes technology can support data rates of 2.5 to 11 Gbps in a number of protocols, including XAUI, 10G KR, and PCI Express (Generations 1
to 3). We are developing next generation SerDes solutions that we are targeting to achieve data rates of 16 Gbps and higher at advanced geometry nodes (e.g., 28nm).

Interoperability

We make our I/O technologies compliant with industry standards so that they can interoperate with interfaces on existing ICs. In
addition, we make them programmable to support multiple data rates, which allows for greater flexibility for the system designer, while lowering their development and validation costs.
Interoperability reduces development time, thereby reducing the overall time to market of our licensees' ICs.

Demonstrate Manufacturing Process Independence

The portability of our I/O technology is being proven in the fabrication and production of our customers' ICs at TSMC, UMC and
Fujitsu Ltd., one of the largest IDMs in the world focused on the networking, computing and storage industries. The scalability of our I/O technology has already been demonstrated in the
fabrication of chips in 65nm and 40nm process generations, with smaller geometries under development. We expect to continue to invest in our I/O technology to enable it to continue to scale to future
process generations.

Low power

While SerDes I/Os provide significantly enhanced performance over parallel I/Os, SerDes I/Os have higher power consumption, which is a
challenge for SoC designers. Our customers' SerDes I/O

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designs
have stringent power consumption requirements, which represent a significant challenge for our engineering team. If the power consumption of the SerDes I/O is too high, the SoC must be
redesigned as the power consumption budget for the SoC will be exceeded. To meet these challenges, we expanded our SerDes design expertise in March 2010 through the acquisition of
MagnaLynx, Inc., or MagnaLynx, a small provider of I/O technology whose engineering team had significant expertise in low-power SerDes I/O.

Our Strategy

Our long-term objective is to become an IP-rich fabless semiconductor company offering both IP and ICs to our
customers. We believe expanding our business strategy to become a supplier of high-performance ICs will enable us to target significantly larger markets than we currently can access with
our IP. The key components of the expansion of our strategic plan to become an IC supplier include:



From
an IP perspective, the semiconductor market can be divided into four major categories: microprocessors, embedded memory, analog circuit design capability and high-speed
I/O. Until 2009, embedded memory had been our historical IP focus, and, through our acquisition of Prism Circuits, we added high-speed I/O and analog circuit design IP and capability. All
SoCs require embedded memory, analog circuitry and high-speed I/O, and we are now able to provide three of the four significant types of IP used in SoCs. Our IP strategy is to leverage our
expanded technology capabilities to increase our percentage coverage of complex, not-widely available, differentiated, embedded IP used in targeted SoCs. We believe SoCs used in the high
growth consumer, converged mobile, and embedded computing market segments provide significant growth opportunities for our embedded IP, as these industries generally have significant memory
requirements and are used in data-intensive applications, which require high-speed chip-to-chip communications and more analog circuitry. We intend to
achieve this goal by continuing to license our technology on a worldwide basis to foundries, IDMs and semiconductor companies.

The
following are integral aspects of our strategy:

Target Large and Growing Markets

We target the large and growing market for SoC applications requiring large embedded memories and high-speed I/Os, which
are typically in excess of one megabyte, with our 1T-SRAM and I/O IP technologies that offer chip designers improved performance for optimizing the cost and performance of the SoC.

Although
our 1T-SRAM and I/O IP technologies are applicable to many markets, we presently focus on rapidly growing product segments within the consumer electronics and
communications sectors, such as networking applications targeted at addressing the bandwidth requirements generated by the growth in the Internet. These sectors increasingly require embedded memory
and I/O solutions with higher density, lower power consumption, higher speeds and lower cost.

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Work Closely with Semiconductor Companies and Foundries to Deliver Optimal Technology Solutions

We work closely with semiconductor companies and foundries to gain broad and detailed insight into their and their customers' current
and next-generation technology requirements. This insight helps us identify trends and focus our development efforts on optimizing our technology solution, resulting in shorter product
time to market and lower costs. We plan to continue to qualify and license our technology with the leading IDMs and foundries in order to provide a wide range of manufacturing choices for our
customers.

Extend our Technology Offerings



Our goal is to continue to enhance our 1T-SRAM and I/O IP technologies and increase our share of the IP market. We will
continue to develop our technology in order to offer even higher density, lower power consumption, higher speed and lower cost solutions for our licensees in smaller process geometries. We continue to
invest in research to develop more advanced memory technologies.



In February 2010, we unveiled the roadmap of our Bandwidth Engine IC product line, which combines our 1T-SRAM
high-density embedded memory with our high-speed 10Gbps SerDes interface technology. We expect our Bandwidth Engine ICs to address the increasing demands placed on conventional
memory technology used in high-bandwidth networking systems. We believe an IC combining our 1T-SRAM and serial IO with logic and other functions can provide a system-level
solution and significantly improve overall system performance at lower cost and using less power. A major challenge to system designers is what we call the "memory performance barrier." Processor
performance in applications such as computing and networking has continued to nearly double every 18 months, or even faster, while the performance of memory technology has generally been able
to double every 10 years. Our Bandwidth Engine IC will provide up to two billion accesses per second, over twice the performance of current memory based solutions, and enable system designers
to significantly narrow that gap. Customers that design Bandwidth Engine ICs into their systems will re-architect those systems at the board level and use our product to replace
traditional memory solutions. When compared with existing solutions, the Bandwidth Engine is expected to:



To
complement our Bandwidth Engine devices, we have also introduced the GigaChip Interface, an open interface, compatible with the current industry standard (CEI-11), which
can enable highly efficient serial chip-to-chip communications. The GigaChip Interface is included in our Bandwidth Engine ICs, and we are offering it to customers and
prospective partners on terms intended to encourage its widespread adoption. Our goal is for the GigaChip Interface to become an open industry standard that is designed into other ICs in the system,
as we believe this will further enable serial communication at the board level and encourage adoption of Bandwidth Engine devices. To this end, in July 2010 we launched the GigaChip Alliance, which we
anticipate will become a consortium of leading semiconductor and system companies collaborating with us to develop the industry-wide open interoperability standards and tools required to
accelerate this advanced serial chip-to-chip interface.

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We
began shipping samples of the Bandwidth Engine ICs to prospective customers and partners in December 2010. We do not expect to generate meaningful revenue from the Bandwidth Engine
product line until 2012 or later. During 2011, we will be focused on



Licensing and Distribution Strategy

We offer our memory and I/O IP technology on a worldwide basis to semiconductor companies, electronic product manufacturers, foundries,
intellectual property companies and design companies through product development, technology licensing and joint marketing relationships.

We
license our IP technology to semiconductor companies who incorporate our technology into ICs that they sell to their customers. We also sell to system companies that design ASICs. In
addition, we engage in joint marketing activities with foundries, other IP companies and design companies to promote our technology to a wide base of customers. These distribution channels have
broadened the acceptance and availability of our technology in the industry. As our technology becomes available through an increasing number of channels, we believe it will be less likely that
customers will have to alter their procurement practices in order to acquire our technology. We intend to continue to significantly expand this base of strategic relationships to further proliferate
our technology.

Customers
in Japan accounted for 43%, 64% and 62% of our revenues in 2010, 2009 and 2008, respectively. Customers in the United States accounted for 38%, 24% and 13% of our revenues in
2010, 2009 and 2008, respectively. Customers in Taiwan accounted for 18%, 11% and 16% of our revenues in 2010, 2009 and 2008, respectively, while our remaining revenues were from customers in the rest
of Asia and in Europe.

Project Licenses

We form product development and IP licensing relationships directly with semiconductor companies. In these relationships, the
prospective licensee's implementation of our technologies typically includes customized development. Usually, these relationships involve both engineering work to implement our technology in the
specified product and licensing the technology for manufacture and sale of the product. Although the precise terms contained in our license agreements vary, they generally include licensing fees,
development fees for customizations based on the achievement of specified development milestones, and royalties. The vast majority of our contracts allow for milestone billings based on work
performed. If we perform the contracted services, usually the licensee is obligated to pay the license fees even if the licensee cancels the project prior to completion. The agreements often also
provide for the payment of additional contract fees if we provide engineering or manufacturing support services related to the manufacture of the product. Provisions in our memory license agreements
generally require the payment of royalties to us based on the future sale or manufacture of products utilizing our technologies. Generally, our project licenses grant rights on a
non-exclusive, non-transferable basis, limited to the use of our technology as modified for the project covered by the license agreement. Our license agreements generally have
a fixed term and are subject

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to
renewal. Each new project requires a separate agreement or an addendum to modify an existing agreement.

We
have IP license agreements with many companies, including, but not limited to, Agilent Technologies, Analog Devices, Inc., Applied Micro Circuits Corporation, Broadcom
Corporation, Dialog Semiconductor, Entropic Communications, Inc., eSilicon Corporation, Fujitsu, Himax Technologies, Ltd., Hitachi, Ltd., Kawasaki Micoroelectronics, Inc.,
LG Electronics, Inc., LSI Logic Corporation, Marvell Semiconductor, Inc., Matsushita Communication Industrial Co., Ltd., Mindspeed Technologies, Inc., National
Semiconductor Corporation, Netlist, Inc., Nexuschips Co. Ltd., Open-Silicon, Inc., Orise Technology Co. Inc., Philips Semiconductors, Inc.,
Pixelworks, Inc., Pixim, Inc., Progate Group Corporation, Realtek Semiconductor Corporation, Renesas Electronics Corporation, Rohm Co. Ltd, Sanyo
Electric Co., Ltd., Silterra Ltd., SMIC, Sony Corporation, Synaptics, Inc., TSMC, UMC, Via Technologies, Inc., Xilinx, Inc., and Yamaha Corporation.

Technology Licenses

We also offer our technology to semiconductor companies and foundries through 1T-SRAM and I/O technology IP license
agreements, under which we grant the licensee the additional right to create and modify designs to offer to its own customers or use
internally. The contract fees associated with these arrangements typically require the licensee to pay us to port our technology to its manufacturing process and develop a template design that the
licensee will be able to use to generate future designs. These agreements also may obligate the licensee to pay contract fees upon the achievement of specified development milestones and may provide
for the payment of additional contract fees for engineering or manufacturing support services. Our memory technology license agreements include royalty provisions based on the sale or manufacture of
products utilizing our technologies. The technology licenses are non-transferable and authorize the licensee to modify designs for its customers or internal use from the template design
that we provide under the agreement. Typically, the template design applies only to a specified manufacturing process generation or specific application. The licensee may add future process
generations or uses to the license agreement for additional contract fees.

Research and Development

Our ability to compete in the future depends on improving our technology to meet the market's increasing demand for higher performance
and lower cost requirements. We have assembled a team of highly skilled engineers whose activities are focused on developing even higher density, lower power consumption, higher speed and lower cost
memory and I/O IP designs. We expect to continue to focus our research and development efforts by extending our IP technologies to smaller process geometries, porting our technology to additional
foundries and semiconductor manufacturing facilities. In addition, development of our Bandwidth Engine IC products requires the hiring of specialized chip design and product engineers as well as
significant fabrication and testing costs, including mask costs, as we bring these products to market.

As
of December 31, 2010, we employed 135 individuals in engineering and research and development, of which 55 are employed in our facility in Hyderabad, India. For the years ended
December 31, 2010, 2009 and 2008, research and development expenditures totaled approximately $25.5 million, $19.3 million and $17.2 million, respectively.

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Sales and Marketing

As of December 31, 2010, we had 13 sales, marketing and application engineering personnel managing and supporting our IP
licensing activities. Our sales and marketing personnel are located in the United States and Japan. In addition to our direct sales team, we sell our technologies through a sales representative in
Europe. The sales personnel manage the negotiation of license agreements, provide technical support during the sales cycle to licensees and manage delivery under the contracts. In late 2010, we hired
a vice president of integrated circuit sales to begin focusing on developing a sales channel for our Bandwidth Engine product line.

Our
overall revenue has been highly concentrated, with a few customers accounting for a significant percentage of our total revenue. For the year ended December 31, 2010, Renesas
(formerly NEC Electronics), TSMC and Rohm represented 23%, 18% and 15% of total revenue, respectively. For the year ended December 31, 2009, Renesas, TSMC and Fujitsu represented 44%, 10% and
10% of total revenue, respectively. For the year ended December 31, 2008, Renesas and TSMC represented 55% and 13% of total revenue, respectively.

Intellectual Property

We regard our patents, copyrights, trademarks, trade secrets and similar intellectual property as critical to our success, and rely on
a combination of patent, trademark, copyright, and trade secret laws to protect our proprietary rights. As of December 31, 2010, we held approximately 110 U.S. and approximately 55 foreign
patents on various aspects of our technology, with expiration dates ranging from 2012 to 2028. We currently have approximately 75 pending patent applications in the U.S. and abroad. There can be no
assurance that others will not independently develop similar or competing technology or design around any patents that may be issued to us, or that we will be able to enforce our patents against
infringement.

The
semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. Our licensees or we might, from time to time, receive notice
of claims that we have infringed patents or other intellectual property rights owned by others. Our successful protection of our patents and other intellectual property rights are subject to a number
of factors, particularly those described in Part I, Item 1A, "Risk Factors."

Competition

The markets for our memory and I/O technologies are highly competitive. We believe that the principal competitive factors
are:



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In
order to remain competitive, we believe we must continue to provide higher density, lower power consumption, higher speed and lower cost technology solutions. Our 1T-SRAM
technologies compete primarily with traditional SRAM, which is currently the preferred choice for embedded memory solutions in SoCs requiring less density, and embedded DRAM. Companies providing
traditional SRAM embedded memories include ARM Holdings PLC and Synopsys, Inc. Embedded DRAM is offered by major foundries and IC suppliers such as TSMC, Toshiba and International
Business Machines Corporation (IBM), among others. Foundries offering embedded DRAM are also able to provide their customers with IC design services, include memory designs for their customers ICs. In
that case, the cost of the embedded memory and design are included in the wafer cost charged by the foundry. In these cases, companies would not have to license the use of their memory design from a
memory provider like us, but would get the memory design from their foundry partner. We have licensed our 1T-SRAM technology to TSMC, and, under that license, TSMC is able to offer
embedded DRAM solutions directly to its customers, obviating the need for those customers to obtain a license and do business directly with us. While TSMC does pay us royalties based on wafers it
produces that incorporate our technology, these royalties are lower than the license and royalty fees we have historically received from customers that came to us for a technology license and memory
design.

Not
all embedded memory applications benefit sufficiently from the technological advantages offered by our 1T-SRAM to justify the increased cost to the licensee. Our
licensees and prospective licensees can meet their current needs for embedded memory using other memory solutions with different cost and performance parameters. For example, our technologies are not
suitable for replacing lower-cost traditional DRAM memory chips if higher access speed is unnecessary. In addition, alternative solutions may be more cost-effective for memory
block sizes of less than one megabit, or applications in which the embedded memory portion is less than 20% of the total chip area.

Moreover,
some companies assess greater uncertainty and risk in relying on the newer generations of 1T-SRAM technologies, including the uncertainties surrounding the
manufacturing process. As a result, our ability to compete effectively may be limited because such companies may prefer to use more established traditional memory solutions that are freely available
without a license. In the current macroeconomic environment, we believe that, notwithstanding the competitively superior features of our technology, companies, including some of our current and past
licensees, will continue to seek new ways to reduce their costs, which could include modifying designs to accommodate traditional memory solutions instead of licensing 1T-SRAM from us or
our technology licensees.

Our
SerDes and DDR IP solutions compete with offerings from Synopsys, Inc., Gennum Corporation, Analog Bits, Inc. and other IP and ASIC providers, as well as the internal
design teams of customers. Some of these larger competitors, such as Synopsys, are able to bundle their I/O technology products with their electronic design automation software and/or IC controller
solutions and provide lower pricing on the packaged offering. In addition, customers often prefer to use IP solutions that have been fabricated in silicon and considered production-ready, which our
competitors may be able to provide more timely than we can. We continue to focus on expanding our portfolio of these 'off-the-shelf' or production-ready IP solutions, which
require significantly less commitment of our engineering personnel and generate higher gross margins. We also have the design expertise to customize the I/O IP to precisely meet customers' design
requirements, which some of our competitors are unwilling or unable to do.

As
part of our I/O product offerings we also provide customers with analog circuitry designs such as phase lock loops, or PLLs, and converters, which convert analog signals to digital
format and digital signals to analog format. We generally do not sell our analog circuitry designs as stand-alone IP, but rather include them with our I/O technology offerings. These analog circuitry
designs are commodity offering and are available from analog technology providers, such as Analog Bits.

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We
believe our interface solutions can meet the need for faster rates of data transfer, such as 10Gbps and greater, which the industry is striving for. Time to market is critical for our
customers. Therefore, having IP that conforms to widely-used industry protocols or standards is an important advantage of our I/O technology to reduce the amount of design time required to
produce an IC. We continue to expand the protocols that we can support to ensure that we can remain competitive.

Employees

As of December 31, 2010, we had 162 employees, consisting of 135 in research and development and engineering, 14 in sales,
marketing and application engineering and 13 in finance and administration. By location, we had 105 employees in the United States, 55 in our development center in India and 2 sales and marketing
employees in Asia. We believe our future success depends, in part, on our ability to continue to attract and retain qualified technical and management personnel, particularly highly skilled design
engineers involved in new product development, for which competition is intense. We believe that our employee relations are good.

Available Information

We were founded in 1991 and reincorporated in Delaware in September 2000. Our website address is www.mosys.com. The information in our
website is not incorporated by reference into this report. Through a link on the Investor section of our website, we make available our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission, or SEC. You can also read and copy any materials
we file with the SEC, at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by
calling the SEC at 1.800.SEC.0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC, including us.

Executive Officers

The names of our executive officers and certain information about them are set forth below:

Name

Age

Position(s) with the CompanyLeonard Perham


67

President and Chief Executive OfficerJames W. Sullivan


42

Vice President of Finance and Chief Financial OfficerSundari Mitra


47

Executive Vice President of EngineeringDavid DeMaria


49

Vice President of Business Operations


Leonard Perham,Mr. Perham was appointed President and Chief Executive Officer in November 2007. Mr. Perham was one of the
original
investors of MoSys and served on our Board of Directors from 1991 to 1997. Until his retirement from Integrated Device Technology, Inc., or IDT, in 2000, Mr. Perham served as its Chief
Executive Officer from 1991 and President and board member from 1986. Mr. Perham has served as chairman of the board of directors of NetLogic Microsystems, a fabless semiconductor company, and
has been a venture partner with AsiaTech Management, a venture capital firm. Prior to joining IDT, Mr. Perham was President and CEO of Optical Information Systems, Inc., a division of
Exxon Enterprises. He was also a member of the founding team at Zilog Inc. and held management positions at Advanced Micro Devices and Western Digital. Mr. Perham received a Bachelor of
Science degree in Electrical Engineering from Northeastern University.

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James W. Sullivan,Mr. Sullivan became our Vice President of Finance and Chief Financial Officer in January 2008. From July 2006
until January
2008, Mr. Sullivan served as Vice President of Finance and Chief Financial Officer at Apptera, Inc., a venture-backed company providing software for mobile advertising, search and
commerce. From July 2002 until June 2006, Mr. Sullivan was the Vice President of Finance and Chief Financial Officer at 8x8, Inc., a provider of voice over internet protocol
communication services. Mr. Sullivan's prior experience includes various positions at 8x8, Inc. and PricewaterhouseCoopers LLP. He received a Bachelor of Science degree in
Accounting from New York University and is a Certified Public Accountant.

Sundari Mitra,Ms. Mitra became our Executive Vice President of Engineering in June 2009. Prior to joining the Company,
Ms. Mitra
founded and served as Chief Executive Officer of Prism Circuits from its inception in February 2006 until our acquisition of Prism Circuits in June 2009. Prior to founding Prism Circuits,
Ms. Mitra served as a Director of Engineering at Sun Microsystems, Inc. from June 2002 to August 2004. Ms. Mitra holds a Masters of Science degree in Electrical Engineering from
the University of Illinois and a Bachelors of Science degree in Electrical Engineering from Baroda University in India.

David DeMaria,Mr. DeMaria became our Vice President of Business Operations in August 2008. From November 2007 until August 2008,
Mr. DeMaria served as Senior Vice President at Apache Design Solutions, an electronic design automation software company. From January 2006 until November 2007, Mr. DeMaria was Chief
Executive Officer of Optimal Corporation, an electronic design automation software company that he helped grow and ultimately merge with Apache Design Solutions. From October 1999 to March 2004,
Mr. DeMaria served in various positions, including Executive Vice President of the systems business unit and Senior Vice President of worldwide marketing and strategy, at Cadence Design
Systems. Mr. DeMaria attended Boston University for a Bachelor of Science degree in Computer Engineering.

Item 1A.    Risk Factors

If any of the following risks actually occur, our business, results of operations and financial condition could suffer significantly.

Our success depends upon the semiconductor market's acceptance of our embedded memory and high-speed interface technologies and Bandwidth Engine IC.

The future prospects of our business depend on the acceptance by our target markets of our technologies, including embedded memory
applications and I/O technologies, as well as adoption of our Bandwidth Engine IC that has recently been introduced to the market. We have not achieved substantial or rapid growth in our technology
licensing revenue since we began selling and marketing the technologies and cannot be assured of realizing such growth in the future. Our memory technology is intended to allow our licensees to
develop embedded memory integrated circuits to replace other embedded memory technology with different cost and performance parameters. Whereas our high-speed I/O technologies allow our
licensees to deliver high performance input-output processing to connect their SoC chips to other system chips, replacing their existing interface technology involves different cost and performance
metrics. Our memory technologies utilize fundamentally different internal circuitry that is not widely known in the semiconductor industry. Therefore, one of our principal challenges, which we might
fail to meet, is to convince a substantial percentage of SoC designers to adopt our technology instead of other solutions, which may have proven effective in their products. We have not yet determined
or negotiated prices with customers for Bandwidth Engine ICs nor have we gained experience with the cost of making and selling these products. Thus, currently we do not know whether we will be able to
profitably make and sell these products. We have invested significant resources to expand our IP technology offerings for the SoC market, but may not introduce these new technology offerings
successfully or obtain significant revenue from them.

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An
important part of our strategy to gain market acceptance is to penetrate new markets by targeting market leaders as licensees of our solutions. This strategy is designed to encourage
other participants in those markets to follow these leaders in adopting our solutions. If a high-profile industry participant adopts our technology or IC for one or more of its products
but fails to achieve success with those products, or is unable to successfully implement our technology or IC, other industry participants' perception of our solutions could be harmed. Any such event
could reduce the number of future sales of our solutions.

We may not achieve the anticipated benefits of becoming a fabless semiconductor company by developing and bringing to market the Bandwidth Engine integrated circuit product
line.

In February 2010, we announced the expansion of our business model to become a fabless semiconductor company through the development of
a product line of ICs called the Bandwidth Engine. Our goal is to increase our total available market by creating high-performance integrated circuits for networking systems, using our
proprietary technology and design expertise. This development effort has required that we add significant headcount and design resources, such as expensive software tools, which has increased our
losses from and cash used in operations. We may not be successful in our development efforts to bring Bandwidth Engine ICs to market successfully nor be successful in selling the Bandwidth Engine ICs
due to various risks and uncertainties, including, but not limited to:



If
we experience significant delays in bringing the Bandwidth Engine product line to market or if customer adoption of the product is delayed, we may need to raise additional capital to
support the product development efforts and fund our working capital needs.

The Bandwidth Engine ICs will have a lengthy sales cycle, which makes it difficult to predict success in this market and the timing of future revenue

Bandwidth Engine ICs have a lengthy sales cycle, of from 6 to 24 months from the date of our initial proposal to a prospective
customer until the date on which the customer confirms that it has designed our product into its SoC. As lengthy, or an even lengthier period could ensue before we would know the volume of products
that such customer will, or is likely to, order. A number of factors

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can
contribute to the length of the sales cycle, including technical evaluations of our products by the customers, the design process required to integrate our products into the customers' products
and the timing of the customers' new product announcements. In anticipation of product orders, we may incur substantial costs before the sales cycle is complete and before we receive any customer
payments. As a result, in the event that a sale is not completed or is cancelled or delayed, we may have incurred substantial expenses, making it more difficult for us to become profitable or
otherwise negatively impacting our financial results. Furthermore, because of this lengthy sales cycle, our receipt of revenue from our selling efforts may be substantially delayed, our ability to
forecast our future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter. We cannot provide any assurances that our efforts to build a strong and profitable
business based on the Bandwidth Engine ICs will succeed. If these efforts are not successful, in light of the substantial resources that we have invested, our future operating results and cash flows
could be materially adversely affected.

Our lengthy IP licensing cycle and our licensees' lengthy product development cycles make the operating results of our licensing business difficult to predict.

We anticipate difficulty in accurately predicting the timing and amounts of revenue generated from licensing our technologies. The
establishment of a business relationship with a potential licensee is a lengthy process, generally taking from three to nine months, and sometimes longer during slower periods in our industry.
Following the establishment of the relationship, the negotiation of licensing terms can be time-consuming, and a potential licensee may require an extended evaluation and testing period.

Once
a license agreement has been executed, the timing and amount of licensing and royalty revenue, if applicable, from our licensing business remain difficult to predict. The completion
of the licensee's development projects and the commencement of production are subject to the licensee's efforts, development risks and other factors outside our control. Our royalty revenue will
depend on such factors as the success of the licensee's project, the licensee's production and shipment volumes, the timing of product shipments, selling price of the products and when the licensee
reports to us the manufacture or sale of products that include our technologies. All of these factors will prevent us from
making predictions of revenue with any certainty and could cause us to experience substantial period-to-period fluctuations in our operating results.

None
of our licensees are under any obligation to incorporate our technology in any present or future product or to pursue the manufacture or sale of any product incorporating our
technology. A licensee's decision to complete a project or manufacture a product is subject to changing economic, marketing or strategic factors. The long development cycle of a licensee's products
increases the risk that these factors will cause the licensee to change its plans. In the past, some of our licensees have discontinued development of products incorporating our technology. Although
in most cases their decisions were based on factors unrelated to our technology, it is unlikely that we will receive royalties in connection with those products. We expect that occasionally our
licensees will discontinue a product line or cancel a product introduction, which could adversely affect our future operating results and business.

If the market for SoC integrated circuits does not expand, our business will suffer.

Our ability to achieve sustained revenue growth and profitability in the future will depend on the continued development of the market
for SoCs, particularly those requiring embedded memory sizes of one megabit or more, and high-speed interfaces of speeds over one gigabit per second. In addition, our ability to achieve
design wins with customers is dependent upon the growth of embedded memories and high-speed interfaces required in SoCs. SoCs are characterized by rapid technological change and
competition from an increasing number of alternate design strategies such as combining multiple integrated circuits to create a system-in-a-package.

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We
cannot be certain that the market for SoCs will continue to develop or grow at a rate sufficient to support our business, or that if such growth does occur, that it will lead to
significant growth in our business. SoC providers depend on the demand for consumer electronic products, which are subject to rapid technological change, requiring SoCs. The demand for such products
is uncertain and difficult to predict and depends on factors beyond our control. If the market fails to grow or develops more slowly than expected, our business will suffer.

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

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

We have a history of losses and are uncertain as to our future profitability.

We recorded an operating loss of $23.2 million for the year ended December 31, 2010 and ended the period with an
accumulated deficit of $76.7 million. In addition, we recorded operating losses of $20.0 million and $20.7 million for the years ended December 31, 2009 and 2008,
respectively. We may continue to incur operating losses for the foreseeable future as we invest in the productization of our Bandwidth Engine IC products as well as continue to invest in our IP
technologies. Due to our strong commitment of resources to research and development and expansion of our offerings to customers, we will need to increase revenues substantially beyond levels that we
have attained in the past in order to generate sustainable operating profit. Given our history of fluctuating revenues and operating losses, difficulties in securing new license agreements for our
1T-SRAM and I/O technologies, we cannot be certain that we will be able to achieve profitability on either a quarterly or annual basis in the future.

We might be unable to deliver our customized technology within an agreed technical specification in the time frame demanded by our licensees, which could damage our
reputation, harm our ability to attract future licensees and adversely impact operating results.

Many of our licenses require us to deliver a customized memory block or customized high-speed interface, within an agreed
technical specification by a certain delivery timetable. This requires us to furnish a unique design for each customer, which can make the development schedule difficult to predict and involves
extensive interaction with our customers' engineers. From time to time, we have experienced delays in delivering our customized deliverables that meet the agreed technical specifications, which can
result from slower engineering progress than we originally anticipated or there might be factors outside of our control, such as the customer's delay in completing verification of the customer's
integrated circuit or manufacturing process issues at the
foundries. Such delays may affect the timing of recognition of revenues and collection of amounts due from a particular project and can adversely affect our operating results and financial condition.

In
addition, any failure to meet our customers' timetables, as well as the agreed upon technical specifications of our customized deliverables, could lead to the failure to collect, or a
delay in collecting royalties and licensing fee payments from our licensees, damage our reputation in the industry, harm our ability to attract new licensees and negatively impact our operating
results. Furthermore, a customer may assert that we are responsible for delays and cost overruns and demand reimbursement

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for
some of its costs, which we may elect to reimburse in whole or in part in order to address the customer's concerns.

Our business model relies on royalties as a key component in the generation of revenues from the licensing of our memory technologies, and, if we fail to realize expected
royalties, our operating results will suffer.

We believe that our long-term success is substantially dependent on the receipt of future royalties. Royalty payments owed
to us are calculated based on factors such as our licensees' selling prices, wafer production and other variables as provided in each license agreement. The amount of royalties we will receive depends
on our licensees' business success, production volumes and other factors beyond our control. This exposes our business model to risks that we cannot minimize directly and may result in significant
fluctuations in our royalty revenue and operating results from quarter-to-quarter. We cannot be certain that our business strategy will be successful in expanding the number of
licensees, nor can we be certain that we will receive significant royalty revenue in the future. If we are unable to generate significant royalty revenue in the future, our future operating results,
financial condition and business would suffer.

Our revenue has been highly concentrated among a small number of licensees and customers, and our results of operations could be harmed if we lose a key revenue source and
fail to replace it.

Our overall revenue has been highly concentrated, with a few customers accounting for a significant percentage of our total revenue.
For the year ended December 31, 2010, our three largest customers represented 23%, 18% and 15% of total revenue, respectively. For the year ended December 31, 2009, our three largest
customers represented 44%, 10%, and 10% of total revenue, respectively. For the year ended December 31, 2008, our two largest customers represented
55% and 13% of total revenue, respectively. We expect that a relatively small number of licensees will continue to account for a substantial portion of our revenue for the foreseeable future.

Our
royalty revenue also has been highly concentrated among a few licensees, and we expect this trend to continue for the foreseeable future. In particular, a substantial portion of our
licensing and royalty revenue in 2010, 2009, and 2008 has come from the license fees and royalties for integrated circuits supplied by one IDM for Nintendo® gaming devices that incorporate
our 1T-SRAM technology. Royalties earned from this customer represented 22%, 39%, and 47% of total revenue in 2010, 2009 and 2008, respectively. This manufacturer faces intense competitive
pressure in the video game market, which is characterized by extreme volatility, costly new product introductions and rapidly shifting consumer preferences, and we cannot be certain whether their
sales of products incorporating our technology will increase or decrease beyond prior or current levels.

As
a result of this revenue concentration, our results of operations could be impaired by the decision of a single key licensee or customer to cease using our technology or products or
by a decline in the number of products that incorporate our technology that are sold by a single licensee or customer or by a small group of licensees or customers.

Our revenue concentration may also pose credit risks, which could negatively affect our cash flow and financial condition.

We might also face credit risks associated with the concentration of our revenue among a small number of licensees and customers. As of
December 31, 2010, five customers represented 99% of total trade receivables. Our failure to collect receivables from any customer that represents a large percentage of receivables on a timely
basis, or at all, could adversely affect our cash flow or results of operations and might cause our stock price to fall.

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Anything that negatively affects the businesses of our licensees could negatively impact our revenue.

The timing and level of our licensing and royalty revenues are dependent on our licensees and the business environment in which they
operate. Licensing and royalty revenue are the largest source of our revenues; anything that negatively affects a significant licensee or group of licensees could negatively affect our results of
operations and financial condition. Many factors beyond our control influence the success of our licensees, including, for example, the highly competitive
environment in which they operate, the strength of the markets for their products, their engineering capabilities and their financial and other resources.

Likewise,
we have no control over the product development, pricing and marketing strategies of our licensees, which directly affect the licensing of our technology and corresponding
future royalties payable to us from our licensees. Our royalty revenues are subject to our licensees' ability to market, produce and ship products incorporating our technology. A decline in sales of
our licensees' royalty-generating products for any reason would reduce our royalty revenue. In addition, seasonal and other fluctuations in demand for our licensees' products could cause our operating
results to fluctuate, which could cause our stock price to fall.

We rely on semiconductor foundries to assist us in attracting potential licensees, and a loss or failure of these relationships could inhibit our growth and reduce our
revenue.

Part of our marketing strategy relies upon our relationships and agreements with semiconductor foundries, such as TSMC. These foundries
have existing relationships, and continually seek new relationships, with companies in the markets we target, and they have agreed to utilize these relationships to introduce our technology to
potential licensees. If we fail to maintain and expand our current relationships with these foundries, we might fail to achieve anticipated growth. Our relationship with these foundries is not
exclusive, and they are free to promote or develop other IP technologies, including their own. The foundries' promotions of alternative technologies reduce the size of our potential market and may
adversely affect our revenues and operating results. Foundries that license our IP for designs they provide to their customers may compete with us for such customers, and due to such competition, may
be less inclined to help us with new technology development.

Additionally,
we rely on third-party foundries to manufacture our silicon test chips, to provide references to their customers and to assist us in the focus of our research and
development activities. If we are unable to maintain our existing relationships with these foundries or enter into new relationships with other foundries, we will be unable to verify our technologies
for their manufacturing processes and our ability to develop new technologies will be hampered. We would then be unable to license our intellectual property to fabless semiconductor companies that use
these foundries to manufacture their silicon chips, which is a significant source of our revenues.

Our embedded memory and I/O technologies are unique and the occurrence of manufacturing difficulties or low production yields, if not corrected, could hinder market
acceptance of our technology and reduce future revenue.

Complex technologies like ours could be adversely affected by difficulties in adapting our embedded memory and high-speed
I/O technologies to our licensees' product designs or to the manufacturing process technology of a particular foundry or semiconductor
manufacturer. Some of our customers have experienced lower than expected yields or higher than expected power usage when initially integrating our designs into their SoCs. We work closely with our
customers to resolve any design or process issues in order to achieve the optimum production yield and operating efficiencies.

Any
decrease in manufacturing yields of integrated circuits utilizing our technology could impede the acceptance of our technology in the industry. The discovery of defects or problems
regarding the reliability, quality or compatibility of our technology could require significant expenditures and resources to fix, significantly delay or hinder market acceptance of our technology,
reduce anticipated revenues and damage our reputation.

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Our failure to compete effectively in the market for embedded memory and I/O technology could significantly limit or reduce our revenue.

Competition in the market for embedded memory and I/O solutions is intense. Our licensees and prospective licensees can meet their need
for embedded memory solutions by using traditional memory solutions with different cost and performance parameters, which they may internally develop or acquire from third-party vendors. In recent
years, the demand for applications for which our 1T-SRAM technologies provide distinct advantages has not experienced significant growth. If alternative technologies are developed that
provide comparable system performance at lower cost than our 1T-SRAM technologies for certain applications and/or do not require the payment of comparable royalties, or if the industry
generally demonstrates a preference for applications for which our 1T-SRAM technologies do not offer significant advantages, our ability to realize revenue from our 1T-SRAM
technologies could be impaired.

The
market for serial I/O technology is driven by the demand for solutions in the most advanced technology nodes. Our competitors may be more experienced in the I/O technology market,
and therefore able to provide a wider range of products or bundle different product offerings to attract customers and offer lower pricing. Also, if our competitors are able to provide designs to
customers that have been verified in silicon before we are able to, our revenues may be adversely affected.

We
also may be challenged by competitive developers of alternative technologies who are more established, benefit from greater market recognition and have substantially greater
financial, development, manufacturing and marketing resources than we have. These advantages might permit these developers to respond more quickly to new or emerging technologies and changes in
licensee requirements. We cannot assure you that future competition will not have a material adverse effect on the adoption of our technology and our market penetration.

We have invested significant resources to expand our IP technology offerings for the SoC market, but we might not successfully introduce these new technology offerings or
obtain significant revenue from them.

We have and will continue to invest significant financial and personnel resources in new IP technology offerings for the SoC market. To
date, the majority of our revenue has been generated from our 1T-SRAM technologies. We intend for our new IP technologies under development to increase our revenues and expand our business
with existing and new customers. These technology offerings require further development and have not been silicon verified or tested in production or commercial use, however, and, as with our existing
1T-SRAM technologies, these new IP technologies are inherently complex. Our success with these new technologies will depend on many presently uncertain factors,
including:



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Any
of these factors could adversely affect our ability to successfully introduce these new IP technologies and generate significant revenue from them. If we fail to achieve our
objectives for these technologies it may affect our cash flows and results of operations adversely and result in a material decline in the trading price of our common stock. In addition, even if we
successfully license these new technologies to customers, if they do not work as anticipated, our reputation and ability to do business in the marketplace could be affected adversely.

Our failure to continue to enhance our technology or develop new technology on a timely basis could diminish our ability to attract and retain licensees and product
customers.

The existing and potential markets for our products and technology are characterized by ever increasing performance requirements,
evolving industry standards, rapid technological change and product obsolescence. These characteristics lead to frequent new product and technology introductions and enhancements, shorter product life
cycles and changes in consumer
demands. In order to attain and maintain a significant position in the market, we will need to continue to enhance our technology in anticipation of these market trends.

In
addition, the semiconductor industry might adopt or develop a completely different approach to utilizing memory and interface technologies for many applications, which could render
our existing technology unmarketable or obsolete. We might not be able to successfully develop new technology, or adapt our existing technology, to comply with these innovative standards.

Our
future performance depends on a number of factors, including our ability to



We
continually introduce enhancements to our technologies to meet market requirements. However, we cannot be assured that the design and introduction schedules of any additions and
enhancements to our existing and future technology will be met, that this technology will achieve market acceptance or that we will be able to license this technology on terms that are favorable to
us. Our failure to develop
future technology that achieves market acceptance could harm our competitive position and impede our future growth.

Any claim that our products or technology infringe third-party intellectual property rights could increase our costs of operation and distract management and could result in
expensive settlement costs or the discontinuance of our technology licensing or product offerings. In addition, we may incur substantial litigation expense, which would adversely affect our
profitability.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights or positions, which has
resulted in often protracted and expensive litigation. Our

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licensees,
or we, might, from time to time, receive notice of claims that we have infringed patents or other intellectual property rights of others. Litigation against us can result in significant
expense and divert the efforts of our technical and management personnel, whether or not the litigation has merit or results in a determination adverse to us.

Royalty amounts owed to us might be difficult to verify, and we might find it difficult, expensive and time-consuming to enforce our license agreements.

The standard terms of our 1T-SRAM license agreements require our licensees to document the manufacture and sale of products
that incorporate our technology and generally report this data to us after the end of each quarter. We have the right to audit these royalty reports periodically. These audits can be expensive,
time-consuming and potentially detrimental to the business relationship. A failure to fully enforce the royalty provisions of our license agreements could cause our revenue to decrease and
impede our ability to achieve and maintain profitability.

We might not be able to protect and enforce our intellectual property rights, which could impair our ability to compete and reduce the value of our technology.

Our technology is complex and is intended for use in complex SoCs. A very large number of new and existing products utilize embedded
memory and I/O technology, and a large number of companies manufacture and market these products. Because of these factors, policing
the unauthorized use of our intellectual property is difficult and expensive. We cannot be certain that we will be able to detect unauthorized use of our technology or prevent other parties from
designing and marketing unauthorized products based on our technology. In the event we identify any past or present infringement of our patents, copyrights or trademarks, or any violation of our trade
secrets, confidentiality procedures or licensing agreements, we cannot assure you that the steps taken by us to protect our proprietary information will be adequate to prevent misappropriation of our
technology. Our inability to adequately protect our intellectual property would reduce significantly the barriers of entry for directly competing technologies and could reduce the value of our
technology. Furthermore, we might initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation by
us could result in significant expense and divert the efforts of our technical and management personnel, whether or not such litigation results in a determination favorable to us.

Our existing patents might not provide us with sufficient protection of our intellectual property, and our patent applications might not result in the issuance of patents,
either of which could reduce the value of our core technology and harm our business.

We rely on a combination of patents, trademarks, copyrights, trade secret laws and confidentiality procedures to protect our
intellectual property rights. As of December 31, 2010, we held approximately 110 patents in the United States, and approximately 55 corresponding foreign patents, which expire at various times
from 2012 to 2028. In addition, as of December 31, 2010, we had approximately 75 patent applications pending worldwide. We cannot be sure that any patents will issue from any of our pending
applications or that any claims allowed from pending applications will be of sufficient scope or strength, or issued in all countries where our products can be sold, to provide meaningful protection
or any commercial advantage to us. Also, competitors might be able to design around our patents. Failure of our patents or patent applications to provide meaningful protection might allow others to
utilize our technology without any compensation to us and impair our ability to increase our licensing revenue.

The discovery of defects in our technology could expose us to liability for damages.

The discovery of a defect in our technologies could lead our licensees to seek damages from us. Many of our license agreements include
provisions waiving implied warranties regarding our technology

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and
limiting our liability to our licensees. We cannot be certain, however, that the waivers or limitations of liability contained in our license contracts will be enforceable.

Our failure to manage the expansion of our operations could reduce our potential revenue and threaten our future profitability.

The size of our company has increased substantially as we have grown from 43 employees in January 2001 to 162 employees in December
2010, largely due to the acquisition of Prism Circuits in 2009. In 2007, we had significantly expanded our foreign operations and headcount, as a result of acquiring certain assets of Atmel and LDIC,
and we subsequently commenced the exit of those operations in late 2008, at significant cost to the Company. The efficient management of our planned expansion of the development, licensing and
marketing of our technology, including through the acquisition of other companies will require us to continue to:



The
significant expansion of our foreign operations and decisions to exit certain of those foreign operations have resulted in increased difficulty, expense and risk in managing such
operations. We cannot assure you that we will adequately manage our growth or meet the foregoing objectives. A failure to do so could jeopardize our future revenues, adversely impact our results of
operations and cause our stock price to fall.

If we fail to retain key personnel, our business and growth could be negatively affected.

Our business has been dependent to a significant degree upon the services of a small number of executive officers and technical
employees. The loss of any key personnel could negatively impact our technology development efforts, our ability to deliver under our existing agreements, maintain strategic relationships with our
partners, and obtain new customers. We generally have not entered into employment or non-competition agreements with any of our employees and do not maintain key-man life
insurance on the lives of any of our key personnel.

Our failure to successfully address the potential difficulties associated with our international operations could increase our costs of operation and negatively impact our
revenue.

We are subject to many difficulties posed by doing business internationally, including:



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Because
we anticipate that licenses to companies that operate primarily outside the United States may account for a substantial portion of our licensing revenue in future periods, the
occurrence of any of these circumstances could significantly increase our costs of operation, delay the timing of our revenue and harm our profitability.

Any acquisitions we make could disrupt our business and harm our financial condition.

As part of our growth strategy, we might consider opportunities to acquire other businesses or technologies that would complement our
current offerings, expand the breadth of our markets or enhance our technical capabilities. To date, we acquired MagnaLynx, Inc. in March 2010, purchased assets from Prism Circuits in June
2009, purchased assets from Atmel Corporation and LDIC in July and August 2007 and acquired Atmos Corporation (Atmos) in 2002. In 2004, we commenced the shutdown of the Atmos operations. In December
2008, we announced the exit of the product lines related to the assets purchased from Atmel and LDIC at a total cost of approximately $1.6 million, which was in addition to the losses we
incurred while we owned and operated these product lines. Acquisitions that we may do in the future will present a number of potential challenges that could, if not overcome, disrupt our business
operations, substantially increase our operating expenses, negatively affect our operating results and cash flows and reduce the value to us of the acquired company or assets purchased,
including:



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

We intend to continue spending substantial amounts to grow our business. In December 2010, we completed an equity offering and issued
approximately 5,000,000 shares of our common stock for approximately $20 million in net proceeds. Although we believe that we have access to capital sufficient to satisfy our working capital
requirements for at least the next 12 months, we may need to obtain additional financing to pursue our business strategy, develop new products, respond to competition and market opportunities
and acquire complementary businesses or technologies. We may not be able to obtain such financing on favorable terms or at all.

If
we were to raise additional capital through sales of our equity securities, our stockholders would suffer dilution of their equity ownership. If we engage in 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

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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:



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.

Provisions of our certificate of incorporation and bylaws or Delaware law might delay or prevent a change of control transaction and depress the market price of our stock.

Various provisions of our certificate of incorporation and bylaws might have the effect of making it more difficult for a third party
to acquire, or discouraging a third party from attempting to acquire, control of our company. These provisions could limit the price that certain investors might be willing to pay in the future for
shares of our common stock. Certain of these provisions eliminate cumulative voting in the election of directors, limit the right of stockholders to call special meetings and establish specific
procedures for director nominations by stockholders and the submission of other proposals for consideration at stockholder meetings.

We
are also subject to provisions of Delaware law which could delay or make more difficult a merger, tender offer or proxy contest involving our company. In particular,
Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless
specific conditions are met. Any of these provisions could have the effect of delaying, deferring or preventing a change in control, including without limitation, discouraging a proxy contest or
making more difficult the acquisition of a substantial block of our common stock.

Under
our stockholder rights plan, which became effective November 2010, our board of directors may issue up to 20,000,000 shares of preferred stock without stockholder approval on such
terms as the board might determine. The rights of the holders of common stock will be subject to, and might be adversely affected by, the rights of the holders of any preferred stock that might be
issued in the future.

Our stockholder rights plan could prevent stockholders from receiving a premium over the market price for their shares from a potential acquirer.

We adopted a stockholder rights plan that generally entitles our stockholders to rights to acquire additional shares of our common
stock when a third party acquires 15% of our common stock or commences or announces its intent to commence a tender offer for at least 15% of our common stock, other than for one stockholder and his
affiliates who beneficially owned a substantial number of shares of our common stock at the time of the plan's adoption, as to whom this threshold is 20%. The plan also includes an exception to permit
the acquisition of shares representing more than 15% of our common stock by a brokerage firm that manages independent customer accounts and generally does not have any discretionary voting power with
respect to such shares. This plan could delay, deter or prevent an investor from acquiring us in a transaction that could otherwise result in stockholders receiving a premium over the market price for
their shares of common stock. Our intention is to

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maintain
and enforce the terms of this plan, which could delay, deter or prevent an investor from acquiring us in a transaction that could otherwise result in stockholders receiving a premium over the
market price for their shares of common stock.

Potential volatility of the price of our common stock could negatively affect your investment.

We cannot assure you that there will continue to be an active trading market for our common stock. Recently, the stock market, as well
as our common stock, has experienced significant price and volume fluctuations. Market prices of securities of technology companies have been highly volatile and frequently reach levels that bear no
relationship to the operating performance of such companies. These market prices generally are not sustainable and are subject to wide variations. If our common stock trades to unsustainably high
levels, it is likely that the market price of our common stock will thereafter experience a material decline. In each of 2007 and 2008, our board of directors approved stock repurchase programs, the
latter of which expired in October 2009. Any future program could impact the price of our common stock and increase volatility.

In
the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We could be the target of
similar litigation in the future. Securities litigation could cause us to incur substantial costs, divert management's attention and resources, harm our reputation in the industry and the securities
markets and negatively impact our operating results.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

Our principal administrative, sales, marketing, support and research and development functions are located in a leased facility in
Santa Clara, California. We currently occupy approximately 47,000 square feet of space in the Santa Clara facility, the lease for which extends through August 2020. We have leased office space in
Hyderabad, India for our engineering design center and in Tokyo, Japan and Hsinchu City, Taiwan for our sales and support offices. We believe that our existing facilities are adequate to meet our
current needs.

Item 3.    Legal Proceedings

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

Item 4.    Removed and Reserved

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Part II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the Global Market of the NASDAQ Stock Market under the symbol MOSY. The following table sets forth the
range of high and low sales prices of our common stock for each period indicated.

Quarter ended

High

LowDecember 31, 2010

$
6.06

$
4.01September 30, 2010

$
5.23

$
3.97June 30, 2010

$
5.00

$
3.63March 31, 2010

$
5.09

$
3.26December 31, 2009

$
4.04

$
2.19September 30, 2009

$
2.75

$
1.47June 30, 2009

$
2.00

$
1.39March 31, 2009

$
2.28

$
1.22


We
had 21 stockholders of record as of March 1, 2011.

Dividend Policy

We have not declared or paid any cash dividends on our common stock and presently intend to retain future earnings, if any, to fund the
development and growth of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

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Stock Performance Graph

The following graph compares cumulative total stockholder return on our common stock with that of the S&P 500 Index and the S&P
Technology Sector Index from 2005 through 2010. The comparison assumes that $100 was invested on December 31, 2005 in our common stock, the stocks included in the S&P 500 Index and the
stocks included in the S&P Technology Sector Index. We have never paid any cash dividends to holders of our common stock.

The
comparisons shown in the graph below are based upon historical data, and we caution that the stock price performance shown in the graph below is not indicative of, nor intended to
forecast, the potential future performance of our common stock. Information used in the graph was obtained from Standard and Poor's website, a source believed to be reliable, but we are not
responsible for any errors or omissions in such information.

GRAPHIC

12/31/2005

12/31/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010MOSYS, INC.

$
100.00

$
168.18

$
88.18

$
38.18

$
71.64

$
103.45S & P 500


100.00


113.62


117.63


72.36


92.00


169.67S & P TECHNOLOGY SECTOR


100.00


107.70


124.43


70.08


113.28


122.73


Securities Authorized for Issuance under Equity Compensation Plan

For information regarding securities authorized for issuance under equity compensation plans, please refer to
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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Item 6.    Selected Financial Data

The selected financial data presented below is derived from our consolidated financial statements that are included under
Item 8. The selected financial data should be read in conjunction with our consolidated financial statements and notes related to those statements and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included herein.

Year Ended December 31,2010(1)

2009(2)

2008(3)

2007(4)

2006(5)(In thousands, except per share data)Statement of Operations Data:Total net revenue

$
15,563

$
11,458

$
14,026

$
14,334

$
14,909Cost of net revenue


2,826


1,993


2,797


2,744


1,585Gross profit


12,737


9,465


11,229


11,590


13,324Operating expenses


35,925


29,468


31,925


25,180


22,476Loss from operations


(23,188
)

(20,003
)

(20,696
)

(13,590
)

(9,152
)Other income and expense, net


177


744


2,243


4,520


3,286Loss before income taxes


(23,011
)

(19,259
)

(18,453
)

(9,070
)

(5,866
)Income tax provision (benefit)


51


(155
)

132


25


109Net loss

$
(23,062
)
$
(19,104
)
$
(18,585
)
$
(9,095
)
$
(5,975
)Net loss per share:Basic and diluted

$
(0.72
)
$
(0.61
)
$
(0.59
)
$
(0.28
)
$
(0.19
)Shares used in computing net loss per share:Basic and diluted


31,870


31,238


31,698


31,994


31,298Allocation of stock-based compensation to cost of net revenue and operating expenses:Cost of net revenue

$
309

$
250

$
405

$
502

$
312Research and development


1,524


1,153


1,235


1,377


1,192Selling, general and administrative


1,465


1,651


3,103


2,461


1,879$
3,298

$
3,054

$
4,743

$
4,340

$
3,383




Year Ended December 31,2010

2009

2008

2007

2006(In thousands)Balance Sheet Data:Cash, cash equivalents and investments

$
37,544

$
40,436

$
67,470

$
78,654

$
84,299Working capital


27,246


25,628


43,304


66,262


84,698Total assets


73,966


75,543


85,933


98,797


103,760Deferred revenue


1,801


2,671


639


201


619Long-term liabilities


146


136








54Stockholders' equity


67,057


64,701


81,888


96,292


100,915


(1)Operating
expenses include $2.8 million of amortization of acquired intangible assets.(2)Operating
expenses include restructuring charges of $0.7 million and $1.5 million of amortization of acquired intangible assets.(3)Operating
expenses include restructuring charges of $1.3 million, impairment charges for acquired intangible assets of $1.4 million and
$0.7 million of amortization of acquired intangible assets.(4)Operating
expenses include a $1.0 million charge for acquired in-process research and development and $0.4 million of amortization
of acquired intangible assets.(5)Operating
expenses include a $2.4 million charge relating to a litigation settlement.


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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in
conjunction with the accompanying consolidated financial statements and notes included in this report.

Overview

We design, develop, market and license differentiated embedded memory and high-speed parallel and serial interface, or I/O,
intellectual property, or IP, for advanced Systems on Chips, or SoC, designs. 1T-SRAM is our
high-density, high-performance patented memory solution that represents an alternative to traditional volatile embedded memory. Our I/O IP includes physical layer, or PHY,
circuitry that allows integrated circuits to talk to each other or to discrete integrated circuits in the networking, storage, computer and consumer segments. Our PHYs support serial interface
technologies, such as 10G Base KR, XAUI, PCI Express and SATA, as well as parallel interfaces like DDR3.

Our
customers typically include fabless semiconductor companies, integrated device manufacturers, or IDMs, and foundries. We generate revenue from the licensing of our IP, and our
customers pay us fees for one or more of the following: licensing, non-recurring engineering services, royalties and maintenance and support. Royalty revenues are typically earned under
our memory license agreements when our licensees manufacture or sell products that incorporate any of our memory technologies. Generally, we expect our total sales cycle, or the period from our
initial discussion with a prospective licensee to our receipt of royalties, where applicable, from the licensee's use of our technologies, to run from 18 to 24 months. The portion of our sales
cycle from the initial discussion to the receipt of license fees may run from 6 to 12 months, depending on the complexity of the proposed project and degree of development services required.

In
February 2010, we announced a new product initiative to develop a family of integrated circuits products under the "Bandwidth Engine" product name. Our Bandwidth Engine family of ICs
combines our 1T-SRAM high-density embedded memory with our high-speed 10 Gigabits per second (Gbps) serial I/O technology and is initially being marketed to
networking systems companies and designers of advanced SoC designs. Bandwidth Engine ICs have been designed to increase system performance by using a serial I/O to increase the accesses per second
between the processor and memory component in networking systems. During 2010, we invested a significant amount of our financial and engineering resources towards the development of our Bandwidth
Engine IC, and we expect to continue to do so in 2011. We began shipping samples of our first Bandwidth Engine IC to prospective customers in December 2010. We do not expect to generate meaningful
revenue from our Bandwidth Engine ICs until 2012 or later.

Sources of Revenue

We generate two types of revenue: licensing and royalties.

Licensing.Licensing revenue consists of fees earned from license agreements, development services, prepaid pre-production royalties,
and
support and maintenance.

Our
license agreements involve long sales cycles, which make it difficult to predict when the agreements will be signed. In addition, our licensing revenue fluctuates from period to
period, and it is
difficult for us to predict the timing and magnitude of such revenue from quarter to quarter. Moreover, we believe that the amount of licensing revenue for any period is not necessarily indicative of
results in any future period.

Our
licensing revenue consists primarily of fees for providing circuit design, layout and design verification and granting licenses to customers that embed our technology into their
products. License fees generally range from $100,000 to several million dollars per contract, depending on the scope and

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complexity
of the development project, and the extent of the licensee's rights. The vast majority of our contracts allow for milestone billing based on work performed. Fees billed prior to revenue
recognition are recorded as deferred revenue.

Royalty.Royalty revenue represents amounts earned under provisions in our memory licensing contracts that require our licensees to
report royalties
and make payments at a stated rate based on actual units manufactured or sold by licensees for products that include our memory IP. We recognize royalties in the quarter in which we receive the
licensee's report.

Royalty-bearing
license agreements provide for royalty payments at a stated rate. We negotiate royalty rates by taking into account such factors as the anticipated volume of the
licensee's sales of products utilizing our technologies and the cost savings to be achieved by the licensee through the use of our technology. Our license agreements require the licensee to report the
manufacture or sale of products that include our technology after the end of the quarter in which the sale or manufacture occurs.

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

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of
America. Note 1 to the consolidated
financial statements in Item 15 of this report describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.

We
have identified the accounting policies below as some of the more critical to our business and the understanding of our results of operations. These policies may involve estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Although we believe our judgments and estimates are appropriate, actual future results may differ from our
estimates, and if different assumptions or conditions were to prevail, the results could be materially different from our reported results.



We generate revenue from the licensing of our IP, and customers pay fees for licensing, development services, royalties and maintenance
and support. We recognize revenue when persuasive evidence of an arrangement exists, delivery or performance has occurred, the sales price is fixed or determinable, and collectibility is reasonably
assured. Evidence of an arrangement generally consists of signed agreements. When sales arrangements contain multiple elements (e.g., license and services), we review each element to determine
the separate units of accounting that exist within the agreement. If more than one unit of accounting exists, the consideration payable to us under the agreement is allocated to each unit of
accounting using either the relative fair value method or the residual fair value method. Revenue is recognized for each unit of accounting when the revenue recognition criteria have been met for that
unit of accounting.



Licensing revenue consists of fees earned from license agreements, development services and support and maintenance. For stand-alone
license agreements or license deliverables in multi-element arrangements that do not require significant development, modification or customization, revenues are

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recognized
when all revenue recognition criteria have been met. Delivery of the licensed technology is typically the final revenue recognition criterion met, at which time revenue is recognized. If
any of these criteria are not met, revenue recognition is deferred until such time as all criteria have been met.

For
license agreements that include deliverables requiring significant production, modification or customization, and where we have significant experience in meeting the design
specifications involved in the contract and the direct labor hours related to services under the contract can be reasonably estimated, we recognize revenue over the period in which the contract
services are performed. For these arrangements, we recognize revenue using the percentage of completion method. Revenue recognized in any period is dependent on our progress toward completion of
projects in progress. Significant management judgment and discretion are used to estimate total direct labor hours. These judgmental elements include determining that we have the experience to meet
the design specifications and estimating the total direct labor hours. We follow this method because we can obtain reasonably dependable estimates of the direct labor hours to perform the contract
services. The direct labor hours for the development of the licensee's design are estimated at the beginning of the contract. As these direct labor hours are incurred, they are used as a measure of
progress towards completion. We have the ability to reasonably estimate the direct labor hours on a contract-by-contract basis based on our experience in developing prior
licensees' designs. During the contract performance period, we review estimates of direct labor hours to complete the contracts as the contract progresses to completion and will revise our estimates
of revenue and gross profit under the contract if we revise the estimations of the direct labor hours to complete. Our policy is to reflect any revision in the contract gross profit estimate in
reported income or loss in the period in which the facts giving rise to the revision become known. Under the percentage of completion method, provisions for estimated losses on uncompleted contracts
are recorded in the period in which such losses are determined to be likely. If the amount of revenue recognized under the percentage of completion accounting method exceeds the amount of billings to
a customer, then the excess amount is recorded as an unbilled contracts receivable.

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

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



Our licensing contracts typically also provide for royalties based on licensees' use of our memory technology in their currently
shipping commercial products. We generally recognize royalties in the quarter in which we receive the licensee's report. Under limited circumstances, we may also recognize prepaid
post-production royalties as revenue upon execution of the contract, which are paid in a lump sum after the licensee commences production of the royalty- bearing product and applied
against future unit shipments regardless of the actual level of shipments by the licensee. The criteria for revenue recognition of prepaid royalties are that a formal agreement with the licensee is
executed, no deliverables, development or support services related to prepaid royalties are required, the fees are non-refundable and not contingent upon future product shipments by the
licensee, and the fees are

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payable
by the licensee in a time period consistent with our normal billing terms. If any of these criteria are not met, we defer revenue recognition until such time as all criteria have been met.



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

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



We evaluate our long-lived assets for impairment at least annually, or more frequently when a triggering event is deemed to
have occurred. This assessment is subjective in nature and requires significant management judgment to forecast future operating results, projected cash flows and current period market capitalization
levels. If our estimates and assumptions change in the future, it could result in a material write-down of long-lived assets. We amortize our finite-lived intangible assets,
such as developed technology, patents and workforce, on a straight-line basis over their estimated useful lives of one to five years. We recognize an impairment charge as the difference
between the net book value of such assets and the fair value of the assets on the measurement date.



We review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an
asset may not be recoverable. We use a two-step impairment test. In the first step, we compare 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 the net assets of the reporting unit, goodwill is not impaired, and we are not
required to perform further testing. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step in order to
determine the implied fair value of the reporting unit's goodwill and compare it to the carrying value of the reporting unit's goodwill. If the carrying value of a reporting unit's goodwill exceeds
its implied fair value, then we must record an impairment charge equal to the difference. We have determined that we have a single reporting unit for purposes of performing our goodwill impairment
test. As we use the market approach to assess impairment, the price of our common stock price is an important component of the fair value calculation. If our stock price continues to experience

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significant
price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods. As of December 31, 2010, we had not
identified any factors to indicate there was an impairment of our goodwill and determined that no additional impairment analysis was required.



When we prepare our consolidated financial statements, we estimate our income tax liability for each of the various jurisdictions where
we conduct business. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting
purposes. These differences result in deferred tax assets, which we show on our consolidated balance sheet under the category of other current assets. The net deferred tax assets are reduced by a
valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We must make significant judgments to
determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset.



We recognize stock-based compensation for equity awards on a straight-line basis over the requisite service period, usually
the vesting period, based on the grant-date fair value. We estimate the value of employee stock options on the date of grant using the Black-Scholes model. The determination of fair value
of share-based payment awards on the date of grant using an option- pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.
These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The expected term
of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The expected volatility is based on the historical volatility of
our stock price.

Results of Operations



Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Licensing

$
6,468

$
3,476

$
3,156

$
2,992


86
%
$
320


10
%Percentage of total net revenue


42
%

30
%

23
%


The
$3.0 million increase in 2010 resulted primarily from increased licensing activity in the fourth quarter of 2009 involving license agreements that required significant
customization. Consequently, revenue under those agreements was recognized in accordance with our revenue recognition accounting
policies in 2010. We also signed a technology agreement with a major Japanese IDM customer in the second quarter of 2010, which contributed to the revenue growth.

Licensing
revenue increased slightly in 2009 primarily because of revenue recognized under contracts we assumed in our acquisition of Prism Circuits. Revenue was recognized under the
assumed contracts based on the fair value of the acquired fulfillment effort determined using estimated

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engineering
labor hours required to complete each project. This increase was partially offset by a decline in the number and value of license agreements for our 1T-SRAM technology licenses
in 2009.

Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Royalty

$
9,095

$
7,982

$
10,870

$
1,113


14
%
$
(2,888
)

(27
)%Percentage of total net revenue


58
%

70
%

77
%


Royalty
revenue increased $1.1 million in 2010 primarily due to an increase in royalties received from TSMC, a major foundry partner, and a fabless semiconductor resulting from
higher manufacturing volumes. These increases were partially offset by a decrease in shipments by an IDM licensee whose
product is used in the Nintendo Wii® game console, as well as decreased royalties received from licensees with products incorporating older generation technologies, such as 1.80 micron and
1.30 micron fabrication processes, which are approaching end of product life.

Royalty
revenue decreased $2.9 million in 2009 primarily due to a decrease in royalties earned from a major foundry licensee as a result of a decrease in its shipments of ICs
incorporating 1T-SRAM technology and from an IDM licensee that provides ICs for the Nintendo Wii® game console, which transitioned its manufacturing of those ICs to a more
advanced processing node during the first half of 2009. Our license agreement with the IDM at the advanced processing node provides for royalty reporting in the quarter following the product shipments
in contrast to the previous license agreement, which had been amended in 2006 to provide for reporting in the shipment quarter. The combination of these two factors resulted in a larger decline than
would have occurred solely from the decline in game console shipments. The decrease was partially offset by royalties received from a major OEM customer, which commenced reporting and paying royalties
in the third quarter of 2008.



Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Cost of net revenue

$
2,826

$
1,993

$
2,797

$
833


42
%
$
(804
)

(29
)%Percentage of total net revenue


18
%

17
%

20
%




Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Gross profit

$
12,737

$
9,465

$
11,229

$
3,272


35
%
$
(1,764
)

(16
)%Percentage of total net revenue


82
%

83
%

80
%


Cost
of net revenue consists of personnel costs for engineers assigned to revenue-generating licensing arrangements and related overhead allocation costs. Direct labor hours are tracked
for each licensing arrangements and are used to measure the progress of completion.

The
increase in cost of net revenue for 2010 resulted primarily from an increase in the number of licensing contracts requiring customization. Cost of net revenue in 2010 included
stock-based compensation expense of $0.3 million, which was consistent with the prior year. Total gross profit increased to $12.7 million in 2010 primarily due to an increase in license
and royalty revenues. We expect that the cost of licensing revenue will grow in absolute dollars in the future because we anticipate entering into more license agreements on smaller process
geometries, such as the 40nm and 28nm processes, which require more development effort. We expect cost as a percentage of total net revenue to increase, as well, from levels in 2010 and 2009.

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Cost of net revenue declined in 2009 primarily because we had fewer 1T-SRAM license agreements requiring significant engineering services. Cost of net
revenue in 2009 included stock-based compensation expense of $0.3 million, a decrease of $0.2 million compared with 2008. As a result of the lower cost of net revenue, our gross profit
as a percentage of revenue increased to 83% of total revenue from 80% in 2008.



Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Research and development

$
25,534

$
19,255

$
17,206

$
6,279


33
%
$
2,049


12
%Percentage of total net revenue


164
%

168
%

123
%


Our
research and development expenses include development and design of variations of our 1T-SRAM and I/O technologies for use in different manufacturing processes used by
licensees, development of our 1T-Flash technology solution, costs related to the development of the Bandwidth Engine IC and amortization of technology-based intangible assets. In 2009 and 2008, we
incurred costs of $0.4 million and $5.8 million, respectively, related to our former analog/mixed-signal product lines. We expense research and development costs as they are incurred.

The
$6.3 million increase in 2010 was primarily due to the following factors:



The
$2.1 million increase in 2009 resulted from a number of operational changes in 2008 and 2009, including the following:



Research
and development expenses included stock-based compensation expense of $1.5 million for the year ended December 31, 2010. Research and development expenses included
stock-based compensation expense of $1.2 million for each of the years ended December 31, 2009 and 2008. We expect that research and development expenses will increase in absolute
dollars as we invest in new

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product
development for our embedded memory and I/O technologies and development of our Bandwidth Engine IC products.



Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Selling, general and administrative

$
10,391

$
9,507

$
12,006

$
884


9
%
$
(2,499
)

(21
)%Percentage of total net revenue


67
%

83
%

86
%


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

The
$0.9 million increase for 2010 was primarily due to the following factors:



The
$2.5 million decrease for 2009 was primarily due to the combination of the following factors:



Selling,
general and administrative expenses included stock-based compensation expense of $1.5 million, $1.7 million and $3.1 million for the years ended
December 31, 2010, 2009 and 2008, respectively. We expect total selling, general and administrative expenses to increase in absolute dollars due to an increase in sales and marketing efforts
related to developing a sales channel for our Bandwidth Engine IC product line.



Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Impairment of intangible assets and restructuring charges




$
706

$
2,713

$
(706
)

(100
)%
$
(2,007
)

(74
)%Percentage of total net revenue





6
%

19
%


We
did not incur any impairment or restructuring charges in 2010. We do not expect to incur additional restructuring charges related to the closure of the China, Romania and Korea
offices and the remaining cash expenditures of $19,000 related to these closures are expected to be paid in the first half of 2011.

In
the first quarter of 2009, we recorded $0.3 million in restructuring charges related to the closure of our China and Romania offices. In the second quarter of 2009, we recorded
$0.3 million in restructuring charges resulting from the closure of our Seoul, Korea research and development office and elimination of its 15 positions. These charges were primarily related to
employee terminations and costs to exit the leased facility there. Additionally, restructuring charges of $0.1 million were recorded in connection with the plan to exit the leased facility that
had been occupied by Prism Circuits.

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Table of Contents



Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Other income and expense, net

$
177

$
744

$
2,243

$
(567
)

(76
)%
$
(1,499
)

(67
)%Percentage of total net revenue


1
%

6
%

16
%


Other
income and expense, net primarily consisted of interest income on our investments, which was $0.3 million, $0.9 million and $2.3 million for the years ended
December 31, 2010, 2009 and 2008,
respectively. Interest income declined by $0.6 million in 2010 and $1.4 million in 2009 primarily due to lower average investment balances and lower interest rates earned.



Year ended December 31,

Year-Over-Year Change2010

2009

2008

2009 to 2010

2008 to 2009(dollar amounts in thousands)Income tax provision (benefit)

$
51

$
(155
)
$
132

$
206


133
%
$
(287
)

(217
)%Percentage of total net revenue





1
%

1
%


Our
income tax provisions were primarily attributable to foreign jurisdictions. Our 2009 income tax benefit was primarily attributable to U.S. federal refundable tax credits.

As
of December 31, 2010, we had net operating loss carryforwards of approximately $62.3 million for U.S. federal income tax purposes and approximately $61.3 million
for state income tax purposes that are available to reduce future income tax liabilities to the extent permitted under federal and state income tax laws. These net operating loss carryforwards expire
from 2013 to 2030. In 2010, we anticipate that our effective income tax rate will continue to be less than the federal statutory tax rate because of expected continued losses.

As
of December 31, 2010 and 2009, we had net deferred tax assets of approximately $35.0 million and $25.6 million, respectively. Because of uncertainties regarding
the realization of deferred tax assets, we had recorded a full valuation allowance as of December 31, 2010 and 2009.

Liquidity and Capital Resources

As of December 31, 2010, we had cash, cash equivalents and investments totaling $37.5 million compared with a combined
balance of $40.4 million at December 31, 2009. In December 2010, we sold approximately 5 million shares of common stock in a registered direct equity offering, raising
approximately $20 million, net of transaction expenses of approximately $0.1 million. The offering was made under our existing $50 million shelf registration statement that became
effective in November 2010. Our primary capital requirements are to fund working capital, including development of Bandwidth Engine ICs, and any acquisitions that we make that require cash
consideration or expenditures.

In
2010, we used $15.6 million in operating activities, which primarily resulted from the net loss of $16.0 million, (after adjustment for non-cash charges
consisting of stock-based compensation expense of $3.3 million, depreciation and amortization of $3.8 million), and $0.4 million generated from changes in operating assets and
liabilities. The changes in assets and liabilities primarily related to the timing of billing our customers, collection of receivables and payments to vendors.

In
2009, we used net cash of $11.7 million in operating activities. Primarily, that amount reflected the net effects of our net loss of $19.1 million, adjusted for
$1.9 million generated from changes in operating assets and liabilities, net of the acquisition of Prism Circuits, non-cash charges, including

39

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Table of Contents

stock-based
compensation expense of $3.1 million, amortization of intangible assets of $1.5 million, depreciation and amortization of $0.9 million and a non-cash
restructuring charge of $0.1 million. The changes in assets and liabilities primarily related to the timing of billing our customers, collection of receivables and payments to vendors.

Cash
used in operating activities was $8.6 million for 2008, which primarily resulted from the net loss of $18.6 million, which was partially offset by non-cash
charges, including stock-based compensation expense of $4.7 million, depreciation and amortization of $1.5 million, an intangible asset impairment charge of $1.4 million,
non-cash restructuring charges of $0.3 million and $2.1 million generated from changes in operating assets and liabilities.

Our
investing activities in 2010 included business acquisition payments of $7.9 million, of which $4.6 million related to a contingent payment related to the acquisition of
Prism Circuits and $3.3 million related to the acquisition of MagnaLynx in the first quarter of 2010. In 2010, we purchased $1.4 million of fixed assets. Remaining investing activities
consisted of investing our cash in marketable securities.

Our
investing activities in 2009 included a net payment of $13.6 million for the acquisition of Prism Circuits and $1.1 million for purchases of fixed assets during 2009.

In
2008, we spent approximately $0.5 million of expenditures for property and equipment. Otherwise, our investing activities consisted of investing our cash in marketable
securities and rolling over those investments.

Our
cash from financing activities in 2010 consisted of the proceeds of our registered direct offering of common stock and proceeds from the exercise of stock options. Cash used in
financing activities in 2009 consisted of $0.9 million used for stock repurchases under our repurchase program prior to its suspension in February 2009. Net cash used in financing activities
was $0.8 million for 2008, which was primarily attributable to $1.0 million of cash expenditures during the fourth quarter of 2008 to repurchase approximately 275,000 shares of our own
common stock under a repurchase plan authorized by our board of directors, partially offset by proceeds of $0.2 million from stock option exercises.

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



Although
we expect our cash expenditures to continue to exceed receipts in 2011 as we continue to expand research and development efforts for our 1T-SRAM and I/O
technologies, the expansion and productization of the Bandwidth Engine product line, we expect our existing cash, cash equivalents and investments, along with our existing capital and cash generated
from operations, if any, to be sufficient to meet our capital requirements for the foreseeable future. Should our cash resources prove inadequate, we may seek additional funding through public or
private equity or debt financing, and have a shelf registration allowing us to sell up to $30 million of our securities from time to time prior

40

---



Table of Contents

to
the third anniversary of the effective date of that registration statement. We also might decide to raise additional capital at such times and upon such terms as management considers favorable and
in our interests, including, but not limited to, from the sale of our debt and/or equity securities (before reductions for expenses, underwriting discounts and commissions) under our existing shelf
registration statement. There can be no assurance that such additional funding will be available to us on favorable terms, if at all. The failure to raise capital when needed could have a material
adverse effect on our business and financial condition.

Disclosures about Contractual Obligations and Commercial Commitments

The impact that our contractual obligations as of December 31, 2010 are expected to have on our liquidity and cash flow in
future periods is as follows:

Payment Due by PeriodTotal

Less than 1 year

1-3 years

3-5 years

More than 5 yearsOperating Leases

$
7,253

$
805

$
1,623

$
1,474

$
3,351Purchase Commitments


5,231


2,289


2,942





Capital Leases


327


181


146





$
12,811

$
3,275

$
4,711

$
1,474

$
3,351


As
of December 31, 2010, we had purchase commitments of $5.2 million for licenses related to computer-aided design tools payable through January 2013, and
$0.3 million in capital lease obligations for testing equipment. In July 2010, we entered into a 10 year lease agreement for approximately 47,000 square feet with Mission West
Properties, L.P.I for our new corporate headquarters in Santa Clara, California.

Off-Balance Sheet Arrangements

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

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify the counter-party from
losses relating to a breach of representations and warranties, a failure to perform certain covenants, or claims and losses arising from certain external events as outlined within the particular
contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. We have also
entered into indemnification agreements with our officers and directors. No material amounts are reflected in our consolidated financial statements for 2010, 2009 or 2008 related to these
indemnifications.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements for a full description of recent accounting pronouncements including the
respective expected dates of adoption and effects on results of operations and financial condition.

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Table of Contents

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk

We have exposure to interest rate risk due to our investment portfolio. Our investments are made in accordance with an investment
policy approved by our board of directors. The primary objective of our investment activities is to preserve principal and meet liquidity needs. To achieve this objective, we maintain our portfolio of
cash equivalents and short-term and long-term investments in a variety of securities, including U.S. government agency debt, municipal notes, certificates of deposit, corporate
notes and bonds, and money market funds. We place our investments with high-credit quality issuers and, by policy, limit the amount of credit exposure with any one issuer or fund.

The
investments, other than money market funds, are classified as available-for-sale and are recorded on the balance sheet at fair value with unrealized gains and
losses reported as a separate component of accumulated other comprehensive income. Securities with an original maturity of three months or less are considered cash equivalents. Securities with
original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Securities with remaining maturities greater than one
year are classified as long-term investments. All investments have a maturity of less than two years. No single security should exceed 5% of the portfolio at the time of purchase. The
portfolio dollar-weighted average maturity of these investments is within 12 months. These securities, which approximated $35.9 million as of December 31, 2010 and earned an
average annual interest rate of approximately 0.9% in 2010, are subject to interest rate and credit risks. As of December 31, 2010, we performed a sensitivity analysis on our investment
portfolio. According to our analysis, parallel shifts in the yield curve of both +/- 0.5% would result in changes in fair market values for these investments of approximately $0.1 million. We
do not have any investments denominated in foreign currencies, and therefore are not subject to foreign currency risk on such investments.

Foreign currency exchange rate risk

Currently, all of our international sales are denominated in U.S. dollars and, as a result, we have not experienced significant foreign
exchange gains or losses to date. However,
the expenses of our foreign subsidiaries are denominated in their local currencies, therefore we have risk of foreign exchange gains and losses through the funding of those expenditures. We do not
currently enter into forward exchange contracts to hedge exposures denominated in foreign currencies or any other derivative financial instruments for trading or speculative purposes. However, in the
event our exposure to foreign currency risk increases, we may choose to hedge those exposures. For most currencies, we are a net payer of foreign currencies and, therefore, benefit from a stronger
U.S. dollar and are adversely affected by a weaker U.S. dollar relative to those foreign currencies.

Item 8.    Financial Statements and Supplementary Data

Reference is made to the financial statements listed under the heading (a) (1) Financial Statements and Reports of Burr Pilger
Mayer, Inc. of Item 15, which financial statements are incorporated by reference in response to this Item 8.

Quarterly Results of Operations

The following tables set forth unaudited results of operations data for each of the eight quarters in the two year period ended
December 31, 2010. This unaudited information has been prepared on a basis consistent with our audited financial statements appearing elsewhere in this report and, in the opinion of our
management, includes all adjustments, consisting only of normal recurring adjustments, except as disclosed below, necessary for a fair presentation of the information for the periods

42

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Table of Contents

presented.
The unaudited quarterly information should be read in conjunction with the financial statements and notes included elsewhere in this report.

Dec. 31,
2010

Sep. 30,
2010

Jun. 30,
2010

Mar. 31,
2010

Dec. 31,
2009

Sep. 30,
2009

Jun. 30,
2009

Mar. 31,
2009(In thousands, except per share data)(UnauditedAll periods)Net revenue:Licensing

$
1,408

$
1,494

$
2,019

$
1,547

$
1,314

$
1,332

$
306

$
524Royalty


2,560


2,282


2,250


2,003


2,229


2,036


1,675


2,042Total net revenue


3,968


3,776


4,269


3,550


3,543


3,368


1,981


2,566Cost of net revenue:Licensing


768


735


541


782


721


675


274


323Total cost of net revenue


768


735


541


782


721


675


274


323Gross profit


3,200


3,041


3,728


2,768


2,822


2,693


1,707


2,243Operating expenses:Research and development


6,078


6,779


6,704


5,973


5,638


5,672


4,057


3,888Selling, general and administrative


2,850


2,435


2,508


2,598


2,521


2,113


2,388


2,485Restructuring charge




















431


275Total operating expenses


8,928


9,214


9,212


8,571


8,159


7,785


6,876


6,648Operating loss


(5,728
)

(6,173
)

(5,484
)

(5,803
)

(5,337
)

(5,092
)

(5,169
)

(4,405
)Other income and expense, net


(23
)

8


83


109


251


139


151


203Loss before income taxes


(5,751
)

(6,165
)

(5,401
)

(5,694
)

(5,086
)

(4,953
)

(5,018
)

(4,202
)Income tax provision (benefit)


(40
)

33


26


32


(191
)

3


26


7Net loss

$
(5,711
)
$
(6,198
)
$
(5,427
)
$
(5,726
)
$
(4,895
)
$
(4,956
)
$
(5,044
)
$
(4,209
)Net loss per share:Basic and diluted

$
(0.17
)
$
(0.19
)
$
(0.17
)
($
0.18
)
$
(0.16
)
$
(0.16
)
$
(0.16
)
($
0.13
)Shares used in computing net loss per share:Basic and diluted


33,130


31,946


31,636


31,262


31,219


31,205


31,198


31,322


Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures



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Item 9B.    Other Information

None.

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Table of Contents

Part III

Item 10.    Directors, Executive Officers and Corporate Governance

Information regarding our directors and corporate governance will be presented in our definitive proxy statement for our 2011 Annual
Meeting of Stockholders to be held on or about June 7, 2011, which information is incorporated into this report by reference. However, certain information regarding current executive officers
found under the heading "Executive Officers" in Item 1 of Part I hereof is also incorporated by reference in response to this Item 10.

We
have adopted a code of ethics that applies to all of our employees. The code of ethics is designed to deter wrongdoing and to promote, among other things, honest and ethical conduct,
full, fair, accurate, timely, and understandable disclosures in reports and documents submitted to the SEC and other public communications, compliance with applicable governmental laws, rules and
regulations, the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code and accountability for adherence to such code.

The
code of ethics is available on our websitewww.mosys.com. If we make any substantive amendments to the code of ethics or grant any
waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer or Chief Financial Officer, or persons performing similar functions, where such amendment or waiver
is required to be disclosed under applicable SEC rules, we intend to disclose the nature of such amendment or waiver on our website.

Item 11.    Executive Compensation

Information required to be provided in response to this item will be presented in our definitive proxy statement for our 2011 Annual
Meeting of Stockholders to be held on or about June 7, 2011, which information is incorporated into this report by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required to be provided in response to this item, including information relating to securities authorized for issuance
under equity compensation plans, will be presented in our definitive proxy statement for our 2011 Annual Meeting of Stockholders to be held on or about June 7, 2011, which information is
incorporated into this report by reference.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

Information required to be provided in response to this item will be presented in our definitive proxy statement for our 2011 Annual
Meeting of Stockholders to be held on or about June 7, 2011, which information is incorporated into this report by reference.

Item 14.    Principal Accountant Fees and Services

Information required to be provided in response to this item will be presented in our definitive proxy statement for our 2011 Annual
Meeting of Stockholders to be held on or about June 7, 2011, which information is incorporated into this report by reference.

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Part IV

Item 15.    Exhibits and Financial Statement Schedules



Reports of Independent Registered Public Accounting FirmBurr Pilger Mayer, Inc.

51Consolidated Balance Sheets

53Consolidated Statements of Operations

54Consolidated Statements of Stockholders' Equity

55Consolidated Statements of Cash Flows

56Notes to Consolidated Financial Statements

57




2.1(1)

Merger Agreement regarding the Registrant's reincorporation in Delaware2.2(2)

Agreement and Plan of Merger by and among MoSys, Inc., MLI Merger Corporation, MagnaLynx, Inc., and the Representative of the Shareholders of MagnaLynx, Inc. dated as of March 24, 20103.1(3)

Restated Certificate of Incorporation of the Registrant3.2(4)

Amended and Restated Bylaws of the Registrant4.1(1)

Specimen common stock certificate4.2(5)

Rights Agreement, dated November 10, 2010, by and between the Company and Wells Fargo Bank, N.A., as Rights Agent4.2.1(5)

Form of Right Certificate4.2.2(5)

Summary of Rights to Purchase Preferred Shares10.1(1)

Form of Indemnity Agreement between the Registrant and each of its directors and executive officers10.2(6)*

Form of Restricted Stock Purchase Agreement10.3(7)*

2000 Employee Stock Option Plan and form of Option Agreement thereunder10.3.1(8)*

Amended and Restated 2000 Equity Incentive and Stock Option Plan10.4(9)*

Form of Stock Option Agreement pursuant to Amended and Restated 2000 Stock Option and Equity Incentive Plan10.5(10)*

Form of New Employee Inducement Grant Stock Option Agreement10.6(11)*

Employment offer letter agreement and Mutual Agreement to Arbitrate between Registrant and Leonard Perham dated as of November 8, 200710.7.1(12)*

New Employee Inducement Grant Stock Option Agreements between Registrant and Leonard Perham dated as of November 28, 200710.7.2(13)*

New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of November 28, 200710.7.3(14)*

New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of November 28, 200710.8(15)*

Employment offer letter agreement between the Registrant and James Sullivan dated December 21, 200710.9(16)*

Change-in-control Agreement between Registrant and James Sullivan dated January 18, 2008


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Table of Contents

10.10(17)*

Employment offer letter agreement between Registrant and David DeMaria dated as of July 31, 200810.11(18)*

Change-in-control Agreement between Registrant and David DeMaria dated as of August 18, 200810.12(19)*

Employment offer letter agreement between Registrant and Sundari Mitra dated as of June 4, 200910.13(20)*

Non-Competition Agreement between Registrant and Sundari Mitra dated as of June 5, 200910.14(21)*

Form of Notice of Restricted Stock Unit Award and Agreement10.15(22)

Lease Agreement between Registrant and Mission West Properties, L.P.I, dated July 19, 201021.1

List of subsidiaries23.1

Consent of Independent Registered Public Accounting FirmBurr Pilger Mayer, Inc.24.1

Power of Attorney (see signature page)31.1

Rule 13a-14 certification31.2

Rule 13a-14 certification32

Section 1350 certification


(1)Incorporated
by reference to the same-numbered exhibit to the Company's Registration Statement on Form S-1, as amended,
originally filed August 4, 2000, declared effective June 27, 2001 (Commission file No. 333-43122).(2)Incorporated
by reference to Exhibit 2.4 to Form 10-K filed by the Company on March 26, 2010 (Commission File
No. 000-32929).(3)Incorporated
by reference to Exhibit 3.6 to Form 8-K filed by the Company on November 12, 2010 (Commission File
No. 000-32929).(4)Incorporated
by reference to Exhibit 3.4 to Form 8-K filed by the Company on October 29, 2008 (Commission File
No. 000-32929).(5)Incorporated
by reference to the same-numbered exhibit to Form 8-K filed by the Company on November 12, 2010
(Commission File No. 000-32929).(6)Incorporated
by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, as amended, originally filed
August 4, 2000, declared effective June 17, 2001 (Commission File No. 333-43122).(7)Incorporated
by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, as amended, originally filed
August 4, 2000, declared effective June 17, 2001 (Commission File No. 333-43122).(8)Incorporated
by reference to Appendix B to the Company's proxy statement on Schedule 14A filed by the Company on October 7, 2004
(Commission File No. 000-32929).(9)Incorporated
by reference to Exhibit 10.15 to Form 10-Q filed by the Company on August 9, 2005 (Commission File
No. 000-32929).(10)Incorporated
by reference to Exhibit 10.25 to Form 10-K filed by the Company on March 17, 2008 (Commission File
No. 000-32929).(11)Incorporated
by reference to Exhibit 10.24 to Form 10-K filed by the Company on March 17, 2008 (Commission File
No. 000-32929).(12)Incorporated
by reference to Exhibit 10.25.1 to Form 10-Q filed by the Company on May 9, 2008 (Commission File
No. 000-32929).


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Table of Contents

(13)Incorporated
by reference to Exhibit 10.25.2 to Form 10-Q filed by the Company on May 9, 2008 (Commission File
No. 000-32929).(14)Incorporated
by reference to Exhibit 10.25.3 to Form 10-Q filed by the Company on May 9, 2008 (Commission File
No. 000-32929).(15)Incorporated
by reference to Exhibit 10.26 to Form 10-K filed by the Company on March 17, 2008 (Commission File
No. 000-32929).(16)Incorporated
by reference to Exhibit 10.27 to Form 10-K filed by the Company on March 17, 2008 (Commission File
No. 000-32929).(17)Incorporated
by reference to Exhibit 10.30 to Form 10-Q filed by the Company on November 7, 2008 (Commission File
No. 000-32929).(18)Incorporated
by reference to Exhibit 10.31 to Form 10-Q filed by the Company on November 7, 2008 (Commission File
No. 000-32929).(19)Incorporated
by reference to Exhibit 10.32 to Form 8-K filed by the Company on June 12, 2009 (Commission File
No. 000-32929).(20)Incorporated
by reference to Exhibit 10.33 to Form 10-K filed by the Company on March 26, 2010 (Commission File
No. 000-32929).(21)Incorporated
by reference to Exhibit 4.8 to Form S-8 filed by the Company on June 4, 2009 (Commission File
No. 333-159753).(22)Incorporated
by reference to Exhibit 10.35 to Form 8-K filed by the Company on June 22, 2010 (Commission File
No. 000-32929).*Management
contract, compensatory plan or arrangement.


48

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 15th day of March 2011.

MOSYS, INC.By:

/s/ LEONARD PERHAM Leonard Perham President and Chief Executive OfficerBy:

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


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Leonard Perham and James W.
Sullivan as his true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Signature

Title

Date/s/ LEONARD PERHAM Leonard Perham

President, Chief Executive Officer, and Director

March 15, 2011/s/ JAMES W. SULLIVAN James W. Sullivan

Vice President of Finance and Chief Financial Officer

March 15, 2011/s/ CARL E. BERG Carl E. Berg

Director

March 15, 2011/s/ TOMMY ENG Tommy Eng

Director

March 15, 2011/s/ CHI-PING HSU Chi-Ping Hsu

Director

March 15, 2011/s/ JAMES D. KUPEC James D. Kupec

Director

March 15, 2011


49

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Table of Contents

MOSYS, INC.  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Reports of Independent Registered Public Accounting FirmBurr Pilger Mayer, Inc.

51Consolidated Balance Sheets

53Consolidated Statements of Operations

54Consolidated Statements of Stockholders' Equity

55Consolidated Statements of Cash Flows

56Notes to Consolidated Financial Statements

57Schedule II: Valuation and Qualifying Accounts

84


50

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Table of Contents

Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Stockholders
of MoSys, Inc.

We
have audited the accompanying consolidated balance sheets of MoSys, Inc. and its subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related
consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement
schedule listed in the Index to this Annual Report on Form 10-K at Part IV Item 15(a)(2). These consolidated financial statements and the financial statement schedule
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MoSys, Inc. and its subsidiaries as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set forth therein.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over
financial reporting as of December 31, 2010, based on criteria established inInternal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 15, 2011 expressed an unqualified opinion thereon.

/s/
Burr Pilger Mayer, Inc.

San
Jose, California
March 15, 2011

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Table of Contents

Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Stockholders
of MoSys, Inc

We
have audited the internal control over financial reporting of MoSys, Inc. and its subsidiaries (the "Company") as of December 31, 2010, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanyingManagement's Annual Report on Internal Control over Financial Reporting, appearing in Item 9A. Our responsibility is to express an
opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, MoSys, Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on
the COSO criteria.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of MoSys, Inc. and its
subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended
December 31, 2010, and the related financial statement schedule and our report dated March 15, 2011 expressed an unqualified opinion on those consolidated financial statements and the
related financial statement schedule.

/s/
Burr Pilger Mayer, Inc.

San
Jose, California
March 15, 2011

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Table of Contents

MOSYS, INC.        CONSOLIDATED BALANCE SHEETS        (In thousands, except par value data)

December 31,2010

2009ASSETSCurrent assetsCash and cash equivalents

$
14,340

$
7,123Short-term investments


15,011


24,215Accounts receivable, net


1,079


739Unbilled contracts receivable


202


1,022Prepaid expenses and other current assets


3,377


3,235Total current assets


34,009


36,334Long-term investments


8,193


9,098Property and equipment, net


2,160


1,561Goodwill


23,134


22,787Intangible assets, net


6,238


4,616Other assets


232


1,147Total assets

$
73,966

$
75,543LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable

$
839

$
514Accrued expenses and other liabilities


2,604


1,750Accrued acquisition-related earn-out


1,500


5,659Accrued restructuring liabilities


19


112Deferred revenue


1,801


2,671Total current liabilities


6,763


10,706Long-term liabilities


146


136Commitments and contingencies (Note 11)Stockholders' equityPreferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding





Common stock, $0.01 par value; 120,000 shares authorized; 37,225 shares and 31,224 shares issued and outstanding at December 31, 2010 and 2009,
respectively


372


312Additional paid-in capital


143,336


117,941Accumulated other comprehensive income


4


41Accumulated deficit


(76,655
)

(53,593
)Total stockholders' equity


67,057


64,701Total liabilities and stockholders' equity

$
73,966

$
75,543


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

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Table of Contents

MOSYS, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share data)

Year Ended December 31,2010

2009

2008Net revenueLicensing

$
6,468

$
3,476

$
3,156Royalty


9,095


7,982


10,870Total net revenue


15,563


11,458


14,026Cost of net revenueLicensing


2,826


1,993


2,797Total cost of net revenue


2,826


1,993


2,797Gross profit


12,737


9,465


11,229Operating expensesResearch and development


25,534


19,255


17,206Selling, general and administrative


10,391


9,507


12,006Impairment of intangible assets








1,379Restructuring charges





706


1,334Total operating expenses


35,925


29,468


31,925Loss from operations


(23,188
)

(20,003
)

(20,696
)Other income and expense, net


177


744


2,243Loss before income taxes


(23,011
)

(19,259
)

(18,453
)Income tax provision (benefit)


51


(155
)

132Net loss

$
(23,062
)
$
(19,104
)
$
(18,585
)Net loss per shareBasic and diluted

$
(0.72
)
$
(0.61
)
$
(0.59
)Shares used in computing net loss per shareBasic and diluted


31,870


31,238


31,698


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

54

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Table of Contents

MOSYS, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        (In thousands)

Common Stock



Accumulated
Other
Comprehensive
Income (Loss)Additional
Paid-In
Capital

Accumulated
DeficitShares

Amount

TotalBalance at January 1, 2008


31,889

$
319

$
111,842

$
35

$
(15,904
)
$
96,292Issuance of Common Stock upon exercise of options


48


1


183








184Repurchase of Restricted Common Stock


(32
)




(16
)







(16
)Repurchase of Common Stock


(275
)

(3
)

(972
)







(975
)Stock-based compensation








4,743








4,743Other comprehensive losschange in unrealized gain on available-for-sale investments











245





245Net loss














(18,585
)

(18,585
)Comprehensive loss

















(18,340
)Balance at December 31, 2008


31,630


317


115,780


280


(34,489
)

81,888Issuance of Common Stock upon exercise of options


26





40








40Repurchase of Restricted Common Stock


(3
)

(1
)

(7
)







(8
)Repurchase of Common Stock


(429
)

(4
)

(926
)







(930
)Stock-based compensation








3,054








3,054Other comprehensive losschange in unrealized gain on available-for-sale investments











(239
)




(239
)Net loss














(19,104
)

(19,104
)Comprehensive loss

















(19,343
)Balance at December 31, 2009


31,224


312


117,941


41


(53,593
)

64,701Issuance of Common Stock upon exercise of options and release of awards


1,046


10


2,181








2,191Issuance of Common Stock, net of costs of $46


4,955


50


19,916








19,966Stock-based compensation








3,298








3,298Other comprehensive losschange in unrealized gain on available-for-sale investments











(37
)




(37
)Net loss














(23,062
)

(23,062
)Comprehensive loss

















(23,099
)Balance at December 31, 2010


37,225

$
372

$
143,336

$
4

$
(76,655
)
$
67,057


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

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Table of Contents

MOSYS, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

Year Ended December 31,2010

2009

2008Cash flows from operating activities:Net loss

$
(23,062
)
$
(19,104
)
$
(18,585
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


1,000


857


714Amortization of intangible assets


2,818


1,464


742Stock-based compensation


3,298


3,054


4,743Impairment of intangible assets








1,379Non-cash restructuring charges





122


330Provision for doubtful accounts





47


Other non-cash items


65


(33
)

(20
)Changes in assets and liabilities, net of assets acquired:Accounts receivable


(326
)

742


207Unbilled contracts receivable


1,055


1,921


90Prepaid expenses and other assets


1,204


(307
)

311Deferred revenue


(1,027
)

(39
)

438Accounts payable


(125
)

34


13Accrued expenses and other liabilities


(365
)

381


77Accrued restructuring liabilities


(93
)

(878
)

1,004Net cash used in operating activities


(15,558
)

(11,739
)

(8,557
)Cash flows from investing activities:Purchases of property and equipment


(1,412
)

(1,103
)

(484
)Net cash paid for purchase of businesses.


(7,935
)

(13,563
)

Proceeds from sales and maturities of marketable securities


57,734


48,804


70,354Purchases of marketable securities


(47,687
)

(31,893
)

(80,664
)Net cash provided by (used in) investing activities


700


2,245


(10,794
)Cash flows from financing activities:Proceeds from issuance of common stock


2,191


40


184Proceeds from the sale of common stock, net of issuance costs


19,966





Payments on capital lease obligations


(82
)




Repurchase of common stock





(938
)

(991
)Net cash provided by (used in) financing activities


22,075


(898
)

(807
)Net increase (decrease) in cash and cash equivalents


7,217


(10,392
)

(20,158
)Cash and cash equivalents at beginning of year


7,123


17,515


37,673Cash and cash equivalents at end of year

$
14,340

$
7,123

$
17,515Supplemental disclosure:Cash paid for income taxes

$
56

$
24

$
38Transaction fees paid for repurchase of common stock

$


$
13

$
8Property and equipment acquired through capital lease

$
201

$
212

$
Intangible assets acquired for contingent consideration, in connection with the acquisition of Prism Circuits, Inc.

$


$
4,550

$



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

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MOSYS, INC.    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: The Company and Summary of Significant Accounting Policies

The Company

MoSys, Inc., (the Company) was incorporated in California in September 1991, and reincorporated in September 2000 in Delaware.
The Company designs, develops, markets and licenses high performance semiconductor memory and high-speed parallel and serial interface intellectual property (IP) used by the semiconductor
industry and communications, networking and storage equipment manufacturers. In February 2010, the Company announced the commencement of a new product initiative to develop a family of integrated
circuit (IC) products under the "Bandwidth Engine" product name. Bandwidth Engine ICs combine the Company's high-density embedded memory with its high-speed 10 Gigabits per
second interface (I/O) technology and will initially be marketed to networking systems companies.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation. The Company's fiscal year ends on December 31 of each calendar year.

Use of Estimates

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

Foreign Currency

The functional currency of the Company's foreign entities is the U.S. dollar. The financial statements of these entities are translated
into U.S. dollars and the resulting gains
or losses are included in other income and expense, net in the consolidated statements of operations. Such gains and losses were not material for any period presented. Foreign currency transaction
gains and losses resulting from converting local currency to the U.S. dollar were not material for any period presented.

Cash Equivalents and Investments

The Company has invested its excess cash in money market accounts, certificates of deposit, corporate debt, government agency and
municipal debt securities and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original maturities
greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified
as long-term investments. Management generally determines the appropriate classification of securities at the time of purchase. All securities are classified as
available-for-sale. The Company's available-for-sale short-term and long-term investments are carried at fair value, with the
unrealized holding gains and losses reported in accumulated other comprehensive income. Realized gains and losses and declines in the value judged to be other than temporary are included in the other
income and expense, net line item in the consolidated statements of operations. The cost of securities sold is based on the specific identification method (see Note 3).

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Fair Value Measurements

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



Allowance for Doubtful Accounts

The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to
uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates. A specific allowance of up to 100% of the invoice value is provided
for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company performs ongoing credit
evaluations of its customers' financial condition and generally does not require collateral from its customers. The Company grants credit only to customers deemed credit-worthy in the judgment of
management. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of all accounts receivable. The allowance for doubtful accounts receivable was
$125,000 and $93,000 at December 31, 2010 and 2009, respectively. For the year ended December 31, 2010, $78,000 was written off. For the years ended December 31, 2009 and 2008, no
amounts were written off.

Unbilled Contracts Receivable

Under the percentage of completion method, if the amount of revenue recognized exceeds the amount of billings to a customer, the excess
amount is carried as an unbilled contracts receivable. At December 31, 2010 the unbilled contracts receivable balance primarily related to future billings on contracts acquired from Prism
Circuits, Inc. (see Note 4).

Property and Equipment

Property and equipment are originally recorded at cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally three to five years. Leasehold improvements and assets acquired through capital leases are amortized over the shorter of their estimated useful life or
the lease term.

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Valuation of Long-lived Assets

The Company evaluates the recoverability of long-lived assets with finite lives whenever events or changes in circumstances
occur that indicate that the carrying value of the asset or asset group may not be recoverable. Finite-lived intangible assets are being amortized on a straight-line basis over their
estimated useful lives of one to five years. An impairment charge is recognized as the difference between the net book value of such assets and the fair value of such assets at the date of
measurement. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. See Notes 4 and 5 for discussion on impairment
of long-lived assets.

Purchased Intangible Assets

Intangible assets acquired in business combinations are accounted for based on the fair value of assets purchased and are amortized
over the period in which economic benefit is estimated to be received. Identifiable intangible assets relating to business combinations were as follows (dollar amounts in thousands):

December 31, 2010Life
(years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountDeveloped technology


3-5

$
9,240

$
3,188

$
6,052Customer relationships


3


390


204


186Contract backlog


1


750


750


Non-compete agreements


1.5


140


140


Total




$
10,520

$
4,282

$
6,238




December 31, 2009Life
(years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
AmountDeveloped technology


3

$
4,800

$
910

$
3,890Customer relationships


3


390


74


316Contract backlog


1


750


427


323Non-compete agreements


1.5


140


53


87Total




$
6,080

$
1,464

$
4,616


For
the years ended December 31, 2010, 2009 and 2008, amortization expense was $2.8 million, $1.5 million and $0.7 million, respectively. Amortization expense
has been included in research and development expense in the consolidated statements of operations. The estimated aggregate amortization expense to be recognized in future years is approximately
$2.6 million for 2011, $1.6 million for 2012, $0.9 million for 2013, $0.9 million for 2014, and $0.2 million for 2015.



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 uses a two-step impairment test. In the first step, the Company compares the fair value of the reporting unit to its carrying value.
The fair value of the reporting unit is determined using the market approach. If the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit, goodwill is not
impaired, and the Company is not required to perform further testing. If the carrying value of the net assets of the reporting unit exceeds the fair value of the reporting unit, then the

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Company
must perform the second step in order to determine the implied fair value of the reporting unit's goodwill and compare it to the carrying value of the reporting unit's goodwill. If the
carrying value of a reporting unit's goodwill exceeds its implied fair value, then the Company we must record an impairment charge equal to the difference. The Company has determined that it has a
single reporting unit for purposes of performing its goodwill impairment test. The Company performed the annual impairment test in September 2010, and the test did not indicate impairment of goodwill,
as the fair value exceeded the carrying value of the reporting unit by approximately 63%. As the Company used the market approach to assess impairment, the price of its common stock price is an
important component of the fair value calculation. If its stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit, which
can lead to potential impairment in future periods. As of December 31, 2010, the Company had not identified any factors to indicate there was an impairment of our goodwill and determined that
no additional impairment analysis was required.

The
following table summarizes the activity related to the carrying value of goodwill (in thousands):

Carrying ValueBalance as of December 31, 2009 (1)

$
22,787Goodwill recorded in connection with the acquisition of MagnaLynx, Inc. (see Note 4)


347Balance as of December 31, 2010

$
23,134


(1)The
balance as of December 31, 2009 has been adjusted to reflect a $0.2 million decrease in the fair value of the contractual obligation
assumed as part of the acquisition of Prism Circuits, Inc. A corresponding adjustment of $0.2 million was made to the balance of deferred revenues. These adjustments had no effect on net
loss previously reported.


Revenue Recognition



The Company generates revenue from the licensing of its IP, and customers pay fees for licensing, development services, royalties and
maintenance and support. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery or performance has occurred, the sales price is fixed or determinable, and
collectibility is reasonably assured. Evidence of an arrangement generally consists of signed agreements. When sales arrangements contain multiple elements (e.g., license and services), the
Company reviews each element to determine the separate units of accounting that exist within the agreement. If more than one unit of accounting exists, the consideration payable to the Company under
the agreement is allocated to each unit of accounting using either the relative fair value method or the residual fair value method. Revenue is recognized for each unit of accounting when the revenue
recognition criteria have been met for that unit of accounting.



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

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For
license agreements that include deliverables requiring significant production, modification or customization, and where the Company has significant experience in meeting the design
specifications involved in the contract and the direct labor hours related to services under the contract can be reasonably estimated, the Company recognizes revenue over the period in which the
contract services are performed. For these arrangements, the Company recognizes revenue using the percentage of completion method. Revenue recognized in any period is dependent on the Company's
progress toward completion of projects in progress. Significant management judgment and discretion are used to estimate total direct labor hours. These judgmental elements include determining that the
Company has the experience to meet the design specifications and estimating the total direct labor hours. The Company follows this method because it can obtain reasonably dependable estimates of the
direct labor hours to perform the contract services. The direct labor hours for the development of the licensee's
design are estimated at the beginning of the contract. As these direct labor hours are incurred, they are used as a measure of progress towards completion. The Company has the ability to reasonably
estimate the direct labor hours on a contract-by-contract basis based on its experience in developing prior licensees' designs. During the contract performance period, the
Company reviews estimates of direct labor hours to complete the contracts as the contract progresses to completion and will revise its estimates of revenue and gross profit under the contract if the
Company revises the estimations of the direct labor hours to complete. The Company's policy is to reflect any revision in the contract gross profit estimate in reported income or loss in the period in
which the facts giving rise to the revision become known. Under the percentage of completion method, provisions for estimated losses on uncompleted contracts are recorded in the period in which such
losses are determined to be likely. No loss accruals were recorded during the year ended December 31, 2010. For the year ended December 31, 2009, the Company recorded a loss accrual of
$24,000 for one agreement. For the year ended December 31, 2008, the Company recorded loss accruals on two agreements for a total of $256,000. If the amount of revenue recognized under the
percentage of completion accounting method exceeds the amount of billings to a customer, then the excess amount is recorded as an unbilled contracts receivable.

For
contracts involving design specifications that the Company has not previously met or if inherent risks make estimates doubtful, the contract is accounted for under the completed
contract method, and the Company defers the recognition of all revenue until the design meets the contractual design specifications. In this event, the cost of revenue is expensed as incurred. When
the Company has experience in meeting design specifications but does not have significant experience to reasonably estimate the direct labor hours related to services to meet a design specification,
the Company defers both the recognition of revenue and the cost. No revenue was recognized under the completed contract method for the years ended December 31, 2010, 2009 and 2008.

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

From
time to time, a licensee may cancel a project during the development phase. Such a cancellation is not within the Company's control and is often caused by changes in market
conditions or the licensee's business. Cancellations of this nature are an aspect of the Company's licensing business, and, in general, its license contracts allow the Company to retain all payments
that the Company has received or is entitled to collect for items and services provided before the cancellation occurs. Typically under the Company's license agreements, the licensee is obligated to
complete the project within a stated timeframe, including assisting the Company in completing the final milestone. If the Company performs the contracted services, the licensee is obligated to pay the
license fees even if

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the
licensee fails to complete verification or cancels the project prior to completion. For accounting purposes the Company will consider a project to have been canceled even in the absence of
specific
notice from its licensee if there has been no activity under the contract for six months or longer and the Company believes that completion of the contract is unlikely. In this event, the Company
recognizes revenue in the amount of cash received, if the Company has performed a sufficient portion of the development services. If a cancelled contract had been entered into before the establishment
of technological feasibility, the costs associated with the contract would have been expensed prior to the recognition of revenue under the completed contract method. In that case, there would be no
costs associated with that revenue recognition, and gross margin would increase for the corresponding period. No license revenue was recognized from canceled contracts for the years ended
December 31, 2010, 2009 and 2008.

Under
limited circumstances, the Company also recognizes prepaid pre-production royalties as license revenues. These are lump sum payments made when the Company enters into
licensing agreements that cover future shipments of a product that is not commercially available from the licensee. The Company characterizes such payments as license revenues because they are paid as
part of the initial license fee and not with respect to products being produced by the licensee. These payments are non-cancelable and non-refundable. Revenue from prepaid
production royalties was $0.8 million for the year ended December 31, 2010. No revenue from prepaid production royalties was recognized for the years ended December 31, 2009 and
2008.



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

Cost of Revenue

Cost of licensing revenue consists primarily of engineering personnel and overhead allocation costs directly related to development
services specified in agreements. These services typically include customization of the Company's technologies for the licensee's particular
integrated circuit design and may include engineering support to assist in the commencement of production of a licensee's products. The Company recognizes cost of licensing revenue in the following
manner:



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Research and Development

Engineering costs are generally recorded as research and development expense in the period incurred and include costs incurred with
respect to internally developed technology and engineering services which are not directly related to a particular licensee, license agreement or license fees.

Stock-Based Compensation

The Company recognizes stock-based compensation for awards on a straight-line basis over the requisite service period,
usually the vesting period, based on the grant-date fair value.

Per Share Amounts

Basic net loss per share is computed by dividing net loss for the period by the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share gives effect to all potentially dilutive common shares outstanding during the period. Potential common shares are composed of incremental
shares of common stock issuable upon the exercise of stock options or restricted stock awards. As of December 31, 2010, 2009 and 2008, stock awards to purchase approximately 10,603,000,
10,791,000 and 7,181,000 shares, respectively, were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive. The following table sets forth
the computation of basic and diluted net loss per share for the periods indicated (in thousands, except per share amounts):

Year Ended December 31,2010

2009

2008Numerator:Net loss

$
(23,062
)
$
(19,104
)
$
(18,585
)Denominator:Shares used in computing net loss per share:Add: weighted-average common shares outstanding


32,049


31,238


31,744Less: unvested common shares subject to repurchase


(179
)

-


(46
)Basic and diluted


31,870


31,238


31,698Net loss per share:Basic and diluted

$
(0.72
)
$
(0.61
)
$
(0.59
)


Options Issued to Non-Employees

The Company records stock-based compensation expense for stock options or warrants granted to non-employees, excluding
non-employee directors, based upon the estimated then-current fair value of the equity instrument using the Black-Scholes pricing model. Assumptions used to value the equity
instruments are consistent with equity instruments issued to employees. The Company charges the value of the equity instrument to earnings over the term of the service agreement and the unvested
shares underlying the option are subject to periodic revaluation over the remaining vesting period.

Income Taxes

The Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of
the Company's assets and liabilities using tax rates in effect for

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the
year in which the Company expects the differences to affect taxable income. A valuation allowance is established for any deferred tax assets for which it is more likely than not that all or a
portion of the deferred tax assets will not be realized.

The
Company files U.S. federal and state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company is not currently under any tax
jurisdiction examination. The 2003 through 2010 tax years generally remain subject to examination by federal, state and foreign tax authorities.

As
of December 31, 2010, the Company did not have any unrecognized tax benefits nor expect its unrecognized tax benefits to change significantly over the next 12 months.
The Company recognizes interest related to unrecognized tax benefits in its income tax expense and penalties related to unrecognized tax benefits as other income and expenses. During the years ended
December 31, 2010, 2009 and 2008, the Company did not recognize any interest or penalties related to unrecognized tax benefits.

Comprehensive Loss

Comprehensive loss, as defined, includes all changes in equity (net assets) during a period from non-owner sources. The
difference between net loss and comprehensive loss is due to unrealized gains and losses on investments classified as available-for-sale. Comprehensive loss is reflected in the
consolidated statements of stockholders' equity.

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued guidance for revenue arrangements with multiple deliverables
that are outside the scope of software revenue recognition guidance. Under this guidance, when vendor-specific objective evidence or third- party evidence for deliverables in such an arrangement
cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The guidance includes
new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. Additionally, in October 2009, the FASB issued guidance
modifying its earlier software revenue recognition guidance to exclude from its scope tangible products that contain both software and non-software components that function together to
deliver a product's essential functionality. The guidance for both topics will apply to revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. The Company is currently evaluating the impact that the adoption of the guidance and does not believe it will have a material impact on its consolidated financial statements.

In
January 2010, the FASB issued an amendment improving disclosures about fair value measurements. This new guidance requires enhanced disclosures and clarifies some existing disclosure
requirements about fair value measurement. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect adoption of this guidance to have an impact on its consolidated financial
statements.

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Note 2: Consolidated Balance Sheets and Statements of Operations Components

December 31,2010

2009(in thousands)Prepaid expenses and other current assets:Right from UBS Financial Services, Inc.

$


$
1,126Tax receivable


843


122Deferred cost of revenue


872


39Prepaid expenses and other assets


1,662


1,948$
3,377

$
3,235Property and equipment:Equipment, furniture and fixtures and leasehold improvements

$
3,761

$
3,214Acquired software


618


1,1404,379


4,354Less: Accumulated depreciation and amortization


(2,219
)

(2,793
)$
2,160

$
1,561Property and equipment included $413,000 and $212,000, respectively, of testing equipment purchased through capital leases. The accumulated amortization of property and equipment
under capital leases was $117,000 and $27,000, respectively. See Note 11 for disclosure on future minimum lease payments.Accrued expenses and other liabilities:Accrued wages and employee benefits

$
776

$
566Employee stock purchase plan withholdings


429


Professional fees


319


328Other


1,080


856$
2,604

$
1,750


Other income and expense, net:

2010

2009

2008(in thousands)Interest income

$
272

$
862

$
2,331Other expense, net


(95
)

(118
)

(88
)$
177

$
744

$
2,243


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Note 3: Fair Value of Financial Instruments

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

2010Cost

Unrealized
Gains

Unrealized
Losses

Fair
ValueCash and cash equivalents

$
14,340

$


$


$
14,340Short-term investments:U.S government debt securities

$
8,711

$
1

$
(2
)
$
8,710Corporate notes


5,115


6


(5
)

5,116Certificates of deposit


1,185








1,185Total short-term investments

$
15,011

$
7

$
(7
)
$
15,011Long-term investments:U.S. government debt securities

$
6,204

$


$
(2
)
$
6,202Corporate notes


1,507


6





1,513Certificates of deposit


480





(2
)

478Total long-term investments

$
8,191

$
6

$
(4
)
$
8,193




2009Cost

Unrealized
Gains

Unrealized
Losses

Fair
ValueCash and cash equivalents

$
7,123

$


$


$
7,123Short-term investments:U.S government debt securities

$
6,023

$
41

$


$
6,064Corporate notes and commercial paper


5,814


19





5,833Certificates of deposit


4,407





(8
)

4,399Total short-term investments

$
16,244

$
60

$
(8
)
$
16,296Long-term investments:U.S. government debt securities

$
8,100

$
7

$
(16
)
$
8,091Corporate notes


1,007








1,007Total long-term investments

$
9,107

$
7

$
(16
)
$
9,098


The
balances as of December 31, 2009, exclude auction-rate securities and a right from UBS Financial Services, Inc. (UBS). As of
December 31, 2010 and 2009, all of the available-for-sale securities with unrealized losses were in a loss position for less than 12 months. Total fair value of
available-for-sale securities with unrealized losses was $10.4 million at December 31, 2010.

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Cost
and fair value of investments based on two maturity groups at December 31, 2010 and 2009 were as follows (in thousands) (auction-rate securities are excluded from
the December 31, 2009 amounts):

2010Cost

Unrealized
Gains

Unrealized
Losses

Fair
ValueDue within 1 year

$
15,011

$
7

$
(7
)
$
15,011Due in 1-2 years


8,191


6


(4
)

8,193Total

$
23,202

$
13

$
(11
)
$
23,204




2009Cost

Unrealized
Gains

Unrealized
Losses

Fair
ValueDue within 1 year

$
16,244

$
60

$
(8
)
$
16,296Due in 1-2 years


9,107


7


(16
)

9,098Total

$
25,351

$
67

$
(24
)
$
25,394


The
Company used the concepts of fair value based on estimated discounted future cash flows to value its auction-rate securities that included the following
significant inputs and considerations:



The
following table represents the Company's fair value hierarchy for its financial assets (cash equivalents and investments) and for an acquisition-related earn-out
liability as of December 31, 2010 (in thousands):

Fair Value

Level 1

Level 2

Level 3Money market funds

$
4,399

$
4,399

$


$
Certificates of deposit


1,853





1,853


Corporate notes and commercial paper


14,278





14,278


U.S. government debt securities


15,414





15,414


Total assets

$
35,944

$
4,399

$
31,545

$
Acquisition-related earn-out liability

$
1,000

$


$


$
1,000Total liabilities

$
1,000

$


$


$
1,000


There
were no transfers in or out of Level 1 and Level 2 securities during the year ended December 31, 2010.

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The
following table provides a summary of changes in fair value of the Company's financial assets measured at fair value using significant unobservable inputs (Level 3) for the
years ended December 31, 2010 and 2009 (in thousands):

Fair ValueBalance at December 31, 2008

$
9,120Realized loss on right from UBS included in earnings


(474
)Realized gain on auction-rate securities included in earnings


499Sale of Level 3 securities


(100
)Balance at December 31, 2009


9,045Realized loss on right from UBS included in earnings


(734
)Realized gain on auction-rate securities included in earnings


734Sale of Level 3 securities


(9,045
)Balance at December 31, 2010

$



On
July 1, 2010, UBS purchased the auction-rate securities from the Company at par value, resulting in no realized gains and losses.

The
following table provides a summary of changes in fair value of the Company's acquisition-related earn-out liabilities measured at fair value using significant
unobservable inputs (Level 3) for the years ended December 31, 2010 and 2009 (in thousands):

Fair ValueBalance at December 31, 2008

$
Issuance of earn-out (see Note 4)


4,550Balance at December 31, 2009


4,550Issuance of earn-out (see Note 4)


1,000Payment of earn-out


(4,550
)Balance at December 31, 2010

$
1,000


Note 4: Acquisitions and Impairment of Intangible Assets

Atmel and LDIC

On July 2, 2007, the Company entered into an asset purchase agreement and a transition services agreement with Atmel Corporation
(Atmel) with respect to the purchase of several analog/mixed-signal integrated circuit designs and related assets from Atmel, including the rights to acquire an Atmel subsidiary located in Romania
that employed 58 people and another Atmel subsidiary located in China that employed 45 people at the time of purchase. Under the agreement, the Company made a cash payment of $1.0 million,
assumed net liabilities of acquired subsidiaries, and agreed to reimburse certain pre-closing operating expenses for a total purchase amount of $1.4 million.

On
August 8, 2007, the Company acquired intellectual property and other assets from LSI Design and Integration Corporation (LDIC) in a transaction related to the Atmel
acquisition. The Company acquired this technology and related assets in exchange for 500,000 shares of the Company's common
stock with a grant-date fair value of $7.07 per share. Of the 500,000 shares issued by the Company for the LDIC acquisition, $2.1 million (which represents the 300,000 shares valued
at $7.07) was recorded as intangible assets and the other 200,000 shares were reserved for future distribution to employees and are recognized as compensation expense over the vesting period (see
Note 7). The Company recorded the fair value of the 300,000 shares as part of the asset purchase consideration.

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The
Company evaluated the specified assets and allocated the cost of the acquisition to the individual assets based on their relative fair values. The Company amortized the amortizable
identified intangible assets based on their respective useful lives, ranging from three to five years.

Amortization
expense was $0.7 million in 2008 and has been included in research and development expense in the consolidated statements of operations. In December 2008, the Company
announced and initiated a plan to exit the unprofitable and non-core analog/mixed-signal product lines, resulting in the elimination of approximately 90 employees and closure of the
subsidiaries in China and Romania. In conjunction with the restructuring plan, the Company concluded that due to the lack of future cash flows, the intangible assets were impaired and should be
written off. The Company recorded an impairment charge of $1.4 million in the fourth quarter of 2008. See Note 5 for related restructuring charges incurred related to this exit plan.

Prism Circuits

In June 2009, the Company acquired substantially all the assets and business of Prism Circuits, Inc. (Prism Circuits), a
provider of semiconductor interface IP. The acquisition significantly expanded the Company's product portfolio by adding high-speed multi-protocol compliant interface IP, which enables
communication between semiconductors in a system. With the acquisition, the Company added over 50 engineers experienced in interface IP development and analog/mixed-signal applications.

Under
the terms of the acquisition agreement, the Company paid Prism Circuits $15.0 million in cash at closing (offset by approximately $1.4 million of cash acquired),
assumed certain liabilities of Prism Circuits as consideration for the acquired assets and paid an additional $6.5 million of cash (the earn-out payment) in July 2010 in
satisfaction of a contractual earn-out commitment, as a result of the Company meeting certain objectives relating to the Prism Circuits business during the twelve-month period following
the acquisition. In addition, the Company granted options to purchase 3,621,724 shares of the Company's common stock to the newly hired Prism Circuits
employees as inducements material to employment in accordance with the terms of the acquisition agreement. The majority of these options are vesting on a straight-line basis over
48 months subject to continued employment requirements.

The
objectives for the Earn-Out Payment related to:



Because
the acquisition agreement provided that 30% of the earn-out payment could be earned by the shareholders of Prism Circuits based on the Company's future employment of
individuals, the amount allocated to this objective, or $1.95 million, was not considered to be a component of the acquisition price and was recognized as compensation expense and accrued on a
straight-line basis over the one-year period subsequent to the acquisition. For 2010 and 2009, the Company recorded $0.8 million and $1.1 million, respectively,
of expense and liability for the retention objective, which was achieved in June 2010. The remaining portion of the earn-out payment, or $4.55 million, was included in the
acquisition price because the Company expected that it was more likely than not that the objectives related to this earn-out payment would be met.

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The
Company recorded a total acquisition price as follows (in thousands):

Cash

$
15,000Acquisition-related earnout


4,550Total acquisition price

$
19,550


The
allocation of the acquisition price for net tangible and intangible assets was as follows (in thousands):

Net tangible assets

$
2,779Identifiable intangible assets:Developed technology


4,800Customer relationships


390Contract backlog


750Non-compete agreements


140Goodwill


10,691Total acquisition price

$
19,550


The
developed technology asset is attributable to products which have reached technological feasibility. The value of the developed technology was determined by
discounting estimated net future cash flows of the products.

The
customer relationships asset is attributable to the Company's ability and intent to sell existing, in process and future versions of the acquired products to the existing customers
of Prism Circuits. The value of customer relationships was determined by discounting estimated net future cash flows from the customer agreements based on established valuation techniques accepted in
the technology industry.

The
developed technology and customer relationships assets are being amortized on a straight-line basis over their estimated lives of three years.

The
contract backlog asset is attributable to the value of agreements acquired from Prism Circuits that were in the process of being delivered at the time of acquisition. The value of
the contract backlog was determined by discounting estimated net future cash flows of the milestone payments based on established valuation techniques accepted in the technology industry. The Company
expected to fulfill its obligations under these agreements during a one year period, and therefore this asset was being amortized on a straight-line basis over one year.

The
non-compete agreements asset was attributable to the non-compete agreements executed by certain former key employees of Prism Circuits that have been employed
by the Company and was amortized on a straight-line basis over the eighteen month terms of the agreements.

Goodwill
represents the excess of the acquisition price of an acquired business over the fair value of the underlying net tangible and intangible assets. Included in the goodwill amount
is the value of the acquired workforce, which has significant expertise in high-speed interface IP and analog/mixed-signal technology. The Company will assess goodwill for impairment on at
least an annual basis or when there is an indicator of impairment. The goodwill recognized is expected to be deductible for income tax purposes.

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The
following unaudited pro forma information presents a summary of the Company's consolidated results of operations as if the Prism Circuits acquisition had taken place at the beginning
of the periods presented (in thousands, except per share data):

December 31,(Unaudited)2009

2008Total net revenue

$
15,447

$
20,182Net loss


(19,004
)

(22,141
)Net loss per share:Basic and diluted

$
(0.61
)
$
(0.70
)Shares used in computing net loss per share:Basic and diluted


31,238


31,698


MagnaLynx

In March 2010, the Company acquired all of the outstanding stock of MagnaLynx, Inc. (MagnaLynx), a provider of semiconductor
interface technology. Under the terms of the merger agreement, at closing, the Company paid approximately $2.2 million to settle debt and certain other liabilities of MagnaLynx. Remaining
closing payments of approximately $1.2 million were made to MagnaLynx shareholders in the second quarter of 2010. An additional $0.5 million, referred to as the indemnification holdback,
is payable 18 months after the closing, net of any costs related to indemnification claims that may arise during such 18 month period. In addition, the Company agreed to pay up to an
additional $1.0 million to the former shareholders of MagnaLynx, shortly after the first anniversary of the closing date, as earn-out consideration based on MagnaLynx meeting
certain contractually agreed-upon development milestones. This earn-out consideration was included in the acquisition price because the Company expects that it is more likely
than not that the objectives related to this earn-out will be met.

The
Company recorded a total acquisition price as follows (in thousands):

Cash

$
3,355Acquisition-related earn-out


1,000Indemnification holdback


500Liabilities assumed by MoSys


32Total acquisition price

$
4,887


The
allocation of the acquisition price for net tangible and intangible assets was as follows (in thousands):

Net tangible assets

$
100Intangible assetdeveloped technology


4,440Goodwill


347Total acquisition price

$
4,887


Goodwill
represents the excess of the acquisition price of an acquired business over the fair value of the underlying net tangible and intangible assets. Included in the
goodwill amount is the value of the acquired workforce, which has significant expertise in low-power interface IP. The goodwill recognized is expected to be deductible for income tax
purposes.

The
value of the identifiable intangible asset was determined by using future cash flow assumptions. The intangible asset, which is considered developed technology, is being amortized on
a straight-line basis over its estimated life of five years.

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Note 5: Restructuring Charges and Accruals

In 2008, the Company announced and initiated a plan to exit its unprofitable and non-core analog/mixed-signal product lines
acquired from Atmel and LDIC, resulting in the elimination of approximately 90 positions and closure of subsidiaries in China and Romania. In the first quarter of 2009, the Company recorded
restructuring charges of $275,000, which were primarily related to employee terminations, costs to exit a leased facility in China and other costs related to closing the analog/mixed- signal
subsidiaries. Total restructuring charges resulting from
the exit of the analog/mixed-signal product lines were $1.6 million, and the Company does not expect to incur additional restructuring charges related to this exit initiative.

In
2009, the Company announced and initiated a plan to close its Korea research and development office resulting in the elimination of 15 positions. The Company recorded restructuring
charges of $280,000, which were primarily related to employee terminations, costs to exit the leased facility and other costs related to closing the subsidiaries.

In
addition, restructuring charges of $151,000 were incurred in 2009 in connection with the Company's exit from the leased facility occupied by Prism Circuits in Santa Clara, California.

Restructuring
activity was as follows (in thousands):

Workforce
reduction

Facility related
and other
termination costs

Asset
impairments

TotalBalance at December 31, 2008

$
972

$
32

$


$
1,004Restructuring charges


216


439


51


706Asset impairments





(71
)

(51
)

(122
)Cash payments


(1,188
)

(288
)




(1,476
)Balance at December 31, 2009





112





112Cash payments





(93
)




(93
)Balance at December 31, 2010

$


$
19

$


$
19


Costs
related to workforce reductions primarily represented severance payments and related payroll taxes and benefits. Facility costs and other costs primarily include
termination fees related to leases, and lease payments to be incurred until termination of the leases and services. Asset impairment costs include the write-off of fixed assets and
software licenses, which are not expected to generate future cash flows. Non-cash settlement costs include the write-off of fixed assets and software licenses that are not
expected to generate future cash flows. The remaining termination costs are expected to be paid in 2011.

Note 6: Income Taxes

The income tax provision (benefit) consisted of the following (in thousands):

Year Ended
December 31,2010

2009

2008Current portion:Federal

$
(19
)
$
(109
)
$
9State


2


(23
)

2Foreign


68


(23
)

121$
51

$
(155
)
$
132


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Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.

Significant
components of the Company's deferred tax assets and liabilities were as follows (in thousands):

December 31,2010

2009Deferred tax assets:Federal and state loss carryforwards

$
24,468

$
15,340Reserves, accruals and other


512


355Depreciation and amortization


2,193


1,651Deferred stock-based compensation


2,320


2,142Research and development credit carryforwards


6,434


5,231Foreign tax credits


1,084


1,053Total deferred tax assets


37,011


25,772Deferred tax liabilities:Acquired intangible assets and other


1,970


164Less: Valuation allowance


(35,041
)

(25,608
)Net deferred tax assets

$


$



The
valuation allowance increased by $9.4 million and $0.8 million during the years ended December 31, 2010 and 2009, respectively. The valuation
allowance at December 31, 2010 includes $1.9 million related to stock option deductions incurred prior to January 1, 2006, the benefit of which will be credited to additional
paid-in capital if they become realized.

As
of December 31, 2010, the Company had net operating loss carryforwards of approximately $62.3 million for federal income tax purposes and approximately
$61.3 million for state income tax purposes. These losses are available to reduce taxable income and expire at various times from 2013 through 2030. Approximately $4.6 million of federal
net operating loss carryforwards and $3.9 million of state net operating loss carryforwards are related to excess tax benefits from stock-based compensation and will be charged to additional
paid-in capital when realized.

The
Company also had federal research and development tax credit carryforwards of approximately $4.1 million, which will expire beginning in 2011, and California research and
development credits of approximately $3.6 million, which do not have an expiration date. The Company had foreign tax credits available for federal income tax purposes of approximately
$1.1 million which will begin to expire in 2014.

Utilization
of the Company's net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the
Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit carryforwards before utilization.
Management does not believe it is likely that utilization will in fact be significantly limited due to ownership change limitation provisions.

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A
reconciliation of income taxes provided at the federal statutory rate (35%) to actual income tax provision (benefit) follows (in thousands):

Year Ended December 31,2010

2009

2008Income tax benefit computed at U.S. statutory rate

$
(8,054
)
$
(6,741
)
$
(6,459
)State income tax (net of federal benefit)


2


(22
)

2Foreign income tax at rate different from U.S. statutory rate


(90
)

167


455Research and development credits


(1,239
)

(1,028
)

(466
)Foreign tax credit


(21
)

(196
)

(76
)Stock-based compensation


607


545


642Valuation allowance changes affecting tax provision


8,979


7,006


5,846Other


(133
)

114


188Income tax provision (benefit)

$
51

$
(155
)
$
132


The
domestic and foreign components of income (loss) before income tax provision (benefit) were as follows (in thousands):

Year Ended December 31,2010

2009

2008U.S.

$
(23,499
)
$
(18,692
)
$
(17,562
)Non-U.S.


488


(567
)

(891
)$
(23,011
)
$
(19,259
)
$
(18,453
)


Note 7: Stock-Based Compensation

Equity Compensation Plans

Common Stock Option Plans

In 1996, the Company adopted the 1996 Stock Plan (1996 Plan), which expired in 2006. As of December 31, 2010, no options were
available for future issuance under the 1996 Plan and no options were outstanding.

In
2000, the Company adopted the 2000 Stock Plan and later amended in 2004 (Amended 2000 Plan), which was terminated in 2010. As of December 31, 2010, no options were available
for future issuance under the Amended 2000 Plan and options to purchase approximately 5,244,000 shares were outstanding with a weighted-average exercise price of $4.65 per share. The Amended 2000 Plan
will remain in effect as to outstanding equity awards granted under the plan prior to the date of expiration.

In
June 2010, the Company's stockholders approved the 2010 Equity Incentive Plan (2010 Plan). The 2010 Plan authorizes the board of directors or the compensation committee of the board
of directors to grant a broad range of awards including stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units. Under the 2010 Plan, 4,000,000
shares were initially reserved for issuance and there will be an automatic annual increase in the share reserve of 500,000 on January 1 of each year. The 2010 Plan has a 10 year term and
provides for annual option grants or other awards to our non-employee directors to acquire up to 40,000 shares and for a one-time grant of an option or other award to a
non-employee director to acquire up to 120,000 shares upon his or her initial appointment or election to the board of directors.

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The term of options granted under the 2010 Plan may not exceed ten years. The term of all incentive stock options granted to a person who, at the time of grant,
owns stock representing more than 10% of the voting power of all classes of the Company's stock may not exceed five years.

The
exercise price of stock options granted under the 2010 Plan must be at least equal to the fair market value of the shares on the date of grant. Generally, options granted under the
2010 Plan will vest over a four-year period and will have a six-year term. In addition, the 2010 Plan provides for automatic acceleration of vesting for options granted to
non-employee directors upon a change of control of the Company.

The
1996 Plan, Amended 2000 Plan and 2010 Plan are referred to collectively as the "Plans."

The
Company may also award shares to new employees outside the Plans, as material inducements to the acceptance of employment with the Company. These grants must be approved by the
compensation committee of the board of directors, a majority of the independent directors or an authorized executive officer.

Employee Stock Purchase Plan

In June 2010, the Company's stockholders approved the 2010 Employee Stock Purchase Plan (ESPP). A total of 2,000,000 shares of common
stock have been reserved for issuance under the ESPP. The ESPP, which is intended to qualify under Section 423 of the Internal Revenue Code, is administered by the board of directors or the
compensation committee of the board of directors. The ESPP provides that eligible employees may purchase up to $25,000 worth of the Company's common stock annually over the course of two
six-month offering periods. The purchase price to be paid by participants is 85% of the price per share of the Company's common stock either at the beginning or the end of each
six-month offering period, whichever is less. On September 1, 2010, the Company commenced the first offering period under the ESPP. As of December 31, 2010, no issuances of
common stock had been made under the ESPP.

Stock-Based Compensation Expense

The Company recorded $3.3 million, $3.1 million and $4.7 million of stock-based compensation expense in 2010, 2009
and 2008, respectively. The total compensation cost of options granted, but not yet vested, as of December 31, 2010 was $7.9 million and is expected to be recognized as expense over a
weighted average period of approximately 2.48 years.

The
Company is required to present the tax benefits resulting from tax deductions in excess of the compensation cost recognized from the exercise of stock options as financing cash flows
in the consolidated statement of cash flows. For the years ended December 31, 2010, 2009 and 2008, there were no such tax benefits associated with the exercise of stock options due to the
Company's loss position.

In
August 2007, the Company acquired intellectual property and other assets from LDIC (see Note 4) and issued 500,000 shares of common stock with a grant date fair value of $7.07
per share to LDIC. Of these 500,000 shares, 300,000 shares were subject to vesting in equal annual installments on each of the first two anniversaries of the closing date. The $2.1 million fair
value of these shares was included in the purchase price of the asset acquisition. LDIC allocated the remaining 200,000 shares for future distribution to employees hired by the Company in connection
with the Atmel acquisition and were accounted for as compensation expense over the vesting period. These shares vest in equal annual installments on each of the first two anniversaries of the closing
date, subject to the continued employment and accordingly 100,000 shares were vested in August 2008. In December 2008, the Company announced its plan to exit the analog/mixed-signal product lines. As
a result, a majority of the remaining unvested shares were cancelled in connection with the termination of employment, and

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the
stock-based compensation expense of $185,000 recognized since the August 2008 vesting date was reversed.

In
November 2007, the Company hired a new chief executive officer and the board of directors approved three option grants to this new officer with an exercise price equal to the fair
market value of the Company's common stock on the date of grant. One option grant was for 800,000 shares of common stock and vests in equal amounts monthly for two years from November 8, 2007.
The second option grant was for 350,000 shares of common stock and vests as to: i) 80% of these shares if the average closing price of the Company's common stock for any 90-day
period is at least $10.00 per share, and ii) the remaining 20% of these shares pro rata for each $0.01 increase in the average price up to $12.00 per share. The third option grant was for
100,000 shares of common stock and vests as to: i) 50% of the shares if the average closing price of the Company's common stock for any 90-day period is at least $13.00 per share,
and ii) the remaining 50% of these shares pro rata for each $0.01 increase up to $15.00 per share. The vesting of all three option grants is subject to continued employment (or service as a
director or consultant). In consideration of the market condition vesting requirement included for the second and third option grants, the Company valued the options using a binomial lattice model.
Total compensation for these options was valued at $875,000. The compensation expense is being recognized ratably over the projected requisite service period of three and three and a half years for
the 350,000 and 100,000 shares, respectively. If the market condition is met before the projected requisite service period has elapsed, the unrecognized compensation cost related to the vested shares
would be recognized immediately when the market condition is met.

In
April 2010, the board of directors of the Company approved the modification of an option previously granted to the Chief Executive Officer to purchase 450,000 shares of common stock
to allow him to exercise the option prior to vesting, subject to a right of repurchase by the Company for any shares that subsequently failed to vest in accordance with the terms of a restricted stock
purchase agreement. In April 2010, the Chief Executive Officer exercised the option and acquired 337,500 shares that vest over the next 18 months. The modification did not result in any
incremental expense. At December 31, 2010, 187,500 of these shares remained unvested.

Valuation Assumptions and Expense Information for Stock-based Compensation

The fair value of the Company's share-based payment awards for the years ended December 31, 2010, 2009 and 2008 was estimated on
the grant dates using a Black-Scholes valuation method and an option-pricing model with the following assumptions:

Year Ended December 31,Employee stock options:

2010

2009

2008Risk-free interest rate


0.6% -  2.1
%

1.2% -  2.1
%

1.3% -  3.5
%Volatility


62.5% - 72.7
%

55.7% - 63.5
%

48.5% - 67.9
%Expected life (years)


4.0


4.0


4.0Dividend yield


0
%

0
%

0
%


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

The
stock-based compensation expense recorded is adjusted based on estimated forfeiture rates. An annualized forfeiture rate has been used as a best estimate of future forfeitures based
on the

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Company's
historical forfeiture experience. The stock-based compensation expense will be adjusted in later periods if the actual forfeiture rate is different from the estimate.

A
summary of activity under the Plans is presented below (in thousands, except exercise price):

Shares
Available
for Grant

Number of
Options
outstanding

Weighted
Average
Exercise
PricesBalance at December 31, 2007


1,062


5,411

$
6.80Additional authorized under the Amended 2000 Plan


500





Options granted


(889
)

889

$
4.09Options canceled


1,450


(1,450
)
$
6.63RSUs canceled


(12
)




Options exercised





(48
)
$
3.85Options expired


(40
)




Balance at December 31, 2008


2,071


4,802

$
6.38Additional authorized under the Amended 2000 Plan


500





Options granted


(2,463
)

2,463

$
2.27RSUs granted


(25
)




Options canceled


1,813


(1,813
)
$
6.78Options exercised





(2
)
$
1.00Options expired


(21
)




Balance at December 31, 2009


1,875


5,450

$
4.37Additional authorized under the Amended 2000 Plan


500





Additional authorized under the 2010 Plan


4,000





Plan termination


(1,502
)




Options canceled prior to and upon termination of the Amended 2000 Plan


487


(487
)
$
4.31Options canceled and expired subsequent to termination of the Amended 2000 Plan





(401
)
$
2.98Options granted


(1,690
)

1,690

$
4.47Options exercised





(658
)
$
2.47Options expired


(20
)




Balance at December 31, 2010


3,650


5,594

$
4.64


77

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Table of Contents

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

Options OutstandingNumber of
Shares

Weighted
Average
Exercise
PricesBalance at December 31, 2007


1,619

$
5.92Granted


1,240

$
4.12Canceled


(752
)
$
5.58Exercised





Balance at December 31, 2008


2,107

$
4.99Granted


3,601

$
1.55Canceled


(388
)
$
3.24Exercised


(25
)
$
1.55Balance at December 31, 2009


5,295

$
2.81Granted





Canceled


(108
)
$
1.55Exercised


(375
)
$
1.54Balance at December 31, 2010


4,812

$
2.92


A
summary of the restricted stock award and restricted stock unit activity is presented below (in thousands, except fair value):

Number of Shares

Weighted Average Grant-Date Fair ValueNon-vested shares at December 31, 2007


539

$
6.99Granted





Vested


(260
)
$
6.98Canceled


(7
)
$
5.91Non-vested shares at December 31, 2008


272

$
7.01Granted


46


Vested


(69
)
$
6.85Canceled


(203
)
$
7.07Non-vested shares at December 31, 2009


46

$
1.60Granted





Vested


(15
)
$
1.60Canceled





Non-vested shares at December 31, 2010


31

$
1.60


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The
following table summarizes significant ranges of outstanding and exercisable options and inducement grants, excluding restricted stock award and restricted stock unit activity, as of
December 31, 2010 (in thousands, except contractual life and exercise price):

Options Outstanding



Options ExercisableRange of Exercise Price

Number
Outstanding

Weighted
Average
Remaining
Contractual
Life
(in Years)

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
value

Number
Exercisable

Weighted
Average
Remaining
Contractual
Life
(in Years)

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
value$1.50 - $2.50


4,303


4.51

$
1.71

$
17,110


1,411


4.51

$
1.72

$
5,595$2.51 - $5.00


3,321


4.75

$
4.18

$
5,020


1,457


4.19

$
4.04

$
2,404$5.01 - $7.50


1,961


4.76

$
5.83

$
146


1,740


4.72

$
5.86

$
119$7.51 - $15.00


821


2.02

$
8.87





783


2.00

$
8.90


10,406


4.44

$
3.84

$
22,276


5,391


4.13

$
4.73

$
8,118


As
of December 31, 2010, the Company had 9,479,831 options fully vested and expected to vest, after estimated forfeitures, with a remaining contractual life of 4.4 years,
weighted average exercise price of $3.93 and aggregate intrinsic value of approximately $8.1 million.

The
total fair value of options vested, excluding restricted stock units, during the years ended December 31, 2010 calculated using the Black-Scholes valuation method was
$1.7 million. The total intrinsic value of employee stock options exercised during each of the years ended December 31, 2010, 2009 and 2008 was $2.4 million, $33,000 and $42,000,
respectively.

Options
to purchase 4.2 million and 3.6 million shares with weighted average exercised prices of $5.40 and $6.51 per share were exercisable at December 31, 2009 and
2008, respectively.

Note 8:  Stockholders' Equity

In December 2010, the Company completed an equity offering and issued approximately five million shares of its common stock for approximately $20.0 million
in net proceeds.

Stockholder Rights Plan

On November 10, 2010, the Company executed a Rights Agreement with Wells Fargo Bank, N.A., as Rights Agent, in connection with
the declaration by the Company's board of directors of a dividend of one preferred stock purchase right (a "Right") to be paid on November 10, 2010 (the "Record Date") for each share of the
Company's common stock issued and outstanding at the close of business on the Record Date. Each Right entitles the registered holder to purchase one one-thousandth of a share of
Series AA Preferred Stock, $0.01 par value per share (a "Preferred Share"), of the Company at a price of $48.00 per one one-thousandth of a Preferred Share, subject to adjustment.
The rights will not be exercisable until the distribution date, which is defined as the date that is the earlier of



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A
person who, together with any affiliates and associates of that person, beneficially owns 15% or more of the outstanding shares of our common stock, subject to certain exceptions, is
referred to as an "acquiring person" in the rights agreement.

Holders
of "grandfathered stock" are subject to higher ownership thresholds prior to being deemed an acquiring person or triggering a distribution date through their ownership of shares
of our common stock. "Grandfathered stock" refers to stock held by Carl E. Berg, his affiliates and associates, heirs, legatees, personal representatives, any trusts formed for his benefit and members
of his immediate family as well as their respective affiliates and associates. The beneficial ownership threshold for a holder of grandfathered stock is 20%, rather than 15% as set forth above, for
purposes of being deemed an "acquiring person" and triggering a distribution date through beneficial ownership of our common stock. Under the rights agreement, the firm of Ingalls & Snyder, or
I&S, and its managed account beneficial owners collectively are not deemed to be an acquiring person as long as none of their shares are held for the purpose of acquiring control or effecting change
or influence in control of MoSys, Inc. This exclusion applies only to shares of common stock for which there is only shared dispositive power and I&S has only non-discretionary
voting power.

The
rights agreement provides that, until the distribution date, the rights will be transferred with and only with the shares of common stock. Until the distribution date or earlier
redemption or expiration of the rights, new common stock certificates issued after the record date, upon transfer or new issuance of shares of common stock, will contain a notation incorporating the
rights agreement by reference. Until the distribution date or earlier redemption or expiration of the rights, the surrender for transfer of any certificates for shares of common stock outstanding as
of the record date, even without such notation, will also constitute the transfer of the rights associated with the shares of common stock represented by such certificate. As soon as practicable
following the distribution date, separate certificates evidencing the rights will be mailed to holders of record of the shares of common stock as of the close of business on the distribution date, and
such separate right certificates alone will evidence the rights. The rights will expire on November 10, 2020.

Stock Repurchases

In October 2008, the Company's board of directors authorized the Company to purchase up to $5.0 million of its common stock over
a twelve month period. The share repurchases under this program were to be made from time to time in the open market subject to market conditions and other factors. The repurchases could be commenced
or suspended at any time or from time to time without prior notice. As of December 31, 2009, total repurchases under the program authorized in October 2008 were approximately 704,000 shares of
common stock for approximately $1.9 million. Repurchases under this program were suspended in February 2009, and this program expired in October 2009.

The
total purchase prices of the common stock repurchased were reflected as decreases to stockholders' equity during the period of repurchase. Common stock repurchased was recorded based
upon the dates of the applicable trades.

Note 9:  Retirement Savings Plan

Effective January 1997, the Company adopted the MoSys 401(k) Plan (the Savings Plan) which qualifies as a thrift plan under Section 401(k) of the Internal
Revenue Code. Full-time and part-time employees who are at least 21 years of age are eligible to participate in the Savings Plan at the time of hire. Participants may
contribute up to 15% of their earnings to the Savings Plan. Prior to the second quarter of 2009, the Company made a matching contribution on behalf of each participant in an

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amount
equal to 25% of a participant's contributions during the plan year. The Company made matching contributions of $52,000 and $225,000 in 2009 and 2008, respectively. No matching contributions
were made in 2010.

Note 10:  Business Segments, Concentration of Credit Risk and Significant Customers

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

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

The
Company recognized revenue from licensing of its technologies to customers in North America, Asia and Europe as follows (in thousands):

Years Ended December 31,2010

2009

2008Japan

$
6,661

$
7,288

$
8,643United States


5,886


2,741


1,855Taiwan


2,888


1,206


2,276Rest of Asia


128


199


956Europe





24


296Total

$
15,563

$
11,458

$
14,026


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

Years Ended December 31,2010

2009

2008Customer A


23
%

44
%

55
%Customer B


18
%

10
%

13
%Customer C


15
%

2
%

Customer D


2
%

10
%




Four
customers accounted for 99% of net accounts receivable at December 31, 2010. Four customers accounted for 97% of net accounts receivable at December 31, 2009.

Net
property and equipment, classified by major geographic areas, were as follows at December 31, 2010 and 2009 (in thousands):

December 31,2010

2009(in thousands)U.S.

$
1,937

$
1,408Non-U.S.


223


153Total

$
2,160

$
1,561


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Note 11: Commitments and Contingencies

Leases and Purchase Commitments

The Company leases its facilities under non-cancelable operating leases that expire at various dates through 2020. Rent
expense was approximately $694,000, $454,000 and $784,000 for the years ended December 31, 2010, 2000 and 2008, respectively. The leases provide for monthly payments and are being charged to
operations ratably over the lease terms. In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating costs.

Future
minimum lease payments under non-cancelable operating leases, capital leases and purchase commitments are as follows (in thousands):

Year ended December 31,

Operating
leases

Capital
lease

Purchase
commitments

Total2011

$
805

$
181

$
2,289

$
9862012


834


146


2,754


9802013


789





188


7892014


801








8012015


673








673Thereafter


3,351








3,351Total minimum payments

$
7,253

$
327

$
5,231

$
7,580


Purchase
commitments include licenses related to computer-aided design tools payable through January 2013.

Indemnification

In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the
counterparties from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising from certain events as outlined within
the particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses.
The Company has entered into indemnification agreements with its officers and directors. No material amounts were reflected in the Company's consolidated financial statements for the years ended
December 31, 2010, 2009 or 2008 related to these indemnifications.

The
Company has not estimated the maximum potential amount of indemnification liability under these agreements due to the limited history of prior claims and the unique facts and
circumstances applicable to each particular agreement. To date, the Company has not made any payments related to these indemnification agreements.

Legal Matters

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

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Note 12:  Related Party Transactions

In 2007 through the first half of 2009, one of the Company's directors was an executive officer of a customer of the Company. Revenue from this customer for the
year ended December 31, 2008 was $229,000. There was no revenue from this customer in 2009 and 2010.

In
July 2010, the Company entered into a lease agreement with Mission West Properties, Inc. (the Lessor) to lease approximately 47,000 square feet for its corporate headquarters
in Santa Clara, California. The lease term is 120 months. The Company has an option to extend the lease for two additional five-year periods at 95% of the then fair market monthly
rent rate. After the first two years of the lease, the Company may terminate the lease early in the event that it has signed a lease to move into a facility that is also owned by the Lessor or one of
its affiliates and is at least 20% larger. The Company may also terminate the lease at the end of 60 or 90 months if the Company has sold all or substantially all of its assets to an
independent buyer or if the Lessor cannot accommodate the Company's future expansion requirements, provided that the Company pays the Lessor an amount equal to the outstanding unamortized balance of
the initial improvements. The chief executive officer and chairman of the board of the Lessor is Carl E. Berg. Mr. Berg is a director of the Company and a member of the compensation committee
and the audit committee of the Company's board of directors. Mr. Berg beneficially owns approximately 5% of the Company's common stock, and his daughter's trust beneficially owns approximately
6% of the Company's common stock. For the year ended December 31, 2010, a total of $379,000 of lease payments were paid to Mission West Properties, L.P.I.

A
related party to one of the Company's executive officers performed construction work at its corporate headquarters. In 2010 and 2009, the construction work was completed at a cost of
approximately $12,000 and $145,000, respectively, and was paid in full in the respective years.

Note 13:  Subsequent Events

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

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Schedule IIValuation and Qualifying Accounts  (In thousands)

Additions

DeductionsDescription

Balance at
beginning of
period

Charged to
costs and
expenses

Charged to
other
accounts

Amounts
recovered

Amounts
written
off

Balance at
end of
periodAllowance for doubtful accountsYear ended December 31, 2010

$
93

$


$
125

$
(15
)
$
(78
)
$
125Year ended December 31, 2009

$
75

$
47

$
46

$
(75
)
$


$
93Year ended December 31, 2008

$
225

$


$


$
(150
)
$


$
75


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INDEX OF EXHIBITS

2.1(1)

Merger Agreement regarding the Registrant's reincorporation in Delaware2.2(2)

Agreement and Plan of Merger by and among MoSys, Inc., MLI Merger Corporation, MagnaLynx, Inc., and the Representative of the Shareholders of MagnaLynx, Inc. dated as of March 24, 20103.1(3)

Restated Certificate of Incorporation of the Registrant3.2(4)

Amended and Restated Bylaws of the Registrant4.1(1)

Specimen common stock certificate4.2(5)

Rights Agreement, dated November 10, 2010, by and between the Company and Wells Fargo Bank, N.A., as Rights Agent4.2.1(5)

Form of Right Certificate4.2.2(5)

Summary of Rights to Purchase Preferred Shares10.1(1)

Form of Indemnity Agreement between the Registrant and each of its directors and executive officers10.2(6)*

Form of Restricted Stock Purchase Agreement10.3(7)*

2000 Employee Stock Option Plan and form of Option Agreement thereunder10.3.1(8)*

Amended and Restated 2000 Equity Incentive and Stock Option Plan10.4(9)*

Form of Stock Option Agreement pursuant to Amended and Restated 2000 Stock Option and Equity Incentive Plan10.5(10)*

Form of New Employee Inducement Grant Stock Option Agreement10.6(11)*

Employment offer letter agreement and Mutual Agreement to Arbitrate between Registrant and Leonard Perham dated as of November 8, 200710.7.1(12)*

New Employee Inducement Grant Stock Option Agreements between Registrant and Leonard Perham dated as of November 28, 200710.7.2(13)*

New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of November 28, 200710.7.3(14)*

New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of November 28, 200710.8(15)*

Employment offer letter agreement between the Registrant and James Sullivan dated December 21, 200710.9(16)*

Change-in-control Agreement between Registrant and James Sullivan dated January 18, 200810.10(17)*

Employment offer letter agreement between Registrant and David DeMaria dated as of July 31, 200810.11(18)*

Change-in-control Agreement between Registrant and David DeMaria dated as of August 18, 200810.12(19)*

Employment offer letter agreement between Registrant and Sundari Mitra dated as of June 4, 200910.13(20)*

Non-Competition Agreement between Registrant and Sundari Mitra dated as of June 5, 200910.14(21)*

Form of Notice of Restricted Stock Unit Award and Agreement10.15(22)

Lease Agreement between Registrant and Mission West Properties, L.P.I, dated July 19, 2010


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21.1

List of subsidiaries23.1

Consent of Independent Registered Public Accounting FirmBurr Pilger Mayer, Inc.24.1

Power of Attorney (see signature page)31.1

Rule 13a-14 certification31.2

Rule 13a-14 certification32

Section 1350 certification


(1)Incorporated
by reference to the same-numbered exhibit to the Company's Registration Statement on Form S-1, as amended,
originally filed August 4, 2000, declared effective June 27, 2001 (Commission file No. 333-43122).(2)Incorporated
by reference to Exhibit 2.4 to Form 10-K filed by the Company on March 26, 2010 (Commission File
No. 000-32929).(3)Incorporated
by reference to Exhibit 3.6 to Form 8-K filed by the Company on November 12, 2010 (Commission File
No. 000-32929).(4)Incorporated
by reference to Exhibit 3.4 to Form 8-K filed by the Company on October 29, 2008 (Commission File
No. 000-32929).(5)Incorporated
by reference to the same-numbered exhibit to Form 8-K filed by the Company on November 12, 2010
(Commission File No. 000-32929).(6)Incorporated
by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1, as amended, originally filed
August 4, 2000, declared effective June 17, 2001 (Commission File No. 333-43122).(7)Incorporated
by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, as amended, originally filed
August 4, 2000, declared effective June 17, 2001 (Commission File No. 333-43122).(8)Incorporated
by reference to Appendix B to the Company's proxy statement on Schedule 14A filed by the Company on October 7, 2004
(Commission File No. 000-32929).(9)Incorporated
by reference to Exhibit 10.15 to Form 10-Q filed by the Company on August 9, 2005 (Commission File
No. 000-32929).(10)Incorporated
by reference to Exhibit 10.25 to Form 10-K filed by the Company on March 17, 2008 (Commission File
No. 000-32929).(11)Incorporated
by reference to Exhibit 10.24 to Form 10-K filed by the Company on March 17, 2008 (Commission File
No. 000-32929).(12)Incorporated
by reference to Exhibit 10.25.1 to Form 10-Q filed by the Company on May 9, 2008 (Commission File
No. 000-32929).(13)Incorporated
by reference to Exhibit 10.25.2 to Form 10-Q filed by the Company on May 9, 2008 (Commission File
No. 000-32929).(14)Incorporated
by reference to Exhibit 10.25.3 to Form 10-Q filed by the Company on May 9, 2008 (Commission File
No. 000-32929).(15)Incorporated
by reference to Exhibit 10.26 to Form 10-K filed by the Company on March 17, 2008 (Commission File
No. 000-32929).(16)Incorporated
by reference to Exhibit 10.27 to Form 10-K filed by the Company on March 17, 2008 (Commission File
No. 000-32929).


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(17)Incorporated
by reference to Exhibit 10.30 to Form 10-Q filed by the Company on November 7, 2008 (Commission File
No. 000-32929).(18)Incorporated
by reference to Exhibit 10.31 to Form 10-Q filed by the Company on November 7, 2008 (Commission File
No. 000-32929).(19)Incorporated
by reference to Exhibit 10.32 to Form 8-K filed by the Company on June 12, 2009 (Commission File
No. 000-32929).(20)Incorporated
by reference to Exhibit 10.33 to Form 10-K filed by the Company on March 26, 2010 (Commission File
No. 000-32929).(21)Incorporated
by reference to Exhibit 4.8 to Form S-8 filed by the Company on June 4, 2009 (Commission File
No. 333-159753).(22)Incorporated
by reference to Exhibit 10.35 to Form 8-K filed by the Company on June 22, 2010 (Commission File
No. 000-32929).*Management
contract, compensatory plan or arrangement.


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