10-K

Use these links to rapidly review the document
TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý

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

For the Fiscal Year December 31, 2009 or

o

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

Commission file number: 000-32929

MOSYS, INC.

(Exact name of registrant as specified in its charter)

Delaware	77-0291941
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

755 N. Mathilda Avenue, Suite 100
Sunnyvale, California 94085
(Address of principal executive offices)

(408) 731-1800
(Registrant's telephone number, including area code)

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

Title of each class Common Stock, par value $0.01 per share	Name of each exchange on which registered Global Market of the NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Series AA Preferred Stock, par value $0.01 per share	Name of each exchange on which registered None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes 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 o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company ý

         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, 2009 was $48,966,700 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 25, 2010, 31,272,933 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 2010 Annual Meeting of Stockholders to be held on or about June 15, 2010 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.

TABLE OF CONTENTS

Part I
Item 1.	Business	3
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Removed and Reserved	26
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	28
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 8.	Financial Statements and Supplementary Data	42
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	42
Item 9A.	Controls and Procedures	42
Item 9B.	Other Information	43
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	44
Item 11.	Executive Compensation	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
Item 13.	Certain Relationships and Related Transactions, and Director Independence	44
Item 14.	Principal Accountant Fees and Services	44
Part IV
Item 15.	Exhibits and Financial Statement Schedules	45
	Signatures	48

2

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 (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 the third quarter of 2007, we acquired analog/mixed-signal integrated circuit designs, intellectual property, related assets and subsidiaries from Atmel Corporation, or Atmel, and LSI Design and Integration Corporation, or LDIC. In December 2008, as part of our initiative to exit unprofitable and non-core product lines, we announced our plan to cease all further work and sales activities on the acquired analog/mixed-signal products. In the first half of 2009, we closed our subsidiaries in China and Romania and eliminated approximately 90 employees.

        In June 2009, we completed the acquisition of substantially all the assets and business of Prism Circuits, Inc. (Prism Circuits), a provider of high-speed parallel and serial I/O technology. Through this

3

acquisition we acquired high-speed and serial I/O technology. We believe the integration of our patented memory IP and the I/O technology acquired from Prism Circuits will allow us to provide a more comprehensive and competitive solution to our customers, especially in the networking and communications markets. With the acquisition, we added 22 engineers, in Sunnyvale, California and 30 employees, mainly engineers, in Hyderabad, India. These engineers are experienced in interface technology development and analog/mixed-signal applications. We paid Prism Circuits approximately $13.6 million in cash, net of cash received in the acquisition and assumed liabilities totaling approximately $2.4 million as consideration for the acquired assets. We also agreed to pay up to an additional $6.5 million of cash as an earn-out payment, contingent upon our achievement of specified milestones relating to the acquired business during the twelve-month period following the closing date. Any earn-out payment to the extent earned will likely be paid in the third quarter of 2010. In addition, we granted options to purchase 3.6 million shares of the Company's common stock to the newly hired Prism Circuits employees.

        In February 2010, we announced the commencement of a new product initiative to develop a family of IC products under the "Bandwidth Engine" product name. The Bandwidth Engine will combine our 1T-SRAM high-density embedded memory with our high-speed 10 Gigabits per second (Gbps) serial communication I/O technology and will initially be marketed to networking systems companies. The Bandwidth Engine is being 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. Based on our current development schedule, we expect to have samples of the Bandwidth Engine available for customers by the fourth quarter of 2010.

        On March 25, 2010, we 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 we paid approximately $1.3 million to the shareholders of MagnaLynx and paid approximately $2.2 million to settle debt and certain other liabilities of MagnaLynx. An additional $0.5 million 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, we agreed to pay up to an additional $1.0 million, net of any costs related to indemnification claims, 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.

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

4

process technologies. Process technology generations are distinguished in terms of the dimension of the IC's smallest topographical features, as measured in microns (one millionth of a meter) or 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.

        For 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., 65nm 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.

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.

5

        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 DDR 2 and DDR 3. 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 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. 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 IC 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.

6

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.

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 Limited, or Fujitsu, and NEC Electronics, or NEC. 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 is 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. When we acquired Prism Circuits in mid-2009, their focus was on developing very high speed serial I/Os, called SerDes, which had data transmission speeds of up to10 Gbps, with higher speed I/Os under development. When Prism Circuits was formed in 2006, its initial focus was on parallel DDR interface technology and those development efforts have also continued. Today, we offer both parallel and serial I/O technology that allows for fast exchange of data between ICs in the system. Our lower-speed parallel interface technology is DDR 3 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 10 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., 28 nm).

7

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 of our customer's ICs at TSMC, UMC and Fujitsu, 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 0.65 micron and 0.40 micron process generations, with smaller geometries under development. We expect our I/O technology to continue to scale to future process generations. To date, due to the short operating history of Prism Circuits prior to the acquisition, none of our I/O customers have commenced shipping ICs, which is a key data point that our prospective customers consider in evaluating our I/O technology.

Our Strategy

        The semiconductor IP market can be divided into four major categories: microprocessors, embedded memory, analog circuit design capability and high-speed I/O. Embedded memory has been our historical focus, and, through our 2009 acquisition of Prism Circuits, we have now added high-speed I/O and analog circuit design capability. Our 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 the high growth connected 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. We intend to achieve this goal by continuing to license our technology on a worldwide basis to foundries, IDMs and semiconductor companies.

        We initiated development of our Bandwidth Engine IC product line in the second half of 2009. We believe that the combination of 1T-SRAM and high-speed SerDes, implemented in a single IC, will be a compelling solution to address the needs of networking system designers.

        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. Over the longer term we intend to identify and address other markets that are projected to achieve strong, long-term growth.

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

8

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, including our embedded non-volatile memory solution, 1T-Flash, which is still under development.

        With the announcement of our new Bandwidth Engine IC, we expect to provide a system level solution for networking systems, which we believe will provide higher bandwidth at lower cost and power consumption. We believe that customers that design the Bandwidth Engine into their system will re-architect the system at the board level and will result in the replacement of traditional memory solutions. To complement the Bandwidth Engine, we are also introducing the GigaChip Interface, which will be an open I/O compatible with the current industry standard (CEI-11) that will enable highly efficient serial chip-to-chip communications. The GigaChip Interface will be used in the Bandwidth Engine, and we expect to offer it to customers and prospective partners on terms that will encourage its widespread adoption. Our goal is for the GigaChip Interface to become an industry standard that is designed into other ICs in the system, as we believe this will encourage adoption of the Bandwidth Engine.

Licensing and Distribution Strategy

        We offer our memory and I/O 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 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 64%, 62% and 76% of our revenues in 2009, 2008 and 2007, respectively. Customers in the United States accounted for 24%, 13% and 16% of our revenues in 2009, 2008 and 2007, respectively. Customers in Taiwan accounted for 11%, 16% and 6% of our revenues in 2009, 2008 and 2007, respectively, while our remaining revenues were from customers in the rest of Asia and in Europe.

Project Licenses

        We form product development and 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 macro development and 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

9

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

        We have license agreements with many companies, including, but not limited to, Agilent Technologies, Analog Devices, Inc., Broadcom Corporation, Dialog Semiconductor, Entropic Communications, Inc., eSilicon Corporation, Fujitsu Ltd., 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, NEC, Nexuschips Co. Ltd., Open-Silicon, Inc., Orise Technology Co. Inc., Philips Semiconductors, Inc., Pixelworks, Inc., Pixim, Inc., Progate Group Corporation, Realtek Semiconductor Corporation, Rohm Co. Ltd, Silterra Ltd., SMIC, Sanyo Electric Co., Ltd., Sony Corporation, 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 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 I/O IP, 1T-SRAM and 1T-Flash technologies to smaller process geometries, porting our technology to additional foundries and semiconductor manufacturing facilities. In addition, our development of the Bandwidth Engine IC will require the hiring of specialized chip design engineers as well significant fabrication and testing costs, including mask costs, for initial product development in 2010.

10

        As of December 31, 2009, we employed 125 individuals in engineering and research and development, of which 52 are employed in our facility in Hyderabad, India. For the years ended December 31, 2009, 2008 and 2007, research and development expenditures totaled approximately $19.3 million, $17.2 million and $12.2 million, respectively.

Sales and Marketing

        As of December 31, 2009, we had 14 sales, marketing and application engineering personnel managing and supporting our 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 sales representatives in Europe and Asia. The sales personnel manage the negotiation of license agreements, provide technical support during the sales cycle to licensees and manage delivery under the contracts.

        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, 2009, NEC, TSMC and Fujitsu represented 44%, 10% and 10% of total revenue, respectively. For the year ended December 31, 2008, NEC and TSMC represented 55% and 13% of total revenue, respectively. For the year ended December 31, 2007, NEC represented 70% of total revenue.

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, 2009, we held approximately 102 U.S. and approximately 50 foreign patents on various aspects of our technology, with expiration dates ranging from 2012 to 2027. We currently have approximately 50 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:

•

density and cost;

•

power consumption;

•

speed;

•

portability to different manufacturing processes;

•

scalability to different manufacturing process generations;

•

reliability and low manufacturing costs;

•

interface requirements;

•

the ease with which technology can be customized for and incorporated into customers' products; and

•

level of technical support provided.

11

        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 Virage Logic Corporation. Embedded DRAM is offered by major foundries and IC suppliers such as TSMC, Toshiba and International Business Machines Corporation, or 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. 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 I/O IP solutions compete with offerings from Synopsys, Inc. and other IP providers, as well as the internal design teams of customers. 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 integrated circuit.

Employees

        As of December 31, 2009, we had 152 employees, consisting of 125 in research and development and engineering, 14 in sales, marketing and application engineering and 13 in finance and administration. 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.

12

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 Company
Leonard Perham		66	President and Chief Executive Officer
James W. Sullivan		41	Vice President of Finance and Chief Financial Officer
Sundari Mitra		46	Executive Vice President of Engineering
David DeMaria		48	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. In his role at IDT, one of our early investors, Mr. Perham served on our board of directors from 1991 to 1997. 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.

        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 & 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 on June 5, 2009. Prior to joining 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

13

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.

        The future prospects of our business depend on the acceptance by our target markets of our technologies, including embedded memory applications, I/O technologies and any future technology we might develop, such as our Bandwidth Engine ICs that are currently under development. 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 with 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 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.

        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.

Our lengthy 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

14

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 1Gbps. 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.

        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 products requiring SoCs, such as cellular phones, game consoles, personal data assistants (PDAs), digital cameras, digital media players, network switches, storage systems and computer systems. 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. We believe that we are currently in such a downturn. 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

15

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 $20.0 million for the year ended December 31, 2009 and ended the period with an accumulated deficit of $53.6 million. In addition, we recorded operating losses of $20.7 million and $13.6 million for the years ended December 31, 2008 and 2007, respectively. We may continue to incur operating losses for the foreseeable future as we invest in the development of our Bandwidth Engine IC 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 uncertainties regarding the viability of our 1T-Flash technology, we cannot be certain that we will be able to achieve profitability on either a quarterly or annual basis in the future.

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 the Bandwidth Engine to market successfully nor be successful in selling the Bandwidth Engine due to various risks and uncertainties, including, but not limited to:

•

customer acceptance of the Bandwidth Engine ICs;

•

difficulties and delays in the development, production, testing and marketing of the Bandwidth Engine ICs;

•

the anticipated costs and technological risks of developing and bringing ICs to market;

•

the willingness of our manufacturing partners to assist successfully with the fabrication of Bandwidth Engine ICs;

•

the availability of quantities of ICs supplied by our manufacturing partners at a competitive cost;

•

our ability to generate the desired gross margin percentages and return on our product development investment;

•

competition for our Bandwidth Engine ICs from established IC suppliers;

•

the adequacy of our intellectual property protection for our proprietary IC designs and technologies;

•

the vigor and growth of markets served by licensees, customers and prospects and of our operations; and

•

our lack of recent experience as a fabless semiconductor company making and selling proprietary ICs.

16

        If we experience significant delays in bringing the Bandwidth Engine to market or if the initial Bandwidth Engine product is not successful, we may need to raise additional capital to support the product development efforts and fund our working capital needs.

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 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 the 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, 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. For the year ended December 31, 2007, one customer represented 70% of total revenue. We expect that a relatively small number of licensees will continue to account for a substantial portion of our revenue for the foreseeable future.

17

        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 2009, 2008, and 2007 has come from the license fees and royalties for integrated circuits supplied by one IDM for Nintendo® gaming devices that incorporates our 1T-SRAM technology. Royalties earned from this customer represented 39%, 47%, and 41% of total revenue in 2009, 2008 and 2007, 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, 2009, four customers represented 97% 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.

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, UMC, Silterra, Ltd., and SMIC among others. 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

18

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 technology 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 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.

        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.

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, therefore able to provide a wider range of products or bundle different product offerings to attract customers and offer lower pricing. Also, 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

19

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, including 1T-Flash and I/O technologies. To date, substantially all 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 those new technologies will depend on many presently uncertain factors, including:

•

the total investment required before we can determine their commercial viability;

•

our ability to demonstrate silicon verified IP in customer product applications;

•

our ability to generate revenues in excess of development costs incurred;

•

the extent to which we may create new proprietary IP to establish entry barriers for our competitors;

•

acceptance of these technologies by our customers and the ease of integrating them with their existing or future SOC designs;

•

overall demand for these new technologies and the willingness of customers to pay significant non-recurring engineering fees and royalties in order to license them from us;

•

the length of the sales cycle, which has taken up to 24 months in the case of our existing 1T-SRAM technology; and

•

the potential introduction by our competitors of alternative products with better or comparable features or at a lower price.

        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 and 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

20

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—

•

identify target markets and relevant emerging technological trends, including new standards and protocols;

•

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

•

enable the incorporation of enhanced technology in our licensees' and customers' products on a timely basis and at competitive prices;

•

implement our technology at future manufacturing process generations; and

•

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

        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. For example, on March 31, 2004, we were sued by UniRAM Technology, Inc. in United States District Court for the Northern District of California based on claims of patent infringement and misappropriation of trade secrets that were allegedly disclosed by UniRAM to TSMC, which allegedly improperly provided them to us. In the fourth quarter of 2006, we settled this litigation and paid $2.4 million to UniRAM. Our 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, particularly patent litigation such as the UniRAM suit, 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 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 implemented a royalty audit process, in which we audit licensees' records on a rotation plan in accordance with the terms of the agreement, to attempt to verify the information provided to us in the royalty reports. 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.

21

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 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 protect adequately 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, 2009, we held approximately 102 patents in the United States, and approximately 50 corresponding foreign patents, which expire at various times from 2012 to 2027. In addition, as of December 31, 2009, we had approximately 50 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. Some of our license agreements include provisions waiving implied warranties regarding our technology 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.

22

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 152 employees in December 2009, 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 the Atmel and LDIC acquisitions, 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:

•

implement and manage new marketing channels to penetrate different and broader markets for our technologies;

•

manage an increasing number of complex relationships with licensees and co-marketers and their customers and other third parties;

•

expand our capabilities to deliver our technologies to our customers;

•

improve our operating systems, procedures and financial controls on a timely basis;

•

hire additional key management and technical personnel; and

•

expand, train and manage our workforce and, in particular, our development, sales, marketing and support organizations.

        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:

•

foreign currency exchange fluctuations;

•

unanticipated changes in local regulation;

•

potentially adverse tax consequences, such as withholding taxes;

•

political and economic instability; and

•

reduced or limited protection of our intellectual property.

        Because we anticipate that licenses to companies that operate primarily outside the United States will 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.

23

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.

        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 have adopted a stockholder rights plan, which entitles our stockholders to rights to acquire additional shares of our common stock generally 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. In 2004, we amended our stockholder rights plan twice; once, in connection with the proposed acquisition of us by Synopsys, Inc, and a second time 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. Notwithstanding amendments of this nature, our intention is to maintain and enforce the terms of this plan, which could delay, deter or prevent an investor from acquiring us in a transaction that could otherwise result in stockholders receiving a premium over the market price for their shares of common stock.

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

        We cannot assure you that there will continue to be an active trading market for our common stock. 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

24

and resources, harm our reputation in the industry and the securities markets and negatively impact our operating results.

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 have 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. The total cost of this shutdown was approximately $1.6 million, which is 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:

•

uncertainty related to future revenues;

•

increased operating expenses and cost structure;

•

integration of the acquired employees, operations, technologies and products with our existing business and products;

•

focusing management's time and attention on our core business;

•

retention of business relationships with suppliers and customers of the acquired business;

•

entering markets in which we lack prior experience;

•

retention of key employees of the acquired business;

•

difficulties and delays in the further development, production, testing and marketing of the acquired technologies; and

•

amortization of intangible assets, write-offs, stock-based compensation and other charges relating to the acquired business and our acquisition costs.

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 with the production of the Bandwidth Engine family of ICs. Our goal is to increase our total available market by creating high-performance integrated circuits for networking systems. We may not achieve these and other anticipated benefits as the result of various risks and uncertainties, including, but not limited to, the following:

•

the extent of customer acceptance of the Bandwidth Engine ICs;

•

difficulties and delays in the development, production, testing and marketing of the Bandwidth Engine ICs;

•

the anticipated costs and technological risks of developing and bringing ICs to market;

•

the willingness of our manufacturing partners to assist with the successful fabrication of Bandwidth Engine ICs;

•

the availability of quantities of ICs supplied by our manufacturing partners at a competitive cost;

•

our ability to generate the desired gross margin percentages and return on our product development investment;

25

•

competition for our Bandwidth Engine ICs from established IC suppliers;

•

the adequacy of our intellectual property protection for our proprietary IC designs and technologies;

•

the vigor and growth of markets served by licensees, customers and prospects and of our operations; and

•

our lack of recent experience as a fabless semiconductor company making and selling proprietary ICs.

Our investments in auction-rate securities are subject to risks which may cause losses and affect the liquidity of these investments.

        As of December 31, 2009, we held $7.9 million (net of $1.1 million in realized losses) of investments, classified as short-term investments, with an auction reset feature, or auction-rate securities, whose underlying assets were primarily in student loans. Most of the issuers of our auction-rate securities had a AAA credit rating as of December 31, 2009. Auctions for all of these auction-rate securities failed in early 2008, which means that the parties wishing to sell their securities could not do so as a result of a lack of buying demand. To date, $0.1 million of these auction-rate securities have been sold. As a result of auction failures, our ability to liquidate and fully recover the carrying value of our auction-rate securities was limited. In November 2008, we accepted an offer from UBS Financial Services, Inc. (UBS) under which UBS will purchase the auction-rate securities from us, at our election, at par value at any time during the period from June 30, 2010 to July 2, 2012. If we do not make this election, the auction-rate securities will continue to accrue and pay interest, as determined by the auction process, or if the auction process fails, the terms specified in the prospectuses for the auction-rate securities. UBS's obligations under the offer are not secured by its assets and do not require UBS to obtain any financing to complete its purchase of those securities. UBS has disclaimed any assurance that it will have sufficient financial resources to satisfy its obligations under the offer. If UBS has insufficient funding to buy back the auction-rate securities and the auction process continues to fail, then we may incur further losses on the carrying value of the auction-rate securities.

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 Sunnyvale, California. We currently occupy approximately 26,000 square feet of space in the Sunnyvale facility, the lease for which extends through June 2010. 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

26

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		Low
December 31, 2009	$	4.04	$	2.19
September 30, 2009	$	2.75	$	1.47
June 30, 2009	$	2.00	$	1.39
March 31, 2009	$	2.28	$	1.22
December 31, 2008	$	4.12	$	1.75
September 30, 2008	$	4.85	$	3.92
June 30, 2008	$	5.78	$	4.02
March 31, 2008	$	5.00	$	3.37

        We had 24 stockholders of record as of February 26, 2010.

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.

27

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,
		2009(2)			2008(3)			2007(4)			2006(5)			2005(6)
		(In thousands, except per share data)
Income Statement Data(1):
Total net revenue		$	11,458		$	14,026		$	14,334		$	14,909		$	12,282
Cost of net revenue			1,993			2,797			2,744			1,585			1,986
Gross profit			9,465			11,229			11,590			13,324			10,296
Operating expenses			29,468			31,925			25,180			22,476			15,880
Loss from operations			(20,003	)		(20,696	)		(13,590	)		(9,152	)		(5,584	)
Other income, net			744			2,243			4,520			3,286			2,591
Loss before income taxes			(19,259	)		(18,453	)		(9,070	)		(5,866	)		(2,993	)
Income tax benefit (provision)			155			(132	)		(25	)		(109	)		11
Net loss		$	(19,104	)	$	(18,585	)	$	(9,095	)	$	(5,975	)	$	(2,982	)
Net loss per share:
	Basic and diluted	$	(0.61	)	$	(0.59	)	$	(0.28	)	$	(0.19	)	$	(0.10	)
Shares used in computing net loss per share:
	Basic and diluted		31,238			31,698			31,994			31,298			30,534
Allocation of stock-based compensation to cost of net revenue and operating expenses:
	Cost of net revenue	$	250		$	405		$	502		$	312		$	—
	Research and development		1,153			1,235			1,377			1,192			—
	Selling, general and administrative		1,651			3,103			2,461			1,879			36
		$	3,054		$	4,743		$	4,340		$	3,383		$	36

	Year Ended December 31,
	2009		2008		2007		2006		2005
	(In thousands)
Balance Sheet Data(1):
Cash, cash equivalents and investments	$	40,436	$	67,470	$	78,654	$	84,299	$	85,989
Working capital		25,398		43,304		66,262		84,698		68,179
Total assets		75,773		85,933		98,797		103,760		103,637
Deferred revenue		2,901		639		201		619		1,309
Long-term liabilities		136		—		—		54		196
Stockholders' equity		64,701		81,888		96,292		100,915		99,332

(1)

In the fourth quarter of 2009, the Company identified a calculation error in the third-party software it uses for stock administration. The calculation errors resulted in an understatement of previously reported non-cash stock-based compensation expense for 2008, 2007 and 2006 and changed the timing of stock-based compensation expense. The cumulative effect of this error on the Company's net loss was determined to be immaterial to previously reported financial results. The Company has retroactively corrected the impacts of the calculation error on the consolidated financial statements presented above for the years ended December 31, 2008, 2007 and 2006 (See

28

Note 4 in the Notes to Consolidated Financial Statements for the impact of the revisions on the years ended December 31, 2008 and 2007). The impact on stock-based compensation for 2006 was $0.6 million.

(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.

(6)

Operating expenses include restructuring charges of $0.1 million.

29

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 I/O intellectual property, or IP, for advanced Systems on Chips, or SoC, designs. Our patented memory solutions include 1T-SRAM and 1T-Flash high-density and/or high performance alternatives to traditional volatile and non-volatile embedded memory. Our I/O IP includes physical layer (PHY) circuitry that allows integrated circuits to talk to each other or to discrete memory devices like DDR3 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 the third quarter of 2007, we acquired analog/mixed-signal integrated circuit designs, intellectual property, related assets and subsidiaries from Atmel and LDIC. In December 2008, as part of our initiative to exit unprofitable and non-core product lines, we announced our plan to cease all further work and sales activities on the acquired analog/mixed-signal products, closed our subsidiaries in China and Romania, and eliminated approximately 90 employees in the first half of 2009. We incurred restructuring and asset impairment charges of $0.3 million and $2.7 million in 2009 and 2008, respectively, related to this product line exit.

        In June 2009, we completed the acquisition of substantially all the assets and business of Prism Circuits, Inc. (Prism Circuits), a provider of high-speed parallel and serial I/O technology. The acquisition significantly expanded our product portfolio by adding high speed multi-protocol compliant interface technology, which enables communication between semiconductors in a system. We believe the integration of our patented memory IP and the newly acquired differentiated interface technology will allow us to provide a more comprehensive and competitive solution to our customers, especially in the networking and communications markets. With the acquisition, we added over 50 engineers experienced in interface technology development and analog/mixed-signal applications. We paid Prism Circuits $15.0 million in cash (reduced by approximately $1.4 million of cash we acquired) at closing and assumed certain of its liabilities as consideration for the acquired assets. We also agreed to pay up to an additional $6.5 million of cash as an earn-out payment shortly after the first anniversary of the closing date, contingent upon our achievement of certain objectives relating to the Prism Circuits business during that twelve-month period. To the extent earned, any earn-out payment will likely be paid in the third quarter of 2010. In addition, in June and July 2009, we granted options to purchase 3.6 million shares of our common stock to the newly hired Prism Circuits employees.

30

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 complexity of the development project, and the extent of the licensee's rights. The licensee generally pays the license fees in installments at the beginning of the license term and upon the attainment of specified milestones. 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 generally 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 generally 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 Part II, Item 8 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.

31

Revenue Recognition

General

        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

        Licensing revenue consists of fees earned from license agreements, development services and support and maintenance. For license agreements that do not require significant development, modification or customization, revenues are generally recognized when the revenue recognition criteria have been met. 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 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. 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 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. For the year ended December 31, 2009, we recorded a loss accrual of $24,000 for one agreement. For the year ended December 31, 2008, we recorded loss accruals on two agreements for a total of $256,000. No loss accruals were recorded during the year ended December 31, 2007. 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 we have not previously met or if inherent risks make estimates doubtful, the contract is accounted for under the completed contract method, and we defer 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 we have experience in meeting design

32

specifications but do not have significant experience to reasonably estimate the direct labor hours related to services to meet a design specification, we defer both the recognition of revenue and the cost. No revenue was recognized under the completed contract method for the years ended December 31, 2009 and 2008. We recognized $128,000 of revenue under the completed contract method in 2007.

        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. No revenue from prepaid production royalties was recognized in 2009, 2008 and 2007.

Royalty

        Our licensing contracts typically also provide for royalties based on licensees' use of our 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 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.

Fair Value Measurements of Financial Instruments

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

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

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

33

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

Valuation of long-lived Assets

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

Goodwill

        We review goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. We use a two-step impairment test. In the first step, we compare the fair value of each reporting unit to its carrying value. The fair value of each 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 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 performed the annual impairment test during the third quarter of 2009, and the test did not indicate impairment of goodwill. As of December 31, 2009, we had not identified any factors to indicate there was an impairment of our goodwill. If our 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.

Deferred tax valuation allowance

        When we prepare our consolidated financial statements, we estimate our income tax liability for each of the various jurisdictions where we conduct business. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting purposes. These differences result in deferred tax assets, which we show on our consolidated balance sheet under the category of other current assets. The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We must make significant judgments to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset. As of December 31, 2009, we had a valuation allowance of approximately $25.6 million, of which $21.6 million was attributable to U.S. and state net operating losses and tax credit carryforwards and $4.0 million to other temporary differences.

34

Stock-based compensation

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

Results of Operations

        In the fourth quarter of 2009, we identified a calculation error in the third-party software we use for stock administration. The calculation errors resulted in an understatement of previously reported non-cash stock-based compensation expense for the first three quarters of 2009, as well as 2008, 2007 and 2006, and changed the timing of stock-based compensation expense. The cumulative effects of this error on our net losses were determined to be immaterial to previously reported financial results. We have retroactively corrected the amount of such expenses and our net loss for 2008 and 2007 in the discussion below, which compares the historical results of operations based on U.S. generally accepted accounting principles for the years ended December 31, 2009, 2008 and 2007 (See Note 4 to the Consolidated Financial Statements included in Item 15 of this Report).

Net Revenue.

	Year ended December 31,									Year-Over-Year Change
	2009			2008			2007			2008 to 2009				2007 to 2008
	(dollar amounts in thousands)
Licensing	$	3,476		$	3,156		$	5,253		$	320	10	%	$	(2,097	)	(40	)%
Percentage of total net revenue		30	%		23	%		37	%

        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 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.

        The $2.1 million decrease in 2008 was primarily due to a decline in the value of license agreements for our 1T-SRAM licenses compared with 2007, although the total number of licensees increased in 2008. Specifically, we signed five new licenses for our 1T-SRAM display driver interface application, which had lower license fees than our traditional 1T-SRAM.

	Year ended December 31,									Year-Over-Year Change
	2009			2008			2007			2008 to 2009					2007 to 2008
	(dollar amounts in thousands)
Royalty	$	7,982		$	10,870		$	9,081		$	(2,888	)	(27	)%	$	1,789	20	%
Percentage of total net revenue		70	%		77	%		63	%

        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

35

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.

        Royalty revenue increased $1.8 million in 2008 primarily due to an increase in royalties earned on the sales of SoCs incorporating our technology by an IDM licensee for the Nintendo Wii game console, an increase in royalties received from a major foundry partner as production on the 65nm manufacturing process increased, and royalties received from a major OEM customer that licenses our 1T-SRAM for advanced mobile phone applications. The increases were offset by decreased royalties received from licensees with products incorporating older generation technologies, such as products manufactured on the 180nm and 130nm processes.

Cost of Net Revenue and Gross Profit.

	Year ended December 31,									Year-Over-Year Change
	2009			2008			2007			2008 to 2009					2007 to 2008
	(dollar amounts in thousands)
Cost of net revenue	$	1,993		$	2,797		$	2,744		$	(804	)	(29	)%	$	53	2	%
Percentage of total net revenue		17	%		20	%		19	%

        Cost of net revenue consists of personnel costs for engineers assigned to revenue-generating licensing arrangements and related overhead allocation costs.

        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. We expect that 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 process, which require more development effort. We expect cost as a percentage of total net revenue to increase, as well, from levels in 2009 and 2008.

        The increase in cost of net revenue for 2008 was primarily due to licensing arrangements for our 1T-SRAM for use in display driver applications, which required the development of new macros for new foundry processes. Cost of net revenue in 2008 included stock-based compensation expense of $0.4 million, a decrease of $0.1 million compared with 2007. As a result of the increased engineering costs to fulfill our delivery obligations, our gross profit decreased from $11.6 million in 2007 to $11.2 million in 2008 and, as a percentage of total net revenue, decreased slightly to 80% of total net revenue in 2008 from 81% in 2007.

Research and Development.

	Year ended December 31,									Year-Over-Year Change
	2009			2008			2007			2008 to 2009				2007 to 2008
	(dollar amounts in thousands)
Research and development	$	19,255		$	17,206		$	12,203		$	2,049	12	%	$	5,003	41	%
Percentage of total net revenue		168	%		123	%		85	%

        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

36

Engine IC and amortization of intangible assets. In 2009, 2008 and 2007, we incurred costs of $0.4 million, $5.8 million and $3.1 million, respectively, related to our former analog/mixed-signal product lines. We expense research and development costs as they are incurred.

        The $2.0 million increase in 2009 resulted from a number of operational changes in 2008 and 2009, including the following:

•

$5.1 million increase in costs related to the operations acquired from Prism Circuits;

•

$1.2 million increase in costs related to acquisition-related contingent compensation charges;

•

$0.7 million increase in amortization costs related to acquired intangible assets; partially offset by a

•

$4.1 million decrease in costs related to the analog/mixed-signal product lines resulting from the exit of these product lines which was completed in the first quarter of 2009;

•

$0.6 million decrease in costs related to the closure of our facility in Korea in June 2009; and

•

$0.2 million less in foundry charges related to silicon validation of our designs due to the decline in engineering under license agreement.

        The $5.0 million increase in 2008 was primarily due to the combination of the following factors:

•

$3.1 million increase, primarily personnel-related, attributable to the analog/mixed-signal product lines acquired at the beginning of the third quarter of 2007;

•

$0.8 million increase in costs attributable to the expansion of our engineering team working on our non-volatile 1T-Flash memory technology and 1T-SRAM display driver interface applications;

•

$0.7 million increase in foundry charges to complete validation of our designs in silicon;

•

$0.3 million increase in amortization of purchased intangible assets from the Atmel and LDIC acquisitions; and

•

$0.3 million increase in license costs for our CAD tools; offset by a

•

$0.1 million decrease in stock-based compensation expense; and

•

$0.1 million decrease in other individually minor items.

        Research and development expenses included stock-based compensation expense of $1.2 million for each of the years ended December 31, 2009 and 2008. Research and development expenses included stock-based compensation expense of $1.4 million for the year ended December 31, 2007. The calculation error affecting stock-based compensation resulted in increasing research and development expense by $38,000 and $215,000 for the years ended December 31, 2008 and 2007, respectively. We expect that research and development expenses will increase in absolute dollars as we invest in new product development for our embedded memory and I/O technologies and development of the Bandwidth Engine.

37

Selling, General and Administrative.

	Year ended December 31,									Year-Over-Year Change
	2009			2008			2007			2008 to 2009					2007 to 2008
	(dollar amounts in thousands)
Selling, general and administrative	$	9,507		$	12,006		$	12,011		$	(2,499	)	(21	)%	$	(5	)	—	%
Percentage of total net revenue		83	%		86	%		84	%

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

•

$1.5 million decrease in stock-based compensation expense;

•

$0.7 million decrease in personnel-related costs, primarily due to headcount reductions;

•

$0.3 million decrease in marketing activities;

•

$0.2 million decrease in sales expenses and commissions;

•

$0.1 million decrease in other individually minor items; and

•

$0.3 million increase in acquisition transaction costs, primarily legal and accounting fees, related to the acquisition of Prism Circuits in the second quarter of 2009.

        Expense for 2008, as corrected for the calculation error related to stock-based compensation, was approximately the same as 2007. Operational changes were as follows:

•

$0.6 million increase in stock-based compensation expense;

•

$0.4 million expense reduction attributable to the 2008 reversal of bad debt expense recorded in 2007;

•

$0.3 million increase attributable to the hiring of additional personnel to expand our sales and marketing organizations to enhance our global presence and add analog/mixed-signal expertise;

•

$0.3 million reduction in legal costs;

•

$0.3 million reduction in personnel costs in the general and administrative function due to lower headcount; and

•

$0.1 million increase in individually minor items.

        Selling, general and administrative expenses included stock-based compensation expense of $1.7 million, $3.1 million and $2.5 million for the years ended December 31, 2009, 2008 and 2007, respectively. The calculation error affecting stock-based compensation resulted in increasing selling, general and administrative expense by $131,000 and $352,000 for the years ended December 31, 2008 and 2007, respectively. We expect total selling, general and administrative expenses to increase in absolute dollars due to an increase in sales and field applications personnel and related costs, higher legal costs related to patent and trademark activity and marketing efforts related to the expected introduction of the Bandwidth Engine IC in late 2010.

38

Impairment of Intangible Assets and Restructuring Charges.

	Year ended December 31,								Year-Over-Year Change
	2009			2008			2007		2008 to 2009					2007 to 2008
	(dollar amounts in thousands)
Impairment of intangible assets and restructuring charges	$	706		$	2,713		$	—	$	(2,007	)	(74	)%	$	2,713	100	%
Percentage of total net revenue		6	%		19	%		—

        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 $0.2 million were recorded in connection with the plan to exit the leased facility that had been occupied by Prism Circuits.

        In the fourth quarter of 2008, we initiated a plan to exit the unprofitable analog/mixed-signal product lines, which we had acquired in 2007 through asset purchase agreements with Atmel and LDIC. In connection with these asset purchases, we had recorded intangible assets, which were being amortized over three to five years. As a result of the plan to exit these product lines, the remaining book value of these intangible assets of $1.4 million was considered to have no future value and deemed impaired, as no future cash flows would be generated. The remaining net book value, as of the date of management's announcement to exit the product lines, was written off. This plan resulted in the elimination of approximately 90 employees, mainly located in our subsidiaries in China and Romania. The total costs in 2008 associated with the restructuring were $1.3 million, primarily related to accrued employee severance and the write-off of computer equipment and other assets. In the first quarter of 2009, we incurred an additional $0.3 million related to this exit initiative, primarily in the form of facility-related exit costs.

        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 related to these closures are expected to be paid in the first half of 2010.

Other Income, net.

	Year ended December 31,									Year-Over-Year Change
	2009			2008			2007			2008 to 2009					2007 to 2008
	(dollar amounts in thousands)
Other income, net	$	744		$	2,243		$	4,520		$	(1,499	)	(67	)%	$	(2,277	)	(50	)%
Percentage of total net revenue		6	%		16	%		32	%

        Other income, net primarily consisted of interest income on our investments, which was $0.9 million, $2.3 million and $4.5 million for the years ended December 31, 2009, 2008 and 2007, respectively. Interest income declined by $1.4 million in 2009 primarily due to lower average investment balances and lower interest rates earned, as we transferred most of our cash into higher credit quality investments, such as money market funds that invest in securities of the U.S. government and its agencies that paid interest at lower rates.

39

Income Tax Benefit (Provision).

	Year ended December 31,									Year-Over-Year Change
	2009			2008			2007			2008 to 2009				2007 to 2008
	(dollar amounts in thousands)
Income tax benefit (provision)	$	155		$	(132	)	$	(25	)	$	287	217	%	$	(107	)	428	%
Percentage of total net revenue		1	%		1	%		—

        Our income tax benefit was primarily attributable to federal tax credits. Our income tax provisions were primarily attributable to foreign jurisdictions.

        As of December 31, 2009, we had net operating loss carryforwards of approximately $41.6 million for federal income tax purposes and approximately $39.4 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 2029. 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, 2009 and 2008, we had gross deferred tax assets of approximately $25.6 million and $24.8 million, respectively. Because of uncertainties regarding the realization of deferred tax assets, we had recorded a full valuation allowance as of December 31, 2009 and 2008.

Liquidity and Capital Resources

        As of December 31, 2009, we had cash, cash equivalents and investments totaling $40.4 million compared with a combined balance of $67.5 million at December 31, 2008. Our primary capital requirements are to fund working capital and any acquisitions that we make which require cash consideration or expenditures. Contingent upon meeting specified earn-out milestones, we are obligated to pay up to an additional $6.5 million of cash to Prism Circuits in 2010.

        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 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 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.

        Cash used in financing activities 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

40

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:

•

level and timing of licensing and royalty revenue;

•

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

•

fabrication costs, including mask costs, of our Bandwidth Engine integrated circuits, currently under development;

•

market acceptance of our existing and future technologies and products;

•

competing technological and market developments;

•

cost of maintaining and enforcing patent claims and intellectual property rights;

•

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

•

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

•

profitability of our business.

        Although we expect our cash expenditures to continue to exceed receipts in 2010 as we continue to expand research and development efforts for our 1T-SRAM and 1T-Flash technologies and the newly introduced 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. We cannot be certain, however, that we will not require additional financing at some point in time. Should our cash resources prove inadequate, we may need to raise additional funding through public or private financings. 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, 2009 are expected to have on our liquidity and cash flow in future periods is as follows:

	Payment Due by Period
	Total		Less than 1 year		1-3 years		More than 3 years
Operating Leases	$	1,059	$	484	$	283	$	292
Purchase Commitments		2,422		1,102		1,320		—
Capital Lease		248		91		157		—
	$	3,729	$	1,677	$	1,760	$	292

        As of December 31, 2009, the Company had purchase commitments of $2.4 million for licenses related to computer-aided design tools payable through January 2013 and a $0.2 million capital lease obligation for testing equipment.

41

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 amounts are reflected in our consolidated financial statements for 2009, 2008 or 2007 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.

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.

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

        None.

Item 9A.    Controls and Procedures

(a)

Management's Annual Report on Internal Control over Financial Reporting

        MoSys, Inc.'s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f)) under the Securities Exchange Act of 1934. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009. This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report in this annual report.

42

(b)

Evaluation of Disclosure Controls and Procedures

        Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our management concluded that as of December 31, 2009, our disclosure controls and procedures were effective.

(c)

Changes in Internal Control over Financial Reporting

        There were no changes in our internal control over financial reporting during the fourth fiscal quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

        None.

43

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 2010 Annual Meeting of Stockholders to be held on or about June 15, 2010, which information is incorporated into this report by reference. However, certain information regarding current executive officers found under the heading "Executive Officers" in Item 1 of Part I hereof is also incorporated by reference in response to this Item 10.

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

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

Item 11.    Executive Compensation

        Information required to be provided in response to this item will be presented in our definitive proxy statement for our 2010 Annual Meeting of Stockholders to be held on or about June 15, 2010, 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 2010 Annual Meeting of Stockholders to be held on or about June 15, 2010, 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 2010 Annual Meeting of Stockholders to be held on or about June 15, 2010, 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 2010 Annual Meeting of Stockholders to be held on or about June 15, 2010, which information is incorporated into this report by reference.

44

Part IV

Item 15.    Exhibits and Financial Statement Schedules

(a)

The following documents are filed as part of this report:

(1)

Financial Statements and Report of Independent Registered Public Accounting Firm, which are set forth in the index to Consolidated Financial Statements on pages 50 through 81 of this report.

Report of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.	50
Consolidated Balance Sheets	51
Consolidated Statements of Operations	52
Consolidated Statements of Stockholders' Equity	53
Consolidated Statements of Cash Flows	54
Notes to Consolidated Financial Statements	55

(2)

Financial Statement Schedule—Schedule II—Valuation and Qualifying Accounts



(3)

Exhibits

2.1(1)	Merger Agreement regarding the Registrant's reincorporation in Delaware
2.2	Not currently in use
2.3(13)	Agreement for the Purchase and Sale of Assets of Prism Circuits, Inc., dated as of June 5, 2009
2.4	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, 2010
3.1	Not currently in use
3.2	Not currently in use
3.3(1)	Restated Certificate of Incorporation of the Registrant
3.3.1	Certificate of Amendment to Restated Certificate of Incorporation
3.4(3)	Amended and Restated Bylaws of the Registrant
4.1(1)	Specimen common stock certificate
4.2	Not currently in use
4.3(1)	Rights Agreement
4.3.1(4)	First Amendment to Rights Agreement, dated as of February 23, 2004
4.3.2(5)	Second Amendment to Rights Agreement, dated as of December 14, 2004
10.1(1)	Form of Indemnity Agreement between the Registrant and each of its directors and executive officers
10.2	Not currently in use
10.3(1)*	1996 Stock Plan and form of Option Agreement thereunder
10.4(1)*	Form of Restricted Stock Purchase Agreement
10.5(1)*	2000 Employee Stock Option Plan and form of Option Agreement thereunder
10.5.1(6)*	Amended and Restated 2000 Equity Incentive and Stock Option Plan
10.6(1)*	2000 Employee Stock Purchase Plan and form of Subscription Agreement thereunder
10.13	Not currently in use
10.14	Not currently in use
10.15(7)*	Form of Stock Option Agreement pursuant to Amended and Restated 2000 Stock Option and Equity Incentive Plan
10.16(8)	Lease Agreement between Registrant and Sunnyvale Mathilda Investors, LLC dated as of May 6, 2005
10.17(8)*	Not currently in use

45

10.18	Not currently in use
10.19	Not currently in use
10.20	Not currently in use
10.21(9)*	Form of New Employee Inducement Grant Stock Option Agreement
10.22	Not currently in use
10.23	Not currently in use
10.24(10)*	Employment offer letter agreement and Mutual Agreement to Arbitrate between Registrant and Leonard Perham dated as of November 8, 2007
10.25.1(11)*	New Employee Inducement Grant Stock Option Agreements between Registrant and Leonard Perham dated as of November 28, 2007
10.25.2(11)*	New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of November 28, 2007
10.25.3(11)*	New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of November 28, 2007
10.26(10)*	Employment offer letter agreement between the Registrant and James Sullivan dated December 21, 2007
10.27(10)*	Change-in-control Agreement between Registrant and James Sullivan dated January 18, 2008
10.28(10)*	Not currently in use
10.29(10)*	Not currently in use
10.30(12)*	Employment offer letter agreement between Registrant and David DeMaria dated as of July 31, 2008
10.31(12)*	Change-in-control Agreement between Registrant and David DeMaria dated as of August 18, 2008
10.32(14)*	Employment offer letter agreement between Registrant and Sundari Mitra dated as of June 4, 2009
10.33*	Non-Competition Agreement between Registrant and Sundari Mitra dated as of June 5, 2009
10.34(15)*	Form of Notice of Restricted Stock Unit Award and Agreement
21.1	List of subsidiaries
23.1	Consent of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.
24.1	Power of Attorney (see signature page)
31.1	Rule 13a-14 certification
31.2	Rule 13a-14 certification
32	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 the same-numbered exhibit to the Company's report on Form 8-K/A filed on November 13, 2002.

(3)

Incorporated by reference to the same-numbered exhibit to Form 8-K filed by the Company on October 29, 2008 (Commission File No. 000-32929).

(4)

Incorporated by reference to Exhibit 9(e)(4) to Schedule 14D-9 filed by the Company on March 22, 2004 (Commission File No. 005-78033).

(5)

Incorporated by reference to Exhibit 4.01 to Form 8-K filed by the Company on December 20, 2004 (Commission File No. 000-32929).

46

(6)

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).

(7)

Incorporated by reference to the same-numbered exhibit to Form 10-Q filed by the Company on August 9, 2005 (Commission File No. 000-32929).

(8)

Incorporated by reference to the same-numbered exhibit to Form 10-K filed by the Company on March 16, 2006 (Commission File No. 000-32929).

(9)

Incorporated by reference to Exhibit 10.25 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).

(10)

Incorporated by reference to the same-numbered exhibit to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).

(11)

Incorporated by reference to the same-numbered exhibit to Form 10-Q filed by the Company on May 9, 2008 (Commission File No. 000-32929).

(12)

Incorporated by reference to the same-numbered exhibit to Form 10-Q filed by the Company on November 7, 2008 (Commission File No. 000-32929).

(13)

Incorporated by reference to the same-numbered exhibit to Form 8-K filed by the Company on June 5, 2009 (Commission File No. 000-32929).

(14)

Incorporated by reference to the same-numbered exhibit to Form 8-K filed by the Company on June 8, 2009 (Commission File No. 000-32929).

(15)

Incorporated by reference to the same-numbered exhibit to Form S-8 filed by the Company on June 4, 2009 (Commission File No. 000-32929).

*

Management contract, compensatory plan or arrangement.

47

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 26th day of March 2010.

MOSYS, INC.
By:	/s/ LEONARD PERHAM Leonard Perham President and Chief Executive Officer

POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Leonard Perham and James W. Sullivan as his true and lawful 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 26, 2010
/s/ JAMES W. SULLIVAN James W. Sullivan	Vice President of Finance and Chief Financial Officer	March 26, 2010
/s/ CARL E. BERG Carl E. Berg	Director	March 26, 2010
/s/ TOMMY ENG Tommy Eng	Director	March 26, 2010
/s/ CHI-PING HSU Chi-Ping Hsu	Director	March 26, 2010
/s/ JAMES D. KUPEC James D. Kupec	Director	March 26, 2010
/s/ CHENMING HU Chenming Hu	Director	March 26, 2010

48

MOSYS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.	50
Consolidated Balance Sheets	51
Consolidated Statements of Operations	52
Consolidated Statements of Stockholders' Equity	53
Consolidated Statements of Cash Flows	54
Notes to Consolidated Financial Statements	55
Schedule II: Valuation and Qualifying Accounts	82

49

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, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009. 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. The Company is not required to have, nor have we been engaged to perform, an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 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.

/s/ Burr Pilger Mayer, Inc.

San Jose, California
March 26, 2010

50

MOSYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

			December 31,
			2009			2008
ASSETS
Current assets
	Cash and cash equivalents		$	7,123		$	17,515
	Short-term investments			24,215			26,560
	Accounts receivable, net			739			688
	Unbilled contracts receivable			1,022			428
	Prepaid expenses and other assets			3,235			2,158
		Total current assets		36,334			47,349
Long-term investments				9,098			23,395
Property and equipment, net				1,561			958
Goodwill				23,017			12,326
Intangible assets, net				4,616			—
Other assets				1,147			1,905
		Total assets	$	75,773		$	85,933
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable		$	514		$	167
	Accrued expenses and other liabilities			1,750			2,235
	Accrued acquisition-related earn-out			5,659			—
	Accrued restructuring liabilities			112			1,004
	Deferred revenue			2,901			639
		Total current liabilities		10,936			4,045
Long-term liabilities				136			—
Commitments and contingencies (Note 12)
Stockholders' equity
	Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding			—			—
	Common stock, $0.01 par value; 120,000 shares authorized; 31,224 shares and 31,630 shares issued and outstanding at December 31, 2009 and 2008, respectively			312			317
	Additional paid-in capital			117,941			115,780
	Accumulated other comprehensive income			41			280
	Accumulated deficit			(53,593	)		(34,489	)
		Total stockholders' equity		64,701			81,888
		Total liabilities and stockholders' equity	$	75,773		$	85,933

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

51

MOSYS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

			Year Ended December 31,
			2009			2008			2007
Net revenue
	Licensing		$	3,476		$	3,156		$	5,253
	Royalty			7,982			10,870			9,081
		Total net revenue		11,458			14,026			14,334
Cost of net revenue
	Licensing			1,993			2,797			2,744
		Total cost of net revenue		1,993			2,797			2,744
Gross profit				9,465			11,229			11,590
Operating expenses
	Research and development			19,255			17,206			12,203
	Selling, general and administrative			9,507			12,006			12,011
	Impairment of intangible assets			—			1,379			—
	Restructuring charges			706			1,334			—
	In-process research and development			—			—			966
		Total operating expenses		29,468			31,925			25,180
Loss from operations				(20,003	)		(20,696	)		(13,590	)
Other income, net				744			2,243			4,520
Loss before income taxes				(19,259	)		(18,453	)		(9,070	)
Income tax benefit (provision)				155			(132	)		(25	)
Net loss			$	(19,104	)	$	(18,585	)	$	(9,095	)
Net loss per share
	Basic and diluted		$	(0.61	)	$	(0.59	)	$	(0.28	)
Shares used in computing net loss per share
	Basic and diluted			31,238			31,698			31,994

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

52

MOSYS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

	Common Stock									Accumulated Other Comprehensive Income (Loss)
							Additional Paid-In Capital						Accumulated Deficit
	Shares			Amount												Total
Balance at January 1, 2007		31,638		$	316		$	107,487		$	(79	)	$	(6,809	)	$	100,915
Issuance of Common Stock upon exercise of options		639			6			2,919			—			—			2,925
Repurchase of Restricted Common Stock		(5	)		—			(35	)		—			—			(35	)
Repurchase of Common Stock		(883	)		(8	)		(5,015	)		—			—			(5,023	)
Issuance of Common Stock in connection with asset purchase		500			5			2,118			—			—			2,123
Stock-based compensation		—			—			4,368			—			—			4,368
Other comprehensive loss—change in unrealized gain on available-for-sale investments		—			—			—			114			—			114
Net loss		—			—			—			—			(9,095	)		(9,095	)
Comprehensive loss																	(8,981	)
Balance at December 31, 2007		31,889			319			111,842			35			(15,904	)		96,292
Issuance of Common Stock upon exercise of options		48			1			183			—			—			184
Repurchase of Restricted Common Stock		(32	)		—			(16	)		—			—			(16	)
Repurchase of Common Stock		(275	)		(3	)		(972	)		—			—			(975	)
Stock-based compensation		—			—			4,743			—			—			4,743
Other comprehensive loss—change in unrealized gain on available-for-sale investments		—			—			—			245			—			245
Net loss		—			—			—			—			(18,585	)		(18,585	)
Comprehensive loss																	(18,340	)
Balance at December 31, 2008		31,630			317			115,780			280			(34,489	)		81,888
Issuance of Common Stock upon exercise of options		26			—			40			—			—			40
Repurchase of Restricted Common Stock		(3	)		(1	)		(7	)		—			—			(8	)
Repurchase of Common Stock		(429	)		(4	)		(926	)		—			—			(930	)
Stock-based compensation		—			—			3,054			—			—			3,054
Other 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	)	$	64,701

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

53

MOSYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

				Year Ended December 31,
				2009			2008			2007
Cash flows from operating activities:
	Net loss			$	(19,104	)	$	(18,585	)	$	(9,095	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			857			714			630
		Amortization of intangible assets			1,464			742			394
		Stock-based compensation			3,054			4,743			4,340
		Impairment of intangible assets			—			1,379			—
		Non-cash restructuring charges			122			330			—
		In-process research and development			—			—			966
		Provision for doubtful accounts			47			—			225
		(Gain) loss on sale of investments			(33	)		(20	)		2
	Changes in assets and liabilities, net of assets acquired:
		Accounts receivable			742			207			1,371
		Unbilled contracts receivable			1,921			90			(158	)
		Prepaid expenses and other assets			(307	)		311			650
		Deferred revenue			(39	)		438			(418	)
		Accounts payable			34			13			(161	)
		Accrued expenses and other liabilities			381			77			157
		Accrued restructuring liabilities			(878	)		1,004			—
			Net cash used in operating activities		(11,739	)		(8,557	)		(1,097	)
Cash flows from investing activities:
	Purchases of property and equipment				(1,103	)		(484	)		(988	)
	Net cash paid for purchase of Prism Circuits, Inc.				(13,563	)		—			—
	Purchases of intangible and other assets				—			—			(1,539	)
	Proceeds from sales and maturities of marketable securities				48,804			70,354			248,593
	Purchases of marketable securities				(31,893	)		(80,664	)		(216,281	)
			Net cash provided by (used in) investing activities		2,245			(10,794	)		29,785
Cash flows from financing activities:
	Proceeds from issuance of common stock				40			184			2,925
	Repurchase of common stock				(938	)		(991	)		(5,058	)
			Net cash used in financing activities		(898	)		(807	)		(2,133	)
Net (decrease) increase in cash and cash equivalents					(10,392	)		(20,158	)		26,555
Cash and cash equivalents at beginning of year					17,515			37,673			11,118
Cash and cash equivalents at end of year				$	7,123		$	17,515		$	37,673
Supplemental disclosure:
	Cash paid for income taxes			$	24		$	38		$	59
	Transaction fees paid for repurchase of common stock			$	13		$	8		$	44
	Stock issued for purchase of intangible assets			$	—		$	—		$	2,123
	Property and equipment acquired through capital lease			$	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 financial statements.

54

MOSYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: The Company and Summary of Significant Accounting Policies

The Company

        MoSys, Inc., or 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.

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 of America 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, 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 deposits, auction-rate securities, 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, excluding auction-rate securities, are classified as available-for-sale. The Company's 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, net line item in the consolidated statements of operations. The cost of securities sold is based on the specific identification method.

        During the fourth quarter of fiscal 2008, the Company reclassified its auction-rate securities from available-for-sale to trading securities. Investments that the Company designates as trading securities are reported at fair value, with gains or losses which result from changes in fair value recognized in earnings (see Note 3).

55

Fair Value Measurements

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

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

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

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

Allowance for Doubtful Accounts

        The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates. A specific allowance of up to 100% of the invoice value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral from its customers. The Company grants credit only to customers deemed 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 $93,000 and $75,000 at December 31, 2009 and 2008, respectively. No amounts were written off in the years ended December 31, 2009, 2008 and 2007.

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 contract receivable. At December 31, 2009 the unbilled contracts receivable balance primarily related to future billings on contracts acquired from Prism Circuits, Inc. (see Note 5).

Property and Equipment

        Property and equipment are originally recorded at cost. Depreciation is generally 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.

56

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 three 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 5 and 6 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 the acquisition of Prism Circuits, Inc. (see Note 5) were as follows as of December 31, 2009 (dollar amounts in thousands):

		Life (years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Developed technology			3	$	4,800	$	910	$	3,890
Customer relationships			3		390		74		316
Contract backlog			1		750		427		323
Non-compete agreements			1.5		140		53		87
	Total			$	6,080	$	1,464	$	4,616

        There was no intangible asset balance at December 31, 2008.

        For the years ended December 31, 2009, 2008 and 2007, amortization expense was $1.5 million, $0.7 million and $0.4 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 $2.1 million for 2010, $1.7 million for 2011 and $0.8 million for 2012.

Goodwill

        The Company reviews goodwill for impairment annually in the third quarter and 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 each reporting unit to its carrying value. For step one, the Company determines the fair value of its reporting unit using the market approach. Under the market approach, the Company estimates the fair value based on the market value of the reporting unit at the entity level. If the fair value of the reporting unit exceeds the carrying value of net assets to 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 to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step in order to determine the implied fair value of the reporting unit's goodwill and compare it to the carrying value of the reporting unit's goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, then the Company must record an impairment loss equal to the difference. As of December 31, 2009, the Company had not identified any factors to indicate there was an impairment of goodwill. If the Company's stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods.

57

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

	Carrying value
Balance as of December 31, 2008	$	12,326
Acquisition of Prism Circuits, Inc. (See Note 5)		10,691
Balance as of December 31, 2009	$	23,017

Revenue Recognition

General

        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

        Licensing revenue consists of fees earned from license agreements, development services and support and maintenance. For license agreements that do not require significant development, modification or customization, revenues are generally recognized when the revenue recognition criteria have been met. 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 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 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. For the year ended December 31, 2009, the Company recorded a loss accrual of $24,000 for one agreement. For the

58

year ended December 31, 2008, the Company recorded loss accruals on two agreements for a total of $256,000. No loss accruals were recorded during the year ended December 31, 2007. 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, 2009, 2008 and 2007.

        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 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 cancelled contracts for the years ended December 31, 2009, 2008 and 2007.

        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. No revenue from prepaid production royalties was recognized for the years ended December 31, 2009, 2008 and 2007.

Royalty

        The Company's licensing contracts typically also provide for royalties based on licensees' use of the Company's memory technology in their currently shipping commercial products. The Company generally recognizes royalties in the quarter in which it receives the licensee's report. Under limited

59

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:

•

If licensing revenue is recognized using the percentage of completion method, the associated cost of licensing revenue is recognized in the period in which the Company incurs the engineering costs.

•

If licensing revenue is recognized using the completed contract method, to the extent that the amount of engineering cost does not exceed the amount of the related licensing revenue, the cost of licensing revenue is deferred on a contract-by-contract basis from the time the Company has established technological feasibility of the product to be developed under the license contract. Technological feasibility is established when the Company has completed all activities necessary to demonstrate that the licensee's product can be produced to meet the performance specifications when incorporating its technology. Deferred costs are charged to cost of licensing revenue when the related revenue is recognized.

Research and Development

        Engineering cost is generally recorded as research and development expense in the period incurred and includes 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 dilutive potential 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, 2009, 2008 and 2007, stock awards to purchase approximately 10,791,000, 7,181,000 and 7,569,000 shares, respectively, were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive. The following table

60

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,
			2009			2008			2007
Numerator:
	Net loss		$	(19,104	)	$	(18,585	)	$	(9,095	)
Denominator:
	Shares used in computing net loss per share:
		Add: weighted-average common shares outstanding		31,238			31,744			32,101
		Less: unvested common shares subject to repurchase		-			(46	)		(107	)
	Basic and diluted			31,238			31,698			31,994
Net loss per share:
	Basic and diluted		$	(0.61	)	$	(0.59	)	$	(0.28	)

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 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 currently under examination in the foreign jurisdiction of Canada. The Company has received an assessment of tax from the Canadian tax authorities, but believes no taxes are due once the available tax pools and credits are applied against any additional taxable income. As such, no liability has been recorded for this tax assessment. No other examinations are in process. The 2005 through 2009 tax years generally remain subject to examination by federal, state and foreign tax authorities.

        As of December 31, 2009, the Company did not have any unrecognized tax benefits and did not 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, 2009, 2008 and 2007, 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.

61

Recent Accounting Pronouncements

        In April 2009, the Financial Accounting Standards Board (FASB) issued revised guidance for addressing the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria, and instead requires assumed assets and liabilities to be recognized at fair value at the acquisition date. The guidance is effective for contingent assets and contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company applied the guidance to its acquisition of Prism Circuits, Inc. completed in June 2009 (see Note 5).

        In April 2009, the FASB issued guidance on the recognition and presentation of other-than-temporary impairments for debt securities. The Company adopted the guidance on a prospective basis beginning April 1, 2009, which did not have a material impact on the Company's financial condition or operating results.

        In May 2009, as later updated in February 2010, the FASB issued guidance establishing general standards of accounting and disclosure for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted this guidance during the second quarter of 2009, and its adoption did not have a material impact on the Company's financial condition or operating results.

        In June 2009, the FASB issued guidance establishing the FASB Accounting Standards Codification (the Codification) as the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for Securities and Exchange Commission (SEC) registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. The Company adopted the Codification for the quarter ended September 30, 2009, which did not have a material impact on the Company's financial condition or operating results.

        In October 2009, the 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. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of the guidance will have 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.

62

Note 2: Consolidated Balance Sheets and Statements of Operations Components

		December 31,
		2009			2008
		(in thousands)
Prepaid expenses and other current assets:
	Right from UBS Financial Services, Inc.	$	1,126		$	—
	Tax receivable		122			781
	Prepaid expenses and other assets		1,987			1,377
		$	3,235		$	2,158
Property and equipment:
Equipment, furniture and fixtures and leasehold improvements		$	3,214		$	2,118
Acquired software			1,140			1,581
			4,354			3,699
Less: Accumulated depreciation and amortization			(2,793	)		(2,741	)
		$	1,561		$	958
The Company acquired property and equipment of $212,000 through a capital lease during the period ended December 31, 2009.
Accrued expenses and other liabilities:
	Accrued wages and employee benefits	$	566		$	885
	Professional fees		328			278
	Other		856			1,072
		$	1,750		$	2,235

Other income, net:

	2009			2008			2007
	(in thousands)
Interest income	$	862		$	2,331		$	4,496
Other income (expense)		(118	)		(88	)		24
	$	744		$	2,243		$	4,520

63

Note 3: Fair Value of Financial Instruments

        The estimated fair values of financial instruments outstanding, excluding auction-rate securities and a right from UBS Financial Services, Inc. (UBS), at December 31, 2009 and 2008 were as follows (in thousands):

			2009
			Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash and cash equivalents			$	7,123	$	—	$	—		$	7,123
Short-term investments:
	U.S government debt securities		$	6,023	$	41	$	—		$	6,064
	Corporate notes and commercial paper			5,814		19		—			5,833
	Certificates of deposit			4,407		—		(8	)		4,399
		Total short-term investments	$	16,244	$	60	$	(8	)	$	16,296
Long-term investments:
	U.S. government debt securities		$	8,100	$	7	$	(16	)	$	8,091
	Corporate notes			1,007		—		—			1,007
		Total long-term investments	$	9,107	$	7	$	(16	)	$	9,098

			2008
			Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash and cash equivalents			$	17,515	$	—	$	—		$	17,515
Short-term investments and auction-rate securities:
	Corporate notes and commercial paper		$	8,524	$	14	$	(6	)	$	8,532
	U.S. government debt securities			17,922		106		—			18,028
		Total short-term investments and auction-rate securities	$	26,446	$	120	$	(6	)	$	26,560
Long-term investments:
	Corporate notes		$	3,529	$	—	$	(38	)	$	3,491
	U.S. government debt securities			12,181		204		—			12,385
		Total long-term investments	$	15,710	$	204	$	(38	)	$	15,876

        Cost and fair value of investments, excluding auction-rate securities, based on two maturity groups at December 31, 2009 and 2008 were as follows (in thousands):

	2009
	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Due within 1 year	$	16,244	$	60	$	(8	)	$	16,296
Due in 1-2 years		9,107		7		(16	)		9,098
Total	$	25,351	$	67	$	(24	)	$	25,394

	2008
	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Due within 1 year	$	26,446	$	120	$	(6	)	$	26,560
Due in 1-2 years		15,710		204		(38	)		15,876
Total	$	42,156	$	324	$	(44	)	$	42,436

64

        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:

•

projected interest income and principal payments through the expected holding period;

•

a market risk adjusted discount rate, which was based on actual securities traded in the open market that had similar collateral composition to the auction-rate securities as of December 31, 2009, adjusted for an expected yield premium to compensate for the current lack of liquidity resulting from failing auctions for such securities; and

•

no default or collateral value risk adjustments were considered for the discount rate, because most of the issuers were AAA-rated by nationally recognized rating agencies at December 31, 2009, and the auction-rate securities were collateralized by student loans, the repayments of which were substantially guaranteed by the U.S. Department of Education.

        The following table represents the Company's fair value hierarchy for its financial assets (cash equivalents, investments and the right from UBS related to the auction-rate securities) and for an acquisition-related earn-out liability as of December 31, 2009 (in thousands):

		Fair Value		Level 1		Level 2		Level 3
Money market funds		$	5,310	$	5,310	$	—	$	—
Certificates of deposit			4,644		—		4,644		—
Corporate debt securities			6,840		—		6,840		—
U.S. government agency and municipal bonds			14,155		—		14,155		—
Auction-rate securities			7,919		—		—		7,919
Right from UBS			1,126		—		—		1,126
	Total assets	$	39,994	$	5,310	$	25,639	$	9,045
Acquisition-related earn-out liability		$	4,550	$	—	$	—	$	4,550
	Total liabilities	$	4,550	$	—	$	—	$	4,550

        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, 2009 and 2008 (in thousands):

	Fair Value
Balance at December 31, 2007	$	—
Transfer of auction-rate securities to Level 3		9,150
Right from UBS		1,601
Realized loss on auction-rate securities included in earnings		(1,631	)
Balance at December 31, 2008		9,120
Realized loss on right from UBS included in earnings		(474	)
Realized gain on auction-rate securities included in earnings		499
Sale of Level 3 securities		(100	)
Balance at December 31, 2009	$	9,045

65

        The following table provides a summary of changes in fair value of the Company's acquisition-related earn-out liability measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31, 2009 and 2008 (in thousands):

	Fair Value
Balance at December 31, 2008	$	—
Issuance of earn-out (see Note 5)		4,550
Balance at December 31, 2009	$	4,550

        As of December 31, 2009, the Company has classified $7.9 million (net of $1.1 million in realized losses) of its auction-rate securities as short-term investments. Most of the issuers of the Company's auction-rate securities had AAA credit ratings at December 31, 2009, the securities are collateralized by student loans substantially guaranteed by the U.S. government, and the issuers continue to pay interest in accordance with the contractual terms of the securities.

        On November 11, 2008, the Company accepted an offer, or right, from UBS by which UBS will purchase the auction-rate securities from the Company, at the Company's election, at par value at any time during the period from June 30, 2010 through July 2, 2012. Prior to June 30, 2010, UBS can redeem the securities at par value at its sole election. Additionally, the auction-rate securities are still subject to redemptions by the underlying issuers at any time. As a result of its acceptance of the right, the Company no longer has the intent to hold the securities until maturity and the purchase of the securities by UBS may occur before the markets for these securities recover. Therefore, the Company classifies the auction-rate securities as trading securities. In 2009, the Company recorded a realized gain on these auction-rate securities of approximately $0.5 million. However, because the Company can elect to have UBS purchase the auction-rate securities from it, the Company has accounted for the right as a separate freestanding financial asset measured at fair value, resulting in the recording of a current asset in the consolidated balance sheets with an offsetting loss of approximately $0.5 million included in the other income, net line item in the consolidated statements of operations for the year ended December 31, 2009.

        The Company valued the right using a discounted cash flow approach including estimates, based on data available as of December 31, 2009, of interest rates, timing and amount of cash flows, adjusted for any bearer risk associated with UBS's financial ability to repurchase the auction-rate securities beginning June 30, 2010. These assumptions are volatile and subject to change as the underlying sources of these assumptions and market conditions change. The Company will be required to assess the fair value of these two individual assets and record changes each period until the right is exercised or the auction-rate securities are redeemed.

Note 4:  Revision of Prior Period Financial Statements

        In the fourth quarter of 2009, the Company identified a calculation error in the third-party software it uses for stock administration. The calculation errors resulted in an understatement of previously reported non-cash stock-based compensation expense for 2008, 2007 and 2006 and the quarters within those years, and changed the timing of stock-based compensation expense. The effect of this error on the Company's net loss was determined to be immaterial to previously reported annual and quarterly financial results. The Company has retroactively corrected the impact of the calculation error on the consolidated financial statements for the years ended December 31, 2008, 2007 and 2006 and the quarters within those years. The revision had no impact on the Company's total cash flows from operating, investing or financing activities for the years ended December 31, 2008, 2007 and 2006 and the quarters within those years.

66

        The line items within the consolidated financial statements as of and for the years ended December 31, 2008 and 2007 that were impacted by the revisions are set forth below (in thousands, except per share amounts):

		As of and for the Year ended December 31, 2008						As of and for the Year ended December 31, 2007
		As Reported			As Revised			As Reported			As Revised
Consolidated Statements of Operations:
Cost of net revenue		$	2,800		$	2,797		$	2,737		$	2,744
Gross profit			11,226			11,229			11,597			11,590
Research and development			17,168			17,206			11,988			12,203
Selling, general and administrative			11,875			12,006			11,659			12,011
Total operating expenses			31,756			31,925			24,613			25,180
Loss from operations			(20,530	)		(20,696	)		(13,016	)		(13,590	)
Loss before income taxes			(18,287	)		(18,453	)		(8,496	)		(9,070	)
Net loss			(18,419	)		(18,585	)		(8,521	)		(9,095	)
Net loss per share
	Basic and diluted	$	(0.58	)	$	(0.59	)	$	(0.27	)	$	(0.28	)
Consolidated Balance Sheets:
Additional paid-in capital		$	114,403		$	115,780		$	110,631		$	111,842
Accumulated deficit			(33,112	)		(34,489	)		(14,693	)		(15,904	)

Note 5:  Asset 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 8). The Company recorded the fair value of the 300,000 shares as part of the asset purchase consideration.

        The Company determined that the purchase of assets did not have the necessary outputs and infrastructure to meet the then definition of a business and therefore, was not accounted for as a business combination. Accordingly, no goodwill was recorded for these asset acquisitions. The Company recorded an expense of $966,000 in 2007 for the write-off of acquired in-process technology. The purchase price allocated to acquired in-process technology was determined through established valuation techniques. The acquired in-process technology was immediately expensed because technological feasibility had not been established and no future alternative use existed. The write-off of acquired in-process technology has been recorded as a separate line item in the consolidated statements of operations.

67

        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.

        The components of purchased intangible assets were as follows (in thousands):

Developed technology		$	1,559
In-process research and development			966
Patents			496
Assembled workforce			493
Business permits			12
	Total intangible assets acquired	$	3,526

        Amortization expense was $0.7 million and $0.4 million in 2008 and 2007, respectively, 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 6 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) and assumed certain liabilities of Prism Circuits as consideration for the acquired assets. The Company also agreed to pay up to an additional $6.5 million of cash (the Earn-Out Payment) shortly after the first anniversary of the closing date, contingent upon the Company's achievement of certain objectives relating to the Prism Circuits business during that twelve-month period. 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 will vest on a straight-line basis over forty-eight months subject to continued employment requirements.

        If and to the extent earned, the Earn-Out Payment will be paid to Prism Circuits in the third quarter of 2010. The objectives for the Earn-Out Payment relate to:

•

billing and collection by the Company of amounts payable under customer contracts assumed by the Company;

•

the achievement of specific product development milestones in accordance with a mutually agreed-upon schedule; and

•

the retention by the Company of certain key employees formerly employed by Prism Circuits.

        Because the acquisition agreement provides that 30% of the Earn-Out Payment may 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, is not considered to be a component of the

68

acquisition price and is being recognized as compensation expense and accrued on a straight-line basis over the one-year period subsequent to the acquisition. For the year ended December 31, 2009, the Company recorded $1.1 million of expense and liability for the retention objective. The remaining portion of the Earn-out Payment, or $4.55 million, 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 Payment will be met.

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

Cash	$	15,000
Acquisition-related earnout		4,550
Total acquisition price	$	19,550

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

Net tangible assets		$	2,779
Identifiable intangible assets:
	Developed technology		4,800
	Customer relationships		390
	Contract backlog		750
	Non-compete agreements		140
Goodwill			10,691
Total 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 expects to fulfill its obligations under these agreements during a one year period, and therefore this asset is being amortized on a straight-line basis over one year.

        The non-compete agreements asset is attributable to the non-compete agreements executed by certain former key employees of Prism Circuits that have been employed by the Company and is being 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.

69

        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			2008
Total net revenue	$	15,447		$	20,182
Net 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

Note 6: 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, 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. The remaining accrued expenditures are expected to be paid in the first half of 2010.

        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. The Company does not expect to incur additional restructuring charges related to the Korea office, and all remaining cash expenditures are expected to be paid in the first quarter of 2010.

        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.

        These restructuring charges and accruals are monitored on at least a quarterly basis for changes in circumstances and any corresponding adjustments to the accrual are recorded in the Company's consolidated statements of operations in the period when such changes are known.

        Restructuring activity was as follows (in thousands):

		Workforce reduction			Facility related and other termination costs			Asset impairments			Total
Balance at December 31, 2007		$	—		$	—		$	—		$	—
	Restructuring charges		972			32			330			1,334
	Asset impairments		—			—			(330	)		(330	)
	Cash payments		—			—			—			—
Balance at December 31, 2008			972			32			—			1,004
	Restructuring charges		216			439			51			706
	Non-cash settlements		—			(71	)		(51	)		(122	)
	Cash payments		(1,188	)		(288	)		—			(1,476	)
Balance at December 31, 2009		$	—		$	112		$	—		$	112

70

        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, 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.

Note 7: Income Taxes

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

		Year Ended December 31,
		2009		2008			2007
Current portion:
	Federal	$	109	$	(9	)	$	—
	State		23		(2	)		(6	)
	Foreign		23		(121	)		(19	)
		$	155	$	(132	)	$	(25	)

        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,
		2009			2008
Deferred tax assets:
	Federal and state loss carryforwards	$	15,340		$	9,540
	Reserves, accruals and other		355			529
	Depreciation and amortization		1,487			1,143
	Deferred stock-based compensation		2,142			2,092
	Research and development credit carryforwards		5,231			4,644
	Foreign tax credits		1,053			889
	Canadian loss and research and development pool carryforwards		—			5,978
			25,608			24,815
Less: Valuation allowance			(25,608	)		(24,815	)
Net deferred tax assets		$	—		$	—

        The valuation allowance increased by $0.8 million and $7.4 million during the years ended December 31, 2009 and 2008, respectively. In 2009, the Company began the process of dissolving its Canadian subsidiary. Upon dissolution, the net operating losses and tax credit carryovers are expected to terminate, therefore the deferred tax assets have been written-down. The valuation allowance at December 31, 2009 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, 2009, the Company had net operating loss carryforwards of approximately $41.6 million for federal income tax purposes and approximately $39.4 million for state income tax purposes. These losses are available to reduce taxable income and expire at various times from 2013

71

through 2029. Approximately $3.8 million of federal net operating loss carryforwards and $3.1 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 $3.4 million, which will expire beginning in 2010, and California research and development credits of approximately $2.7 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.

        A reconciliation of income taxes provided at the federal statutory rate (35% in 2009, 2008 and 2007) to actual income tax benefit (provision) follows (in thousands):

	Year Ended December 31,
	2009			2008			2007
Income tax benefit computed at U.S. statutory rate	$	6,741		$	6,459		$	3,175
State income tax (net of federal benefit)		22			(2	)		(6	)
Foreign income tax at rate different from U.S. statutory rate		(167	)		(455	)		(35	)
Research and development credits		1,028			466			364
Foreign tax credit		196			76			26
Stock-based compensation		(545	)		(642	)		(585	)
Valuation allowance changes affecting tax provision		(7,006	)		(5,846	)		(2,910	)
Other		(114	)		(188	)		(54	)
Income tax benefit (provision)	$	155		$	(132	)	$	(25	)

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

	Year Ended December 31,
	2009			2008			2007
U.S.	$	(18,692	)	$	(17,562	)	$	(9,122	)
Non-U.S.		(567	)		(891	)		52
	$	(19,259	)	$	(18,453	)	$	(9,070	)

Note 8: 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, 2009, no options were available for future issuance under the 1996 Plan and options to purchase approximately 55,000 shares were outstanding with a weighted-average exercise price of $9.18 per share. The 1996 Plan will remain in effect as to outstanding equity awards granted under the plan prior to the date of expiration.

72

        The Company's 2000 employee stock option plan was adopted in October 2000 in connection with the Company's reincorporation in Delaware. In 2004, the Company obtained stockholder approval of its Amended and Restated 2000 Stock Option and Equity Incentive Plan (Amended 2000 Plan) to provide additional incentive to its employees and directors. The Amended 2000 Plan authorizes the board of directors or the compensation committee of the board of directors to grant a broad range of awards in addition to stock options, including stock grants, restricted stock, performance-based awards, restricted stock units representing a right to acquire shares in the future and stock appreciation rights and to determine the applicable terms, including price, of such awards. Under the Amended 2000 Plan, the maximum number of shares reserved for issuance is 9,207,000, plus an annual increase of 500,000 on January 1 of each year, or a lesser amount determined by the board of directors. The term of options granted under the Amended 2000 Plan may not exceed ten years. The term of all incentive stock options granted to an optionee 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 incentive stock options granted under the Amended 2000 Plan must be at least equal to the fair market value of the shares on the date of grant. The exercise price of nonstatutory stock options granted under the Amended 2000 Plan will be determined by the board of directors, the compensation committee or board designated personnel and the exercise price of a nonstatutory stock option is not subject to any price restriction under the Amended 2000 Plan. No incentive stock option may be granted to any employee who on the date of grant owns more than 10% of the Company's common stock, unless the exercise price of the option is equal to at least 110% of the fair market value of such shares on the date of grant. In addition, the Amended 2000 Plan provides for automatic acceleration of vesting for options granted to non-employee directors in the event of an acquisition of the Company. Generally, options granted under the Amended 2000 Plan after March 30, 2006 vest over a four-year period and are exercisable for a maximum period of six years after the date of grant.

        The Company may also award shares to new employees outside the Amended 2000 Plan, 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

        The Company's 2000 Employee Stock Purchase Plan (ESPP) was adopted in October 2000 to become effective upon the pricing date of the Company's initial public offering. A total of 500,000 shares of common stock have been reserved for issuance under the purchase plan. In addition, the purchase plan provides for an automatic annual increase in the number of shares reserved under the plan on January 1 of each year, equal to the lesser of 100,000 shares, one percent of the Company's outstanding shares of common stock on such date or a lesser amount determined by the board of directors. The purchase plan, which is intended to qualify under Section 423 of the Internal Revenue Code, is administered by the board of directors or a committee appointed by the board of directors.

        The Company's ESPP has been inactive since 2006.

Stock-Based Compensation Expense

        The Company recorded $3.1 million, $4.7 million and $4.3 million of stock-based compensation expense in 2009, 2008 and 2007, respectively. The total compensation cost of options granted, but not yet vested, as of December 31, 2009 was $9.5 million and is expected to be recognized as expense over a weighted average period of approximately 2.97 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

73

consolidated statement of cash flows. For the years ended December 31, 2009, 2008 and 2007, 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 5) 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 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.

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, 2009, 2008 and 2007 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:	2009			2008			2007
Risk-free interest rate		1.2% -  2.1	%		1.3% -  3.5	%		3.6% -  5.1	%
Volatility		55.7% - 63.5	%		48.5% - 67.9	%		47.1% - 56.0	%
Expected life (years)		4.0			4.0			4.0
Dividend yield		0	%		0	%		0	%

74

        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: i) four-year historical volatility, excluding the volatility during the period of a one-time non-recurring event, which was the aborted acquisition of the Company in 2004, and ii) implied volatility of the Company's stock price. The volatility adjusted for the aborted 2004 acquisition only impacts options granted in 2008 and prior. 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 since the Company has never paid dividends and has no intention to pay dividends in the near future.

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

        A summary of the option and restricted stock unit (RSU) activity under the 1996 Plan and Amended 2000 Plan is presented below (in thousands, except exercise price):

		Shares Available for Grant			Number of Options outstanding			Weighted Average Exercise Prices
Balance at December 31, 2006			940			5,668		$	6.17
Additional authorized under the Amended 2000 Plan			500			—			—
	Options granted		(1,532	)		1,532		$	7.84
	Options cancelled		1,150			(1,150	)	$	6.34
	RSUs cancelled		4			—			—
	Options exercised		—			(639	)	$	4.54
Balance at December 31, 2007			1,062			5,411		$	6.80
Additional authorized under the 2000 Amended Plan			500			—			—
	Options granted		(889	)		889		$	4.09
	Options cancelled		1,450			(1,450	)	$	6.63
	RSUs cancelled		(12	)		—			—
	Options exercised		—			(48	)	$	3.85
	Options expired		(40	)		—			—
Balance at December 31, 2008			2,071			4,802		$	6.38
Additional authorized under the 2000 Amended Plan			500			—			—
	Options granted		(2,463	)		2,463		$	2.27
	RSUs granted		(25	)		—			—
	Options cancelled		1,813			(1,813	)	$	6.78
	Options exercised		—			(2	)	$	1.00
	Options expired		(21	)		—			—
Balance at December 31, 2009			1,875			5,450		$	4.37

75

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

		Options Outstanding
		Number of Shares			Weighted Average Exercise Prices
Balance at December 31, 2006			475		$	7.59
	Granted		1,500		$	5.76
	Cancelled		(356	)	$	7.47
	Exercised		—			—
Balance at December 31, 2007			1,619		$	5.92
	Granted		1,240		$	4.12
	Cancelled		(752	)	$	5.58
	Exercised		—			—
Balance at December 31, 2008			2,107		$	4.99
	Granted		3,601		$	1.55
	Cancelled		(388	)	$	3.24
	Exercised		(25	)	$	1.55
Balance at December 31, 2009			5,295		$	2.81

        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 Value
Non-vested shares at December 31, 2006			66		$	5.91
	Granted		500		$	7.07
	Vested		(23	)	$	5.91
	Cancelled		(4	)	$	5.91
Non-vested shares at December 31, 2007			539		$	6.99
	Granted		—			—
	Vested		(260	)	$	6.98
	Cancelled		(7	)	$	5.91
Non-vested shares at December 31, 2008			272		$	7.01
	Granted		46			—
	Vested		(69	)	$	6.85
	Cancelled		(203	)	$	7.07
Non-vested shares at December 31, 2009			46		$	1.60

76

        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, 2009 (in thousands, except contractual life and exercise price):

	Options Outstanding								Options Exercisable
Range of Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Aggregate Intrinsic value		Number Exercisable		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Aggregate Intrinsic value
$1.00 - $4.09		6,874		5.76	$	2.08	$	12,798		1,227		5.41	$	2.79	$	1,411
$4.10 - $8.00		2,949		5.01	$	5.48		—		2,233		4.89	$	5.58		—
$8.01 - $10.00		812		2.85	$	8.69		—		664		2.79	$	8.74		—
$10.01 - $15.69		110		2.11	$	10.87		—		110		2.11	$	10.87		—
		10,745		5.29	$	3.60	$	12,798		4,234		4.64	$	5.40	$	1,411

        As of December 31, 2009, the Company had 9,169,373 options fully vested and expected to vest, after estimated forfeitures, with a remaining contractual life of 5.24 years, weighted average exercise price of $3.83 and aggregate intrinsic value of approximately $1.4 million.

        The total fair value of options vested using the Black-Scholes method during the year ended December 31, 2009 was $1.4 million. The total intrinsic value of employee stock options exercised during each of the years ended December 31, 2009, 2008 and 2007 was $33,000, $42,000 and $2.4 million, respectively.

        Options exercisable were 4.2 million, 3.6 million and 3.3 million at December 31, 2009, 2008 and 2007, respectively.

Note 9:  Stockholders' Equity

        The Company's 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.

Stockholder Rights Plan

        The Company's Stockholder Rights Plan, which was adopted in October 2000 and became effective June 27, 2001, is intended to protect stockholders from unfair or unfriendly takeover practices. In accordance with this plan, the board of directors declared a dividend distribution of one Series AA preferred stock purchase right on each outstanding share of its common stock held as of June 27, 2001, and on each share of common stock issued by the Company thereafter. Each right entitles the registered holder to purchase from the Company one one-thousandth share of Series AA preferred stock at a price of $110. The rights become exercisable in certain circumstances, including the acquisition by any person or group, or the commencement or announcement of a tender or exchange offer for the acquisition, of beneficial ownership of 15% or more of the Company's common stock without the approval of the board of directors (except for certain affiliates prior to the effective date of the Plan as to whom this ownership limit is 25%). The rights do not confer any rights as a stockholder until they are exercised. In the event the rights become exercisable, each right will entitle the holder to acquire shares of common stock of the Company or the acquiring corporation (in the event of merger or similar business combination) having a value equal to twice the purchase price of the right. The rights are redeemable by the Company prior to exercise at $0.01 per right and expire with the Plan on October 11, 2010.

77

        In 2004, the Company amended its Stockholder Rights Plan twice; once, in connection with the proposed acquisition of the Company by Synopsys, Inc., and a second time to permit the acquisition of shares representing more than 15% of its 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. Notwithstanding amendments of this nature, the Company's intention is to maintain and enforce the terms of this plan, which could delay, deter or prevent an investor from acquiring the Company in a transaction that could otherwise result in stockholders receiving a premium over the market price for their shares of common stock.

Stock Repurchases

        In August 2007, the Company's board of directors authorized the Company to purchase up to $19.5 million of its common stock over a twelve month period. The share repurchases were made from time to time in the open market subject to market conditions and other factors, in accordance with SEC requirements. In 2007, the Company repurchased and retired approximately 883,000 shares of common stock for approximately $5.0 million under this plan, which expired in August 2008. No purchases were made under this authority subsequent to December 31, 2007.

        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, in compliance with SEC requirements. 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 10: 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 amount equal to 25% of a participant's contributions during the plan year. The Company made matching contributions of $52,000, $225,000 and $212,000 in 2009, 2008 and 2007, respectively.

Note 11: 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, short-term and long term investments are deposited with high credit quality institutions.

78

        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,
	2009		2008		2007
Japan	$	7,288	$	8,643	$	10,826
United States		2,741		1,855		2,289
Taiwan		1,206		2,276		827
Rest of Asia		199		956		381
Europe		24		296		11
Total	$	11,458	$	14,026	$	14,334

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

	Years Ended December 31,
	2009			2008			2007
Customer A		44	%		55	%		70	%
Customer B		10	%		13	%		4	%
Customer C		10	%		—			—

        Four customers accounted for 97% of net accounts receivable at December 31, 2009. Five customers accounted for 87% of net accounts receivable at December 31, 2008.

        Net property and equipment, classified by major geographic areas, were as follows at December 31, 2009 and 2008 (in thousands):

	December 31,
	2009		2008
	(in thousands)
U.S.	$	1,408	$	914
Non-U.S.		153		44
Total	$	1,561	$	958

Note 12: Commitments and Contingencies

Leases and Purchase Commitments

        The Company leases its facilities under non-cancelable operating leases that expire at various dates through November 2014. Rent expense was approximately $454,000, $784,000 and $862,000 for the years ended December 31, 2009, 2008 and 2007, 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.

79

        Future minimum lease payments under noncancelable operating and capital leases are as follows (in thousands):

Year ended December 31,	Operating Leases		Capital lease		Total
2010	$	484	$	91	$	575
2011		141		94		235
2012		142		63		205
2013		149		—		149
2014		143		—		143
Total minimum payments	$	1,059	$	248	$	1,307

        As of December 31, 2009, the Company had purchase commitments of $2.4 million for licenses related to computer-aided design tools payable through January 2013.

Indemnifications

        In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counter-parties 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 amounts were reflected in the Company's consolidated financial statements for the years ended December 31, 2009, 2008 or 2007 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 which would have a material adverse effect on its consolidated financial position or results of operations. From time to time the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.

Note 13: 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 years ended December 31, 2008 and 2007 was $229,000 and $28,000, respectively. There was no revenue from this customer in 2009. The amount receivable from this customer at December 31, 2008 and 2007 was $77,000 and $0, respectively. In addition, another of the Company's directors serves as a member of the board of directors of another customer. Revenue from that customer for the year ended December 31, 2007 was $128,000. No revenue from that customer was recognized in 2009 or 2008. There were no amounts receivable from that customer at December 31, 2009 and 2008.

        In 2009, a related party to one of the Company's executive officers performed construction work at its corporate headquarters. The construction work was completed and fully paid in 2009 at a cost of approximately $145,000.

80

Note 14: Subsequent Events

        On March 25, 2010, the Company acquired all of the outstanding stock of MagnaLynx, Inc., a provider of semiconductor interface technology. Under the terms of the merger agreement, at closing the Company paid approximately $1.3 million to the shareholders of MagnaLynx and paid approximately $2.2 million to settle debt and certain other liabilities of MagnaLynx. An additional $0.5 million 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, net of any costs related to indemnification claims, 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.

        No other recognizable subsequent events have been identified by the Company through the filing date of these consolidated financial statements with the SEC.

81

Schedule II—Valuation and Qualifying Accounts
(In thousands)

			Additions				Deductions
Description	Balance at beginning of period		Charged to costs and expenses		Charged to other accounts		Amounts recovered			Balance at end of period
Allowance for doubtful accounts
Year ended December 31, 2009	$	75	$	47	$	46	$	(75	)	$	93
Year ended December 31, 2008	$	225	$	—	$	—	$	(150	)	$	75
Year ended December 31, 2007	$	—	$	225	$	—	$	—		$	225

82

INDEX OF EXHIBITS

2.1(1)	Merger Agreement regarding the Registrant's reincorporation in Delaware
2.2	Not currently in use
2.3(13)	Agreement for the Purchase and Sale of Assets of Prism Circuits, Inc., dated as of June 5, 2009
2.4	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, 2010
3.1	Not currently in use
3.2	Not currently in use
3.3(1)	Restated Certificate of Incorporation of the Registrant
3.3.1	Certificate of Amendment to Restated Certificate of Incorporation
3.4(3)	Amended and Restated Bylaws of the Registrant
4.1(1)	Specimen common stock certificate
4.2	Not currently in use
4.3(1)	Rights Agreement
4.3.1(4)	First Amendment to Rights Agreement, dated as of February 23, 2004
4.3.2(5)	Second Amendment to Rights Agreement, dated as of December 14, 2004
10.1(1)	Form of Indemnity Agreement between the Registrant and each of its directors and executive officers
10.2	Not currently in use
10.3(1)*	1996 Stock Plan and form of Option Agreement thereunder
10.4(1)*	Form of Restricted Stock Purchase Agreement
10.5(1)*	2000 Employee Stock Option Plan and form of Option Agreement thereunder
10.5.1(6)*	Amended and Restated 2000 Equity Incentive and Stock Option Plan
10.6(1)*	2000 Employee Stock Purchase Plan and form of Subscription Agreement thereunder
10.13	Not currently in use
10.14	Not currently in use
10.15(7)*	Form of Stock Option Agreement pursuant to Amended and Restated 2000 Stock Option and Equity Incentive Plan
10.16(8)	Lease Agreement between Registrant and Sunnyvale Mathilda Investors, LLC dated as of May 6, 2005
10.17(8)*	Not currently in use
10.18	Not currently in use
10.19	Not currently in use
10.20	Not currently in use
10.21(9)*	Form of New Employee Inducement Grant Stock Option Agreement
10.22	Not currently in use
10.23	Not currently in use
10.24(10)*	Employment offer letter agreement and Mutual Agreement to Arbitrate between Registrant and Leonard Perham dated as of November 8, 2007
10.25(11)*	New Employee Inducement Grant Stock Option Agreements between Registrant and Leonard Perham dated as of November 8, 2007
10.25.2(11)*	New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of November 8, 2007
10.25.3(11)*	New Employee Inducement Grant Stock Option Agreement between Registrant and Leonard Perham dated as of November 8, 2007
10.26(10)*	Employment offer letter agreement between the Registrant and James Sullivan dated December 21, 2007

83

10.27(10)*	Change-in-control Agreement between Registrant and James Sullivan dated January 18, 2008
10.28(10)*	Not currently in use
10.29(10)*	Not currently in use
10.30(12)*	Employment offer letter agreement between Registrant and David DeMaria dated as of July 31, 2008
10.31(12)*	Change-in-control Agreement between Registrant and David DeMaria dated as of August 18, 2008
10.32(14)*	Employment offer letter agreement between Registrant and Sundari Mitra dated as of June 4, 2009
10.33*	Non-Competition Agreement between Registrant and Sundari Mitra dated as of June 5, 2009
10.34(15)*	Form of Notice of Restricted Stock Unit Award and Agreement
21.1	List of subsidiaries
23.1	Consent of Independent Registered Public Accounting Firm—Burr Pilger Mayer, Inc.
24.1	Power of Attorney (see signature page)
31.1	Rule 13a-14 certification
31.2	Rule 13a-14 certification
32	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 the same-numbered exhibit to the Company's report on Form 8-K/A filed on November 13, 2002.

(3)

Incorporated by reference to the same-numbered exhibit to Form 8-K filed by the Company on October 29, 2008 (Commission File No. 000-32929).

(4)

Incorporated by reference to Exhibit 9(e)(4) to Schedule 14D-9 filed by the Company on March 22, 2004 (Commission File No. 005-78033).

(5)

Incorporated by reference to Exhibit 4.01 to Form 8-K filed by the Company on December 20, 2004 (Commission File No. 000-32929).

(6)

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).

(7)

Incorporated by reference to the same-numbered exhibit to Form 10-Q filed by the Company on August 9, 2005 (Commission File No. 000-32929).

(8)

Incorporated by reference to the same-numbered exhibit to Form 10-K filed by the Company on March 16, 2006 (Commission File No. 000-32929).

(9)

Incorporated by reference to Exhibit 10.25 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).

(10)

Incorporated by reference to the same-numbered exhibit to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929).

(11)

Incorporated by reference to the same-numbered exhibit to Form 10-Q filed by the Company on May 9, 2008 (Commission File No. 000-32929).

(12)

Incorporated by reference to the same-numbered exhibit to Form 10-Q filed by the Company on November 7, 2008 (Commission File No. 000-32929).

84

(13)

Incorporated by reference to the same-numbered exhibit to Form 8-K filed by the Company on June 5, 2009 (Commission File No. 000-32929).

(14)

Incorporated by reference to the same-numbered exhibit to Form 8-K filed by the Company on June 8, 2009 (Commission File No. 000-32929).

(15)

Incorporated by reference to the same-numbered exhibit to Form S-8 filed by the Company on June 4, 2009 (Commission File No. 000-32929).

*

Management contract, compensatory plan or arrangement.

85

EX-2.4

Exhibit 2.4

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, 2010

TABLE OF CONTENTS

		Page
SECTION 1.	THE MERGER	1
1.1	The Merger	1
1.2	Effective Time; Closing	1
1.3	Effect of the Merger	2
1.4	Articles of Incorporation; Bylaws; Corporate Records	2
1.5	Directors and Officers	2
1.6	Appointment of Representative; Agreement Binding on Company Shareholders	3
1.7	Shareholder Approval	3
1.8	Certain Definitions	3
SECTION 2.	CONVERSION AND EXCHANGE OF SECURITIES	6
2.1	Effect on Capital Stock	6
2.2	Dissenting Shares	7
2.3	Options and Warrants	8
2.4	Earn-out	8
2.5	Holdback and Dispute Fund Amount	8
2.6	Closing Payment; Surrender of Certificates	9
2.7	Payment of Closing Debt Payments	10
2.8	Further Action	10
SECTION 3.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY	11
3.1	Organization and Standing	11
3.2	Capitalization and Ownership of Shares	11
3.3	Allocation Schedules	12
3.4	Authority for Agreement	13
3.5	Consents	13
3.6	Financial Statements; No Undisclosed Liabilities	14
3.7	Absence of Changes	14
3.8	Taxes	15
3.9	Property and Sufficiency	16
3.10	Contracts	17
3.11	Benefit Plans	17
3.12	Intellectual Property	18
3.13	Accounts Receivable; Accounts Payable	22
3.14	Inventory	23
3.15	Suppliers and Customers	23

i

TABLE OF CONTENTS

(continued)

		Page
3.16	Insurance	23
3.17	Employees and Consultants	23
3.18	Litigation	24
3.19	Environmental Matters	24
3.20	Compliance with Laws; Permits	25
3.21	Banking Relationships	25
3.22	Minute Books and Records	25
3.23	Brokers; Schedule of Fees	25
3.24	Vote Required	25
3.25	Company Determinations, Approvals and Recommendations	26
3.26	Certain Relationships and Related Transactions	26
3.27	Disclosures	26
SECTION 4.	REPRESENTATIONS AND WARRANTIES BY PARENT AND MERGER SUB	26
4.1	Organization and Standing	26
4.2	Authority for Agreement	26
4.3	Brokers and Finders	27
4.4	Ownership and Activities of Merger Sub	27
SECTION 5.	ADDITIONAL AGREEMENTS	27
5.1	Conduct of the Company’s Business Prior to Closing	27
5.2	Confidentiality; Access to Information	28
5.3	Public Disclosure	28
5.4	Notification	28
5.5	Exclusivity	28
5.6	Reasonable Efforts	29
5.7	Cooperation	29
5.8	Company Option Plan	29
5.9	Delivery of Contracts for Due Diligence	29
5.10	Company Shareholders’ Consent	29
5.11	Resignation of Officers and Directors	30
5.12	Vacation and Sick Pay	30
5.13	Parent and Surviving Corporation Indemnification	30

ii

TABLE OF CONTENTS

(continued)

		Page
SECTION 6.	CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER	31
6.1	Requisite Shareholder Approval	31
6.2	No Order	31
SECTION 7.	ADDITIONAL CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT AND MERGER SUB	31
7.1	Representations, Warranties and Covenants	31
7.2	Government and Other Third Party Approvals	31
7.3	Satisfactory Review of Contracts	31
7.4	Offers of Employment; Non-Compete Agreements	31
7.5	Dissenting Shares	31
7.6	Company Material Adverse Effect	31
7.7	Opinion of Company Counsel	32
7.8	Cancellation of Options and Warrants	32
7.9	Loan Settlement Agreements	32
7.11	Shareholder Consent, Proxy, Release and Waiver	32
7.12	Deliveries	32
SECTION 8.	CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY	32
8.1	Representations, Warranties and Covenants	32
8.2	Parent Material Adverse Effect	32
8.3	Deliveries	33
SECTION 9.	CLOSING DELIVERIES	33
9.1	Closing Deliveries of the Company	33
9.2	Closing Deliveries of Parent	33
SECTION 10.	SURVIVAL	33
SECTION 11.	TERMINATION	34
11.1	Termination prior to the Effective Time of the Merger	34
11.2	Notice of Termination; Effect of Termination	35
SECTION 12.	FEES AND EXPENSES	35
SECTION 13.	INDEMNIFICATION AND CLAIMS FOR DAMAGES	35
13.1	Parent Claims Against Indemnifying Shareholders	35
13.2	Indemnification Funds	36
13.3	Limitations of Liability	36
13.4	Notification Certification of Claims	37

iii

TABLE OF CONTENTS

(continued)

		Page
13.5	Third Party Actions	37
13.6	Reimbursement and Indemnification for Representative	38
13.7	Definition of Damages	38
13.8	Exclusive Remedy	38
13.9	Treatment of Indemnification Payments	38
13.10	Transfer and Similar Taxes	38
13.11	Dispute Resolution	38
SECTION 14.	REPRESENTATIVE	40
14.1	Power and Authority	40
14.2	Acceptance	40
14.3	Replacement	40
14.4	No Liability	40
14.5	Notice	40
14.6	Representations and Warranties	41
14.7	Role of Representative	41
SECTION 15.	RELEASE	41
SECTION 16.	MISCELLANEOUS	42
16.1	Notices	42
16.2	Successors and Assigns	43
16.3	Interpretation	43
16.4	Counterparts; Execution	44
16.5	Severability	44
16.6	Third Parties	44
16.7	Additional Definitions	45
16.8	Governing Law; Submission to Jurisdiction	45
16.9	Entire Agreement, Not Binding Until Executed	45
16.10	Amendments; No Waiver	46

iv

INDEX OF DEFINED TERMS

Accounts Payable	23
Accounts Receivable	22
Acquisition Proposal	29
Action	24
Active Founder Claims	36
Active Founders	36
Administaff	18
Adverse Earn-out Determination Notice	8
Affiliate	45
Agreement	1
Applicable Law	3
Articles of Merger	2
Associate	45
Basket Amount	37
Business Day	45
Closing	2
Closing Allocation Schedule	4
Closing Date	2
Closing Debt Payments	3
Closing Merger Consideration	4
Closing Shares Outstanding	4
Code	10
Company	1
Company Effect	4
Company IP	21
Company Material Adverse Effect	4
Company Noteholders	4
Company Notes	4
Company Organizational Documents	4
Company Products	22
Company Shareholders	1
Company Software	22
Company Stock	1
Confidential Information	4
Confidentiality Agreement	28
Consents	13
Consultant Confidentiality Agreements	24
Consultants	23
Contract	17
Damages	38
Disclosure Schedule	4
Dispute Fund Account	9
Dispute Fund Amount	5
Dissenting Shares	7
Earn-out Consideration	5
Earn-out Determination Date	8
Earn-out Period	8
Effective Time	2
Employee Benefit Plans	17
Employee Confidentiality Agreements	23
Employee Employment Agreements	24
Employee Loans	5
End Date	34
Environmental Laws	25
ERISA Affiliate	17
ERISA Affiliate Plans	17
Exclusivity Period	28
Financial Statements	14
Founders’ Agreement	12
GAAP	14
Governmental Authorities	13
Hazardous Substance	24
Holdback Amount	5
Holdback Funds	8
Holdback Period	8
IBCA	1
IDED Loan	5
Indebtedness	5
Indemnification Funds	36
Indemnified Party	30
Indemnifying Shareholders	3
Intellectual Property Rights	22
Iowa Law	1
IRS	16
JAMS	39
Knowledge	45
Knowledge of the Company	45
Leased Premises	17
Legal Requirements	5
Letter of Transmittal	9
Merger	1
Merger Sub	1
Net Merger Consideration	5
Officer’s Certificate	37
Option	5
Option Plan	5
Parent	1
Parent Claim	35
Parent Effect	5
Parent Indemnified Parties	35
Parent Material Adverse Effect	5
Party	1
Per Share Closing Merger Consideration	5

v

Per Share Earn-out Consideration	6
Per Share Holdback Consideration	6
Permits	25
Permitted Encumbrances	16
Permitted Expenses	15
Person	6
Preliminary Allocation Schedule	4
Real Property Leases	17
Reference Balance Sheet	14
Registered IP	22
Related Persons	26
Representative	3
Requisite Shareholder Approval	26
Securities Act	12
Security Interest	13
Severance Payments	6
Surviving Corporation	1
Tax	16
Tax Law	16
Tax Return	16
Taxes	16
Taxing Authority	16
Total Consideration	6
Transaction Documents	3
Transaction Expenses	6
Transfer Taxes	38
Warrants	6

vi

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER is made as of March 24, 2010 (this “Agreement”) by and among MoSys, Inc., a Delaware corporation (“Parent”), MLI Merger Corporation, an Iowa corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), MagnaLynx, Inc., an Iowa corporation (the “Company”), and, solely with respect to Sections 1.6, 13, 14 and 16, the Representative (as defined below).  The holders of all of the capital stock of the Company (the “Company Stock”) are collectively referred to as the “Company Shareholders.”  Parent, Merger Sub and the Company are referred to collectively herein as the “Parties” and each individually as a “Party.”

WHEREAS, the board of directors of the Company has unanimously (i) determined that the merger of Merger Sub with and into the Company upon the terms and subject to the conditions set forth herein (the “Merger”) is desirable and in the best interests of the Company and the Company Shareholders, (ii) approved, in accordance with the applicable provisions of the Iowa Business Corporation Act (the “IBCA” or “Iowa Law”) this Agreement and each of the transactions contemplated hereby, including the Merger, and (iii) determined to recommend that the Company Shareholders approve this Agreement and each of the transactions contemplated hereby, including the Merger;

WHEREAS, the board of directors of Merger Sub has unanimously (i) determined that the Merger is advisable and in the best interests of Merger Sub and (ii) approved, in accordance with the applicable provisions of the IBCA, this Agreement and each of the transactions contemplated hereby, including the Merger; and

WHEREAS, in furtherance of such combination, the board of directors of Parent, as the sole shareholder of Merger Sub, has unanimously (i) approved this Agreement and the Merger, (ii) determined that the Merger upon the terms and subject to the conditions set forth herein is desirable and in the best interests of Parent and Merger Sub and (iii) approved, in accordance with the applicable provisions of the IBCA this Agreement and each of the transactions contemplated hereby, including the Merger.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereby agree as follows:

SECTION 1.The Merger.

1.1The Merger.  At the Effective Time (as defined below), and subject to and upon the terms and conditions of this Agreement and the applicable provisions of Iowa Law, Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation.  The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the “Surviving Corporation.”

1.2Effective Time; Closing.  Unless this Agreement is earlier terminated pursuant to Section 11, the closing of the transactions contemplated by this Agreement (the

“Closing”) shall take place as soon as reasonably practicable after the satisfaction or waiver of each of the conditions set forth in Sections 6, 7 and 8 below (other than the conditions set forth in Sections 6.2, 7.1, 7.6, 7.11, 8.1, 8.2 and 8.3, which shall be satisfied or waived at the Closing), or at such other time as Parent and the Company shall otherwise agree (the “Closing Date”).  In connection with the Closing, the parties shall cause the Merger to be consummated by filing articles of merger with the Secretary of State of the State of Iowa, as contemplated by the IBCA (the “Articles of Merger”) and make all other filings or recordings required by Iowa Law in connection with the Merger.  The Merger shall be effective upon the later of (a) the date and time of the filing of the Articles of Merger with the Secretary of State of the State of Iowa and (b) such other date and time as may be specified in the Articles of Merger (such later date being referred to as the “Effective Time”).  The Closing shall take place at 10:00 a.m., Pacific Time, on the Closing Date at the offices of Bingham McCutchen LLP, 1900 University Avenue, East Palo Alto, California 94303.

1.3Effect of the Merger.  At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Articles of Merger and the applicable provisions of Iowa Law, including Section 490.1107 of the IBCA.  Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

1.4Articles of Incorporation; Bylaws; Corporate Records.

(a)Articles of Incorporation.  At the Effective Time, the Articles of Incorporation of the Company shall be amended and restated in their entirety to be identical to the Articles of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the IBCA and as provided in such Articles of Incorporation, except that the name of the Surviving Corporation as stated in such Articles of Incorporation shall be “MoSys Iowa, Inc.”

(b)Bylaws.  At the Effective Time, the Bylaws of the Company shall be amended and restated in their entirety to be identical to the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the IBCA and such Bylaws, except that the name of the Surviving Corporation on the face of such Bylaws shall be “MoSys Iowa, Inc.”

(c)Corporate Records.  At or prior to the Closing, the Company shall deliver or cause to be delivered to Parent the minute books, stock record books and, to the extent requested by Parent, all other documents, books, records, agreements and financial data, of the Company.

1.5Directors and Officers.  The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to serve in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation, and the officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified, or their earlier death, resignation or removal.

2

1.6Appointment of Representative; Agreement Binding on Company Shareholders.  Jeffrey J. May (together with his permitted successors, the “Representative”) is hereby appointed, effective as of the Effective Time, as the representative of each Company Shareholder that does not perfect his, her or its appraisal rights under the IBCA and is otherwise entitled to receive a portion of the Closing Merger Consideration pursuant to Section 2 of this Agreement (the “Indemnifying Shareholders”), and shall be entitled to exercise all or any of the powers, authority and discretion conferred on it under this Agreement (including, without limitation, Sections 13 and 14), and any other agreement or instrument entered into or delivered in connection with the transactions contemplated hereby (collectively, the “Transaction Documents”).  The Representative agrees to act as, and to undertake the duties and responsibilities of, such representative of the Indemnifying Shareholders.  Each Indemnifying Shareholder, by virtue of having approved and adopted this Agreement shall be deemed to have irrevocably agreed to, and be bound by and comply with, all of the obligations of the Indemnifying Shareholders set forth herein (including, without limitation, Sections 13 and 14).

1.7Shareholder Approval.

(a)As promptly as practicable following the adoption of this Agreement by the Company’s board of directors, the Company, acting through its board of directors, has taken or shall take any and all action necessary or appropriate to secure the Requisite Shareholder Approval (by vote at a duly held meeting or through written consent) in accordance with Iowa Law.  Without limiting the foregoing, the Company shall prepare and deliver to the Company Shareholders all notices, information concerning the Merger and other written materials required to be delivered to the Company Shareholders under Iowa Law in connection with the solicitation of written consents or proxies, as applicable; provided that the Company shall give Parent reasonable opportunity to review and provide comments to such written materials before delivering them to the Company Shareholders.  Such written materials shall contain all material facts concerning the Merger and shall include the recommendation of the board of directors that the Company Shareholders approve the Merger.

(b)Without limiting the Company’s obligations under Section 1.7(a), at the written request of Parent at any time, the Company shall promptly convene a meeting of the Company Shareholders for the purpose of voting on the Merger.

(c)This Agreement and the transactions contemplated hereunder will be deemed to have been approved by the shareholders of the Company upon the Company obtaining written consent of the holders of at least 90% of the outstanding Company Stock approving this Agreement and the transactions contemplated hereunder.

1.8Certain Definitions.  For purposes of this Agreement, the following terms shall have the following meanings:

“Applicable Law” shall mean any Legal Requirements applicable to the Company.

“Closing Debt Payments” shall mean the amounts payable by Parent pursuant to Section 2.7 hereof, as set forth on the Closing Allocation Schedule.

3

“Closing Merger Consideration” shall mean an amount of cash equal to the Net Merger Consideration, minus the Holdback Amount, minus the Earn-out Amount, and minus the Dispute Fund Amount, in each case calculated as of the Closing Date.

“Closing Allocation Schedule” shall mean a schedule prepared by the Company and delivered to Parent at the Effective Time in substantially the form of Schedule 1.8 attached hereto (Schedule 1.8 is referred to as the “Preliminary Allocation Schedule”) showing, in each case as of the Closing Date, (1) the total number of shares of Company Stock outstanding, (2) the number of shares of Company Stock held by each Company Shareholder and the corresponding pro rata ownership percentage of such Company Shareholder, and the address of such Company Shareholder, (3) the maximum amounts of Closing Merger Consideration, Earn-out Amount and Holdback Amount payable to each Company Shareholder, (4) the amounts due and payable to each Company Noteholder with respect to the Company Notes (based on interest accrued through February 28, 2010), (5) the amount of Severance Payments payable to specified employees of the Company, (6) the amounts of Employee Loans due and payable to each Employee, (7) the amount due and payable under the IDED Loan and (8) a good faith estimate of the amount of Transaction Expenses due and payable.

“Closing Shares Outstanding” shall mean the total number of shares of Company Stock outstanding as of the Closing Date, as set forth on the Closing Allocation Schedule.

“Company Material Adverse Effect” shall mean any change in, event, or effect on the Company (in each case, a “Company Effect”) that, when taken individually or in the aggregate with all other Company Effects, (i) is or are materially adverse in relation to the Company’s financial condition, properties, assets, liabilities, business, operations or prospects, taken as a whole, or (ii) may materially impair the ability of the Company to consummate the transactions contemplated hereby, except to the extent that such Company Effect or Company Effects results from (1) changes in general economic conditions and changes affecting the industry in which the Company operates generally that do not adversely affect the Company to a materially disproportionate degree or (2) changes or effects caused by the execution and delivery of this Agreement, by actions required under this Agreement, or by actions requested by Parent in writing to be taken by the Company.

“Company Noteholders” shall mean the holders of the Company Notes.

“Company Notes” shall mean those 2005 Convertible Bridge Notes and 2007 Convertible Subordinated Bridge Notes issued by the Company, in each case as amended or extended.

“Company Organizational Documents” shall mean the Company’s Articles of Incorporation and Bylaws.

“Company Stock” shall have the meaning set forth in the preamble of this Agreement.

“Confidential Information” shall mean information or materials classified as confidential under the terms of the Confidentiality Agreement (as defined in Section 5.2(a) this Agreement).

“Disclosure Schedule” shall mean the disclosure schedule supplied by the Company to Parent, dated as of the date of this Agreement and delivered concurrently with the execution of this Agreement by the Company.

4

“Dispute Fund Amount” shall mean an amount of cash equal to $100,000.

“Dissenting Shares” shall have the meaning set forth in Section 2.2(a) of this Agreement.

“Earn-out Amount” shall mean an amount of cash up to $1,000,000, payable in accordance with Section 2.4 hereof.  For purposes of calculating the Closing Merger Consideration under this Section 1.8, the Earn-out Amount shall be deemed to be $1,000,000.

“Employee Loans” shall mean all outstanding loans to the Company by any of the Employees, whether or not evidenced by a promissory note or any other instrument.

“Holdback Amount” shall mean an amount of cash equal to $500,000, subject to adjustment in accordance with Sections 2.5 and 13 hereof.

“IDED Loan” shall mean that certain loan to the Company by the Iowa Department of Economic Development (IDED), repayable by the Company in accordance with the terms of that certain EVA Royalty Agreement dated February 19, 2004 between the Company and IDED.

“Indebtedness” shall mean all liabilities and obligations of the Company, including any applicable penalties (including with respect to any prepayment thereof), interest and premiums, (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables incurred in the ordinary course of business), (iv) under capital leases, (v) with respect to letters of credit, (vi) in the nature of guarantees of the obligations described in clauses (i) through (v) above of any other Person, or (vii) in the nature of obligations of the type referred to in clauses (i) through (vi) of any other Person secured by any Security Interest on any asset of the Company.

“Legal Requirements” shall mean any United States federal, state, municipal or local or foreign order, judgment, writ, injunction, decree, law, statute, standard ordinance, code, resolution, promulgation, rule, regulation or any similar provision having the force or effect of law.

“Net Merger Consideration” shall mean the Total Consideration, minus the Closing Debt Payments.

“Option” shall mean any option (including commitments to grant options) to acquire shares of Company Stock, including options granted under the Option Plan, but excluding the Warrants.

“Option Plan” shall mean the Company’s 2003 Stock Option Plan, as amended.

“Parent Material Adverse Effect” shall mean any change in, event, or effect on the Parent or Merger Sub (in each case, a “Parent Effect”) that, when taken individually or in the aggregate with all other Parent Effects, may materially impair the ability of the Parent or Merger Sub to consummate the transactions contemplated hereby.

“Per Share Closing Merger Consideration” shall mean the Closing Merger Consideration, divided by the Company Shares Outstanding.

“Per Share Dispute Fund Consideration” shall mean the Dispute Fund Amount, divided by the Company Shares Outstanding.

5

“Per Share Earn-out Consideration” shall mean the Earn-out Amount, divided by the Company Shares Outstanding.

“Per Share Holdback Consideration” shall mean the Holdback Amount, divided by the Company Shares Outstanding.

“Person” shall mean a person, firm, entity, partnership, association or any business organization or division thereof.

“Severance Payments” shall mean amounts payable to certain employees of the Company upon termination of their employment with the Company, as set forth in the Closing Allocation Schedule.

“Total Consideration” shall mean five million dollars ($5,000,000).

“Transaction Expenses” shall mean any and all reasonable legal, accounting, consulting and other fees and expenses incurred by or on behalf of the Company in connection with this Agreement, the Merger or any of the transactions contemplated hereby, outstanding on the Closing Date.

“Warrants” shall mean any warrants to acquire shares of capital stock of the Company.

SECTION 2.Conversion And Exchange Of Securities.

2.1Effect on Capital Stock.

(a)Conversion of Securities.  At the Effective Time and subject to the terms and conditions of this Agreement, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or any Company Shareholder, each share of Company Stock issued and outstanding immediately prior to the Effective Time (other than any Dissenting Shares), shall be cancelled, extinguished and converted automatically into the right to receive (i) cash in the amount of the Per Share Closing Merger Consideration, plus (ii) an additional amount of cash up to the Per Share Earn-out Consideration, plus (iii) an additional amount of cash up to the Per Share Holdback Consideration, plus (iv) an additional amount of cash up to the Per Share Dispute Fund Consideration.

(b)Cancellation.  From and after the Effective Time, by virtue of the Merger, each share of Company Stock converted pursuant to Section 2.1(a) shall no longer be outstanding and shall be automatically cancelled and retired and shall cease to exist, and each holder of a certificate formerly representing each such share shall cease to have any rights with respect thereto, except the right to receive (subject to the terms of this Agreement) the portion of the Closing Merger Consideration, Holdback Amount, Earn-out Amount and Dispute Fund Amount payable with respect to such Company Stock, without interest, upon the surrender of such certificate in accordance with the terms hereof and in the manner provided herein, or, if such share of Company Stock is a Dissenting Share, the right, if any, to receive payment from the Surviving Corporation of the “fair value” of such Dissenting Share as determined in accordance with the applicable provisions of the IBCA.

(c)Treasury Stock.  Each share of Company Stock owned by the Company as treasury stock or owned by Parent, Merger Sub or any direct or indirect wholly owned subsidiary of Parent immediately prior to the Effective Time shall, by virtue of the Merger and

6

without any action on the part of the holder thereof, cease to be outstanding, be canceled and retired without payment of any consideration therefor and cease to exist.

(d)Capital Stock of Merger Sub.  Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become, and shall represent, one fully paid and nonassessable share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

2.2Dissenting Shares.

(a)Notwithstanding anything in this Agreement to the contrary, any shares of Company Stock outstanding immediately prior to the Effective Time that are eligible under the IBCA to exercise appraisal rights and are held by a holder who (a) has not voted or provided written consent in favor of this Agreement and the Merger, (b) exercises and perfects appraisal rights for such shares in accordance with Division XIII of the IBCA and (c) does not effectively withdraw or lose such appraisal rights (collectively, the “Dissenting Shares”) shall not be converted into or represent the right to receive such consideration for Company Stock set forth in Section 2.1(a), but rather such shares shall be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the IBCA.  The Company, Parent and the Surviving Corporation shall comply with the requirements of Division XIII of the IBCA.  The Company shall give (i) Parent prompt notice of any written demand for appraisal received by the Company and provide copies of any documents or instruments delivered pursuant to the IBCA and received by the Company and (ii) give Parent the opportunity to participate in all negotiations and proceedings with respect to any such demands.  Prior to the Effective Time, the Company shall not make any payment or settlement offer with respect to any such demand unless Parent shall have consented in writing to such payment or settlement offer.

(b)Notwithstanding the provisions of Section 2.2(a), if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder’s appraisal rights under the IBCA then, as of the later of the Effective Time and the occurrence of such event, such holder’s shares shall automatically be converted into and represent only the right to receive the consideration for such shares set forth in Section 2.1(a), without interest, less the withholdable portion of the Holdback Amount, Earn-out Amount and Dispute Funds with respect to such shares (whether or not actually withheld) as set forth in this Section 2, upon surrender of the certificate representing such Dissenting Shares.

(c)Any consideration paid by Parent, the Company or the Surviving Corporation to any Person with respect to any Dissenting Shares pursuant to Division XIII of the IBCA in excess of the consideration that would otherwise be payable pursuant to Section 2 for each such Dissenting Share (such consideration, unless determined in a final, non-appealable judgment of a court, being subject to the written approval of the Representative, which approval shall not be unreasonably withheld, conditioned or delayed), and all interest, costs, expenses and fees as incurred by the Company, Parent or the Surviving Corporation in connection with the exercise of all rights under Division XIII of the IBCA with respect to any Dissenting Shares shall constitute “Damages” for purposes of this Agreement, and Parent and the Surviving Corporation, as the case may be, shall, without limiting any other rights, be entitled to recover such Damages from the Indemnification Funds.

7

2.3Options and Warrants.  The Company shall take all necessary and appropriate action such that each outstanding and unexercised Option and each outstanding and unexercised Warrant shall be terminated at or before the Effective Time.  Without limiting the foregoing, the Company shall obtain written acknowledgements and releases from the holders of Options and Warrants in a form reasonably satisfactory to Parent releasing the Company from any liability in connection with the termination of such Options and Warrants.

2.4Earn-out.

(a)Within 30 days following the date that is 12 months following the Closing Date (the “Earn-out Determination Date”), subject to Section 13.2 of this Agreement, Parent shall pay the Company Shareholders, in accordance with the Closing Allocation Schedule, an amount of cash, if any, equal to the portion of the Earn-out Amount earned during the period between the Closing Date and the Earn-out Determination Date (the “Earn-out Period”), determined in accordance with this Section 2.4.  In the event the Earn-out Amount is not paid by Parent when due, the unpaid portion thereof shall bear interest at the rate of 10% per annum from the due date until the date of payment, except to the extent that the failure to pay any portion of the Earn-out Amount is the result of a good faith dispute concerning the achievement of such portion of the Earn-out Amount under this Section 2.4(a) or an unresolved Parent Claim asserted under Section 13 of this Agreement; provided that Parent agrees to pay any undisputed portions of the Earn-out Amount when due.

(b)The portion of the Earn-out Amount earned by the Surviving Corporation during the Earn-out Period shall be determined as of the Earn-out Determination Date by Parent in good faith in accordance with the terms of Schedule 2.4(b).  In the event Parent determines that any portion of the Earn-out Amount is not payable, Parent shall notify the Representative in writing of such determination within ten (10) Business Days of the corresponding Target Date set forth on Schedule 2.4(b) (an “Adverse Earn-out Determination Notice”).  The Adverse Earn-out Determination Notice shall set forth in reasonable detail the basis and reasons for the adverse Earn-out determination.

(c)Parent shall, and shall cause the Surviving Corporation to, use commercially reasonable efforts to provide any and all resources necessary or appropriate to allow achievement of the milestones by the Earn-out Determination Date.

2.5Holdback and Dispute Fund Amount.

(a)The funds constituting the Holdback Amount (the “Holdback Funds”) shall serve as security for the indemnification obligations of the Indemnifying Shareholders under Section 13 hereof, in accordance with the terms of Section 13.  At the end of the 18-month period commencing as of the Closing Date (the “Holdback Period”), Parent shall release any and all remaining Holdback Funds and pay, or cause to be paid, such Holdback Funds to the Indemnifying Shareholders in accordance with the allocation set forth on the Closing Allocation Schedule; provided, however, that the portion of the Holdback Funds, which, in the reasonable judgment of Parent, subject to the objection of the Representative and the subsequent resolution of the matter in the manner provided in Section 13.9, is necessary to satisfy any unsatisfied claims specified in any Officer’s Certificate delivered to the Representative prior to termination of the Holdback Period with respect to Damages incurred or litigation pending prior to expiration of the Holdback Period, shall continue to be held back until such claims have been finally resolved, or, if earlier, until released in accordance with Section 13.9 below. In the event any portion of the Holdback Funds shall not be paid by Parent when due, the unpaid portion thereof shall bear interest at the rate of 10% per annum from the due date until the date of payment, except to the extent that the failure to pay any portion of the Holdback Funds is the result of a good faith dispute

8

concerning whether (or how much) of such portion is required to be paid hereunder; provided that Parent agrees to pay any undisputed portions of the Holdback Funds when due.

(b)At the Closing, the funds constituting the Dispute Fund Amount shall be paid by Parent by wire transfer into an account identified by the Representative at least two Business Days prior to the Closing (the “Dispute Fund Account”).  The Representative shall have control over the Dispute Fund Account but the Dispute Fund Account will be set up in such a manner as to require the signature of at least one former member of the board of directors of the Company other than the Representative (or an affiliate of the Representative) before any funds may be withdrawn.  At such time as Parent releases all remaining Holdback Funds, the Representative shall cause any and all remaining Dispute Fund Amounts to be paid to the Indemnifying Shareholders in amounts equal to the pro rata portion of such remaining Dispute Fund Amounts to which such Indemnifying Shareholders are entitled.

2.6Closing Payment; Surrender of Certificates.

(a)Surrender Procedures.  On or after the Closing Date, the Surviving Corporation shall mail to each Company Shareholder (i) a letter of transmittal substantially in the form agreed upon by Parent, the Representative and the Company (“Letter of Transmittal”), which shall include, among other things, the agreement of the surrendering Company Shareholders to the appointment of the Representative, the indemnification of the Representative, the payment of expenses of the Representative pursuant to the terms of this Agreement and a release of claims as set forth in Section 15 of this Agreement and (ii) instructions for use in effecting the surrender of certificate(s) representing all of the shares of Company Stock held by such Company Shareholder in exchange for such Company Shareholder’s pro rata portion of the Closing Merger Consideration and the right to receive future payment of any Earn-out Amount and Holdback Amount.  The payment of the Closing Merger Consideration and any future Earn-out Amount and Holdback Amount with respect to each such certificate is conditioned upon (A) the execution and delivery of the Letter of Transmittal, (B) a representation by the Company Shareholder that such Company Shareholder owns all right, title and interest to all shares of Company Stock registered in the name of such Company Shareholder and (C) the delivery of such certificates related thereto (or an affidavit of loss with respect to such certificates).  As soon as practicable after receipt by Parent of such certificate(s), properly endorsed or otherwise in proper form for transfer, for cancellation (or affidavit, as applicable), together with such duly executed Letter of Transmittal, Parent shall, in exchange therefor, pay to such Company Shareholder the Closing Merger Consideration payable in respect of the shares of Company Stock formerly represented by the certificate(s) surrendered in accordance with the Closing Allocation Schedule, but without any interest earned thereon, and the certificate(s) so surrendered shall forthwith be canceled.

(b)Transfer Books; No Further Ownership Rights in the Shares.  At the Effective Time, the stock transfer books of the Company shall be closed, and thereafter there shall be no further registration of transfers of the shares of Company Stock on the records of the Company.  From and after the Effective Time, the holders of certificates formerly evidencing ownership of the shares of Company Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares, except as otherwise provided for herein or by Applicable Law.  After the Effective Time, Parent or the Surviving Corporation shall cancel and exchange, as provided in this Section 2, any presented certificate representing shares of Company Stock outstanding immediately prior to the Effective Time.

(c)No Liability.  Neither Parent nor the Surviving Corporation shall be liable to any holder of a certificate formerly representing shares of Company Stock for any amounts

9

delivered to a public official pursuant to any applicable abandoned property, escheat or similar Legal Requirement.

(d)Withholding Rights.  Each of Parent and the Surviving Corporation shall be entitled to deduct and withhold from payment of any amounts (or any portion thereof) payable pursuant to this Agreement to, or on behalf of, any Company Shareholder or any other Person such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “Code”), or any other Legal Requirement.  To the extent that amounts are so withheld by Parent or the Surviving Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Company Shareholder or such other Person to whom such amounts would otherwise have been paid.

(e)Lost, Stolen or Destroyed Certificates.  In the event any certificate(s) which formerly represented shares of Company Stock shall have been lost, stolen or destroyed, upon the making and delivery of an affidavit of that fact by the Company Shareholder thereof in form reasonably satisfactory to Parent and the execution and delivery of a letter of transmittal in accordance with Section 2.6(a), Parent shall pay such Company Shareholder the applicable Closing Merger Consideration as provided in this Section 2; provided, however, that Parent may, in its reasonable discretion, acting in good faith, require the owner of such lost, stolen or destroyed certificate(s) to deliver an agreement of indemnification in form reasonably satisfactory to Parent, against any claim that may be made against Parent or the Surviving Corporation with respect to the certificate(s) alleged to have been lost, stolen or destroyed.

(f)Dissenting Shares.  The provisions of this Section 2.6 shall also apply to Dissenting Shares that lose their status as such, except that the obligations of Parent under this Section 2.6 shall commence on the date of loss of such status and the holder of such shares shall be entitled to receive in exchange for such shares the applicable amounts provided in Section 2.

2.7Payment of Closing Debt Payments.  At or promptly following the Closing, Parent shall pay, or cause to be paid, (a) the total amount due and payable on the Company Notes to the Company Noteholders in accordance with the Closing Allocation Schedule (which reflects the accrual of interest on such Company Notes up to and including February 28, 2010), and (b) the amounts due and payable with respect to (i) the Severance Payments, (ii) the Transaction Expenses, (iii) the Employee Loans and (iv) the IDED Loan, in each case calculated as of the Effective Time and as set forth on the Closing Allocation Schedule; provided, that no payment shall be required for interest that has accrued or, but for this Agreement would have accrued, on any Company Note, Employee Loan or the IDED Loan between February 28, 2010 and the Closing Date; and provided further, that the Company shall not be required to make any such payment with respect to a Company Note, Employee Loan, Severance Payment or the IDED Loan, unless the proposed recipient shall have entered into a settlement agreement with Parent or the Company in a form reasonably acceptable to Parent and the Company.

2.8Further Action.  If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, Parent and the Surviving Corporation are fully authorized to take all such action in the name of the Company and Merger Sub or otherwise, and the officers and directors of the Company and Merger Sub immediately prior to the Effective Time shall

10

provide such assistance as Parent and the Surviving Corporation may reasonably request in taking such further action.

SECTION 3.Representations and Warranties of the Company.  The Company represents and warrants to Parent and Merger Sub that the statements in this Section 3 are true, complete and correct as of the date hereof and will be true at the Effective Time (unless the particular statement speaks expressly as of another date, in which case it is true, complete and correct as of such other date), subject, in any case, to the exceptions provided in the Disclosure Schedule, with specific reference to the Sections hereof to which such exception relates; provided, however, that any exception or qualification disclosed in the Disclosure Schedule shall apply only to the identified representation or warranty and any other subsection of this Section 3 with respect to which such disclosure (without modification or additional notification) provides effective notice of the nature and significance of the exception or qualification:

3.1Organization and Standing.

(a)The Company is a corporation duly organized and validly existing under the laws of the State of Iowa and has all requisite corporate power and authority to conduct its business as currently conducted.  The Company is duly qualified to do business as a foreign corporation and is in good standing in every jurisdiction where the properties, owned, leased or operated, or the business conducted by it requires such qualification, except where the failure to so qualify or be in good standing would not result in a Company Material Adverse Effect.

(b)The Company does not own and has never otherwise owned, directly or indirectly, any capital stock of or any other equity or ownership interest in, or controlled, directly or indirectly, any other Person, and the Company is not and has not otherwise been, directly or indirectly, a party to, member of or participant in any partnership, joint venture or similar business entity.

(c)Prior to the date of this Agreement, the Company has furnished to Parent complete and correct copies of the Company Organizational Documents as currently in effect.  The Company Organizational Documents are in full force and effect and the Company is not in violation of any provision of its Company Organizational Documents in any material respects.  Section 3.1(c) of the Disclosure Schedule lists the directors and officers of the Company as of the date hereof.

3.2Capitalization and Ownership of Shares.

(a)The authorized capital stock of the Company on the date hereof consists of 50,000,000 shares of Company Stock, of which 3,170,000 shares are issued and outstanding, and 50,000,000 shares of Preferred Stock, none of which are outstanding.  All of the issued and outstanding shares of Company Stock have been duly authorized and validly issued, and are fully paid and nonassessable.  Except as set forth in Section 3.2 of the Disclosure Schedule, no subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company is authorized or outstanding.  From and after the Effective Time, no holder of any Option or Warrant will have the right to any consideration with respect thereto, except shares of Company Stock properly acquired upon exercise thereof prior to the Effective Time.  The Company does not have any obligation (whether written, oral, contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right or to

11

issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of the Company.  The Company does not have any obligation (whether written, oral, contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof.  There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the Company.  All of the issued and outstanding shares of capital stock of the Company have been offered, issued and sold by the Company in compliance with all Applicable Law in all material respects.

(b)           Except for that certain Founding Shareholders Agreement by and among the Company’s founders (the “Founders’ Agreement”), there are no agreements, written or oral, between the Company and any holder of its securities or others, or among any holders of its securities, relating to the acquisition (including, without limitation, rights of first refusal, anti-dilution or pre-emptive rights), disposition, registration under the Securities Act of 1933, as amended (the “Securities Act”), or voting of the capital stock of the Company.  The Founders’ Agreement has terminated in accordance with its terms and is of no further force or effect.

(c)           Each of the currently outstanding Options were granted under the Option Plan and, except for the Option Plan, the Company has never adopted, sponsored or maintained any stock option plan or any other plan or agreement providing for equity compensation to any Person.  True and complete copies of the Option Plan and all agreements and instruments relating to or issued under each such plan (including executed copies of all Contracts relating to each Option and the shares of Company Stock purchased under such plan), and all agreements and instruments related to the Warrants, have been made available or provided to Parent, and the Option Plan and such Contracts have not been amended, modified or supplemented since being made available or provided to Parent, and there are no Contracts to amend, modify or supplement the Option Plan or such Contracts in any case from those made available or provided to Parent.  Each grant of an Option was duly authorized by all necessary corporate action no later than the date on which the grant of such Option was by its terms to be effective.  The Option Plan may be terminated by action of the board of directors of the Company and shall be so terminated at or prior to the Effective Time.

3.3           Allocation Schedules.  The Preliminary Allocation Schedule sets forth the following information and calculations, as of date hereof, and the Closing Allocation Schedule will set forth such information and calculations, as of the Closing Date:  (1) the total number of shares of Company Stock outstanding, (2) the number of shares of Company Stock held by each Company Shareholder and the corresponding pro rata ownership percentage of such Company Shareholder, and the address of such Company Shareholder, (3) the maximum amounts of Closing Merger Consideration, Earn-out Amount and Holdback Amount payable to each Company Shareholder, (4) the amounts due and payable to each Company Noteholder in respect of the Company Notes (based on interest accrued through February 28, 2010), (5) the amount of Severance Payments payable to specified employees of the Company, (6) the amounts of Employee Loans due and payable to each Employee, (7) the amount due and payable under the IDED Loan and (8) a good faith estimate of the amount of Transaction Expenses due and payable.  The information set forth as of the date hereof in the Preliminary Allocation Schedule is true, complete and accurate as of the date hereof (except for the Transaction Expenses, which have been estimated in good faith) and the information set forth in the Closing Allocation Schedule will be true, complete and accurate as of the Effective Time (except for the Transaction Expenses, which will have been estimated in good faith), and the calculations performed to compute such information are, and will be, accurate and in accordance with the terms

12

of this Agreement, the Company Organizational Documents and all other agreements and instruments among the Company and the Company Shareholders.

3.4           Authority for Agreement.

(a)           The Company has all requisite corporate power and authority to execute and deliver this Agreement and Transaction Documents required hereby to be executed and delivered by it and to perform its obligations hereunder and thereunder and to consummate the transactions hereby and thereby.  The execution, delivery and performance by the Company of this Agreement and each Transaction Document to which it is a party and the consummation of the transactions contemplated to be performed by it hereby and thereby have been duly authorized by all necessary and proper corporate action on the part of the Company, subject to obtaining the Requisite Shareholder Approval.  This Agreement has been, and each Transaction Document required hereby to be executed and delivered by the Company at the Closing will be, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent, Merger Sub and the Representative, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors, and to general equity principles.

(b)           Assuming the Requisite Shareholder Approval is obtained, the execution and delivery of this Agreement by the Company and each instrument required hereby to be executed and delivered by the Company at the Closing, the compliance by the Company with the provisions of this Agreement and each instrument required hereby to be executed and delivered by the Company at the Closing and the consummation of the transactions contemplated hereby or thereby, will not (i) conflict with or violate the Company Organizational Documents, each as currently in effect in any material respect, (ii) conflict with, result in a material breach of, constitute (with or without due notice or lapse of time or both) a material default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any Contract, Permit, Security Interest or other interest to which the Company is a party or by which the Company is bound or to which its assets are subject, (iii) result in the creation or imposition of any Security Interest upon any assets of the Company or any shares of Company Stock, or (iv) violate in any material respect any Applicable Law.  For purposes of this Agreement, “Security Interest” means any mortgage, security interest, pledge, encumbrance, charge, restriction on the right to sell or dispose, lien or other adverse claim of any kind (whether arising by contract or by operation of law and whether voluntary or involuntary).

3.5           Consents.  No consent, notice, waiver, approval, order, Permit or authorization of, or registration, declaration or filing with, or notification to (together, the “Consents”) any United States federal, state, municipal or local or any foreign government, or political subdivision thereof, or any multinational organization or authority or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or Taxing Authority power, or any court or tribunal (or any department, bureau or division thereof), or any arbitrator or arbitral body (collectively, “Governmental Authorities”) is required to be obtained by the Company or any Company Shareholder in connection with the execution and delivery of this Agreement or completion of the Merger or the other transactions to be consummated at the Closing as contemplated by this Agreement, except for the filing and recordation of the Articles of Merger with the Secretary of State of the State of Iowa.

13

3.6           Financial Statements; No Undisclosed Liabilities.

(a)           Attached hereto as Section 3.6 of the Disclosure Schedule are the following financial statements (collectively, the “Financial Statements”):  (a) the Company’s balance sheet as of December 31, 2009; (b) the Company’s balance sheet as of February 28, 2010 (the “Reference Balance Sheet”); and (c) the Company’s statements of operations and cash flows for the twelve months ended December 31, 2009 and for the two months ended February 28, 2010.  Except as set forth in Section 3.6 of the Disclosure Schedule, the Financial Statements are complete and correct in all material respects, have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) (except that the Financial Statements do not contain footnotes and are subject to year end adjustments) consistently applied throughout the periods indicated and in accordance with the books and records of the Company.  The Financial Statements present fairly the financial condition and results of operations of the Company as of the dates and for the periods indicated.

(b)           The Company has no Indebtedness or other liabilities or obligations except (i) as specifically set forth in or fully reserved against or otherwise described in the Reference Balance Sheet or the notes thereto, (ii) for liabilities incurred in the ordinary course of business since the Reference Balance Sheet Date in accordance with the terms of this Agreement, none of which is, individually or in the aggregate, material to the Company.

3.7           Absence of Changes.  Since December 31, 2009, there has been no Company Material Adverse Effect.  In addition, and without limiting the generality of the foregoing, since December 31, 2009 (and since February 28, 2010 solely with respect to Section 3.7(l) below) , the Company has not:

(a)           declared, set aside, made or paid any dividend or other distribution in respect of its capital stock, or agreed to do any of the foregoing, or purchased or redeemed or agreed to purchase or redeem, directly or indirectly, any shares of its capital stock;

(b)           adopted, amended, modified, or terminated in any material respect any Employee Benefit Plan or collective bargaining agreement;

(c)           increased any compensation or fringe benefits (including, but not limited to, the granting of Options or other equity awards under the Option Plan not in the ordinary  course of business), paid any bonus, granted or increased any severance or termination pay of amounts or otherwise changed any of the terms of employment or service for any of its employees, officers, directors or consultants;

(d)           subjected to any Security Interest, any of its properties or assets, tangible or intangible (including, without limitation, any Company IP);

(e)           granted any license with respect to any Company IP;

(f)            acquired or disposed of any assets or properties having a value in excess of $25,000 (singly or in the aggregate) other than inventory in the ordinary course of business;

(g)           incurred a capital expenditure or made a commitment to incur a capital expenditure exceeding $25,000 individually or $50,000 in the aggregate;

14

(h)           made any payment of any nature to any employee, director or consultant other than salary, sales bonuses, fees or business related reimbursements payable in the ordinary course of business consistent with past practices;

(i)            commenced or settled any Action;

(j)            suffered any damage, destruction or loss, whether or not covered by insurance, with respect to its property and assets having a replacement cost of more than $25,000 for any single loss or $50,000 for all such losses;

(k)           entered into any transaction or Contract not otherwise provided for in this Section 3.7 other than in the ordinary course of business with an aggregate annual value in excess of $25,000;

(l)            paid any expenses other than of the types and amounts described in Schedule 3.7(l) (“Permitted Expenses”); or

(m)          entered into any agreement, commitment or obligation to do any of the foregoing, except as provided for in this Agreement.

3.8           Taxes.

(a)           All Tax Returns required to be filed by or on behalf of the Company have been duly and timely filed with the appropriate Taxing Authority in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns are true, complete and correct in all respects.  All Taxes that have become due and payable by the Company, including but not limited to all withholding taxes owed under any applicable Legal Requirement, have been timely paid, and the Company is not and will not be liable for any additional Taxes in respect of any Taxable period or any portion thereof ending on or before the date of the Reference Balance Sheet in an amount that exceeds the corresponding reserve therefor reflected in the Reference Balance Sheet, and any Taxes of the Company arising after such date and at or before the Effective Time have been or will be incurred in the ordinary course of the business of the Company.

(b)           The Company has complied in all material respects with all Applicable Laws relating to the withholding of Taxes and payment of such withheld amounts and has duly and timely withheld and paid over to the appropriate Taxing Authority all amounts required to be so withheld and paid under all Applicable Laws.  There are no outstanding rulings of, or requests for rulings by, any Taxing Authority addressed to the Company that are, or if issued would be, binding on the Company.  There are no liens as a result of any unpaid Taxes upon any of the assets of the Company, other than with respect to Taxes that are not yet due and payable.

(c)           Parent has been furnished complete copies of all Tax Returns of, or including, the Company for all Tax periods since its date of formation and all relevant documents and information with respect thereto, including, without limitation, work papers, records, examination reports and statements of deficiencies proposed, assessed against or agreed to by the Company.

(d)           No claim has been made by a Taxing Authority in a jurisdiction where the Company does not file a Tax Return that it is or may be subject to taxation in that

15

jurisdiction.  No deficiency or adjustment in respect of Taxes has been proposed, asserted in writing or assessed by any Taxing Authority against the Company.

(e)           The Company is not a party to or bound by any Tax sharing, allocation, indemnity or similar agreement or arrangement.  The Company has never been a member of a group of corporations with which it has filed (or been required to file) consolidated, combined or unitary Tax Returns, other than a group of which the common parent is the Company.

(f)            All persons who have purchased shares of the Company’s capital stock that will be subject to a substantial risk of forfeiture under Section 83 of the Code at the Effective Time have, to the Company’s Knowledge, timely filed elections under Section 83(b) of the Code and any analogous provisions of applicable state and local Tax Laws.

(g)           For purposes of this Agreement:

“Tax” or “Taxes” means (i) all federal, state, local or foreign taxes, charges, fees, imposts, levies or other assessments imposed by any Taxing Authority, including without limitation all income, gross receipts, capital, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, and (ii) all interest, penalties, fines, additions to Tax or additional amounts imposed by any Taxing Authority in connection with any item described in clause (i).

“Taxing Authority” means the Internal Revenue Service (the “IRS”) or any other governmental body (whether state, local or foreign) responsible for the administration of any Tax.

“Tax Law” means any Legal Requirement (whether domestic or foreign) relating to Taxes.

“Tax Return” means any return, report or statement required to be filed with respect to any Tax (including any elections, declarations, schedules or attachments thereto, and any amendment thereof) including any information return, estimate, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, affiliated, combined, consolidated or unitary returns for any group of entities that includes the Company.

3.9           Property and Sufficiency.

(a)           Except as set forth on Schedule 3.9(a), the Company has good and marketable title to, or, in the case of leases of properties and assets, a valid leasehold interest in, all of the properties and assets (whether real, personal, tangible or intangible) (i) reflected on the Reference Balance Sheet (other than assets sold in the ordinary course of business since the date of the Reference Balance Sheet) or acquired thereafter and (ii) necessary to conduct all of the businesses and operations of the Company as currently conducted, and none of such properties or assets is subject to any Security Interest, except for (A) mechanics, materialmen, suppliers, vendors or similar liens arising in the ordinary course of business securing amounts that are not delinquent, (B) liens for current Taxes, assessments or governmental charges not yet due and delinquent, or (C) such minor encumbrances, charges and imperfections which do not, individually or in the aggregate detract from, in any material way, the value or use of any asset, or otherwise interfere with, in any material way, the quiet enjoyment of any asset under any lease or leasehold interest (collectively, “Permitted Encumbrances”).

16

(b)           The Company does not own any real property or any interest in real property, except for the leaseholds created under the real property lease(s) identified in Section 3.9(b) of the Disclosure Schedule (“Real Property Leases”).  The facilities subject to a Real Property Lease (“Leased Premises”) and the personal property owned or leased by the Company are in good operating condition and repair, reasonable wear and tear excepted, and are suitable for the uses for which they are being used.

3.10         Contracts.  Section 3.10 of the Disclosure Schedule sets forth a complete and accurate list of all Contracts to which the Company is a party, except for such Contracts that are not, individually or in the aggregate, material to the Company.  Section 3.10 of the Disclosure Schedule lists any Contract that would be required to be disclosed on Section 3.7 of the Disclosure Schedule, if such Contract had been entered into after December 31, 2009.  All of such Contracts are in full force and effect, and neither the Company nor, to the Company’s Knowledge, any other party to such Contracts is in material breach of or in material default under any of them, nor does any event or condition exist that after notice or lapse of time or both could reasonably be expected to constitute a material breach of or material default under such Contracts on the part of the Company or, to the Company’s Knowledge, any other party to such Contracts.  The Company has delivered to Parent true and complete copies of all such Contracts.  Each Contract is a valid and binding agreement and is in full force and effect in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws.  No party to any of the Contracts has exercised any termination rights with respect thereto by written notification to the Company, and no party has given notice of any material dispute with respect to any of the foregoing Contracts.  As used in this Agreement, a “Contract” shall mean any written or binding oral agreement, understanding, contract, deed, mortgage, lease, sublease, license, sublicense, instrument, commitment, promise, undertaking or other binding arrangement.

3.11         Benefit Plans.

(a)           Section 3.11(a) of the Disclosure Schedule sets forth a complete and correct list of (i) all “employee benefit plans,” as defined in Section 3(3) of ERISA, and all other oral or written employment agreements, employee benefit arrangements or payroll practices, including bonus plans, consulting or other compensation agreements, incentive, equity or equity based compensation, or deferred compensation arrangements, stock purchase, severance pay, sick leave, vacation pay, salary continuation, disability, hospitalization, medical insurance, life insurance, scholarship programs maintained by the Company or to which the Company contributed or is obligated to contribute thereunder for current or former employees of the Company or that cover Employees or with respect to which the Company has any actual or contingent liability (the “Employee Benefit Plans”), and (ii) all “employee pension plans,” as defined in Section 3(2) of ERISA, subject to Title IV of ERISA or section 412 of the Code, maintained by the Company and any trade or business (whether or not incorporated) which are or have ever been under common control, or which are or have ever been treated as a single employer, with the Company under Sections 414(b), (c), (m) or (o) of the Code (“ERISA Affiliate”) or to which the Company and any ERISA Affiliate contributed or has ever been obligated to contribute thereunder (the “ERISA Affiliate Plans”).  No Employee Benefit Plan or ERISA Affiliate Plan is a multiemployer plan as defined in Section 3(37) of ERISA, or has been subject to Sections 4063 or 4064 of ERISA.

(b)           Each of the Employee Benefit Plans and ERISA Affiliate Plans has been maintained, in all material respects, in accordance with its terms and all provisions of

17

Applicable Laws.  True, correct and complete copies of all Employee Benefit Plans and ERISA Affiliate Plans have been made available to Parent.

(c)           Except as set forth in Section 3.17(e) of the Disclosure Schedule, the execution of this Agreement and the consummation of the transactions contemplated herein will not, by itself or in combination with any other event (regardless of whether that other event has or will occur), result in any payment (whether of severance pay or otherwise) becoming due from or under any Employee Benefit Plan to any current or former director, officer, consultant or employee of the Company or result in the vesting, acceleration of payment or increases in the amount of any benefit payable to or in respect of any such current or former director, officer, consultant or employee.  The Company is not party to, or otherwise obligated under, any contract, agreement, plan or arrangement (other than this Agreement) covering any person that, individually or collectively could give rise to the payment of any amount that would not be deductible by Parent or the Company by reason of Section 280G of the Code or that could be subject to Section 4999 of the Code.

(d)           Each plan, program, arrangement or agreement that constitutes in any part a nonqualified deferred compensation plan within the meaning of Section 409A of the Code has been operated and maintained in accordance in all material respects with Section 409A of the Code and applicable Treasury Regulations, and the Company has no unsatisfied liability for Taxes thereunder.

(e)           Except as set forth in the Preliminary Allocation Schedule, no Employee is entitled to any severance payments upon termination of employment with Administaff Companies II, LP (“Administaff”) or with the Company.

3.12         Intellectual Property.

(a)          Registered IP.  Section 3.12(a) of the Disclosure Schedule accurately identifies (i) each item of Registered IP in which the Company has an ownership interest of any nature (whether exclusively, jointly with another Person, or otherwise); (ii) the jurisdiction in which such item of Registered IP has been registered or filed and the applicable registration or serial number; and (iii) any other Person that has an ownership interest in such item of Registered IP and the nature of such ownership interest.  The Company has delivered or made available to Parent complete and accurate copies of all applications, material correspondence, and other material documents related to each such item of Registered IP.

(b)          Inbound Licenses.  Section 3.12(b) of the Disclosure Schedule (i) accurately identifies each Contract under which Intellectual Property Rights are licensed to any Company (other than any commercially available third-party software that (A) is licensed to the Company solely in executable or object code form pursuant to a non-exclusive, internal use software license, and (B) is not incorporated into, or used directly in the development, manufacturing, testing, distribution, or support of, any Company Product); and (ii) specifies whether the rights licensed to the Company are exclusive or non-exclusive.  The Company has delivered or made available to Parent an accurate and complete copy of each Contract identified, or required to be identified, in Section 3.12(b) of the Disclosure Schedule.

(c)          Outbound Licenses.  Section 3.12(c) of the Disclosure Schedule accurately identifies each Contract pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in (i)

18

any Intellectual Property Rights in any Company Products, (ii) any Company IP that is Registered IP, or (iii) any other Company IP that is material to the business of any Company.  For each of the Contracts required to be identified as set forth above, Section 3.12(c) of the Disclosure Schedule identifies whether the rights granted are exclusive or nonexclusive.  The Company has delivered or made available to Parent an accurate and complete copy of each Contract identified, or required to be identified, in Section 3.12(a) of the Disclosure Schedule.  The Company is not bound by, and no Company IP is subject to, any Contract containing any covenant or other provision that in any way limits or restricts the ability of any Company to use, exploit, assert, or enforce any Company IP, or compete or engage in any kind of business, anywhere in the world (other than restrictions or limitations imposed on intellectual property licensed or assigned as work for hire by Applicable Law).  All Contracts pursuant to which the Company has licensed or assigned intellectual property as work for hire are identified as such in Section 3.12(c) of the Disclosure Schedule.

(d)          Other Commercial and IP Agreements.  The Company has delivered or made available to Parent a complete and accurate copy of (i) the most current version of the Company’s standard terms of sale with respect to any semiconductor or semiconductor design component services; (ii) the Company’s standard purchase terms with all suppliers of design tools and services related to the Company’s semiconductor or semiconductor component design services, including development, manufacturing, testing, wafer-sorting, packaging, and assembly; (iii) all Contracts (other than those identified in Section 3.12(c) of the Disclosure Schedule) pursuant to which any Person has a currently enforceable or exercisable right to sublicense or otherwise transfer rights in any Company IP to any other Person; (iv) each joint marketing, joint development, strategic alliance, and similar Contract to which any Company is a party and which is currently in effect; (v) every other Contract that is currently in effect and pertains to the Company’s services or any Intellectual Property used in connection with any such services.  Section 3.12(d) of the Disclosure Schedule accurately identifies each Contract described in clauses (iii), (iv) and (v) above.  No Contract provides any Person any rights whatsoever with respect to patents no. 7,167,410 or 7,599,396 or any serial memory or low power Serializer/Deserializer CEI Intellectual Property of the Company.

(e)          Ownership Free and Clear.  The Company exclusively owns all right, title, and interest to and in the Company IP (other than Intellectual Property Rights licensed to the Company, as identified in Section 3.12(b) of the Disclosure Schedule) free and clear, to the Company’s Knowledge, of any Security Interests (other than licenses granted pursuant to the Contracts listed in Schedule 3.12(c)).  Without limiting the generality of the foregoing:

(i)         Perfection of Rights.  All documents and instruments necessary to vest or perfect the rights of the Company in the Company IP that is Registered IP have been validly executed, delivered, and filed in a timely manner with the appropriate Governmental Authority.

(ii)        Employees and Contractors.  Each Person who is or was an employee or contractor of any Company and who is or was an inventor, author, or creator of Intellectual Property Rights in any Company Product has signed a valid, enforceable Employee Confidentiality Agreement or Consultant Confidentiality Agreement, as applicable.  To the Company’s Knowledge, no current or former Company Shareholder, officer, director, employee or contractor of any Company has any claim, right (whether or not currently exercisable), or interest to or in any Company IP, and no such Person has asserted any such claim against the Company.  To the Company’s Knowledge, no employee of the Company is in

19

breach of any Contract with any former employer or other Person concerning Intellectual Property Rights or confidentiality.

(iii)       Government or University Rights.  To the Company’s Knowledge, no funding, facilities, or personnel of any Governmental Authority or of any college, university, or other educational institution were used, directly or indirectly, to develop or create, in whole or in part, any Company IP.  No Governmental Authority has acquired any rights with respect to the Company IP pursuant to any Contract to which the Company is a party.

(iv)       Protection of Proprietary Information.  The Company has taken reasonable steps to maintain the confidentiality of, and otherwise protect and enforce, the Company’s rights in all proprietary information that the Company holds, or purports to hold, as a trade secret.

(v)        Standards Bodies.  The Company is not and has never been a member or promoter of, or a contributor to, any industry standards body or similar organization that could require or obligate any Company to grant or offer to any other Person any license or right to any Company IP.

(f)           Valid, Subsisting, and Enforceable.  All Company IP that is Registered IP is valid, subsisting and enforceable.  Without limiting the generality of the foregoing:

(i)         Requirements and Deadlines.  Each item of Company IP that is Registered IP is in compliance with all applicable Legal Requirements and all filings, payments, and other actions required to be made or taken to maintain such item of Company IP that is Registered IP in full force and effect have been made or taken by the applicable deadlines.

(ii)        Interference Actions and Similar Claims.  To the Knowledge of the Company, no interference, opposition, reissue, reexamination, or other Action is pending or threatened (and the Company has not received notice of any such Action), in which the scope, validity, or enforceability of any Company IP is being, has been, or could reasonably be expected to be contested or challenged.  To the Company’s Knowledge, there is no basis for any non-frivolous claim that any Company IP is invalid or unenforceable.

(g)          No Third-Party Infringement of Company IP.  To the Company’s Knowledge, since its incorporation, no Person has infringed, misappropriated, or otherwise violated, and no Person is currently infringing, misappropriating, or otherwise violating, any Company IP.  The Company has provided to Parent a complete and accurate copy of each letter or other written or electronic communication or correspondence that has been sent or otherwise delivered since the date of incorporation by or to the Company or any representative of the Company regarding any actual, alleged, or suspected infringement or misappropriation of any Company IP.  Section 3.12(g) of the Disclosure Schedule provides a brief description of the current status of the matter referred to in each such letter, communication, or correspondence.

(h)          Effects of This Transaction.  Neither the execution, delivery, or performance of this Agreement (or any of the ancillary agreements entered into, or required to be entered into, in connection with the transactions contemplated hereby) nor the consummation of any

20

of the transactions contemplated hereby will, with or without notice or lapse of time, result in, or give any other Person the right or option to cause or declare, (i) a loss of, or Security Interest on, any Company IP; (ii) a breach of any license agreement listed or required to be listed in Section 3.12(b), (c) or (d) of the Disclosure Schedule; (iii) the release, disclosure, or delivery of any Company IP by or to any escrow agent or other Person; or (iv) the grant, assignment, or transfer to any other Person of any license or other right or interest under, to, or in any Company IP.

(i)           No Infringement of Third Party IP Rights.  To the Company’s Knowledge, the Company has never infringed (directly, contributorily, by inducement, or otherwise), misappropriated, or otherwise violated any Intellectual Property Right of any other Person.  To the Company’s Knowledge, no claim of infringement or misappropriation or similar claim or Action is pending or threatened against the Company (and the Company has not received notice of any such claim or Action) or against any other Person who may be entitled to be indemnified, defended, held harmless, or reimbursed by the Company with respect to such claim or Action.  Except as set forth in Section 3.12(i) of the Disclosure Schedule, since the date of incorporation, the Company has not received any notice or other communication (in writing or otherwise) relating to any actual, alleged, or suspected infringement, misappropriation, or violation of any Intellectual Property Rights of another Person.

(j)           Harmful Code.  To the Company’s Knowledge, no Company Software contains any “back door,” “drop dead device,” “time bomb,” “Trojan horse,” “virus,” or “worm” (as such terms are commonly understood in the software industry) or any other code designed or intended to have, or capable of performing, any of the following functions: (i) disrupting, disabling, harming, or otherwise impeding in any manner the operation of, or providing unauthorized access to, a computer system or network or other device on which such code is stored or installed; or (ii) damaging or destroying any data or file without the user’s consent.

(k)          Source Code.  Except as set forth in Section 3.12(k) of the Disclosure Schedule, no source code for any Company Software has been delivered, licensed, or made available to any escrow agent or other third party.  The Company has no duty or obligation (whether present, contingent, or otherwise) to deliver, license, or make available the source code for any Company Software to any escrow agent or other third party.  No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, result in the delivery, license, or disclosure of the source code for any Company Software to any third party.

(l)           Open Source Code.  No Company Software (including any component thereof) is subject to any “copyleft” or other obligation or condition (including any obligation or condition under any “open source” license such as the GNU Public License, Lesser GNU Public License, or Mozilla Public License) that by its terms (i) requires, or conditions the use or distribution of such Company Software on, the disclosure, licensing, or distribution of any source code for any portion of such Company Software, or (ii) otherwise imposes any limitation, restriction, or condition on the right or ability of the Company to use or distribute any Company Product.

(m)          Definitions.  As used in this Agreement:

“Company IP” shall mean all worldwide proprietary information and intellectual property rights of the Company, including, without limitation:  (i) all patents, patent rights, copyrights and works of authorship in any media (including, without limitation, computer programs, software and

21

applications therefor (including, without limitation, source code and object code, development documentation, programming tools, drawings, specifications, test software, laser programs, sort programs, packaged unit test programs, characterization programs and data)), labels and other trade rights, product displays, know-how, inventions, invention disclosures, discoveries, improvements, designs, design rights, masks, mask works, circuit designs, algorithms, behavior models, hardware description language models, proprietary design tools, tooling, dies, molds, layouts, test keys, cells, databases, libraries, customer lists, trade secrets, technology, formulae, recipes, shop rights, development work-in-process, graphics, artwork, photography, advertising and promotional materials, trademarks, service marks, trade names, brand names, domain names, logos, trade dress, source indicators, and other proprietary or confidential technology and information, in each case, (x) including, without limitation, all authors’, moral, common law and other rights to any of the foregoing, and (y) whether or not registrable, patentable or copyrightable; (ii) all Intellectual Property Rights in the Company Products, (iii) all Registered IP that is identified, or required to be identified, in Section 3.12(a) of the Disclosure Schedule, (iv) all development or deployment tools (including scripts and makefiles) developed by or on behalf of the Company, and (v) all other Intellectual Property Rights developed by or on behalf of the Company or in which the Company otherwise has, or purports to have, an ownership interest or exclusive rights.

“Company Products” shall mean and include any semiconductor chip designed or developed by the Company, or any Serializer/Deserializer or serial memory design or related design or development services.

“Company Software” shall mean and include all software or firmware (including microcode) that is incorporated into, or otherwise is or is a part of, any Company Product.

“Intellectual Property Rights” shall mean and include all rights of the following types, which may exist or be created under the laws of any jurisdiction in the world: (a) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights, and mask works; (b) trademark and trade name rights and similar rights (including domain name registrations); (c) trade secret rights; and (d) patents and industrial property rights;.

“Registered IP” shall mean all Intellectual Property Rights that are registered or filed with, or issued under the authority of, any Governmental Authorities, including all patents, registered copyrights, registered mask works, and registered trademarks and all applications for any of the foregoing, and all registrations, renewals, extensions, continuations, divisions, or reissues thereof.

3.13Accounts Receivable; Accounts Payable.

(a)Section 3.13(a) of the Disclosure Schedule is a correct and complete list of all trade accounts receivable and other rights to payment from customers of the Company (“Accounts Receivable”) as of February 28, 2010.  All Accounts Receivable are reflected on the accounting records of the Company and represent and, as of the Closing Date, will represent valid obligations arising from sales actually made or services actually performed by the Company in the ordinary course of business.  The Accounts Receivable are not and will not be as of the Closing Date subject to any contest, claim, defense or right of setoff, other than returns in the ordinary course of business of the Company, under any Contract with any account debtor of an Account Receivable relating to the amount or validity of such Account Receivable.

22

(b)Section 3.13(b) of the Disclosure Schedule is a correct and complete list of all trade accounts payable (“Accounts Payable”) of the Company as of February 28, 2010.  All Accounts Payable are reflected on the accounting records of the Company and represent and, as of the Closing Date will represent, valid obligations of the Company arising from purchases actually made by or services actually performed for the Company in the ordinary course of business.

3.14Inventory.  The Company does not manufacture, use or sell any inventory in the conduct of its business and is not in possession of any inventory or similar items.

3.15Suppliers and Customers.  The relationships of the Company with its suppliers, vendors and customers are good commercial working relationships, and since January 1, 2009 no supplier or customer of material importance to Company has canceled or otherwise terminated, or threatened in writing to cancel or terminate, its relationship with the Company or has decreased materially, or threatened in writing to decrease or limit materially, its services, supplies or materials to the Company or its usage or purchase of any Company Products, except for normal cyclical changes related to customers’ businesses.  Section 3.15 of the Disclosure Schedule is a correct and complete list of (a) all of the Company’s customers since inception (including the amount of sales to each such customer) and (b) all suppliers and vendors for the Company as of the date of this Agreement.

3.16Insurance.  Section 3.16 of the Disclosure Schedule contains a complete and correct list as of the date hereof of all insurance policies maintained by or on behalf of the Company.  True and complete copies of each listed policy have been made available to Parent.  Such policies are in full force and effect, all premiums due thereon have been paid and the Company has complied in all material respects with the provisions of such policies.  The Company has not received any written notices from any issuer of any of its insurance policies canceling or amending any policies listed in Section 3.16 of the Disclosure Schedule, materially increasing any deductibles or retained amounts thereunder, or materially increasing premiums payable thereunder.  There is no claim by the Company pending under any of such policies as to which coverage has been denied or disputed by the underwriters or in respect of which the underwriters have reserved their rights.  Neither the Company nor any affiliate thereof has ever maintained, established, sponsored, participated in or contributed to any self-insurance plan.

3.17Employees and Consultants.

(a)Section 3.17(a) of the Disclosure Schedule is a complete and accurate list of all individuals employed by the Company as of the date of this Agreement.  Section 3.17(a) of the Disclosure Schedule also lists all consultants and independent contractors engaged by the Company (“Consultants”) as of the date of this Agreement.  Section 3.17(a) of the Disclosure Schedule identifies the position or scope of engagement, as applicable, held by each Employee or Consultant listed and employment commencement date for each Employee.

(b)Except as set forth in Section 3.17(b) of the Disclosure Schedule, all current and former employees and consultants of the Company with access to Company IP or other confidential or proprietary information of the Company have executed and delivered to the Company agreements adequately protecting the confidentiality of such information, and assigning to the Company all patents, discoveries, inventions, works of authorship, improvements and innovations developed by such employees and consultants in the course of performing their employment or consulting duties (all such agreements with employees, collectively, the “Employee Confidentiality

23

Agreements”; and all such agreements with consultants, collectively, the “Consultant Confidentiality Agreements”).  The Company’s standard forms of Employee Confidentiality Agreement and Consultant Confidentiality Agreements and any material modifications of them have been furnished to Parent.

(c)Section 3.17(c) of the Disclosure Schedule sets forth a complete and accurate list of all Employees who have executed and delivered to the Company employment Contracts containing the terms and conditions of such Employees’ performance of their respective employment duties (collectively, the “Employee Employment Agreements”), all of which have been furnished to Parent.

(d)Each Employee is located in the United States, is a United States citizen or has permanent residency.

(e)The Company has previously furnished to Parent the current salary, wages, commissions and bonuses paid or payable by the Company to each Employee and Consultant as of the Closing Date.  Except as set forth in Section 3.17(e) of the Disclosure Schedule, no salary, wages, bonuses or commissions are payable by the Company to any Employees except for wages with respect to the current payroll period.  The Company is not subject to any fines, penalties or other liabilities as a result of any failure to pay salary, wages or other compensation.  Section 3.17(e) of the Disclosure Schedule sets forth the earned and unused vacation and sick pay liability accrued by the Company for each Employee through the Closing Date.

(f)No charge or claim alleging any unfair labor practice, wrongful termination, employment discrimination or any other illegal handling of any employment-related matter is currently pending or, to the Company’s Knowledge, threatened against the Company relating to any of the Employees or Consultants.

3.18Litigation.  There is no (a) action, suit, claim, charge, cause of action or suit (whether in contract or tort or otherwise), litigation (whether at law or in equity, whether civil or criminal), controversy, assessment, arbitration, investigation, hearing, complaint, demand or other proceeding to, from, by or before any arbitrator, court, tribunal or other Governmental Authority (individually, an “Action,” and collectively, “Actions”) pending, or to the Company’s Knowledge, threatened against the Company, or affecting any of its properties or the Merger or the other transactions contemplated hereby, (b) governmental inquiry or investigation pending or, to the Company’s Knowledge, threatened against the Company or affecting any of its properties (including, without limitation, any inquiry as to the qualification of the Company to hold or receive any license or other Permit) or (c) to the Company’s Knowledge, any Actions pending or threatened against any Related Party in connection with the business of the Company.  The Company is not in default with respect to any order, writ, injunction or material decree of any Governmental Authority served upon the Company.  There is no action or suit by the Company pending, threatened or contemplated against any other Person.

3.19Environmental Matters.

(a)To the Company’s Knowledge: (i) the Company is and has been in compliance in all material respects with all Environmental Laws; (ii) there has been no release or threatened release of any pollutant, contaminant or toxic or hazardous material, substance or waste, or petroleum or any fraction thereof, (each a “Hazardous Substance”) on, upon, into or from any site

24

currently or heretofore owned, leased or otherwise used by the Company; (iii) there have been no Hazardous Substances generated by the Company that have been disposed of, or come to rest at, any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any Governmental Authority within or outside the United States; and (iv) the Company has made available to Parent true and correct copies of all material environmental records, reports, notifications, certificates of need, permits, pending permit applications, correspondence, engineering studies and environmental studies or assessments in the possession of the Company or any of its representatives or advisors.

(b)For purposes of this Agreement, “Environmental Laws” means any applicable Legal Requirement (whether domestic or foreign) relating to (i) releases or threatened release of Hazardous Substances, (ii) pollution or protection of employee health or safety, public health or the environment or (iii) the manufacture, handling, transport, use, treatment, storage, or disposal of Hazardous Substances.

3.20Compliance with Laws; Permits.  The Company is not in violation of or default under any Legal Requirement in any material respect.  To the Company’s Knowledge, neither the Company nor any of its Related Persons, is under investigation with respect to, nor has the Company or, to the Company’s Knowledge, any Related Party been threatened to be charged with, or has been given written notice of, any material violation of any Legal Requirement.  All material governmental permits, concessions, grants, franchises, licenses and other governmental authorizations and approvals (collectively, “Permits”) (A) pursuant to which the Company currently operates or holds any interest in any of its properties, or (B) which are required for the operation of the business of the Company as currently conducted or the holding of any such interest, have been issued or granted to the Company, and all such Permits are in full force and effect and constitute all Permits required to permit the Company to operate or conduct its business or hold any interest in its properties or assets.

3.21Banking Relationships.  Section 3.21 of the Disclosure Schedule sets forth a true and complete list of the name and location of each bank, savings and loan or similar financial institution in which the Company has an account or a safe deposit box.

3.22Minute Books and Records.  The minute books of the Company contain complete and accurate, in all material respects, records of all meetings and other corporate actions of their respective shareholders and the board of directors and committees thereof.  The stock records of the Company are correct and complete, in all material respects, and reflect all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company.  Prior to execution of this Agreement, the Company has furnished to Parent true and complete copies of (a) the Company Organizational Documents, (b) all minute books (containing the records of meetings of the Company Shareholders, the board of directors and any committees of the board of directors to date) of the Company, (c) all stock certificate and stock record books of the Company and (d) all Contracts referred to or identified in Section 3.10 of the Disclosure Schedule.

3.23Brokers; Schedule of Fees.  No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.

3.24Vote Required.  Either the (a) vote of the holders of more than 50% of the outstanding Company Stock at a meeting of Company Shareholders or (b) written consent of the

25

holders of at least 90% of the outstanding Company Stock, as applicable, is the only vote of the holders of any of the Company Stock necessary to approve this Agreement and the transactions contemplated hereby (the “Requisite Shareholder Approval”).

3.25Company Determinations, Approvals and Recommendations.  The board of directors of the Company, at a meeting duly called and held prior to the execution of this Agreement, has unanimously (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, is advisable, fair to and in the best interests of the Company and the Company Shareholders, (ii) authorized and approved the execution, delivery and performance of this Agreement and the transactions contemplated hereby, including the Merger, (iii) approved this Agreement and the transactions contemplated hereby, including the Merger, which approval constituted approval under the provisions of Section 490.1104 of the IBCA and (iv) recommended the adoption of this Agreement and approval of the Merger and the transactions contemplated hereby by Company Shareholders and directed that this Agreement, the Merger and the transactions contemplated hereby be submitted for consideration by the Company Shareholders.

3.26Certain Relationships and Related Transactions.  No Employee, officer, director or member of the Company, any member of such Person’s immediate family or any of their respective Affiliates (“Related Persons”) (i) owes any amount to the Company nor does the Company owe any amount to, or has the Company committed to make any loan or extend or guarantee credit to or for the benefit of, any Related Person, (ii) is involved in any business arrangement or other relationship with the Company (whether written or oral) other than employment relationships and board memberships, (iii) owns any property or right, tangible or intangible, that is used by the Company, (iv) has any claim or cause of action against the Company or (v) owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee or partner of, or consultant to, or lender to or borrower from or has the right to participate in the profits of, any Person which is a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Company.

3.27Disclosures.  Neither this Agreement (including the Disclosure Schedule), any Exhibit or Schedule hereto, nor any certificates delivered or supplied by the Company hereunder contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made and taken as a whole, not misleading.

SECTION 4.Representations and Warranties by Parent and Merger Sub.  Parent and Merger Sub represent and warrant to the Company as follows:

4.1Organization and Standing.  Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation.

4.2Authority for Agreement.

(a)Each of Parent and Merger Sub has all requisite corporate power and authority to execute and deliver this Agreement and each instrument required hereby to be executed and delivered at Closing and subject to Section 4.3, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.  The execution and delivery by Parent and Merger Sub of this Agreement and each instrument required hereby to be executed and delivered by them at Closing and the consummation by Parent and Merger Sub of the

26

transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement or to consummate the transactions so contemplated.  This Agreement has been and each instrument required hereby to be delivered by Parent and Merger Sub at the Closing will be duly and validly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery by the Company and the Representative, constitutes a legal, valid and binding obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with its terms, subject to bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors, and to general equity principles.

(b)The execution and delivery of this Agreement by Parent and Merger Sub, the compliance with the provisions of this Agreement by Parent and Merger Sub and the consummation by Parent or Merger Sub, as applicable, of the transactions contemplated hereby or thereby, will not (i) conflict with or violate the Certificate of Incorporation or the Bylaws of Parent, each as amended to date and currently in effect, or the Articles of Incorporation or the Bylaws of Merger Sub, each as amended to date and currently in effect, (ii) violate, in any material respects Legal Requirements applicable to Parent or Merger Sub or any of their respective properties or assets, or (iii) except as would not give rise to a Parent Material Adverse Effect, conflict with, result in a material breach of, constitute (with or without due notice or lapse of time or both) a material default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any Contract, Permit, Security Interest or other interest to which Parent or Merger Sub is a party or by which Parent or Merger Sub is bound or to which their assets are subject.

4.3Brokers and Finders.  No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent.

4.4Ownership and Activities of Merger Sub.  Parent owns all of the issued and outstanding shares of capital stock of Merger Sub.  As of the date hereof and as of the Effective Time, except for obligations or liabilities incurred in connection with its incorporation or organization and the transactions contemplated by this Agreement and except for this Agreement and any other agreements or arrangements contemplated hereby or thereby, Merger Sub (i) is a direct, wholly owned subsidiary of Parent, (ii) was formed solely for the purpose of engaging in the transactions contemplated hereby and (iii) has not and at the Effective Time will not have incurred, directly or indirectly, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person.

SECTION 5.Additional Agreements.

5.1Conduct of the Company’s Business Prior to Closing.  The Company covenants and agrees that, during the period from the date hereof and continuing until the earlier of the termination of this Agreement or the Effective Time, unless Parent shall otherwise consent in writing (which consent shall not be unreasonably withheld or delayed), the Company shall conduct its business and not take any action (including, without limitation, any of the actions set forth in Section 3.7 hereof) except in the ordinary course of business and in a manner consistent with past practices and in compliance in all material respects with all Applicable Law.

27

5.2Confidentiality; Access to Information.

(a)Confidentiality.  The parties acknowledge that the Company and Parent have previously executed a Mutual Non-Disclosure Agreement by and between Parent and the Company dated as of December 23, 2009 (the “Confidentiality Agreement”), which Confidentiality Agreement will continue in full force and effect in accordance with its terms.  Notwithstanding the terms and provisions of the Confidentiality Agreement, the parties acknowledge and agree that the Company shall have the right to disclose to its shareholders all material terms and provisions of the Merger Agreement and the transactions contemplated by the Merger Agreement as may be necessary or proper in connection with the Company’s efforts to obtain the Requisite Shareholder Approval and that this provision of this Section 5.2(a) shall be deemed to, and shall, amend the terms of the Confidentiality Agreement to the extent necessary to permit such disclosure.

(b)Access to Information.  At the reasonable request of Parent during the period prior to the Effective Time, the Company will afford Parent and its accountants, counsel and other representatives reasonable access during normal business hours to all of the premises, properties, books, records, financial, tax and accounting records (including, without limitation, the work papers of the Company’s independent accountants), Contracts, personnel, counsel, financial advisors and auditors of the Company to obtain all information concerning the business, including, without limitation, the status of product development efforts, properties, results of operations and personnel of the Company for purposes of this Agreement; provided, however, that the Company may restrict the foregoing access to the extent that any Applicable Law requires the Company to restrict or prohibit access to any such properties or information.  In addition, any information obtained from a Party pursuant to the access contemplated by this Section 5.2(b) shall be subject to the confidentiality obligations pursuant to Section 5.2(a).  No information or knowledge obtained in any investigation pursuant to this Section 5.2 or otherwise shall affect or be deemed to modify or quantify any representation or warranty of the Parties or the conditions to the obligations of the parties to consummate the Merger or the other transactions contemplated by this Agreement.

5.3Public Disclosure.  Except as contemplated by this Agreement or as required by Legal Requirements (including applicable securities laws) or, as to Parent, by regulatory authority, no press release or any public disclosure, either written or oral, of the transactions contemplated hereby shall be made by any party hereto unless approved by Parent and the Company prior to release, which consent will not be unreasonably withheld.

5.4Notification.  Between the date of this Agreement and the Closing, the Company shall promptly notify Parent in writing if it becomes aware of (a) any fact or condition that causes or constitutes a breach of any of the Company’s representations and warranties made as of the date of this Agreement or (b) the occurrence after the date of this Agreement of any fact or condition that would or be reasonably likely to (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had that representation or warranty been made as of the time of the occurrence of, or the Company’s discovery of, such fact or condition.

5.5Exclusivity.  From and after the date of this Agreement and ending on the earlier of the Closing Date or the date this Agreement is terminated pursuant to Section 11 (the “Exclusivity Period”), the Company (including, without limitation, for this purpose its officers, directors, representatives, affiliates, employees and agents) will not, directly or indirectly, solicit, induce, facilitate, respond to (other than to advise such party of the Company’s obligations hereunder), initiate, engage in or enter into discussions or negotiations with, or encourage, or provide

28

any information to, any Person concerning any sale of the Company or sale, exclusive license or other form of disposition of any of the Company’s assets (other than in the ordinary course of business) (an “Acquisition Proposal”).  During the Exclusivity Period, neither the Company nor such designated persons will enter into any Contracts or make any commitments to do or in connection with any of the foregoing.  For the purpose of this Section 5.5, any license of the Company IP shall be considered a disposition of assets outside the ordinary course of business.  The Company represents that neither it nor any of its employees, agents, representatives, directors or affiliates is party to or bound by any Contract with respect to any such transaction regarding the disposition of all or a portion of its assets other than as contemplated by this Agreement.  If the Company or any such designated person receives an Acquisition Proposal or any request for non-public information concerning itself or its assets, the Company shall promptly notify Parent of such Acquisition Proposal or request (including, without limitation, the identity of the Person making, and the terms of, such Acquisition Proposal or request), subject to any confidentiality obligations existing as of the date hereof.

5.6Reasonable Efforts.  Upon the terms and subject to the conditions set forth herein, each of the parties hereto agrees to use reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including, without limitation, using all reasonable efforts to accomplish the following:  (i) the taking of all reasonable acts necessary to cause the conditions precedent set forth in Sections 6, 7 and 8 to be satisfied; (ii) obtaining or making all consents, approvals, orders or authorizations of, or registrations, declarations or filings with any Governmental Authority and the taking of all reasonable steps as may be necessary to avoid any Action by any Governmental Authority; (iii) the obtaining of all consents, approvals or waivers from third parties (provided, that the parties will discuss in good faith procedures to pursue third party consents with respect to the Merger); (iv) to lift any restraint, injunction or other legal bar to the Merger and (v) the executing or delivering of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement.

5.7Cooperation.  Subject to compliance with Applicable Law, from the date hereof until the Effective Time, the officers of the Company and other personnel of the Company shall make themselves reasonably available to confer on a regular and frequent basis with one or more representatives of Parent to report operational matters that are material and the general status of ongoing operations, in each case with respect to the Company.

5.8Company Option Plan.  Prior to the Effective Time, the Company shall take all action necessary such that the Company Option Plan is terminated effective as of the Effective Time.

5.9Delivery of Contracts for Due Diligence.  Promptly following the execution of this Agreement, the Company shall furnish to Parent true, correct and complete copies of any and all Contracts between the Company and the parties indicated on Schedule 7.3 hereto (or their affiliates), for review and evaluation by Parent in accordance with the terms of the Confidentiality Agreement.

5.10Company Shareholders’ Consent.  Promptly following the execution of this Agreement, the Company shall submit this Agreement and the transactions contemplated hereunder, including the Merger to all of the Company Shareholders for approval and adoption as provided by

29

the IBCA and the Company’s Organizational Documents.  Without limiting the foregoing, the Company shall use its best efforts to obtain the approval or consent of as many of the Company Shareholders as possible as promptly as practicable following the date hereof.

5.11Resignation of Officers and Directors.  The Company shall obtain the resignations of all officers and members of the board of directors of the Company effective as of the Effective Time.

5.12Vacation and Sick Pay.  At or promptly following the Closing, Parent shall pay each Employee cash in an amount equal to the earned and unused vacation and sick pay liability accrued by the Company for such Employee through the Closing Date, as set forth in Section 3.17(e) of the Disclosure Schedule.

5.13Parent and Surviving Corporation Indemnification.

(a)Parent shall cause the Surviving Corporation to establish and maintain for a period of not less than three years from and after the Effective Time provisions in its articles of incorporation and by-laws concerning the indemnification and exoneration (including provisions relating to expense advancement) of the Company’s former and current officers, directors, employees and agents that are no less favorable to those persons than the provisions of the articles of incorporation and by-laws of the Company as in effect as of the date hereof, and such provisions shall not be amended, repealed or otherwise modified in any respect adverse to such former and current officers, directors, employees and agents during such period, except as required by Applicable Law.

(b)The rights of each present and former director, officer and employee of the Company (each such director, officer or employee, together with such person’s heirs, executors or administrators, an “Indemnified Party” and collectively, the “Indemnified Parties”) hereunder shall be in addition to, and not in limitation of, any other rights such Indemnified Party may have under the articles of incorporation or by-laws or any other organizational documents of the Company, the indemnification arrangements in existence as of the date of this Agreement under the IBCA or otherwise.  The provisions of this Section 5.13 shall survive the consummation of the Merger and are expressly intended to be for the benefit of, and shall be enforceable by, each of the Indemnified Parties and, subject to paragraph (c) below, shall be binding on Parent, the Surviving Corporation and their successors and assigns.

(c)The Surviving Corporation and Parent shall reimburse all reasonable out of pocket expenses, including reasonable attorneys’ fees, that may be incurred by any Indemnified Party in enforcing the indemnity and other obligations in this Section 5.12.

(d)To the extent that Parent is required to indemnify or reimburse expenses incurred by an Indemnified Party under this Section 5.13 with respect to a matter for which Parent is entitled to indemnification under Section 13 in excess of the amount covered by the applicable “tail” insurance policy in effect at such time, such excess amount, plus any reasonable costs and expenses incurred by Parent in connection with such indemnification, shall constitute “Damages” for purposes of this Agreement, and Parent and the Surviving Corporation, as the case may be, shall, without limiting any other rights, be entitled to recover such Damages from the Indemnification Funds; provided, however, that this paragraph (d) shall not apply in the event that no such “tail” insurance is in effect at such time.

30

SECTION 6.Conditions Precedent to the Obligations of Each Party to Effect the Merger.  The respective obligations of each party under this Agreement to consummate the Merger and the other transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing Date of the following conditions:

6.1Requisite Shareholder Approval.  The Company shall have obtained the Requisite Shareholder Approval.

6.2No Order.  No temporary restraining order, preliminary or permanent injunction or other order or judgment preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction and remain in effect.

SECTION 7.Additional Conditions Precedent to the Obligations of Parent and Merger Sub.  The obligations of Parent and Merger Sub under this Agreement to consummate the Merger and the other transactions contemplated hereby shall be subject to satisfaction at or prior to the Closing Date of each of the following conditions:

7.1Representations, Warranties and Covenants.

(a)Each of the representations and warranties of the Company in this Agreement, shall be true, complete and correct in all material respects as of the Effective Time as though such representation and warranty had been made at the Effective Time (except for those representations and warranties which address matters only as of a particular date shall remain true, complete and correct as of such date).

(b)The Company shall not have materially breached its covenants under this Agreement required to be performed and complied with as of the Effective Time.

7.2Government and Other Third Party Approvals.  All consents, approvals, orders or authorizations of, or registrations, declarations or filings with, any Governmental Authority or other Person identified on Schedule 7.2 shall have been obtained or made, in a manner reasonably satisfactory in form and substance to Parent, and no such consent, approval, order or authorization shall have been revoked.

7.3Satisfactory Review of Contracts.  The Company shall have furnished to Parent copies of any Contracts between the Company and the parties indicated on Schedule 7.3 hereto (or their affiliates), and Parent shall have determined, in its sole discretion, that the terms of such Contracts are satisfactory to Parent.

7.4Offers of Employment; Non-Compete Agreements.  Each of the Employees listed on Schedule 7.4 shall have accepted offers of employment from Parent (subject to the consummation of the Merger) and entered into (i) a Proprietary Information and Inventions Agreement in Parent’s customary form and (ii) a Non-Competition Agreement, in a form mutually agreed upon by the parties.

7.5Dissenting Shares.  Holders of no more than 5% of the Company Stock shall have exercised appraisal rights pursuant to the applicable provisions of the IBCA.

7.6Company Material Adverse Effect.  Since the date of this Agreement no change has occurred that has had a Company Material Adverse Effect.

31

7.7Opinion of Company Counsel.  Parent shall have received a legal opinion from counsel to the Company, dated as of the Closing Date, in a form reasonably satisfactory to Parent, subject to appropriate assumptions, qualifications and limitations, with respect to (a) the matters warranted by the Company in Sections 3.1(a), 3.2(a) (other than with respect to numbers of outstanding securities), 3.2(c)(only with respect to the termination of the Option Plan and cancellation of outstanding Options), 3.4 and 3.5 of this Agreement and (b) the enforceability of Section 14.1 of this Agreement.

7.8Cancellation of Options and Warrants.  Each of the Employee Benefit Plans described in Section 5.8 and all outstanding Options and Warrants shall have been terminated and Parent shall have received documentation reasonably satisfactory to it to the foregoing effect.

7.9Loan Settlement Agreements.

(a)Each Employee who has loaned funds to the Company shall have entered into a loan settlement agreement in a form to be agreed upon by Parent and the Company pursuant to which such Employee shall agree to accept repayment of the loan principal amount in full settlement of the Company’s indebtedness to the Employee with respect to such loan.

(b)The Company and IDED shall have entered into a loan settlement agreement in a form reasonably satisfactory to Parent with respect to the repayment of the IDED Loan.

7.10Shareholder Consent, Proxy, Release and Waiver.  Company Shareholders holding at least 90% of the outstanding shares of Company Stock (including each of the Active Founders, as defined in Section 13.3(c)) shall have executed and delivered (and not revoked) a Consent, Proxy, Release and Waiver providing, among other things, a general release of the Company (subject to customary exceptions under Iowa law), in a form to be agreed upon by Parent and the Company.

7.11Deliveries.  Parent shall have received each of the other items listed in Section 9.1.

SECTION 8.Conditions Precedent to Obligations of the Company.  All obligations of the Company under this Agreement to consummate the Merger and the other transactions contemplated hereby are subject to the satisfaction at or prior to the Closing Date of the following conditions:

8.1Representations, Warranties and Covenants.

(a)Each of the representations and warranties of Parent in this Agreement, shall be true, complete and correct in all material respects as of the Effective Time as though such representation and warranty had been made at the Effective Time (except for those representations and warranties which address matters only as of a particular date shall remain true, complete and correct as of such date).

(b)Parent shall not have materially breached its covenants under this Agreement required to be performed and complied with as of the Effective Time.

8.2Parent Material Adverse Effect.  Since the date of this Agreement no event, occurrence, change, effect or condition of any character shall have occurred that, individually or in the aggregate, has had or would reasonably be expected to have a Parent Material Adverse Effect.

32

8.3Deliveries.  The Company shall have received the items listed in Section 9.2.

SECTION 9.Closing Deliveries.

9.1Closing Deliveries of the Company.  At or prior to the Closing, the Company shall deliver, or caused to be delivered, to Parent the following:

(a)a certificate executed on behalf of the Company by its Chief Executive Officer or its Treasurer to the effect that, as of the Effective Time, each of the conditions set forth in Section 7 has been satisfied;

(b)the Articles of Merger, duly executed by the Company;

(c)a certificate of the Secretary of the Company dated the Closing Date, in form and substance reasonably satisfactory to Parent certifying as the accuracy and completeness of the Company Organizational Documents;

(d)evidence satisfactory to Parent of resignations of each director and officer of the Company, effective in writing at the Effective Time in the form mutually agreed upon by Parent and the Company;

(e)the agreements described in Section 7.4 executed by each of the Employees identified in Schedule 7.4;

(f)the Company’s minute books, stock record books, Financial Statements and, to the extent requested by Parent, all other documents, books, records, agreements and financial data in the possession of the Company;

(g)evidence, reasonably satisfactory to Parent, of obtaining the third party consents identified on Schedule 7.2;

(h)the Closing Allocation Schedule;

(i)the legal opinion described in Section 7.7 of this Agreement;

(j)the agreements and other documentation described in Sections 7.8 and 7.9 of this Agreement; and

9.2Closing Deliveries of Parent.  At or prior to the Closing, Parent shall deliver, or caused to be delivered, to the Company the following:

(a)a certificate executed on behalf of the Parent by one of its officers to the effect that, as of the Effective Time, the conditions set forth in Section 8.1 above have been satisfied; and

(b)the Articles of Merger, duly executed and delivered by Parent.

SECTION 10.Survival.  All (a) representations and warranties of the Company and the Representative contained herein and (b) covenants and obligations of the Representative shall survive the Closing and shall continue for the Holdback Period; provided that, if any claims for

33

indemnification have been asserted with respect to inaccuracy or a breach of such representations, warranties, covenants and obligations prior to the end of the Holdback Period, such claim shall survive and continue in effect until final resolution of such claims; provided further, that the representations and warranties set forth in Sections 3.8, 3.11 and 3.12 shall survive until the applicable statute of limitations; and provided further, that, the representations and warranties set forth in Sections 3.1, 3.2 and 3.4 shall survive indefinitely.  All (a) representations and warranties of Parent or Merger Sub contained herein and (b) covenants and obligations of the Parent and the Merger Sub shall survive the Closing and shall continue for the Holdback Period; provided that any covenants or obligations of Parent or Merger Sub which by their terms extend beyond the Holdback Period shall extend beyond the Holdback Period until all obligations thereunder have been performed; provided further, that if any claims are brought against Parent or Merger Sub within the Holdback Period or, as the case may be within the longer period specified in the preceding proviso, with respect to any inaccuracy or breach of such representations, warranties, covenants and obligations, such representation, warranty, covenant or obligation shall survive and continue in effect until the final resolution of such claim; and provided further that the representations and warranties set forth in Sections 4.1 and 4.2 shall survive indefinitely.

SECTION 11.Termination.

11.1Termination prior to the Effective Time of the Merger.  This Agreement may be terminated at any time prior to the Effective Time, regardless of whether this Agreement and/or the Merger have been approved by the Company Shareholders, as follows and in no other manner:

(a)by mutual written consent duly authorized by the boards of directors of Parent and the Company;

(b)by either the Company or Parent if the Merger shall not have been consummated by June 15, 2010 (the “End Date”); provided that the right to terminate this Agreement under this Section 11.1(b) shall not be available to any party whose action or failure to act has been a principal cause of, or resulted in the failure of, the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement;

(c)by the Company, (i) upon a material breach of any representation, warranty, covenant or agreement set forth in this Agreement by Parent or Merger Sub, or (ii) if any representation or warranty of Parent or Merger Sub shall have become untrue in any material respect, in either case such that the conditions set forth in Section 8.1 would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue;

(d)by Parent, (i) upon a material breach of any representation, warranty, covenant or agreement set forth in this Agreement by the Company or the Representative, or (ii) if any representation or warranty of the Company shall have become untrue in any material respect, in either case such that the conditions set forth in Section 7.1 would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue;

(e)by Parent, if the Requisite Shareholder Approval shall not have been obtained on or before March 24, 2010;

(f)by Parent, if a Company Material Adverse Effect shall have occurred, or Parent first becomes aware of a Company Material Adverse Effect, after the date hereof; and

34

(g)by Company, if a Parent Material Adverse Effect shall have occurred, or Company first becomes aware of a Parent Material Adverse Effect, after the date hereof.

11.2Notice of Termination; Effect of Termination.  If a party wishes to terminate this Agreement pursuant to Section 11.1, then such party shall deliver to the other parties to this Agreement a written notice stating that such party is terminating this Agreement and setting forth a brief description of the basis on which such party is terminating this Agreement.  Any termination of this Agreement under Section 11.1 will be effective immediately upon the delivery of a valid written notice of the terminating party to the other party hereto.  In the event of the termination of this Agreement as provided in Section 11.1, this Agreement shall be of no further force or effect, except for Sections 5.2(a), 11, 12 and 16, each of which shall survive the termination of this Agreement.

SECTION 12.Fees and Expenses.  All fees, costs and expenses of Parent or Merger Sub incurred in connection with this Agreement and the transactions contemplated hereby, including, without limitation, fees and expenses of financial advisors, legal counsel and other advisors, shall be paid by Parent whether or not the Merger is consummated.  If the Merger is consummated, all reasonable fees, costs and expenses of the Company and the Representative incurred (prior to the Effective Time) in connection with this Agreement and the transactions contemplated hereby, including, without limitation, fees and expenses of financial advisors, financial sponsors, accountants, legal counsel and other advisors, shall be treated as Transaction Expenses under this Agreement and, to the extent not already paid by the Company, shall be paid by Parent.  If the Merger is not consummated, the Company shall bear all of its own expenses in connection with this Agreement and the transactions contemplated hereby whether or not treated as Transaction Expenses.

SECTION 13.Indemnification and Claims for Damages.

13.1Parent Claims Against Indemnifying Shareholders.  Subject to the terms and provisions of this Section 13, each Indemnifying Shareholder who accepts payment of the applicable portion of the Closing Merger Consideration pursuant to this Agreement shall be deemed to have agreed, and hereby agrees, that Parent, Merger Sub and their respective affiliates (including, without limitation, following the Effective Time, the Surviving Corporation) and their respective directors, officers, employees, agents, representatives, successors and assigns (collectively, the “Parent Indemnified Parties”) shall be indemnified and held harmless for any and all Damages arising from or related to any of the following (each a “Parent Claim”):

(a)any misrepresentation or breach or failure of any representation or warranty made by the Company or the Representative in this Agreement or in any officers certificate to be true and correct in all respects as of the date hereof and as of the Closing Date in each case;

(b)any post-closing claim for material breach or non-fulfillment of any covenant or agreement made or to be performed by the Company or the Representative pursuant to this Agreement or in any agreement or instrument entered into by the Company or the Representative in connection with this Agreement; and

(c)any inaccuracy in the Closing Allocation Schedule;

(d)the matters described in Schedule 13.1(d); and

35

(e)any fraud, willful breach or intentional misrepresentation by the Company or the Representative in connection with this Agreement or the transactions and documents contemplated hereby.

13.2Indemnification Funds.  The Holdback Funds shall be available to reimburse the Parent Indemnified Parties for any Damages for which they are entitled to be indemnified hereunder.  To the extent the aggregate dollar amount of Damages asserted in claims against the Holdback Fund as of the last day of the Earn-out Period exceeds the total amount of the Holdback Funds, Parent shall have the right to withhold any required payments of the Earn-out Amount otherwise payable to the Indemnifying Shareholders under Section 2.4 of this Agreement.  Any such amounts withheld shall be treated as additional Holdback Funds pursuant to this Section 13.  The amounts otherwise payable as Earn-out Amount that are held back under this Section 13.2, together with the Holdback Funds, shall be referred to as the “Indemnification Funds.”  The Indemnification Funds shall also be available to satisfy Active Founder Claims (as defined in Section 13.3(c)) to the extent provided by Section 13.3(c).

13.3Limitations of Liability.  Notwithstanding anything in this Agreement to the contrary:

(a)Subject to Section 13.3(c), the liability of each Indemnifying Shareholder for indemnification hereunder in all events shall be several and not joint and in no event will any Indemnifying Shareholder be required to provide indemnification hereunder in an amount exceeding such Indemnifying Shareholder’s pro rata share of the Indemnification Funds based on such Indemnifying Shareholder’s ownership percentage as set forth on the Closing Allocation Schedule.

(b)Subject to Section 13.3(c), in no event shall the aggregate amount of Damages for which indemnification is provided to the Parent Indemnified Parties under this Agreement exceed the amount of the Indemnification Funds.

(c)Notwithstanding anything to the contrary in this Agreement, in the event a Parent Indemnified Party is entitled to a recovery based on a final determination of fraud or intentional misrepresentation (including, without limitation, a determination of arbitrators pursuant to Section 13.11), the liability of Scott A. Irwin, Eric D. Groen Matthew S. Shafer and Charles W. Boecker (collectively, the “Active Founders”) to any Parent Indemnified Party under this Section 13 shall not be subject to the limitations on liability under Section 13.3(a), (b), (d) or (e) hereof, and any Parent Indemnified Party shall be entitled to recover Damages for which it is indemnified hereunder (whether or not the amount of Damages exceeds the amount of remaining Indemnification Funds) from the Active Founders directly without first seeking recovery from the Indemnification Funds; provided, however, that the proportionate liability of an Active Founder shall not exceed the fraction determined by dividing his ownership percentage, by the sum of the ownership percentages of all of the Active Founders, as such ownership percentages are set forth in the Closing Allocation Schedule.  Subject to the last sentence of this Section 13.3(c), nothing contained in this Section 13.3(c) shall preclude the Active Founders from pursuing claims available to them under law or equity against the Company or Surviving Corporation (“Active Founder Claims”), but only to the extent of the Indemnification Funds that would otherwise be distributed to the shareholders of the Company and only at the time such distribution to the shareholders would be required under this Agreement.  For the purposes of this Section 13.3(c), an Active Founder may be entitled to recover upon Active Founder Claims only to the extent he would be entitled to be indemnified with respect to such claims

36

if he were an officer or director of the Company or the Surviving Corporation in accordance with Section 490.851 of the IBCA

(d)The Indemnifying Shareholders shall not be required to provide any indemnification for Damages related to a Parent Claim unless and until the Parent Indemnified Parties shall have sustained aggregate Damages as a result of one or more such Parent Claims of Twenty-Five Thousand Dollars ($25,000) (the “Basket Amount”) (and then only for Parent Claims which in the aggregate, when combined with all other Parent Claims for Damages, result in Damages which exceed the Basket Amount); provided that the Basket Amount limitation shall not apply to Damages related to claims based on fraud or intentional misrepresentation.

(e)Any Damages as to which indemnification provided for in this Agreement may apply shall be determined net of any actual cash recovery actually received by a Parent Indemnified Party with respect to insurance or contributions from third parties specifically with respect to the specific matter for which indemnification is sought, less any current or prospective costs associated with receiving such recovery and net of any net Tax benefit resulting therefrom to the Parent Indemnified Party (to the extent that such benefit could reasonably be expected to be recognized by such Parent Indemnified Party).  This Section 13.3(e) shall not imply and shall not be construed to imply any obligation on the part of any Person to seek or pursue any such recovery and the failure to seek or pursue any such recovery shall not be a defense to any indemnification obligation hereunder.  Parent shall attempt to mitigate Damages that have resulted to an Indemnification claim hereunder, provided, however, that nothing herein shall require Parent to take any action that is not commercially reasonable.

13.4Notification Certification of Claims.  If any Parent Claim has occurred, an authorized officer or an authorized representative of the Parent Indemnified Party may provide the Representative with a written certificate signed by such officer or representative (an “Officer’s Certificate”) describing with reasonable specificity, and to the extent known by the applicable Parent Indemnified Party, the nature and amount of such Parent Claim.  Any such Officer’s Certificate must be delivered during the Holdback Period.

13.5Third Party Actions.  In the event any Action is instituted against a Parent Indemnified Party which involves or appears reasonably likely to involve a Parent Claim for which indemnification may be sought, Parent will, promptly after receipt of notice of any such Action, provide written notification to the Representative of the commencement thereof.  The failure to so notify the Representative of the commencement of any such Action will not relieve the Indemnifying Shareholders from liability in connection therewith, except to the extent that such failure materially and adversely affects the ability of the Indemnifying Shareholders to defend their interests in such Action; provided, however, that such written notice shall be effective only if delivered to the Representative within the Holdback Period.  Parent shall have the right in its sole discretion to assume and control the defense or settlement of such Action, provided that, except with the consent (which consent may not be unreasonably withheld, conditioned or delayed) of the Representative, no settlement of any such Action with third party claimants shall be determinative of the amount of Damages relating to such matter.  In the event that the Representative has consented to any such settlement, the Indemnifying Shareholders shall have no power or authority to object under any provision of this Section 13 to the amount of any such Parent Claim against the Indemnification Funds with respect to such settlement.

37

13.6Reimbursement and Indemnification for Representative.  Subject to the terms and provisions of this Section 13, each Indemnifying Shareholder who accepts payment of the applicable portion of the Closing Merger Consideration pursuant to this Agreement shall be deemed to have agreed, and hereby agrees that the Representative shall be entitled to reimbursement for any expense (including with limitation, legal or accounting fees, travel and other costs) the Representative incurs in connection with acting as the Representative (including without limitation any expenses incident to the resolution of any dispute with Parent, including without limitation to defend against claims by Parent against the Holdback Amount, to challenge claims by Parent that Earn-out milestones have not been achieved, and for any amounts the Representative expends in defending indemnification claims).  Subject to the provisions of Section 2.5(b), the Representative shall have recourse against (a) the Dispute Fund Account and (b) any portion of the Holdback Funds that would otherwise be paid to the Company Shareholders (at the time that such payment is or would otherwise be required to be made to the Company Shareholders under this Agreement) for payment of such expenses.

13.7Definition of Damages.  For purposes of this Agreement, the term “Damages” shall mean the amount of any loss, Tax, damage, deficiency, liability, judgment, fine, penalty, diminution in value, cost or expense (including, without limitation, reasonable attorneys’, consultants’ and experts’ fees and expenses) actually incurred, paid, accrued or sustained by the Parent Indemnified Parties, whether or not involving an Action, including, without limitation, any reasonable costs of defending or investigating any Actions (unless such Action is found by a trier of fact to not be meritorious or settled or withdrawn without any consideration from Parent) or properly enforcing the Parent Indemnified Party’s rights under this Agreement.  Notwithstanding anything to the contrary contained in this Agreement, no party hereto shall be liable under this Agreement to any other person, either in contract or tort, for punitive damages of such person, including any statutory exemplary damage multiplier relating to the breach of this Agreement or a claim based upon fraud or intentional misrepresentation.

13.8Exclusive Remedy.  Absent fraud or intentional misrepresentation and subject to the right of each party to seek specific performance and injunction to enforce the terms of any covenant in this Agreement, the enforcement of the agreements of indemnification contained in this Section 13 shall be, after the Closing Date, the exclusive remedy of the parties hereto for any claims with respect to matters arising under this Agreement or in connection with the Merger; whether sounding in tort, contract or otherwise, and the parties hereto waive all remedies otherwise available to such parties save only remedies which by law may not be waived.

13.9Treatment of Indemnification Payments.  The Company Shareholders, the Representative and Parent agree to treat (and cause their affiliates to treat) any payments received pursuant to Section 13 as adjustments to the Total Consideration for all Tax purposes, to the maximum extent permitted by Legal Requirements.

13.10Transfer and Similar Taxes.  Any sales, use, transfer, gains, stamp, duties, recording and similar Taxes incurred by any Company Shareholder as a result of the transactions contemplated by this Agreement (collectively, “Transfer Taxes”) shall be borne by such Company Shareholder.

13.11Dispute Resolution.

(a)Representative shall have 30 days after receipt (or deemed receipt) of the Officer’s Certificate to deliver to Parent a written objection to all or any part of the Officer’s

38

Certificate, and such objection shall set forth in reasonable detail the basis of the Representative’s objection to the Officer’s Certificate and the amount of dispute.  Parent shall have 30 days to respond in a written statement to the objection.  If after such 30 day period there remains a dispute as to any claims, the Representative and Parent shall attempt in good faith for 30 days to agree upon the rights of the respective parties with respect to each of such claims.  If the Representative and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties.  If no such agreement can be reached after good faith negotiation, either Parent or the Representative may, by written notice to the other, demand arbitration of the matter, unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators.  Within 15 days after such written notice is sent, Parent (on one hand) and the Representative (on the other hand) shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator.  The decision of the arbitrators as to the validity and amount of any claim in such Officer’s Certificate and as to the merits of the claim (including, without limitation, a determination of fraud or intentional misrepresentation) shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything contained herein to the contrary, Parent shall be entitled to act in accordance with such decision and make or withhold payments from the Indemnification Funds in accordance with such decision. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction.  Any such arbitration shall be conducted under the commercial rules then in effect of the Judicial Arbitration & Meditation Services (“JAMS”).  Any arbitration shall be held in Santa Clara County, California.  The non-prevailing party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative fee of the JAMS, and the expenses and costs, incurred by the prevailing party to the arbitration (as determined by the arbitrator), but excluding attorney’s fees and costs.

(b)Any dispute, controversy, or claim between a Parent Indemnified Party, on the one hand, and the Indemnifying Shareholders or the Representative, on the other hand, arising out of or relating to the provisions of this Agreement that cannot be resolved by negotiations between Parent and the Representative (including, without limitation, any Parent Claims with respect to which a Parent Indemnified Party may recover directly from an Active Founder) shall also be resolved through arbitration in the manner described in subparagraph (a) of this Section 13.11.  Notwithstanding anything to the contrary in this Section 13.11, in the event of an alleged violation or breach of this Agreement by a party (including, without limitation, unauthorized disclosure of Confidential Information), the other party may seek temporary injunctive relief from any court of competent jurisdiction.

(c)By virtue of the adoption of this Agreement and the approval of the Merger by the Indemnifying Shareholders, each Indemnifying Shareholder hereby (a) consents to receipt of notice of any arbitration arising under this Section 13.11 in accordance with the provisions of Section 16.1, provided that notice to a Company Shareholder shall be sent to the address of such Company Shareholder set forth in the Closing Allocation Schedule, and (b) waives any right to receive service of process in any other manner in connection with any dispute, controversy or claim pursuant to this Section 13.11.

39

SECTION 14.Representative.

14.1Power and Authority.  The Representative shall have the power and authority, acting on behalf of the Company Shareholders, to enter into the transactions contemplated by this Agreement, and to: (i) give and receive notices and communications to or from Parent (on behalf of itself or any other Parent Indemnified Party) relating to this Agreement or any of the transactions and other matters contemplated hereby or thereby (except to the extent that this Agreement expressly contemplates that any such notice or communication shall be given or received by such Indemnifying Shareholders individually); (ii) object to any claims by any Parent Indemnified Party for Damages; (iii) consent or agree to, negotiate, enter into settlements and compromises of, and agree to arbitration and comply with orders of courts and awards of arbitrators with respect to such claims; (iv) assert, negotiate, enter into settlements and compromises of, and agree to arbitration and comply with orders of courts and awards of arbitrators with respect to, any other claim by any Parent Indemnified Party against any such Indemnifying Shareholder or by any such Indemnifying Shareholder against Parent or the Surviving Corporation or any dispute between any Parent Indemnified Party and any such Indemnifying Shareholder, in each case relating to this Agreement or the transactions contemplated hereby; (v) amend this Agreement or any other agreement referred to herein or contemplated hereby; and (vi) take all actions necessary or appropriate in the judgment of the Representative for the accomplishment of the foregoing, in each case without having to seek or obtain the consent of any Person under any circumstance.  Notwithstanding anything to the contrary, the Representative shall have no authority to alter any Indemnifying Shareholder’s percentage interest in the Net Merger Consideration or to increase such Indemnifying Shareholder’s indemnification obligations beyond those specified in Section 13 or to take any action that would otherwise be in violation of Section 490.1102 of the IBCA.

14.2Acceptance.  Jeffrey J. May hereby accepts his appointment as Representative.

14.3Replacement.  The Person serving as the Representative may be replaced from time to time by a majority in interest of the Indemnifying Shareholders upon not less than 10 days’ prior written notice to Parent and with Parent’s written consent, which shall not be unreasonably withheld.  A majority in interest of the Indemnifying Shareholders may appoint a replacement Representative upon the resignation, death or incapacity of the Representative.  No bond shall be required of the Representative, and the Representative shall receive no compensation for his services.  Notices or communications to or from the Representative shall constitute notice to or from each of the Indemnifying Shareholders.

14.4No Liability.  The Representative shall not be liable to any Indemnifying Shareholder for any act done or omitted hereunder as the Representative while acting in good faith and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith.  The Indemnifying Shareholders shall severally and not jointly in accordance with his, her or its pro rata ownership percentage (excluding any Dissenting Shares from the calculation of such ownership percentage under this Section 14.4) indemnify the Representative and hold him harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Representative and arising out of or in connection with the acceptance or administration of his duties hereunder.

14.5Notice.  Any notice or communication given or received by, and any decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or

40

instruction of, the Representative shall constitute a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of all the Indemnifying Shareholders and shall be final, binding and conclusive upon each such Indemnifying Shareholder; and each Parent Indemnified Party shall be entitled to rely upon any such notice, communication, decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction as being a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, each and every such Indemnifying Shareholder.  Each Parent Indemnified Party is hereby relieved from any liability to any Person for any acts done by them in accordance with any such notice, communication, decision, action, failure to act within a designated period of time, agreement, consent or instruction of the Representative.

14.6Representations and Warranties.  The Representative represents and warrants to Parent and Merger Sub that: (a) this Agreement has been, and each Transaction Document required hereby to be executed and delivered by the Representative will be, duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent, Merger Sub and the Company, constitutes a legal, valid and binding obligation of the Representative, enforceable against the Representative in accordance with its terms, subject to bankruptcy, insolvency, reorganization or similar laws of general application affecting the rights and remedies of creditors, and to general equity principles; and (b) the execution and delivery by the Representative of this Agreement and each of the other Transaction Documents to which it is a party, the compliance with the provisions hereof and thereof by the Representative and the consummation by the Representative of the transactions contemplated hereby and thereby, will not (i) violate in any material respect the Legal Requirements applicable to the Representative, or (ii) conflict with, result in a material breach of or constitute (with or without due notice or lapse of time or both) a material default under any Contract to which the Representative is a party or by which the Representative is bound, except as would not, when taken individually or in the aggregate with all such other events, changes or effects, materially impair the ability of the Representative to consummate the transactions contemplated hereby.

14.7Role of Representative.  Without limiting the generality or effect of Section 14.1, any claims or disputes between or among any Parent Indemnified Party, the Representative and/or any one or more Indemnifying Shareholders relating to this Agreement or the transactions contemplated hereby or thereby shall in the case of any claim or dispute asserted by or against or involving any such Indemnifying Shareholder (other than any claim against or dispute with the Representative), be asserted or otherwise addressed solely by the Representative on behalf of such Indemnifying Shareholder (and not by such Shareholder acting on its own behalf).

SECTION 15.Release.  Each Company Shareholder who accepts payment of his, her or its portion of the Closing Merger Consideration pursuant to Section 2 shall be deemed to have, and hereby does, unconditionally release and forever discharge the Company, Parent, Merger Sub and any other subsidiary of Parent, including their respective officers and directors, from (a) any and all obligations or duties the Company might have to such Company Shareholder and (b) any and all claims of liability, whether legal or equitable, of every kind and nature, which such Company Shareholder ever had, now has or may claim against the Company in each case arising out of facts or circumstances occurring at any time on or prior to the date hereof; provided, however, that such release shall exclude (i) those claims, liabilities, obligations and duties of the Company, Parent and Merger Sub under this Agreement and the other Transaction Documents, (ii) those claims, liabilities, obligations and duties of the Company pursuant to any agreement with a Related Party that is not terminated pursuant to the terms of this Agreement, (iii) any claims relating to the Company Notes or the Employee Loans and (iv) to the extent applicable with respect to any Company Shareholder who

41

is a director, officer or employee of the Company, (A) compensation not yet paid to Employees for the current payroll period, (B) reimbursement for expenses incurred by any such Company Shareholder in the ordinary course of his or her employment which are reimbursable under the Company’s expense reimbursement policies, (C) accrued vacation, subject to the Company’s policies on accrual and carryforward, and (D) any remaining obligations of the Company to indemnify any officer or director.  The terms and provisions of this Section 15 are specific terms of the Merger, and the approval and adoption of this Agreement and approval of the Merger by the Company Shareholders shall constitute approval by such Company Shareholders, as specific terms of the Merger, and the irrevocable agreement of such Company Shareholders to be bound by such terms and provisions.

SECTION 16.Miscellaneous.

16.1Notices.  All notices, requests, demands, consents and communications necessary or required under this Agreement shall be delivered by hand or sent by registered or certified mail, return receipt requested, by overnight prepaid courier, facsimile (receipt confirmed) or by email to:

if to Parent, Merger Sub or the Surviving Corporation:

MoSys, Inc.

755 N. Mathilda Avenue

Sunnyvale, CA 94085

Facsimile No:  408-731-1892

Attention:  Chief Financial Officer

Email:  jsullivan@mosys.com

With a copy to:

Bingham McCutchen LLP

1900 University Avenue, 4th Fl.

East Palo Alto, CA  94303

Facsimile No: (650) 849-4609

Attention:  Alan B. Kalin

Email: alan.kalin@bingham.com

if to the Company:

MagnaLynx, Inc.

1606 Golden Aspen Drive, Suite 102

Ames, IA 50010

Facsimile No: 515-663-8821

Attention:  Jeffrey J. May, President and CEO

Email:  jeff.may@magnalynx.com

42

with a copy to:

Briggs and Morgan P.A.

80 South 8th Street

Suite 2200
Minneapolis, MN
Facsimile No: 612-977-8650
Attention:  Avron L. Gordon
Email:  agordon@briggs.com

if to the Representative:

Jeffrey J. May

1606 Golden Aspen Drive, Suite 102

Ames, IA 50010

Facsimile No: 515-663-8821

Email:  jeff.may@magnalynx.com

All such notices, requests, demands, consents and other communications shall be deemed to have been duly given or sent three days following the date on which mailed, or one (1) day following the date mailed if sent by overnight courier, or on the date on which delivered by hand or by facsimile transmission (receipt confirmed) or electronic transmission, as the case may be, and addressed as aforesaid.  Any notice to be given to any Indemnifying Shareholders hereunder shall be given to the Representative or, if for any reason there ceases to be a Representative, to each Indemnifying Shareholder.

16.2Successors and Assigns.  All covenants and agreements and other provisions set forth in this Agreement and made by or on behalf of any of the parties hereto shall bind and inure to the benefit of the successors, heirs and permitted assigns of such party, whether or not so expressed.  None of the parties may assign, transfer or delegate any of their respective rights or obligations under this Agreement, by operation of law or otherwise, without the consent in writing of the Company, Parent and the Representative provided, that Parent and Merger Sub (including the Surviving Corporation) may, without obtaining the prior written consent of Representative, assign any of its rights, or delegate any of its obligations under this Agreement to (a) any affiliate of Parent, (b) any successor of such party by merger or otherwise, or (c) the purchaser of all or substantially all of the assets or stock of such Person.  Any purported assignment or delegation of rights or obligations in violation of this Section 16.2 is void and of no force or effect.

16.3Interpretation.  For purposes of this Agreement, the following rules of interpretation apply:

(a)Descriptive Headings.  The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.

(b)Calculation of Time Period.  When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period is excluded.  If the last day

43

of such period is a non-Business Day, the period in question ends on the next succeeding Business Day.

(c)Currency.  Any reference in this Agreement to $ means U.S. dollars.

(d)Section and Similar References.  Unless the context otherwise requires, all references in this Agreement to any “Section,” “Schedule” or “Exhibit” are to the corresponding Section, Schedule or Exhibit of this Agreement.

(e)Mutual Drafting.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement and have been represented by their own legal counsel in connection with the transactions contemplated by this Agreement, with the opportunity to seek advice as to their legal rights from such counsel.  In the event an ambiguity or question of intent or interpretation arises, this Agreement is to be construed as jointly drafted by the parties hereto and no presumption or burden of proof is to arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement or by reason of the extent to which any such provision is inconsistent with any prior draft hereof.

16.4Counterparts; Execution.  This Agreement may be executed in counterparts and the exchange of signature pages to this Agreement (in counterparts or otherwise) by facsimile transmission or other electronic transmission (including in the form of a PDF file) shall be sufficient to bind the parties to the terms and conditions of this Agreement.

16.5Severability.  In the event that any one or more of the provisions contained herein is held invalid, illegal or unenforceable in any respect for any reason in any jurisdiction, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected (so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party), it being intended that each of parties’ rights and privileges shall be enforceable to the fullest extent permitted by applicable Legal Requirements, and any such invalidity, illegality and unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction (so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party).  If any court of competent jurisdiction determines that any provision of this Agreement is invalid, illegal or unenforceable, such court has the power to fashion and enforce another provision (instead of the provision held to be invalid, illegal or unenforceable) that is valid, legal and enforceable and carries out the intentions of the parties hereto under this Agreement and, in the event that such court does not exercise such power, the parties hereto shall negotiate in good faith in an attempt to agree to another provision (instead of the provision held to be invalid, illegal or unenforceable) that is valid, legal and enforceable and carries out the parties’ intentions to the greatest lawful extent under this Agreement.

16.6Third Parties.  Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the parties hereto and their permitted successors and assigns, any rights or remedies under or by reason of this Agreement or any other certificate, document, instrument or agreement executed in connection herewith nor be relied upon other than the parties hereto and their permitted successors or assigns.  The Parent Indemnified Parties not party hereto are entitled to the rights and remedies of third party beneficiaries with respect to Section 13.  Notwithstanding the foregoing, the

44

Representative shall be a third party beneficiary to all sections of this Agreement in which it is not specifically designated as a Party.

16.7Additional Definitions.  For purposes of this Agreement, (a) an individual will be deemed to have “Knowledge” of a particular fact or other matter if such individual is actually aware of such fact or other matter or such individual could reasonably be expected to discover or otherwise become aware of such fact or other matter after reasonable inquiry into the matter, (b) “Knowledge of the Company” shall mean the Knowledge of any of Scott A. Irwin, Jeffrey J. May and Matthew S. Shafer, (c) “affiliate” and “associate” have the meanings ascribed to them under Rule 405 promulgated by the Securities and Exchange Commission under the Securities Act and (d) “Business Day” means any day of the year on which national banking institutions in the State of California are open to the public for conducting business and are not required or authorized to close and shall not include Saturday.

16.8Governing Law; Submission to Jurisdiction.  This Agreement, and all matters arising out of or relating to this Agreement and any of the transactions contemplated hereby, including, without limitation, the validity hereof and the rights and obligations of the parties hereunder, shall be construed in accordance with and governed by the laws of California applicable to contracts made and to be performed entirely in such state (without giving effect to the conflicts of laws provisions thereof) except as to matters pertaining to the Company as an Iowa corporation, and to the Company Shareholders as shareholders of an Iowa corporation, which are governed by the IBCA, and as to such matters, this Agreement shall be governed by the IBCA.  The parties hereto hereby irrevocably submit to the exclusive jurisdiction of any court of competent civil jurisdiction sitting in the State of California over any judicial Action arising out of or relating to this Agreement or any of the transactions contemplated hereby and each party hereto hereby irrevocably agrees that all claims in respect of such Action may be heard and determined in such courts.  The parties hereto hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of such Action brought in such court or any claim that such Action brought in such court has been brought in an inconvenient forum.  Each of the parties hereto agrees that a judgment in such Action may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by any applicable Legal Requirement.  Each of the parties hereto hereby irrevocably consents to process being served by any party to this Agreement in any Action by delivery of a copy thereof in accordance with the provisions of Section 16.1 and consents to the exercise of jurisdiction of the courts of the State of California over it and its properties with respect to any action, suit or proceeding arising out of or in connection with this Agreement or the transactions contemplated hereby or the enforcement of any rights under this Agreement.

16.9Entire Agreement, Not Binding Until Executed.  This Agreement, including the Disclosure Schedule, Schedules and Exhibits and the other agreements referred to herein, is complete, and all promises, representations, understandings, warranties and agreements with reference to the subject matter hereof, and all inducements to the making of this Agreement relied upon by all the parties hereto, have been expressed herein, including the Disclosure Schedule, Schedules, Exhibits and such other agreements, supersede any prior understandings, negotiations, agreements or representations by or among the parties, written or oral, to the extent they related in any way to the subject matter hereof or thereof, with the exception of the Confidentiality Agreement, which shall remain in full force and effect.  Neither this Agreement nor any of the terms or provisions hereof are binding upon or enforceable against any party hereto unless and until the same is executed and delivered by all of the parties hereto.

45

16.10Amendments; No Waiver.  Subject to applicable Legal Requirements, including without limitation the provisions of Section 490.1102, subd. 5 of the IBCA, any provision of this Agreement may be amended or waived prior to the Effective Time if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each of the parties hereto, or, in the case of a waiver, by each party against whom the waiver is to be effective.  The failure of any of the parties to this Agreement to require the performance of a term or obligation under this Agreement or the waiver by any of the parties to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder.  No single or partial exercise of any right, power or remedy conferred by this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

[Remainder of page left blank intentionally]

46

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under seal as of the day and year first above written.

MOSYS, INC.
By:	/s/ James Sullivan
Name:	James Sullivan
Title:	CFO
MLI MERGER CORPORATION
By:	/s/ James Sullivan
Name:	James Sullivan
Title:	CFO
MAGNALYNX, INC.
By:	/s/ Jeffrey J. May
Name:	Jeffrey J. May
Title:	CEO
REPRESENTATIVE:
/s/ Jeffrey J. May
Jeffrey J. May

EX-10.33

Exhibit 10.33

NON-COMPETITION AGREEMENT

This NON-COMPETITION AGREEMENT (this “Agreement”) is entered as of June 5, 2009 (the “Closing Date”), by and between Sundari Mitra, an individual (the “Employee”), and MOSYS, INC., a Delaware corporation (“MoSys”).

WHEREAS, simultaneously with the effectiveness of this Agreement, MoSys shall acquire (the “Transaction”) substantially all of the assets of Prism Solutions, Inc., a Delaware corporation (“Prism”), together with the goodwill of Prism, upon the terms and subject to the conditions set forth in the Agreement for the Purchase and Sale of Assets, dated as of June 5, 2009, by and between MoSys and Prism (the “Purchase Agreement”).  The Employee owns 1,939,835 shares of common stock of Prism.  The Purchase Agreement provides that the parties’ entry into this Agreement is a condition of MoSys’ obligation to consummate the Transaction.

NOW, THEREFORE, in order to induce MoSys to consummate the Transaction, the Employee hereby agrees as follows:

SECTION 1  Covenants

1.1  General.  The Employee acknowledges and understands that: (a) as of the Closing Date, Prism is engaged in the business of designing, developing and licensing integrated circuit serial interconnect/ I/O design and high-speed memory parallel interconnect technology, including, but not limited to, SerDes and DDR3/2, and providing related services (the “Business”) and that, following the Closing Date, MoSys and/or a subsidiary of MoSys will continue to conduct the Business; (b) the Employee has had access to trade secrets of and confidential information concerning the Business not readily available to the public; and (c) the agreements and covenants contained in this Agreement are essential to protect the business and goodwill of Prism which is being acquired by MoSys.  Any reference to MoSys in this Section 1 is deemed to refer also to every subsidiary (direct and indirect) of MoSys during the term of this Agreement.

1.2  Location of Business.  The parties hereto acknowledge and agree that the Business is currently conducted by means of domestic and international sales and services arrangements and the Internet and, as such, is conducted in all counties of California and all continents, countries and cities outside California.

1.3  Non-Competition Provisions.

(a)  Agreement Not to Compete.  For a period of eighteen (18) months from the Closing Date (the “Restricted Period”), and provided that the Employee receives from the Company any and all compensation and benefits required pursuant to the terms of his or her employment agreement (or offer letter) with the Company, the Employee shall not (i) engage in the Business anywhere or (ii) serve as an employee or director of, or a consultant to, or own more than 1% of the outstanding voting equity securities of, any Competing Entity (as defined below) anywhere in the world.

Notwithstanding the termination of the Restricted Period, the Employee shall remain subject to the restrictions and obligations contained in the Employment, Confidential Information and Invention Assignment Agreement entered into with MoSys on or around the Closing Date.

For purposes of this Agreement, the term “Competing Entity” shall mean:  (i) a corporation or other entity the principal business function of which is the Business; or (ii) a corporation, or business unit of a

1

corporation, or other entity that derives significant gross revenues from the Business in any given fiscal year.  Notwithstanding anything to the contrary contained in this Agreement, the Employee may (without being deemed to have breached any provision of this Agreement) serve as an employee of any Competing Entity if the services performed by the Employee for such Competing Entity, or the primary responsibilities of the Employee as an employee of such Competing Entity, do not relate directly or indirectly to the Business whether in a supervisory or support capacity.

(b)  Engage in Business.  For purposes of this Section 1.3, the term “engage in business” shall include, without limitation, maintenance of business assets and properties, and dealings with actual or potential customers, licensees, suppliers, vendors, partners, channel affiliates or co-marketers, the principal business function of which is the Business.

(c)  Exception.  Nothing in this Section 1.3 shall prevent the Employee from owning less than 1% of the outstanding shares of any corporation listed on a national securities exchange or actively traded on an over-the-counter market.  Furthermore, if MoSys fails to pay the Employee the compensation and benefits (including severance benefits) required pursuant to the terms of his employment agreement (or offer letter) with the Company, none of the restrictions set forth herein shall apply and any Restricted Period shall terminate on the date of termination of Employee’s employment.  Furthermore, if MoSys terminates the Employee’s employment without Cause (as defined in the Employee’s employment agreement or offer letter) and pays severance benefits to the Employee during the Restricted Period, the restrictions set forth herein shall cease to apply and the Restricted Period shall terminate on the last day of the period determined by the amount of severance benefits paid to the Employee, as determined in accordance with Employee’s employment agreement or offer letter.

(d)  Termination.  This Agreement shall terminate and expire, and shall cease to be of any force or effect, upon the expiration of the Restricted Period.

1.4  Customers and Vendors; Non-Disparagement.   During the Restricted Period, the Employee will not (i) request or advise any customer, subscriber, supplier, vendor, partner, channel affiliate or co-marketer of MoSys or any Beneficiary (as defined below) to curtail or otherwise adversely change, or to cancel, such person’s or entity’s patronage of or relationship with MoSys or any Beneficiary, or (ii) make statements to any such person or entity with the intent of having any such effects or which are reasonably likely to have any of such effects or (iii) make public statements, or statements to any current or prospective employee, consultant, agent, customer or vendor of MoSys or any Beneficiary, which are reasonably likely to adversely affect the public standing of MoSys or any Beneficiary or such entity’s services.  Notwithstanding the preceding sentence, the Employee shall not be restricted from making statements regarding MoSys or any Beneficiary or such entity’s services otherwise prohibited by this Section 1.4 when giving evidence in connection with any administrative, judicial or arbitral proceeding, provided the Employee has been advised by its, his or her counsel that giving evidence in connection with such proceeding is required.

SECTION 2  General

2.1  Rights and Remedies upon Breach.  If the Employee breaches any of the provisions of Section 1, Prism, MoSys and any corporation or other entity to which a substantial part of the Business is transferred or which otherwise succeeds to a substantial part of the Business (each a “Beneficiary” and collectively, the “Beneficiaries”) shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to any of the Beneficiaries under law or in equity.

2

(a)  Specific Performance.  The right and remedy to have the provisions of Section 1 specifically enforced by any court of competent jurisdiction by way of an injunction or other legal equitable relief, it being agreed that any breach of the covenants specified in Section 1 would cause irreparable injury to the Beneficiaries and that pecuniary compensation would not afford adequate relief to the Beneficiaries, or it would be extremely difficult to ascertain the amount of compensation which would afford adequate relief.  Therefore, the Employee agrees that, in the event of any such breach or threatened breach of Section 1, the Beneficiaries will have the right to seek and obtain injunctive relief.

(b)  Accounting.  The right and remedy to require the Employee, if he is in knowing breach of the Agreement, to account for and pay over to the Beneficiaries any and all compensation received by the Employee pursuant to his employment agreement as a result of the termination of his employment with the Company, net gains or other benefits received by the Employee as the result of any action constituting a breach of this Agreement.

2.2  Severability of Covenants.  The Employee acknowledges and agrees that the covenants contained in Section 1 are reasonable and valid in duration and geographical scope and in all other respects.  If any court determines that any of such covenants, or any part thereof, is invalid or unenforceable in any respect, such covenant shall not thereby be affected in any other respect and shall be given full effect in all other respects.  If any court determines that any of such covenants, or any part thereof, is unenforceable because of the duration or geographical scope of such provision, the parties intend that such court shall reduce the duration or geographical scope of such provision, as the case may be, and, in its reduced form, enforce such provision.  The covenants of this Agreement are independent of and separable from each other, and no covenant shall be affected or rendered invalid or unenforceable by virtue of the fact that any other covenant may be invalid or unenforceable in whole or in part for any reason.

2.3  Enforceability in Jurisdictions; Governing Law. MoSys and the Employee intend to and hereby confer nonexclusive jurisdiction to enforce this Agreement upon the courts of any jurisdiction within the geographical scope of the covenants set forth in Section 1.  If the courts of any one or more of such jurisdictions hold any portion of this Agreement unenforceable under the law applied by such court, it is the intention of the parties that such determination not bar or in any way affect the right of the Beneficiaries to the relief provided above in the courts of any other jurisdiction within the geographical scope of the provisions of this Agreement as to breaches of such provisions in such other respective jurisdictions, such provisions as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.  As to activities of the Employee in California, this Agreement shall be governed by California law.  As to activities of the Employee outside California, this Agreement shall be governed by the law of the jurisdiction in which such activities are conducted.

2.4  Assignability.  This Agreement is binding upon the parties hereto and shall inure to the benefit of every Beneficiary.

2.5  Amendment and Modification; Waiver.  This Agreement may not be amended, modified or supplemented, except by an instrument in writing signed on behalf of each party and otherwise as expressly set forth herein.  No failure or delay of either party in exercising any right or remedy hereunder shall operate as a waiver thereof.  Any such waiver by a party shall be valid only if set forth in writing by such party.

2.6  Notices.  All notices and other communications hereunder shall be in writing and shall be deemed duly given if delivered personally or sent by facsimile, overnight courier or registered or certified mail, postage prepaid, to:

3

if to MoSys:

MoSys, Inc.

755 N. Mathilda Avenue

Sunnyvale, CA 94085

Fax: (408) 731-1893

Attn: Chief Financial Officer

with a copy to:

Bingham McCutchen LLP

1900 University Avenue

East Palo Alto, CA  94303

Facsimile: (650) 849-4800

Attention:  Alan B. Kalin

if to the Employee:

Fax:

Email:

2.7  Other Provisions.

(a)  Attorneys’ Fees.  If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements, in addition to any other relief to which he, she or it may be entitled.

(b)  Entire Agreement; Not Binding Until Executed.  This Agreement constitutes the entire agreement, and supersedes all prior written agreements, arrangements and understandings and all prior and contemporaneous oral agreements, arrangements and understandings between the parties with respect to the subject matter of this Agreement.  No party to this Agreement shall have any legal obligation to enter into the transactions contemplated hereby unless and until this Agreement shall have been executed and delivered by each of the parties.

(c)  Descriptive Headings.  The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.

(d)  Mutual Drafting.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement and have been represented by their own legal counsel in connection with the transactions contemplated by this Agreement, with the opportunity to seek advice as to their legal rights from such counsel.  In the event an ambiguity or question of intent or interpretation arises, this Agreement is to be construed as jointly drafted by the parties hereto and no presumption or burden of proof is to arise

4

favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement or by reason of the extent to which any such provision is inconsistent with any prior draft hereof.

(e)  Counterparts.  This Agreement may be executed in counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party.

[Remainder of Page Intentionally Left Blank.]

5

IN WITNESS WHEREOF, the parties have signed this Non-Competition Agreement as of the date first above written.

MOSYS, INC.
By:	/s/Leonard Perham
	Name:
	Title:
EMPLOYEE:
/s/ Sundari Mitra
[                        ]

6

EX-21.1

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 21.1

SUBSIDIARIES OF REGISTRANT

NAME	JURISDICTION OF INCORPORATION
MoSys International, Inc.	California, USA
MoSys India Pvt. Ltd	India

QuickLinks

EXHIBIT 21.1

EX-23.1

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

        We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-64302, 333-104071, 333-118992, 333-123364, 333-132492, 333-141264, 333-149756, 333-157964, and 333-159753) of our report dated March 26, 2010, relating to the consolidated financial statements and financial statement schedule of MoSys, Inc., which appears in MoSys, Inc.'s Annual Report on Form 10-K.

/s/ Burr Pilger Mayer, Inc.

San Jose, California
March 26, 2010

QuickLinks

EXHIBIT 23.1

EX-31.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, Leonard Perham, certify that:

1.

I have reviewed this Annual Report on Form 10-K of MoSys, Inc. for the year ended December 31, 2009;

2.

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

3.

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

4.

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

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 26, 2010

/s/ LEONARD PERHAM
Leonard Perham
President and Chief Executive Officer

QuickLinks

Exhibit 31.1

EX-31.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, James W. Sullivan, certify that:

1.

I have reviewed this Annual Report on Form 10-K of MoSys, Inc. for the year ended December 31, 2009;

2.

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

3.

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

4.

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

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 26, 2010

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

QuickLinks

Exhibit 31.2

EX-32

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32

CERTIFICATION OF CEO AND CFO FURNISHED PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report on Form 10-K of MoSys, Inc. (the "Company") for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Leonard Perham, President and Chief Executive Officer of the Company, and James W. Sullivan, Vice President of Finance and Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

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

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

/s/ LEONARD PERHAM
Leonard Perham
President and Chief Executive Officer
March 26, 2010

/s/ JAMES W. SULLIVAN
James W. Sullivan
Vice President of Finance and Chief Financial Officer
March 26, 2010

        This certification accompanies this Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

QuickLinks

Exhibit 32

CERTIFICATION OF CEO AND CFO FURNISHED PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO § 906 OF THE SARBANES-OXLEY ACT OF 2002