Peraso Inc. 10-K

Item 9A. Controls and Procedures 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, 2020, our disclosure controls and procedures were effective. Management’s Annual Report on Internal Control over Financial Reporting Our 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 (2013 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, 2020. Changes in Internal Control over Financial Reporting There were no changes in our internal controls over financial reporting during the fourth fiscal quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 36 Part III Item 10. Directors, Executive Officers and Corporate Governance The names of our directors and certain information about each of them are set forth below. Name Age Position(s) with the Company Daniel Lewis 72 President, Chief Executive Officer and Director Scott Lewis(1) 65 Director Robert Y. Newell(1)(2) 72 Director Daniel J. O'Neil(1)(2) 50 Director (1) Member of Audit Committee (2) Member of Compensation Committee The principal occupations and positions for at least the past five years of our directors are described below. There are no family relationships among any of our directors or executive officers. Daniel Lewis. Mr. Lewis was appointed to our board of directors in September 2017, and has served as our president and chief executive officer since August 2018. He has served as the managing member and an owner of GMS Manufacturing Solution LLC, which provides engineering services to manufacturing companies, since 2013. From 2001 to 2013, Mr. Lewis served as chief executive officer of View Box Group, LLC, which provides management consulting services to small businesses. Prior to 2001, he served as vice president of worldwide sales at both Xicor, Inc. and Integrated Device Technology, Inc. Mr. Lewis has also held various sales and technical positions with Accelerant Networks, Inc. Intel Corporation, Zilog, Inc. and Digital Equipment Corporation. Mr. Lewis holds a B.S. in Electrical Engineering from the University of Michigan. We believe that Mr. Lewis’s qualifications to serve on the board of directors include his extensive business experience, having held senior management positions at several companies in the semiconductor, computer and networking industries. He brings strategic and operational insight to the board of directors . Scott Lewis. Mr. Lewis was appointed to our board of directors in October 2018. He brings more than 40 years of design, sales, and product and corporate marketing experience with technology and semiconductor companies. He is not related to our chief executive officer. Since February 2018, Mr. Lewis has been serving as executive marketing strategist at United Silicon Carbide, Inc., a leader in the silicon carbide power device market. Previously, he held multiple corporate and product-line marketing leadership positions at Maxim Integrated Products, Inc., Global Foundries, Ltd., Cadence Design Systems, Inc., Intersil Corp., Xilinx, Inc. and Integrated Device Technology, Inc. Mr. Lewis holds a B.S. in Electrical Engineering Technology from DeVry Institute of Technology. We believe that Mr. Lewis’s qualifications to serve on the board of directors include his extensive business experience with over 40 years of design, sales, product and corporate marketing experience in high-technology industries, primarily in management positions at several companies in the semiconductor industry. He also can provide the board with valuable insight into sales and customer management relevant to our business. Robert Y. Newell. Mr. Newell was appointed to our board of directors in October 2018. He is currently a consultant and advisor to emerging technology and healthcare companies, having held financial management positions with technology and healthcare companies in Silicon Valley for over 25 years. From 2003 to 2018, Mr. Newell was CFO of Dextera Surgical Inc., a developer of advanced stapling devices and automated medical systems. In December 2017, after entering into an agreement to sell substantially all of its assets, Dextera Surgical, Inc. filed a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware. Mr. Newell served on the board of directors of ARI Network Services, Inc., a leading supplier of SaaS and data-as-a-service solutions, from 2012 to 2017. Previously, Mr. Newell served as CFO of Omnicell, Inc., a hospital supply and medication management company, and held executive positions with the Beta Group, LLC and Cardiometrics, Inc. Prior to his business career, he was a pilot in the United States Air Force. Mr. Newell holds a BA in mathematics from the College of William & Mary and an MBA from Harvard Business School. We believe that Mr. Newell’s qualifications to serve on the board of directors include his substantial financial and public-company experience, as he has served as chief financial officer at multiple medical device and other technology companies. He also has previous experience serving as a director on public-company boards of directors. 37 Daniel O’Neil. Mr. O’Neil was appointed to our board of directors in September 2017 and has served as a partner at Acme Strategy, LLC, a provider of strategic consulting and advisory services, which he founded, since 2010. From 2008 to 2010, he served as an investment banker at Signal Hill Capital Group LLC. Prior to 2008, Mr. O’Neil held business development and investment banking positions at Energy Services Group, Deutsche Bank AG and BT Alex. Brown. Mr. O’Neil holds an AB from Harvard College and an MBA from the Stanford University Graduate School of Business. We believe that Mr. O’Neil’s qualifications to serve on the board of directors include his extensive business experience and expertise in corporate finance and strategy, including experience gained both as an investment banker and corporate executive focused on the semiconductor and electronics industries. In the past, Mr. O’Neil has provided financial advisory services to us. He also brings to our board extensive knowledge of the semiconductor industry, along with deep experience in transactional processes, mergers and acquisitions, and deal financing for a wide range of transactions . The names of our executive officers and certain information about them are set forth either above or below, as the case may be: Name Age Position(s) with the Company Daniel Lewis 72 President, Chief Executive Officer and Director James W. Sullivan 52 Vice President of Finance and Chief Financial Officer James W. Sullivan. Mr. Sullivan became our Vice President of Finance and Chief Financial Officer in January 2008. From July 2006 until January 2008, Mr. Sullivan served as Vice President of Finance and Chief Financial Officer at Apptera, Inc., a venture-backed company providing software for mobile advertising, search and commerce. From July 2002 until June 2006, Mr. Sullivan was the 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. Code of Ethics 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. Audit Committee Our board of directors established the Audit Committee for the purpose of overseeing the accounting and financial reporting processes and audits of our financial statements. The Audit Committee also is charged with reviewing reports regarding violations of our code of ethics and complaints with respect thereto, and internal control violations under our whistleblower policy are directed to the members of the Audit Committee. The responsibilities of our Audit Committee are described in the Audit Committee Charter adopted by our board of directors, a current copy of which can be found on the investors section of our website, www.mosys.com. Scott Lewis, Daniel J. O’Neil, and Robert Y. Newell are the current members of the Audit Committee. All are independent, as determined in accordance with Rule 5605(a)(2) of the Nasdaq listing rules and Rule 10A‑3 of the Exchange Act. Mr. O’Neil serves as the chairman and has been designated by the board of directors as the “audit committee financial expert,” as defined by Item 407(d)(5) of Regulation S‑K under the Securities Act and the Exchange Act. That status does not impose duties, liabilities or obligations that are greater than the duties, liabilities or obligations otherwise imposed on him as a member of the Audit Committee and the board of directors, however. The Audit Committee has delegated authority to Mr. O’Neil for review and pre-approval of services proposed to be provided by our independent registered public accounting firm. 38 Compensation Committee Robert Y. Newell and Daniel J. O’Neil are the current members of the Compensation Committee, and Mr. Newell serves as the chairman. The Compensation Committee is responsible for reviewing, recommending and approving our compensation policies and benefits, including the compensation of all of our executive officers and directors. Our Compensation Committee also has the principal responsibility for the administration of our equity incentive and stock purchase plans. The responsibilities of our Compensation Committee are described in the Compensation Committee Charter adopted by our board of directors, a current copy of which can be found on the investors section of our website, www.mosys.com . Nominations Process We do not have a nominating committee, as we are a small company and currently only have four directors. Instead of having such a committee, our board of directors historically has appointed all of the independent directors on our board to search for and evaluate qualified individuals to become nominees for director and board committee members. The independent directors recommend candidates for nomination for election or reelection at each annual meeting of stockholders and, as necessary, to fill vacancies and newly created directorships, and evaluate candidates for appointment to and removal from committees. The independent directors operate in this capacity under authority granted by resolution of the board of directors, rather than by charter . When new candidates for our board of directors are sought, the independent directors evaluate each candidate for nomination as a director within the context of the needs and the composition of the board of directors as a whole. The independent directors conduct any appropriate and necessary inquiries into the backgrounds and qualifications of candidates. When evaluating director nominees, our board of directors generally seeks to identify individuals with diverse, yet complementary business backgrounds. Although we have no formal policy regarding diversity, our directors consider both the personal characteristics and experience of director nominees, including each nominee’s independence, diversity, age, skills, expertise, time availability and industry background in the context of the needs of the board of directors and the Company. The board of directors believes that director nominees should exhibit proven leadership capabilities and experience at a high level of responsibility within their chosen fields, and must have the experience and ability to analyze the complex business issues facing us, and specifically, the issues inherent in the semiconductor industry. In addition to business expertise, the board of directors requires that director nominees have the highest personal and professional ethics, integrity and values and, above all, are committed to representing the long-term interests of our stockholders and other stakeholders. To date, we have not paid any fee to a third party to assist in the process of identifying or evaluating director candidates. Our independent directors will consider candidates for nomination as director who are recommended by a stockholder and will not evaluate any candidate for nomination for director differently because the candidate was recommended by a stockholder. To date, we have not received or rejected any suggestions for a director candidate recommended by any stockholder or group of stockholders owning more than 5% of our common stock. The recommendation must include the information specified in our bylaws for stockholder nominees to be considered at an annual meeting, including the following: • The stockholder’s name and address and the beneficial owner, if any, on whose behalf the nomination is proposed; • The stockholder’s reason for making the nomination at the annual meeting, and the signed consent of the nominee to serve if elected; • The number of shares owned by, and any material interest of, the record owner and the beneficial owner, if any, on whose behalf the record owner is proposing the nominee; • A description of any arrangements or understandings between the stockholder, the nominee and any other person regarding the nomination; and • Information regarding the nominee that would be required to be included in our proxy statement by the rules of the SEC, including the nominee’s age, business experience for the past five years and any other directorships held by the nominee. The information listed above is not a complete list of the information required by our bylaws. The secretary will forward any timely recommendations containing the required information to our independent directors for consideration. 39 Item 11. Executive Compensation Compensation Committee Robert Y. Newell and Daniel J. O’Neil are the current members of the Compensation Committee, with Mr. Newell serving as the chairman. The Compensation Committee is responsible for reviewing, recommending and approving our compensation policies and benefits, including the compensation of all of our executive officers and directors. Our Compensation Committee also has the principal responsibility for the administration of our equity incentive and stock purchase plans and the approval of equity awards to the named executive officers. The responsibilities of our Compensation Committee are described in the Compensation Committee Charter adopted by our board of directors, a current copy of which can be found on the investors section of our website, www.mosys.com. Overview of Compensation Program The Compensation Committee of the board of directors has responsibility for establishing, implementing and monitoring adherence to our compensation philosophy. The board of directors has delegated to the Compensation Committee the responsibility for determining our compensation policies and procedures for senior management, including the named executive officers, periodically reviewing these policies and procedures, and making recommendations concerning executive compensation to be considered by the full board of directors, when such approval is required under any of our plans or policies or by applicable laws. The compensation received by our named executive officers in fiscal year 2020 is set forth in the Summary Compensation Table, below. For 2020, the named executive officers included Daniel Lewis, President and Chief Executive Officer, and James Sullivan, Vice President of Finance and Chief Financial Officer. Compensation Philosophy In general, our executive compensation policies are designed to recruit, retain and motivate qualified executives by providing them with a competitive total compensation package based in large part on the executive’s contribution to our financial and operational success, the executive’s personal performance and increases in stockholder value, as measured by the price of our common stock. We believe that the total compensation paid to our executives should be fair, reasonable and competitive. We seek to have a balanced approach to executive compensation with each primary element of compensation (base salary, variable compensation and equity incentives) designed to play a specific role. Overall, we design our compensation programs to allow for the recruitment, retention and motivation of the key executives and high‑level talent required in order for us to: • supply high‑value and high‑quality integrated circuit solutions to our customer base; • achieve or exceed our annual financial plan and be profitable; • make continuous progression towards achieving our long‑term strategic objectives to be a high‑growth company with growing profitability; and • increase our share price to provide greater value to our stockholders. Role of Executive Officers in Compensation Decisions The chief executive officer (CEO) makes recommendations for equity and non‑equity compensation for executives to be approved by the Compensation Committee. The Compensation Committee reviews these guidelines annually. The CEO annually reviews the performance of our executives (other than himself) and presents his recommendations for proposed salary adjustments, bonuses and equity awards to the Compensation Committee once a year. In its discretion, the Compensation Committee may accept, modify or reject the CEO’s recommendations. The Compensation Committee evaluates the compensation of the CEO on its own without the participation or involvement of the CEO. Only the Compensation Committee and the board of directors are authorized to approve the compensation for any named executive officer. Compensation of new executives is based on hiring negotiations between the individuals and our CEO and/or Compensation Committee. 40 Elements of Compensation Consistent with our compensation philosophy and objectives, we offer executive compensation packages consisting of the following three components: • base salary; • annual incentive compensation; and • equity awards. In each fiscal year, the Compensation Committee determines the amount and relative weighting of each component for all executives, including the named executive officers. Base salaries are paid in fixed amounts and thus do not encourage risk taking. Our widespread use of long‑term compensation consisting of stock options and restricted stock units (RSUs) focuses recipients on the achievement of our longer‑term goals and conserves cash for other operating expenses. For example, the RSUs granted to our executives in 2019 vest in increments over three years, while stock options granted to our executives in 2019 vest over 36 months from the date of grant. The Compensation Committee does not believe that these awards encourage unnecessary or excessive risk taking because the ultimate value of the awards is tied to our stock price, and the use of multi‑year vesting schedules helps to align our employees’ interests even more closely with those of our long‑term investors. Base Salary Because our compensation philosophy stresses performance-based awards, base salary is intended to be a smaller portion of total executive compensation relative to long-term equity. The Compensation Committee takes into account the executive’s scope of responsibility and significance to the execution of our long-term strategy, past accomplishments, experience and personal performance and compares each executive’s base salary with those of the other members of senior management. The Compensation Committee may give different weighting to each of these factors for each executive, as it deems appropriate. The Compensation Committee did not retain a compensation consultant or determine a compensation peer group for 2020. In 2020, there were no changes to the base salaries paid to our named executive officers. Annual Incentive Compensation The Compensation Committee did not authorize any incentive compensation for the named executive officers in 2020. Equity Awards Although we do not have a mandated policy regarding the ownership of shares of common stock by officers and directors, we believe that granting equity awards to executives and other key employees on an ongoing basis gives them a strong incentive to maximize stockholder value and aligns their interests with those of our other stockholders on a long-term basis. Our 2019 Stock Incentive Plan (the “2019 Plan”), which was approved by our stockholders and became effective in August 2019, enables us to grant equity awards, as well as other types of stock-based compensation, to our executive officers and other employees. The Compensation Committee reviews and approves all equity awards granted under the 2019 Plan to the named executive officers. We grant equity awards to achieve retention and motivation: • upon the hiring of key executives and other personnel; • annually, when we review progress against corporate and personal goals; and • when we believe that competitive forces or economic conditions threaten to cause our key executives to lose their motivation and/or where retention of these key executives is in jeopardy. With the Compensation Committee’s approval, we grant options to purchase shares of common stock when we initially hire executives and other employees, as a long-term performance incentive. The Compensation Committee has determined the size of the initial option grants to newly hired executives with reference to option grants held by existing executives, the percentage that such grant represents of our total shares outstanding and hiring negotiations with the individual. In addition, the Compensation Committee would consider other relevant information regarding the size and type of compensation package considered necessary to enable us to recruit, retain and motivate the executive. 41 Typically, when we hire an executive, the options vest with respect to one-fourth of the total number of shares subject to the grant on the first anniversary of the grant date and with respect to 1/48th of the shares monthly thereafter. The options granted to executives in connection with annual performance reviews typically vest monthly over a three-to- four year period, and RSUs granted typically vest annually over a period of from one -to- three years, as the Compensation Committee may decide. As matters of policy and practice we grant stock options with an exercise price equal to fair market value, although the 2019 Plan allows us to use a different exercise price. In determining fair market value, we use the closing price of the common stock on the Nasdaq on the grant date . Historically, no employee has been eligible for an annual performance grant until the employee has been employed for at least six months. Annual performance reviews are generally conducted in the first half of each fiscal year. Our CEO conducts the performance review of all other executives, and makes his recommendations to the Compensation Committee. The Compensation Committee also reviews the CEO’s annual performance and determines whether he should receive additional equity awards. Aside from equity award grants in connection with annual performance reviews, we do not have a policy of granting additional awards to executives during the year. The board of directors and Compensation Committee have not adopted a policy with respect to setting the dates of award grants relative to the timing of the release of material non-public information. Our policy with respect to prohibiting insider trading restricts sales of shares during specified black-out periods, including at all times that our insiders are considered to possess material non-public information. In determining the size of equity awards in connection with the annual performance reviews of our executives, the Compensation Committee takes into account the executive’s current position with and responsibilities to us, and current and past equity awards to the executive. Going forward, we intend to continue to evaluate and consider equity grants to our executives on an annual basis. We expect to consider potential equity awards for executives at the same time as we annually review our employees’ performance and determine whether to award grants for all employees. Accounting and Tax Considerations Our Compensation Committee has reviewed the impact of tax and accounting treatment on the various components of our executive compensation program. Section 162(m) of the Internal Revenue Code, as amended (the “Code”), generally disallows a tax deduction to publicly-held companies for compensation paid to “covered” executive officers, to the extent that compensation paid to such an officer exceeds $1 million during the taxable year. The Tax Cuts and Jobs Act repealed the performance-based exception to the deduction limit for remuneration that is deductible in tax years commencing after December 31, 2017. However, certain remuneration is specifically exempt from the deduction limit under a transition rule to the extent that it is "performance-based," as defined in Section 162(m) of the Code, and subject to a "written binding contract" in effect as of November 2, 2017 that is not later modified in any material respect. We endeavor to award compensation that will be deductible for income tax purposes, though other factors will also be considered. None of the compensation paid to our covered executive officers for the year ended December 31, 2020 that would be taken into account for purposes of Section 162(m) exceeded the $1 million limitation for 2020. Because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) of the Code and the regulations issued thereunder, including the uncertain scope of the transition relief under the Tax Cuts and Jobs Act, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) of the Code in fact will satisfy such requirements. Our Compensation Committee may authorize compensation payments that do not comply with the exemptions to Section 162(m) when we believe that such payments are appropriate to attract and retain executive talent. 42 Say-on-Pay In 2020, we gave our stockholders an opportunity to provide feedback on our executive compensation through an advisory vote at our annual stockholder meeting. Stockholders were asked to approve, on an advisory basis, the compensation paid to our named executive officers. A majority of stockholders indicated approval of the compensation of the named executive officers, with approximately 90% of the shares that voted on such matter voting in favor of the proposal. Additionally, in 2017, stockholders were asked to approve, on an advisory basis, in favor of having a stockholder vote to approve the compensation of our named executive officers every three years. A majority of stockholders indicated approval of having a stockholder vote to approve the compensation of our named executive officers every three years, with approximately 60% of the shares that voted on such matter voting in favor of the proposal. Based on these results and consistent with the previous recommendation and determination of its board of directors, we will hold non-binding advisory votes on executive compensation every three years until the next vote on the frequency of the stockholder advisory vote on executive compensation. In light of the results of the advisory vote, the Compensation Committee continued to apply principles that were substantially similar to those applied historically in determining compensation policies and decisions and did not make any significant changes to executive compensation decisions and policies with respect to 2020 executive compensation. SUMMARY COMPENSATION TABLE The following table sets forth compensation information for fiscal years 2020 and 2019 for each of our named executive officers. Name and principal position Year Salary ($) Stock Option Awards ($)(1) Restricted Stock Awards ($)(1) Non-Equity Incentive Plan Compensation ($) Total ($) Daniel Lewis 2020 250,000 — — — 250,000 Chief Executive Officer & President 2019 250,000 153,000 88,200 — 491,200 James Sullivan 2020 250,000 — — — 250,000 Chief Financial Officer & Vice President of Finance 2019 244,793 52,960 32,340 — 330,093 (1) Award amounts reflect the aggregate grant date fair value with respect to awards granted during the years indicated, as determined pursuant to FASB ASC Topic 718. The assumptions used to calculate the aggregate grant date fair value of option and stock awards are set forth in the notes to the consolidated financial statements included in item 15 of this Report. These amounts do not reflect actual compensation earned or to be earned by our named executive officers. 43 GRANTS OF PLAN-BASED AWARDS We did not grant plan-based awards in 2020 to our named executive officers. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END The following table sets forth information regarding the outstanding equity awards held by our named executive officers as of December 31, 2020. Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price($) Option Expiration Date(1) Number of Units That Have Not Vested (#) Market Value of Units That Have Not Vested ($) Daniel Lewis 4,000 (2) — — 15.00 10/19/2023 — — 1,000 (3) — — 25.60 1/4/2024 — — 9,167 (4) 5,833 — 3.92 2/6/2029 — — 21,666 (5) 38,334 — 1.57 11/20/2029 — — — — — — — 11,250 (6) 27,450 (7) James Sullivan 300 (8) — — 410.00 3/30/2025 — — 787 (9) - — 144.00 8/23/2026 — — 3,361 (4) 2,139 — 3.92 2/6/2029 — — 7,221 (5) 12,779 — 1.57 11/20/2029 — — — — — — — 4,125 (6) 10,065 (7) (1) The standard option term is generally six to ten years, but all of the options expire automatically unless exercised within 90 days after the cessation of service as an employee, director or consultant. (2) The stock option was granted on October 19, 2017 for service as a non-employee director, and the shares subject to this option vest annually over three years beginning September 26, 2017 subject to continued employment (or service as a director or consultant). (3) The stock option was granted on January 4, 2018 for service as a non-employee director, and the shares subject to this option vest annually over three years beginning September 26, 2017 subject to continued service as an employee, director or consultant. (4) The stock option was granted on February 6, 2019, and the shares subject to this option vest monthly over three years subject to continued service as an employee, director or consultant. (5) The stock option was granted on November 20, 2019, and the shares subject to this option vested monthly over three years subject to continued service as an employee, director or consultant. (6) The shares subject to each restricted stock unit grant vest on each semi-annual anniversary over a three-year period commencing on February 6, 2019 subject to continued employment (or service as a director or consultant). (7) The amount is calculated using the Company’s closing price on the Nasdaq of $2.44 per share of common stock on December 31, 2020. (8) The stock option was granted on March 30, 2015, and the shares subject to this option vested monthly over 48 months subject to continued employment (or service as a director or consultant). (9) In August 2016, officers tendered their eligible options and received new options at a rate of 1 replacement option share for each 1.75 option shares tendered. The stock option was granted on August 23, 2016, and the shares subject to this option vested monthly over 48 months subject to continued employment (or service as a director or consultant). 44 OPTION EXERCISES AND STOCK VESTED The following table sets forth the number of shares acquired and aggregate dollar amount realized pursuant to the vesting of stock awards by our named executive officers during 2020. Option Awards Stock Awards Name Number of Shares Acquired on Exercise(#) Value Realized on Exercise($) Number of Shares Acquired on Vesting(#) Value Realized on Vesting($)(1) Daniel Lewis — — 7,500 15,263 James Sullivan — — 1,723 3,485 (1) The aggregate dollar value realized upon vesting represents the closing price of a share of common stock on the Nasdaq at the date of vesting, multiplied by the total number of shares vested. Employment and Change-in-Control Arrangements and Agreements Our Executive Change-in-Control and Severance Policy (the “Policy”) provides benefits that are intended to encourage the continued dedication of our executive officers and to mitigate potential disincentives to the consideration of a transaction that would result in a change in control, particularly where the services of our named executive officers may not be required by a potential acquirer. The Policy provides for benefits for our named executive officers in the event of a “Change-in-Control,” which is generally defined as: • an acquisition of 45% or more of our common stock or voting securities by any “person” as defined under the Exchange Act; or • consummation of a complete liquidation or dissolution of the Company or a merger, consolidation, reorganization or sale of all or substantially all of our assets (collectively, a “Business Combination”) other than a Business Combination in which (A) our stockholders receive 50% or more of the stock of the corporation resulting from the Business Combination and (B) at least a majority of the board of directors of such resulting corporation were our incumbent directors immediately prior to the consummation of the Business Combination, and (C) after which no individual, entity or group (excluding any corporation or other entity resulting from the Business Combination or any employee benefit plan of such corporation or of ours) who did not own 45% or more of the stock of the resulting corporation or other entity immediately before the Business Combination owns 45% or more of the stock of such resulting corporation or other entity. Under the Policy, the following compensation and benefits are to be provided to our chief executive officer upon the occurrence of a Change-in-Control, and in the case of our other named executive officers, upon a Change-in-Control combined with a termination of the named executive officer’s employment without cause, or due to disability or resignation for good reason (as defined in the Policy) in connection with the Change-in-Control or within 24 months after it: • any base salary earned but not yet paid through the date of termination; • any annual or discretionary bonus earned but not yet paid to him for any calendar year prior to the year in which his termination occurs; • any compensation under any deferred compensation plan of ours or deferred compensation agreement with us then in effect; • a single lump sum payment equal to the sum of (a) one year of his or her then-current base salary plus (b) the average of his or her annual bonus payments in the preceding three years or such shorter time as he or she has been employed by us (with prorated weighting assigned to any bonus earned for a partial year of employment), which payment will be made within 60 days following the Change-in-Control (in the case of the chief executive officer), or 60 days following the date of employment termination (in the case of all other named executive officers). 45 • vesting in 100% of all outstanding equity awards as of the date of the Change-in-Control for the chief executive officer, or as of the date of termination of employment for all other named executive officers; • reimbursement of any business expenses incurred by him through the date of termination but not yet paid; • reimbursement of the cost of continuation of medical benefits for a period of 12 months; and • outstanding equity awards that are structured as stock options, stock appreciation rights or similar awards shall be amended effective as of the date of termination to provide that such awards will remain outstanding and exercisable until the earlier of (a) 12 months following the date of the Change-in-Control for the chief executive officer, or the termination of employment for the other named executive officers, and (b) the expiration of the award’s initial term. Under the Policy, “cause” means the executive’s: • willful failure to attend to the executive’s duties that is not cured by the executive within 30 days of receiving written notice from the CEO (or, in the case of the CEO, from the board of directors) specifying such failure; • material breach of the executive’s then-current employment agreement (if any) that is not cured by the executive within 30 days of receiving written notice from the CEO (or, in the case of the CEO, from the board of directors) specifying such breach; • conviction of (or plea of guilty or nolo contendere to) any felony or any misdemeanor involving theft or embezzlement; or • misconduct resulting in material harm to our business or reputation, including fraud, embezzlement, misappropriation of funds or a material violation of the executive’s Employment, Confidential Information, Invention Assignment and Arbitration Agreement ; and Under the Policy, “good reason” means the occurrence of any of the following conditions without the executive’s consent, but only if such condition is reported by the executive within 90 days of the executive’s knowledge of such condition and remains uncured 30 days after written notice from the executive to the board of directors of said condition: • a material reduction in the executive’s then-current base salary or annual target bonus (expressed as a percentage of Executive’s then-current base salary), except for a reduction proportionate to reductions concurrently imposed on all other members of the Company’s executive management; • a material reduction in the executive’s then-current employee benefits package, taken as a whole, except for a reduction proportionate to reductions concurrently imposed on all other members of executive management; • a material reduction in the executive’s responsibilities with respect to our overall operations, such that continuity of responsibilities with respect to business operations existing prior to a corporate transaction will serve as a material reduction in responsibilities if such business operations represent only a subsidiary or business unit of the larger enterprise after the corporate transaction; • a material reduction in the responsibilities of the executive’s direct reports, including a requirement for the chief executive officer to report to another officer as opposed to our board of directors or a requirement for any other executive to report to any officer other than our chief executive officer; • a material breach by us of any material provision of the executive’s then-current employment agreement (if any); • a requirement that the executive relocate to a location more than 35 miles from the executive’s then-current office location, unless such office relocation results in the distance between the new office and Executive’s home being closer or equal to the distance between the prior office and the executive’s home; • a failure of a successor or transferee to assume our obligations under this Policy; or 46 • a failure to nominate the executive for election as a Board director, if, at the proper time for nomination, the executive is a member of the board of directors. The information below describes the severance benefits payable to our named executive officers under the Policy as if the Policy had been in effect and a Change‑in‑Control occurred on December 31, 2020, and the employment of each of our named executive officers was terminated without cause immediately following the Change‑in‑Control: Name Base Salary($)(1) Incentive Plans($)(2) Continuation of Benefits($)(3) Stock Option Vesting($)(4) Stock Award Vesting($)(5) Total($) Daniel Lewis 250,000 — 23,676 33,351 27,450 334,477 James Sullivan 250,000 18,725 23,676 11,118 10,065 313,584 (1) Represents cash severance payments based on the executive’s salary at December 31, 2020, in an amount equal to one year of his base salary. (2) Represents the average of executive’s annual performance incentive payments in the preceding three years. (3) Represents the aggregate amount of all premiums payable for the continuation of the executive’s health benefits for one year, based on the amounts of such premiums at December 31, 2020. (4) The value is calculated as the intrinsic value per share, multiplied by the number of shares that would become fully vested upon the Change‑in‑Control. The intrinsic value per share would be calculated as the excess of the closing price of the common stock on the Nasdaq of $2.44 on December 31, 2020 over the exercise price of the option. If the value is less than zero, it is deemed to be zero for the purposes of these calculations. (5) The value is calculated as the intrinsic value per share, multiplied by the number of shares that would become fully vested upon the Change‑in‑Control. The intrinsic value per share is considered as the closing price of our common stock on the Nasdaq of $2.44 on December 31, 2020. If a Change‑in‑Control occurred on December 31, 2020, under the Policy, the following numbers of option and award shares would have vested immediately as a result of acceleration on December 31, 2020: Name Number of Accelerated Option and Award Shares Daniel Lewis 55,417 James Sullivan 19,043 47 Employment Agreements In addition to the agreements containing the Change‑in‑Control provisions summarized above, we have entered into our standard form of employment, confidential information, invention assignment and arbitration agreement with each of the named executive officers. We also have entered into agreements to indemnify our current and former directors and certain executive officers, in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements, among other things, provide for indemnification of our directors and certain executive officers for many expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company, arising out of such person’s services as a director or executive officer of the Company, any subsidiary of the Company or any other company or enterprise to which the person provided services at our request. Director Compensation The following table summarizes the compensation we paid to our non-employee directors in 2020: Name Fee Compensation ($) Restricted Stock Awards ($)(1) Option Awards ($)(1)(2) All Other Compensation Total ($) Scott Lewis 30,000 1,870 — — 31,870 Robert Y. Newell 31,500 1,870 — — 33,370 Daniel O'Neil 33,000 1,870 — — 34,870 (1) Award amounts reflect the aggregate grant date fair value with respect to awards granted during the years indicated, as determined pursuant to FASB ASC Topic 718. The assumptions used to calculate the aggregate grant date fair value of option and stock awards are set forth in the notes to the consolidated financial statements included in item 15 of this Report. These amounts do not reflect actual compensation earned or to be earned by our named executive officers. Restricted stock award amounts consist of: awards granted to Messrs. Lewis, Newell and O’Neil on July 29, 2020 to purchase 1,000 shares each. (2) As of December 31, 2020, our non-employee directors each held outstanding options to purchase 5,000 of shares of our common stock. Director Fee Compensation The challenges our business has faced have made it challenging for us to attract new non-employee directors. Nasdaq and SEC regulations require that a majority of the directors on our board of directors and its committees be independent, non-employee directors, as defined by each entity. We pay the following annual cash retainer fees, payable in quarterly installments, to our non-employee directors for their service on our board of directors and, as applicable, for service as chairperson of a committee of our board of directors: • $30,000 for service on the board of directors; • $3,000 for service as chairperson of the Audit Committee; and • $1,500 for service as chairperson of the Compensation Committee. Director Equity Compensation In August 2019, the Company’s stockholders approved the 2019 Plan. The 2019 Plan permits the board of directors to establish by resolution the number of shares, up to a maximum of 2,000 each year for each non-employee director, to be covered by annual option grants or other awards for each year of service on our board. The 2019 Plan further provides that each non-employee director may be granted an award to acquire up to 6,000 shares upon his or her initial appointment or election to our board. The shares covered by these awards vest over a three year period at the rate of one third of the total number of shares each year, subject to the non-employee director’s continuous service on the board. The 2019 Plan also permits a disinterested majority of the board of directors, in its discretion, to authorize additional shares to be awarded or granted to committee chairs and other non-employee directors for extraordinary service on the board. 48 The exercise price per share under each option grant is equal to the fair market value of a share of our common stock on the date of grant on the principal trading market for our common stock at the time of grant, which is the Nasdaq Capital Market, or the Nasdaq. In the event of a merger, sale of substantially all of our assets or similar transaction, vesting of all director options would accelerate as to 100% of the unvested shares subject to the award. In recent years, our basic annual service award to a non-employee director has been a restricted stock unit award for 1,000 shares of common stock. In 2020, the board of directors once again determined that this was an appropriate award size. In July 2020, we awarded restricted stock units for 1,000 shares to each of our non-employee directors. These awards vest and become non-forfeitable on July 29, 2021, or, if earlier, on the date of the 2021 annual meeting of stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth certain information as of March 1, 2021 concerning the ownership of our common stock by: • each stockholder known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock (currently our only class of voting securities); • each of our directors; • each of the named executive officers; and • all directors and executive officers as a group. Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act, and includes all shares over which the beneficial owner exercises voting or investment power. Shares that are issuable upon the exercise of options, warrants and other rights to acquire common stock that are presently exercisable or exercisable within 60 days of March 1, 2020 are reflected in a separate column in the table below. These shares are taken into account in the calculation of the total number of shares beneficially owned by a particular holder and the total number of shares outstanding for the purpose of calculating percentage ownership of the particular holder. We have relied on information supplied by our officers, directors and certain stockholders and on information contained in filings with the SEC. Except as otherwise indicated, and subject to community property laws where applicable, we believe, based on information provided by these persons, that the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based on 6,133,719 shares of common stock outstanding as of March 12, 2021. Unless otherwise stated, the business address of each of our directors and named executive officers listed in the table is 2309 Bering Drive, San Jose, California 95131. Amount and Nature of Beneficial Ownership Name and principal position Number of Shares Beneficially Owned (Excluding Outstanding Options)(1) Number of Shares Issuable on Exercise of Outstanding Options or Convertible Securities(2) Percent of Class Empery Asset Management, LP 495,867 7,375 (3 ) 8.20 % 1 Rockefeller Plaza, Suite 1205 New York, NY 10020 Directors and Officers: Daniel Lewis 18,500 42,499 * Scott Lewis 2,000 3,333 * Robert Y. Newell 15,000 3,333 * Daniel J. O'Neil 3,000 5,000 * James Sullivan 5,071 13,949 * All current directors and executive officers as a group (5 persons) 43,571 68,114 1.80 % 49 * Represents holdings of less than one percent. (1) Excludes shares subject to outstanding options, warrants, convertible securities or other rights to acquire common stock that are exercisable within 60 days of March 1, 2021. (2) Represents the number of shares subject to outstanding options, warrants, convertible securities or other rights to acquire common stock that are exercisable within 60 days of March 1, 2021. (3) Empery Asset Management, LP (“Empery”) filed a Form 13G/A with the SEC on February 23, 2021 behalf of (i) Empery, (ii) Ryan Lane and (iii) Martin Hoe (together with Empery, the “Empery Persons”). Martin Hoe and Ryan Lane, in their capacity as investment managers of Empery, may also be deemed to have investment discretion and voting power over the shares held by Empery. Mr. Hoe and Mr. Lane each disclaim any beneficial ownership of these shares. The beneficial ownership of the Empery Persons includes shares of our common stock issuable upon exercise of warrants issued in July 2017. The Empery Persons cannot exercise the warrants to the extent the Empery Persons would beneficially own, after any such exercise, more than 4.99% of the outstanding shares of our common stock. Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2020 regarding equity compensation plans approved by our security holders. As of December 31, 2020, we had no awards outstanding under equity compensation plans that have not been approved by our security holders. Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities reflected in Column (a))(1) (a) (b) (c) Equity compensation plans approved by security holders 224,074 $ 10.82 81,000 (1) Consists of shares of common stock available for future issuance under the 2019 Plan. Item 13. Certain Relationships and Related Transactions and Director Independence Related Party Transactions None. Director Independence Our board of directors has determined that each of the current directors, with the exception of Daniel Lewis, is “independent,” as defined by the listing rules of the NASDAQ Stock Market, or Nasdaq, and the rules and regulations of the SEC. Our board of directors has standing Audit and Compensation Committees, each of which is comprised solely of independent directors in accordance with the Nasdaq listing rules. No director qualifies as independent unless the board of directors affirmatively determines that he has no direct or indirect relationship with us that would impair his independence. We independently review the relationship of the Company to any entity employing a director or on whose board of directors he is serving currently . 50 Item 14. Principal Acco untant Fees and Services Weinberg & Co., P.A. (“Weinberg”) was our independent registered public accounting firm for the year ended December 31, 2020. Pursuant to the Audit Committee's determination, on May 12, 2020, BPM LLP ("BPM"), the independent registered public accounting firm previously engaged to audit our financial statements, was dismissed. The engagement of Weinberg as our independent registered public accounting firm was approved by our Audit Committee on May 12, 2020. The following table shows the fees billed (in thousands of dollars) to us by Weinberg and BPM, for the financial statement audits and other services provided for fiscal 2020 and 2019. 2020 2019 Audit Fees(1) $ 195 $ 239 Audit-Related Fees(2) 14 9 Total(3) $ 209 $ 248 (1) Audit fees consisted of fees for professional services rendered for the audit of our annual consolidated financial statements, review of our quarterly financial statements and services normally provided in connection with statutory and regulatory filings. (2) Audit-related fees consisted of fees related to the issuance of SEC registration statements. (3) Weinberg and BPM did not provide any non-audit or other services other than those reported under “Audit Fees” and “Audit-Related Fees.” The Audit Committee meets with our independent registered public accounting firm at least four times a year. At such times, the Audit Committee reviews both audit and non‑audit services performed by the independent registered public accounting firm, as well as the fees charged for such services. The Audit Committee is responsible for pre‑approving all auditing services and non‑auditing services (other than non‑audit services falling within the de minimis exception set forth in Section 10A(i)(1)(B) of the Exchange Act and non‑audit services that independent auditors are prohibited from providing to us) in accordance with the following guidelines: (1) pre‑approval policies and procedures must be detailed as to the particular services provided; (2) the Audit Committee must be informed about each service; and (3) the Audit Committee may delegate pre‑approval authority to one or more of its members, who shall report to the full committee, but shall not delegate its pre‑approval authority to management. Among other things, the Audit Committee examines the effect that performance of non‑audit services may have upon the independence of the auditors. 51 Part IV Item 15. Exhibits (a) (1) Consolidated Financial Statements: The following documents are filed as part of this Report: Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firms, all of which are set forth on pages 58 through 81 of this Report. Reports of Independent Registered Public Accounting Firms 58 Consolidated Balance Sheets 61 Consolidated Statements of Operations 62 Consolidated Statements of Stockholders’ Equity 63 Consolidated Statements of Cash Flows 64 Notes to Consolidated Financial Statements 65 (2) Financial Statement Schedules: Financial statement schedules are omitted because they are not required, not applicable or because the required information is shown in the consolidated financial statements or notes thereto. (3) Exhibits: Required exhibits are incorporated by reference or are filed with this Report. 3.1(1) Restated Certificate of Incorporation of the Registrant 3.1.1(1A) Certificate of Amendment to Restated Certificate of Incorporation of the Registrant 3.1.2(1B) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of MoSys, Inc., filed with the Secretary of State of the State of Delaware on August 27, 2019 3.2(2) Amended and Restated Bylaws of the Registrant 4.1(3) Specimen Common Stock Certificate 4.2(4) Form of Common Stock Purchase Warrant 4.3(5) Form of Securities Purchase Agreement 4.4.1(6) Rights Agreement, dated November 10, 2010, by and between Registrant and Wells Fargo Bank, N.A., as Rights Agent 4.4.2(7) Form of Right Certificate 4.4.3(8) Summary of Rights to Purchase Preferred Shares 4.4.4(9) Amendment No. 1 to Rights Agreement, dated July 22, 2011, by and between Registrant and Wells Fargo Bank, N.A., as Rights Agent 4.4.5(10) Amendment No. 2 to Rights Agreement, dated May 18, 2012, by and between Registrant and Wells Fargo Bank, N.A., as Rights Agent 4.5(11) Form of Common Stock Purchase Warrant 4.7 Description of Securities 4.8.1(12) MoSys, Inc. 2010 Amended and Restated Equity Incentive Plan 4.8.2(13) MoSys, Inc. 2019 Stock Incentive Plan 4.9.1(14) Form of Agreement for Stock Option Grant pursuant to the MoSys, Inc. Amended and Restated 2010 Equity Incentive Plan 4.9.2(15) Form of Notice of Grant of Stock Option Award and Agreement pursuant to the MoSys, Inc. 2019 Stock Incentive Plan 4.10.1(16) Form of Notice of Grant of Restricted Stock Unit Award and Agreement under the MoSys, Inc. Amended and Restated 2010 Equity Incentive Plan 4.10.2(17) Form of Notice of Grant of Restricted Stock Unit Award and Agreement under the MoSys, Inc. 2019 Stock Incentive Plan 52 10.3(18)* Employment offer letter agreement between Registrant and James Sullivan dated December 21, 2007 10.4(19)* Change-in-control Agreement between Registrant and James Sullivan dated January 18, 2008 10.5(20)* Form of Option Agreement for Stock Option Grant pursuant to 2010 Equity Incentive Plan 10.7(21)* Form of Notice of Restricted Stock Unit Award and Agreement under the MoSys, Inc. 2010 Amended and Restated Equity Incentive Plan 10.8(22)* Form of New Employee Inducement Grant Stock Option Agreement (revised February 2012) 10.9(23) Form of Indemnification Agreement used from June 2012 to present 10.10(24) Sublease Agreement with Cyren, Inc. dated October 3, 2017 10.11(25) 10% Senior Secured Convertible Note Purchase Agreement dated March 14, 2016 10.12(26) Security Agreement dated March 14, 2016 10.13(27) 10% Senior Secured Convertible Note due August 15, 2018 10.14(28) Amendment to 10% Senior Secured Convertible Note Purchase Agreement and every 10% Senior Secured Convertible Note due August 15, 2018 Issued Thereunder 10.15(29)* Executive Change-in-Control and Severance Policy 10.16(30)* Employment offer letter agreement between Registrant and Daniel Lewis dated August 8, 2018 10.17(31) Securities Purchase Agreement 10.18(32) Amendment No. 2 to 10% Senior Secured Convertible Note Purchase Agreement and every 10% Senior Secured Convertible Note due August 15, 2018 Issued Thereunder 10.19(33) Securities Purchase Agreement 10.20(34) Paycheck Protection Program Promissory Note and Agreement dated May 3, 2020 10.21 Sublease Addendum #2 to the Lease between Cyren Ltd. and MoSys, Inc., dated September 30, 2020, by and between MoSys, Inc., and Cyren Ltd. 21.1 List of Subsidiaries 23.1 Consent of Independent Registered Public Accounting Firm—Weinberg & Co., P.A. 23.2 Consent of Independent Registered Public Accounting Firm—BPM LLP 24.1 Power of Attorney (see signature page) 31.1 Rule 13a-14 certification 31.2 Rule 13a-14 certification 32 Section 1350 certification 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Labels Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1) Incorporated by reference to Exhibit 3.6 to Form 8-K filed by the Company on November 12, 2010 (Commission File No. 000-32929). (1A) Incorporated by reference to Exhibit 3.1 to Form 8-K filed by the Company on February 14, 2017 (Commission File No. 000-32929). (1B) Incorporated by reference to Exhibit 3.1 to Form 8-K filed by the Company on August 27, 2019 (Commission File No. 000-32929). (2) Incorporated by reference to Exhibit 3.4 to Form 8-K filed by the Company on October 29, 2008 (Commission File No. 000-32929). (3) Incorporated by reference to Exhibit 4.1 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). (4) Incorporated by reference to Exhibit 4.1 to Form 8-K filed by the Company on June 30, 2017 (Commission File No. 000-32929) (5) Incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on June 30, 2017 (Commission File No. 000-32929) 53 (6) Incorporated by reference to E xhibit 4.4 to Form 8-K filed by the Company on November 12, 2010 (Commission File No. 000-32929). (7) I ncorporated by reference to Exhibit 4.4.1 to Form 8-K filed by the Company on November 12, 2010 (Commission File No. 000-32929). (8) Incorporated by reference to Exhibit 4.4.2 to Form 8-K filed by the Company on November 12, 2010 (Commission File No. 000-32929) (9) Incorporated by reference to Exhibit 4.2.3 to the Current Report on Form 8-K, filed on July 27, 2011 (Commission File No. 000-32929). (10) Incorporated by reference to Exhibit 4.2.4 to Current Report on Form 8-K filed by the Company on May 24, 2012 (Commission File No. 000-32929). (11) Incorporated by reference to Exhibit 4.6 to Form 8-K filed by the Company on October 3, 2018 (Commission File No. 000-32929). (12) Incorporated by reference to Exhibit 4.8 to the Company’s Registration Statement on Form S-8, filed February 15, 2019 (Commission File No. 333-229728). (13) Incorporated by reference to Appendix A to the Company’s proxy statement on Schedule 14A filed with the Securities and Exchange Commission on July 3, 2019 (Commission File No. 000-32929). (14) I ncorporated by reference to Exhibit 4.10 to the Company’s Registration Statement on Form S-8, filed July 28, 2010 (Commission File No. 333-168358). (15) I ncorporated by reference to Exhibit 4.10 to the Company ’s Registration Statement on Form S-8, filed November 13 , 2019 (Commission File No. 333-234675). (16) Incorporated by reference to Exhibit 10.23 to the Company’s Form 10-Q filed August 8, 2013 (Commission File No. 000-32929). (17) Incorporated by reference to Exhibit 4.13 to the Company ’s Registration Statement on Form S-8, filed November 13, 2019 (Commission File No. 333 -234675). (18) Incorporated by reference to Exhibit 10.26 to Form 10-K filed by the Company on March 17, 2008 (Commission File No. 000-32929). (19) Incorporated by reference to Exhibit 10.27 to Form 10-K filed by the Company on March 17 , 2008 (Commission File No. 000 -32929). (20) Incorporated by reference to Exhibit 4.10 to Form S-8 filed by the Company on July 28, 2010 (Commission File No. 333-168358). (21) Incorporated by reference to Exhibit 4.8 to Form S-8 filed by the Company on June 5, 2009 (Commission File No. 333-159753). (22) Incorporated by reference to Exhibit 10.19 to Form 10-K filed by the Company on March 15, 2012 (Commission File No. 000-32929). (23) Incorporated by reference to Exhibit 10.22 to Form 10-Q filed by the Company on August 9, 2012 (Commission File No. 000-32929). (24) Incorporated by reference to Exhibit 99.2 to Form 10-Q filed by the Company on November 14, 2017 (Commission File No. 000-32929). (25) Incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on March 15, 2016 (Commission File No. 000-32929). (26) Incorporated by reference to Exhibit 10.2 to Form 8-K filed by the Company on March 15, 2016 (Commission File No. 000-32929). (27) Incorporated by reference to Exhibit 10.3 to Form 8-K filed by the Company on March 15, 2016 (Commission File No. 000-32929). (28) Incorporated by reference to Exhibit 10.4 to Form 8-K filed by the Company on February 27, 2018 (Commission File No. 000-32929) 54 (29) Incorporated by reference to Exhibit 99 to Schedule TO filed by the Company on July 26, 2016 (Commission File No. 005-78033), as amended (30) Incorporated by reference to Exhibit 10.28 to Form S-1/A filed by the Company on September 17, 2018 (Commission File No. 333-225193), as amended (31) Incorporated by reference to Exhibit 10.26 to Form 8 -K filed by the Company on October 3, 2018 (Commission File No. 000-32929). (32) Incorporated by reference to Exhibit 10.30 to Form 8-K filed by the Company on October 3, 2018 (Commission File No. 000 -32929). (33) Incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Company on April 17, 2020 (Commission File No. 000-32929). (34) Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 13, 2020 (Commission File No. 000-32929). * Management contract, compensatory plan or arrangement. Item 16. Form 10-K Summary Not applicable. 55 SIGNA TURES Pursuant to the requirements of 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 18 t h day of March 2021. MOSYS, INC. By: /s/ Daniel Lewis Daniel Lewis President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel Lewis and James W. Sullivan as his true and lawful attorneys-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/ DANIEL LEWIS President, Chief Executive Officer, and Director March 18, 2021 Daniel Lewis (Principal Executive Officer) /s/ James W. Sullivan Vice President of Finance and Chief Financial James W. Sullivan Officer (Principal Financial Officer and Principal March 18, 2021 Accounting Officer) /s/ SCOTT LEWIS Director March 18, 2021 Scott Lewis /s/ ROBERT Y. NEWELL Director March 18, 2021 Robert Y. Newell /s/ Daniel O’NeIl Director March 18, 2021 Daniel O’Neil 56 MOSYS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm—Weinberg & Company 58 Report of Independent Registered Public Accounting Firm—BPM LLP 60 Consolidated Balance Sheets 61 Consolidated Statements of Operations 62 Consolidated Statements of Stockholders’ Equity 63 Consolidated Statements of Cash Flows 64 Notes to Consolidated Financial Statements 65 57 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of MoSys, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of MoSys, Inc. and its subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting 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. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Adjustment of warrant exercise price As discussed in Note 6 to the consolidated financial statements, in April 2020, the Company completed a registered direct offering of securities and sold 1,218,000 shares of common stock at a price of $1.56 per share to institutional investors. As a result of the offering, the exercise price of the 1,845,540 outstanding common stock purchase warrants that were issued in October 2018 was reduced from $6.00 per share to $2.40 per share. The Company accounted for the warrant exercise price adjustment in accordance with ASC Topic 260 and determined that the change in the exercise price resulted in a deemed dividend of $392,000 that increased the net loss attributable to common stockholders for the year ended December 31, 2020. 58 We identified the accounting for the adjustment of the warrant exercise price as a critical audit matter because of the significance of the account balance and due to the complexity of the transaction and the significant judgements used by management in determining the fair value of the adjustment to the warrant price. Auditing the accounting for the adjustment of the exercise price of the warrants involved increased extent of effort and a high degree of auditor judgment. The primary audit procedures we performed to address this critical audit matter included the following, among others: • We inspected the warrant agreements and relevant documentation. • We evaluated the Company’s conclusions regarding the application of relevant accounting guidance to the accounting for the adjustment of the warrant price, including conclusions reached with respect to treatment as a deemed dividend. • We tested the accuracy and completeness of data used by the Company to calculate the fair value of warrant price adjustment, including expected life, expected volatility, the risk free interest rate, and the dividend rate, and tested the mathematical accuracy of calculations. • We developed independent estimates for the fair value of the deemed dividend based on the assumptions and data used by the Company. We have served as the Company’s auditor since 2020. /s/ Weinberg & Company Los Angeles, California March 18, 2021 59 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of MoSys, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of MoSys, Inc. and its subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 9 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of the new lease standard. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting 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. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BPM LLP We served as the Company’s auditor from 2007 to 2020. San Jose, California March 17, 2020 60 MOSYS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value data) December 31, 2020 2019 ASSETS Current assets Cash and cash equivalents $ 5,889 $ 6,053 Short-term investments — 300 Accounts receivable, net 701 1,175 Inventories 599 968 Prepaid expenses and other 668 472 Total current assets 7,857 8,968 Property and equipment, net 121 197 Right-of-use lease asset 303 156 Other 17 78 Total assets $ 8,298 $ 9,399 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 76 $ 218 Deferred revenue 15 166 Short-term lease liability 201 166 PPP note payable, current 244 — Accrued expenses and other 1,300 1,155 Total current liabilities 1,836 1,705 Long-term lease liability 103 — PPP note payable 335 — Convertible notes payable 3,092 2,858 Total liabilities 5,366 4,563 Commitments and contingencies (Note 9) Stockholders’ equity Preferred stock, $0.01 par value; 20,000 shares authorized; none issued and outstanding — — Common stock, $0.001 par value; 120,000 shares authorized; 3,554 shares and 2,179 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively 3 2 Additional paid-in capital 245,548 243,281 Accumulated deficit (242,619 ) (238,447 ) Total stockholders’ equity 2,932 4,836 Total liabilities and stockholders’ equity $ 8,298 $ 9,399 . The accompanying notes are an integral part of these consolidated financial statements. 61 MOSYS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2020 2019 Net revenue Product $ 5,933 $ 9,377 Royalty and other 862 709 Total net revenue 6,795 10,086 Cost of net revenue 2,329 3,931 Gross profit 4,466 6,155 Operating expenses Research and development 3,989 4,182 Selling, general and administrative 4,028 4,016 Impairment of goodwill — 420 Total operating expenses 8,017 8,618 Loss from operations (3,551 ) (2,463 ) Interest expense (243 ) (220 ) Other income, net 14 103 Net loss (3,780 ) (2,580 ) Deemed dividend for warrant exercise price adjustment (392 ) — Net loss attributable to common stockholders $ (4,172 ) $ (2,580 ) Net loss per share attributable to common stockholders Basic and diluted $ (1.32 ) $ (1.19 ) Shares used in computing net loss per share Basic and diluted 3,167 2,165 The accompanying notes are an integral part of these consolidated financial statements. 62 MOSYS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) Additional Common Stock Paid-In Accumulated Shares Amount Capital Deficit Total Balance as of January 1, 2019 2,148 $ 2 $ 243,022 $ (235,867 ) $ 7,157 Issuance of common stock under stock plans, net 31 — (4 ) — (4 ) Stock-based compensation — — 263 — 263 Net loss — — — (2,580 ) (2,580 ) Balance as of December 31, 2019 2,179 2 243,281 (238,447 ) 4,836 Issuance of common stock under stock plans, net 41 — (2 ) — (2 ) Exercise of pre-funded warrants 116 — 2 — 2 Sale of common stock, net of financing 1,218 1 1,618 — 1,619 Deemed dividend for warrant exercise price adjustment — — 392 (392 ) — Stock-based compensation — — 257 — 257 Net loss — — — (3,780 ) (3,780 ) Balance as of December 31, 2020 3,554 $ 3 $ 245,548 $ (242,619 ) $ 2,932 The accompanying notes are an integral part of these consolidated financial statements. 63 MOSYS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ (3,780 ) $ (2,580 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Provision for doubtful accounts 41 — Depreciation and amortization 143 185 Stock-based compensation 257 263 Impairment of goodwill — 420 Accrued interest 243 220 Loss on disposal of assets 4 — Amortization of lease right-of-use asset 212 212 Change in operating lease liability (220 ) (219 ) Other (1 ) (6 ) Changes in assets and liabilities Accounts receivable 433 447 Inventories 369 180 Prepaid expenses and other assets (135 ) 416 Accounts payable (142 ) (18 ) Deferred revenue and other liabilities (15 ) (171 ) Net cash used in operating activities (2,591 ) (651 ) Cash flows from investing activities: Purchases of property and equipment (71 ) (103 ) Proceeds from maturities of marketable securities and investments 300 1,275 Purchases of marketable securities and investments — (1,568 ) Net cash provided by (used in) investing activities 229 (396 ) Cash flows from financing activities: Proceeds from PPP note 579 — Proceeds from sale of common stock and warrants, net of issuance costs 1,619 — Net proceeds from exercise of pre-funded warrants 2 — Taxes paid to net share settle equity awards (2 ) (4 ) Net cash provided by (used in) financing activities 2,198 (4 ) Net decrease in cash and cash equivalents (164 ) (1,051 ) Cash and cash equivalents at beginning of year 6,053 7,104 Cash and cash equivalents at end of year $ 5,889 $ 6,053 Supplemental disclosure: Cash paid for income taxes $ 2 $ 2 Noncash investing and financing activities: Issuance of convertible notes in settlement of accrued interest $ 234 $ 187 Fair value of warrant exercise price adjustment considered as deemed dividend $ 392 $ — The accompanying notes are an integral part of these consolidated financial statements. 64 MOSYS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: The Company and Summary of Significant Accounting Policies The Company MoSys, Inc. (the Company) was incorporated in California in 1991 and reincorporated in 2000 in Delaware. The Company provides both integrated circuits (ICs) and intellectual property (IP) solutions that enable fast, intelligent data access and decision making for a wide range of markets. The Company’s primary product line is marketed under the Accelerator Engine name and includes the Bandwidth Engine IC products, which integrate the Company’s proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance. In 2020, the Company began offering for license the first of its Virtual Accelerator Engine products which consist of software, firmware and related IP. This new product line will include multiple function accelerator platform products, which target specific application functions and will use a common software interface to allow performance scalability over multiple hardware environments. 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. COVID-19 The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This has negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption of the financial markets. The full extent of the COVID-19 impact on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of the Company’s control, and cannot be predicted. In March 2020, Santa Clara County in California, where the Company is based, issued a ”shelter-in-place” order (the Order) that was initially effective through April 7, 2020 and has now been extended. The Company has been complying with the Order and have minimized business activities at the San Jose headquarters facility (the only facility). The Company has implemented a teleworking policy for employees and contractors to reduce on-site activity at the facility. The Order impacted the Company’s ability to produce and ship IC products in the second half of March 2020, as certain vendors in the San Francisco Bay Area closed in accordance with the Order. In April 2020, the Company resumed shipments of IC products, as they are supporting shipment of components for critical infrastructure, as defined by the federal government; however, employees are generally restricted from visiting customer and vendor sites in compliance with the Order, and, in some cases, have limited ability to conduct certain product testing and development activities. 65 The Company remain s diligent in continuing to identify and manage risks to our business given the changing uncertainties related to COVID-19. The ultimate impact of the Covid-19 pandemic on the business and results of operations is uncertain and difficult to predict, and the Company is closely monitoring impacts, especially to customer programs and our supply chain. The Company expect s that the impacts of the COVID-19 pandemic will have a negative impact on its revenues for 2021, although the Company is not in a position to quantify such impacts. In addition, the Company has and continue s to experience longer lead times for certain components used to manufacture its IC products. While the Company believe s that operations personnel are currently in a position to meet expected customer demand levels in the coming quarters, they recognize that unpredictable events could create difficulties in the months ahead. The Company may not be able to address these difficulties in a timely manner, which could negatively impact its business, results of operations, financial condition and cash flows. Use of Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses recognized during the reported period. Material estimates may include assumptions made in determining reserves for uncollectible receivables, inventory write-downs, impairment of long-term assets, valuation allowance on deferred tax assets, accruals for potential liabilities and assumptions made in valuing equity instruments. Actual results could differ from those estimates. Cash Equivalents and Investments The Company has invested its excess cash in money market accounts, certificates of deposit, corporate debt, government-sponsored enterprise bonds and municipal bonds and considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments with original maturities greater than three months and remaining maturities less than one year are classified as short-term investments. Investments with remaining maturities greater than one year are classified as long-term investments. Management generally determines the appropriate classification of securities at the time of purchase. All securities are classified as available-for-sale. The Company’s available-for-sale short-term and long-term investments are carried at fair value, with the unrealized holding gains and losses reported in accumulated other comprehensive income (loss). Realized gains and losses and declines in the value judged to be other-than-temporary are included in the other income, net line item in the consolidated statements of operations. The cost of securities sold is based on the specific identification method. Fair Value Measurements The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date. Level 2—Pricing is provided by third party sources of market information obtained through the Company’s investment advisors, rather than models. The Company does not adjust for, or apply, any additional assumptions or estimates to the pricing information it receives from advisors. The Company’s Level 2 securities include cash equivalents and available-for-sale securities, which consisted primarily of certificates of deposit, corporate debt, and government agency and municipal debt securities from issuers with high-quality credit ratings. The Company’s investment advisors obtain pricing data from independent sources, such as Standard & Poor’s, Bloomberg and Interactive Data Corporation, and rely on comparable pricing of other securities because the Level 2 securities are not actively traded and have fewer observable transactions. The Company considers this the most reliable information available for the valuation of the securities. Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of lease obligations and long-term financing 66 obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates. Allowance for Doubtful Accounts The Company establishes an allowance for doubtful accounts to ensure that its trade receivables balances are not overstated due to uncollectibility. The Company performs ongoing customer credit evaluations within the context of the industry in which it operates and generally does not require collateral from its customers. A specific allowance of up to 100% of the invoice value is provided for any problematic customer balances. Delinquent account balances are written off after management has determined that the likelihood of collection is remote. The Company grants credit only to customers deemed creditworthy in the judgment of management. The allowance for doubtful accounts receivable was $41,000 and zero as of December 31, 2020 and 2019, respectively. Inventories The Company values its inventories at the lower of cost, which approximates actual cost on a first-in, first-out basis, or net realizable value. The Company records inventory reserves for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. Once a reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of. If actual market conditions are less favorable than those expected by management, additional adjustment to inventory valuation may be required. Charges for obsolete and slow-moving inventories are recorded based upon an analysis of specific identification of obsolete inventory items and quantification of slow- moving inventory items. The Company recorded inventory write-downs of $0.1 million for each of the years ended December 31, 2020 and 2019. Property and Equipment Property and equipment are originally recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation is recorded in cost of sales and operating expenses in the consolidated statements of operations and comprehensive loss. Leasehold improvements and assets acquired through capital leases are amortized over the shorter of their estimated useful life or the lease term, and amortization is recorded in operating expenses in the consolidated statements of operations. 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 three to seven 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. Goodwill The Company determines the amount of a potential goodwill impairment by comparing the fair value of the reporting unit with its carrying amount. To the extent the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge is recognized. The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. As the Company uses the market approach to determine the step one fair value, the price of its common stock is an important component of the fair value calculation. If the Company’s stock price continues to experience significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform an impairment test. If the qualitative assessment warrants further analysis, the Company compares the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the market approach. If the fair value of the reporting unit exceeds the carrying value of net assets of the reporting unit, goodwill is not 67 impaired. If the carrying value of the reporting unit’s goodwill exceeds its fair value, then the Company must record an impairment charge equal to the difference. The Company performed its annual test for goodwill impairment as of September 1, 2019, and, due to a decrease in the price per share of its common stock, the test results indicated the goodwill carrying value was greater than its implied fair value. Further, the Company concluded a triggering event had occurred due to the sustained decrease in the price per share of its common stock and related reduced market capitalization as of September 30, 2019 and performed an additional test for impairment of its goodwill asset resulting in further indication that the goodwill carrying value was still greater than its implied fair value. As a result of both of these tests, the Company recorded non-cash impairment charges totaling $0.4 million. As a result of these charges, the Company’s goodwill balance was reduced to zero at September 30, 2019. Revenue Recognition The Company recognizes revenue in accordance with Financial Accounting Standards Board ( FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, and its amendments (ASC 606). As described below, the analysis of contracts under ASC 606 supports the recognition of revenue at a point in time, resulting in revenue recognition timing that is materially consistent with the Company’s historical practice of recognizing product revenue when title and risk of loss pass to the customer. The Company generates revenue primarily from sales of IC products and licensing of its intellectual property. Revenues are recognized when control is transferred to customers in amounts that reflect the consideration the Company expects to be entitled to receive in exchange for those goods. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied. IC products Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of the Company's contracts have a single performance obligation to transfer products. Accordingly, the Company recognizes revenue when title and risk of loss have been transferred to the customer, generally at the time of shipment of products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products and is generally based upon a negotiated, formula, list or fixed price. The Company sells its products both directly to customers and through distributors generally under agreements with payment terms typically 60 days or less. The Company may record an estimated allowance, at the time of shipment, for future returns and other charges against revenue consistent with the terms of sale. Royalty and other The Company’s licensing contracts typically provide for royalties based on the licensee’s use of the Company’s memory technology in its currently shipping commercial products. The Company estimates its royalty revenue in the calendar quarter in which the licensee uses the licensed technology. Payments are received in the subsequent quarter. 68 Contract liabilities – deferred revenue The Company’s contract liabilities consist of advance customer payments and deferred revenue. The Company classifies advance customer payments and deferred revenue as current or non-current based on the timing of when the Company expects to recognize revenue. As of December 31, 2020, contract liabilities were in a current position and included in deferred revenue. During the year ended December 31, 2020, the Company recognized revenue of $0.2 million that had been included in deferred revenue as of December 31, 2019. During the year ended December 31, 2019, the Company recognized revenue of $0.3 million that had been included in deferred revenue as of December 31, 2018. See Note 8 for disaggregation of revenue by geography. The Company does not have significant financing components, as payments from customers are typically due within 60 days of invoicing, and the Company has elected the practical expedient to net value financing components that are less than one year. Shipping and handling costs are generally incurred by the customer, and, therefore, are not recorded as revenue. Cost of Net Revenue Cost of net revenue consists primarily of direct and indirect costs of IC product sales and engineering personnel costs directly related to maintenance and support services specified in licensing agreements. Maintenance and support typically include engineering support to assist in the commencement of production of a licensee’s products. Advertising Costs Advertising costs are expensed as incurred. Advertising costs were not significant for the years ended December 31, 2020 and 2019. Research and Development Engineering costs are recorded as research and development expense in the period incurred. Stock-Based Compensation The Company periodically issues stock options and restricted stock awards to employees and non-employees. The Company accounts for such grants based on ASC 718, whereby the value of the award is measured on the date of grant and recognized as compensation expense on a straight-line basis over the vesting period. The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing (Black Scholes) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes model. The assumptions used in the Black-Scholes model could materially affect compensation expense recorded in future periods. 69 Per Share Amounts Basic net loss per share is computed by dividing net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share gives effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of stock options, vesting of stock awards and purchases under the employee stock purchase plan, conversion of convertible debt and exercise of warrants. The following table sets forth securities outstanding which were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutive (in thousands): December 31, 2020 2019 Options to purchase common stock 159 161 Unvested restricted common stock units 65 103 Convertible debt 271 254 Warrants 1,879 1,994 Total 2,374 2,512 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 2014 through 2018 tax years generally remain subject to examination by U.S. federal and state tax authorities, and the 2010 through 2019 tax years generally remain subject to examination by foreign tax authorities. At December 31, 2020, the Company did not have any material unrecognized tax benefits nor expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes interest related to unrecognized tax benefits as income tax expense and penalties related to unrecognized tax benefits as other income and expense. During the years ended December 31, 2020 and 2019, the Company did not recognize any interest or penalties related to unrecognized tax benefits. Comprehensive Loss Comprehensive loss represents the changes in equity of an enterprise, other than those resulting from stockholder transactions. Accordingly, comprehensive loss may include certain changes in equity that are excluded from net loss. For the years ended December 31, 2020 and 2019, the Company’s comprehensive loss was the same as its net loss. 70 Note 2: Consolidated Balance Sheet Detail December 31, 2020 2019 (in thousands) Inventories: Work-in-process $ 414 $ 746 Finished goods 185 222 $ 599 $ 968 Prepaid expenses and other: Prepaid inventory and production costs $ 422 $ 174 Prepaid insurance 144 122 Prepaid software 18 24 Refundable tax — 61 Other 84 91 $ 668 $ 472 Property and equipment, net: Equipment, furniture and fixtures and leasehold improvements $ 4,265 $ 4,239 Acquired software 129 123 4,394 4,362 Less: Accumulated depreciation and amortization (4,273 ) (4,165 ) $ 121 $ 197 Accrued expenses and other: December 31, 2020 2019 (in thousands) Accrued wages and employee benefits $ 313 $ 296 Professional fees, legal and consulting 690 229 IC development and wafer purchases — 104 Warranty accrual 41 63 Interest payable 93 84 Corporate taxes 18 20 Other 145 359 $ 1,300 $ 1,155 71 Note 3: Fair Value of Financial Instruments The estimated fair values of financial instruments outstanding were (in thousands): December 31, 2020 Unrealized Unrealized Fair Cost Gains Losses Value Cash and cash equivalents $ 5,889 $ — $ — $ 5,889 December 31, 2019 Unrealized Unrealized Fair Cost Gains Losses Value Cash and cash equivalents $ 6,053 $ — $ — $ 6,053 Short-term investments 300 — — 300 $ 6,353 $ — $ — $ 6,353 The unrealized losses from available-for-sale securities as of December 31, 2020 and 2019 were not material. The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) as of December 31, 2020 and 2019 (in thousands): December 31, 2020 Fair Value Level 1 Level 2 Level 3 Money market funds $ 3,893 $ 3,893 $ — $ — December 31, 2019 Fair Value Level 1 Level 2 Level 3 Money market funds $ 4,574 $ 4,574 $ — $ — Corporate notes and commercial paper $ 300 $ — $ 300 $ — During the year ended December 31, 2020, $0.3 million of corporate notes and commercial paper matured and were transferred to Level 1. There were no transfers in or out of Level 1 and Level 2 securities during the year ended December 31, 2019. Note 4: Income Taxes The income tax provision (benefit) consisted of the following (in thousands): Year Ended December 31, 2020 2019 Current portion: Federal $ — $ (182 ) Deferred portion: Federal — 182 $ — $ — 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. 72 Significant components of the Company’s deferred tax assets and liabilities were (in thousands): Year Ended December 31, 2020 2019 Deferred tax assets: Federal and state loss carryforwards $ 3,031 $ 1,697 Reserves, accruals and other 239 156 Depreciation and amortization 1,284 1,629 Deferred stock-based compensation 2,698 2,613 Research and development credit carryforwards 6,613 6,707 Foreign tax and other credits - 61 Total deferred tax assets 13,865 12,863 Less: Valuation allowance (13,865 ) (12,802 ) Net deferred tax assets $ — $ 61 The $1.1 million increase in the valuation allowance during 2020 was primarily the result of an increase to the net operating loss carryforwards for the current year. The valuation allowance increased by $0.9 million during the year ended December 31, 2019. Utilization of the Company’s net operating losses (NOLs) and tax credit carryforwards is subject to a substantial annual limitation due to the ownership change limitations provided by the IRC and similar state provisions. Section 382 of the IRC (Section 382) imposes limitations on a corporation’s ability to utilize its NOL and tax credit carryforwards, if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership percentage of certain stockholders in the stock of the corporation by more than 50% over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate. While a formal study has not been performed, the Company believes that a Section 382 ownership change occurred as a result of a financing effected in October 2018. The Company believes this Section 382 limitation will result in approximately 97% of the federal and state NOLs expiring before they can be utilized, and approximately 96% of the federal tax credit carryforwards expiring before they can be utilized. As of December 31, 2020, the Company had NOLs of approximately $205.2 million for federal income tax purposes and approximately $127.0 million for state income tax purposes. Only approximately $11.3 million of the federal NOLs and $9.5 million of the state NOLs are expected to be available before expiration due to the Section 382 limitation. These NOLs are available to reduce future taxable income and will expire at various times from 2025 through 2037, except federal NOLs from 2018 to 2020 which will never expire. The Company also had federal research and development tax credit carryforwards of approximately $8.7 million, which will begin expiring in 2020, and California research and development credits of approximately $8.4 million, which do not have an expiration date. 73 A reconciliation of income taxes provided at the federal statutory rate ( 21 % ) to the actual income tax provision is as follows (in thousands): Year Ended December 31, 2020 2019 Income tax benefit computed at U.S. statutory rate $ (794 ) $ (542 ) Research and development credits (66 ) (170 ) Amortization of intangible assets (60 ) (60 ) Goodwill impairment — 17 Valuation allowance changes affecting tax provision 919 752 Other 1 3 Income tax provision $ — $ — The losses before income tax provision for the years ended December 31, 2020 and 2019 were solely attributable to US operations. Note 5: Stock-Based Compensation Equity Compensation Plans Common Stock Equity Plans In 2010, the Company adopted the 2010 Equity Incentive Plan and later amended it in 2014, 2017 and 2018 (the Amended 2010 Plan). The Amended 2010 Plan was terminated in August 2019 and remains in effect as to outstanding equity awards granted prior to the date of expiration. As of December 31, 2019, no new awards may be made under the Amended 2010 Plan, and equity awards for approximately 172,000 shares were outstanding. In August 2019, the Company’s stockholders approved the 2019 Stock Incentive Plan (the 2019 Plan), and it replaced the Amended 2010 Plan. The 2019 Plan authorizes the board of directors or the compensation committee of the board of directors to grant a broad range of awards including stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units. Under the 2019 Plan, 182,500 shares have been reserved for issuance. The 2019 Plan provides for annual option grants or other awards to the Company’s non-employee directors to acquire up to 2,000 shares and for a one-time grant of an option or other award to a non-employee director to acquire up to 6,000 shares upon his or her initial appointment or election to the board of directors. Under the 2019 Plan, the term of all incentive stock options granted to a person who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the Company’s stock may not exceed five years. The exercise price of stock options granted under the 2019 Plan must be at least equal to the fair market value of the shares on the date of grant. Generally, awards under the 2019 Plan will vest over a three to four-year period, and options will have a term of 10 years from the date of grant. In addition, the 2019 Plan provides for automatic acceleration of vesting for options granted to non-employee directors upon a change of control of the Company. The Amended 2010 Plan and the 2019 Plan are referred to collectively as the “Plans.” The Company may also award shares to new employees outside the Plans, as material inducements to the acceptance of employment with the Company, as permitted under the Listing Rules of the Nasdaq Stock Market. These awards must be approved by the compensation committee of the board of directors, a majority of the independent directors or, below a specified share level, by an authorized executive officer. At December 31, 2020 and 2019, no such awards were outstanding. Stock-Based Compensation Expense The unamortized compensation cost, at December 31, 2020, was $0.2 million related to stock options and is expected to be recognized as expense over a weighted average period of approximately 1.4 years. The unamortized 74 compensation cost, at December 31, 2020 , was $ 0. 3 million related to restricted stock units and is expected to be recognized as expense over a weighted average period of approximately 0 . 8 years . For the year s ended December 31, 20 20 and 2019 , the fair value of options and awards vested was approximately $ 0. 2 million and $ 0.3 million, respectively . 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, 2020, and 2019 was estimated on the grant dates using the Black-Scholes model with the following assumptions: Year Ended December 31, 2020 2019 Risk-free interest rate 1.6% - 2.5% 1.6% - 2.5% Volatility 128% - 138.5% 128% - 138.5% Expected life (years) 3.0 - 5.0 3.0 - 5.0 Dividend yield 0 % 0 % The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates as published by the U.S. Department of the Treasury as of the grant date for terms equal to the expected terms of the options. The expected volatility was based on the historical volatility of the Company’s stock price over the expected term of the options. The expected term of options granted was derived from historical data based on employee exercises and post-vesting employment termination behavior. A dividend yield of zero is applied because the Company has never paid dividends and has no intention to pay dividends in the near future. Prior to January 1, 2019, the stock-based compensation expense recorded was adjusted based on estimated forfeiture rates. An annualized forfeiture rate was used as a best estimate of future forfeitures based on the Company’s historical forfeiture experience. The stock-based compensation expense was adjusted in later periods if the actual forfeiture rate is different from the estimate. Upon the adoption of ASU No. 2016-09 on January 1, 2019, the Company elected to change its accounting policy to account for forfeitures as they occur. Historically, estimated forfeitures were immaterial to the consolidated financial statements. Common Stock Options and Restricted Stock A summary of stock option and restricted stock unit (RSU) award activity under the Plans is presented below (in thousands, except exercise price): Options outstanding Weighted Shares Average Available Number of Exercise for Grant Shares Prices Balance as of January 1, 2019 200 17 $ 96.24 Additional shares authorized under the Plan 183 — — RSUs granted (120 ) — — RSUs cancelled and returned to the Plan 1 — — Options granted (145 ) 145 $ 2.64 Options cancelled and returned to the Plan 1 (1 ) $ 144.00 Plan termination (32 ) — $ — Balance as of December 31, 2019 88 161 $ 10.85 RSUs granted (9 ) — — RSUs cancelled and returned to the Plan 2 — — Options cancelled — (2 ) $ 4.00 Balance as of December 31, 2020 81 159 $ 10.82 75 A summary of RSU activity under the Plans is presented below (in thousands, except fair value): Weighted Average Number of Grant-Date Shares Fair Value Non-vested shares as of January 1, 2019 14 $ 24.31 Granted 120 $ 3.79 Vested (30 ) $ 12.89 Cancelled (1 ) $ 25.13 Non-vested shares as of December 31, 2019 103 $ 3.75 Granted 9 $ 1.74 Vested (43 ) $ 3.72 Cancelled (4 ) $ 4.00 Non-vested shares as of December 31, 2020 65 $ 3.48 The total intrinsic value of outstanding RSUs was $0.2 million for each of the years ended December 31, 2020 and 2019. The following table summarizes significant ranges of outstanding and exercisable options at December 31, 2020 (in thousands, except contractual life and exercise price): Options Outstanding Options Exercisable Weighted Average Remaining Weighted Weighted Contractual Average Average Aggregate Number Life Exercise Number Exercise Intrinsic Range of Exercise Price Outstanding (in Years) Price Exercisable Price value $1.57 - $14.99 143 8.26 $ 2.62 68 $ 2.94 $ 25 $15.00 - $25.59 8 2.74 $ 15.00 8 $ 15.00 $ — $25.60 - $143.99 2 3.35 $ 41.81 2 $ 41.81 $ — $144.00 - $409.99 5 5.65 $ 144.00 5 $ 144.00 $ — $410.00 - $924.00 1 4.19 $ 430.64 1 $ 430.64 $ — $1.57 - $924.00 159 7.80 $ 10.82 84 $ 18.39 $ 25 There were no stock options exercised during the years ended December 31, 2020 or 2019. The intrinsic value of outstanding options at December 31, 2019 was $0.1 million. Note 6: Stockholders’ Equity In April 2020, the Company completed a registered direct offering of securities and sold 1,218,000 shares of common stock at a price of $1.56 per share to institutional investors. Net proceeds of the offering, after placement agent and other fees and expenses paid by the Company, were approximately $1.6 million. As a result of the offering, the exercise price of the 1,845,540 outstanding common stock purchase warrants that were issued in October 2018 was reduced from $6.00 per share to $2.40 per share. The Company accounted for the warrant exercise price adjustment in accordance with ASC Topic 260 and determined that the change in the exercise price resulted in a deemed dividend of $392,000 that increased the net loss attributable to common stockholders for the year ended December 31, 2020. The fair value of the warrants was computed on the date of the modification using the Black-Scholes model. The Company assumed a risk-free interest rate of 1.6%, no dividends, expected volatility of 128%, and an expected warrant life of approximately 3.5 years. 76 Warrants At December 31, 2020, the Company had the following warrants outstanding (share amounts in thousands): Warrant Type Number of Shares Exercise Price Expiration Common stock 33 $ 47.00 January 2023 Common stock 1,846 $ 2.40 October 2023 Note 7: 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. No matching contributions were made by the Company during the years ended December 31, 2020 and 2019. Note 8: Business Segment, 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, investments and accounts receivable. Cash, cash equivalents and investments are deposited with high credit-quality institutions. The Company recognized revenue from licensing of its technologies and shipment of ICs to customers in the following geographical locations (in thousands): Year Ended December 31, 2020 2019 North America $ 5,454 $ 7,585 Japan 675 1,734 Taiwan 459 345 Rest of world 207 422 Total net revenue $ 6,795 $ 10,086 Customers who accounted for at least 10% of total net revenues were: Year Ended December 31, 2020 2019 Customer A 37 % 30 % Customer B 22 % 14 % Customer C 10 % 17 % Customer D 10 % * Customer E * 13 % * Represents percentage less than 10%. Three customers accounted for 86% of net accounts receivable at December 31, 2020. Four customers accounted for 85% of net accounts receivable at December 31, 2019. All net long-lived assets (property and equipment) were held in the United States. 77 Note 9: Commitments and Contingencies Leases Effective January 1, 2019, the Company adopted ASU No. 2016-02, as amended, using the alternative transition method, which allowed the Company to initially apply the new lease standard at the adoption date (the “effective date method”). The Company identified only one lease to be accounted for under ASU No. 2016-02, and this was the operating lease for its corporate facility in San Jose, California, which was entered into in October 2017 and initially expired in October 2020. The right-to-use asset and corresponding liability for the facility lease were measured at the present value of the future minimum lease payments. The discount rate used to measure the lease asset and liability represents the interest rate on the Notes (8%). Lease expense is recognized on a straight line basis over the lease term. The Company had an option to extend the lease for an additional 20.5 month period, but, as the renewal was not reasonably certain, it had not included this renewal option in its accounting for the lease. On September 30, 2020, the Company and the lessor extended the lease for an additional 20.5 month term commencing November 1, 2020. The Company does not have an option to extend the lease term beyond the current extension. The extension was accounted for as a lease modification. The Company assessed the lease classification of the facility lease at the modification date and determined that the facility lease should be accounted for as an operating lease. The right-of-use asset and corresponding operating lease liability have been remeasured based on the present value of remaining lease payments over the remaining extended lease term. The fair value of the right of use asset and corresponding lease obligation was determined to be $352,000 at the date of modification using a discount rate of 8%. Non-lease components are not included in the right-of-use asset and liability and are reflected as expense in the periods incurred. Future minimum payments under the facility lease at December 31, 2020 are listed in the table below (in thousands). Operating Year ended December 31, lease 2021 $ 206 2022 112 Total future lease payments 318 Less: imputed interest (14 ) Present value of lease liabilities $ 304 Year ended December 31, 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for lease $ 220 $ 219 Non-cash activity: Recognition of additional right-of-use asset and liability upon lease modification $ 352 $ - Rent expense was approximately $212,000 for each of the years ended December 31, 2020 and 2019. In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating costs. 78 Indemnification In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising from certain events as outlined within the particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. The Company has also entered into indemnification agreements with its officers and directors. No material amounts were reflected in the Company’s consolidated financial statements for the years ended December 31, 2020 and 2019 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. Product warranties The Company warrants its products to be free of defects generally for a period of three years. The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of net revenues. Warranty costs were not material for the years ended December 31, 2020 and 2019. Note 10: Notes Payable Convertible Notes In March 2016, the Company entered into a 10% Senior Secured Convertible Note Purchase Agreement (the “Purchase Agreement”) with the purchasers of $8,000,000 principal amount of 10% Senior Secured Convertible Notes due August 15, 2018 (the “Notes”), at par, in a private placement transaction effected pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended. Pursuant to amendments to the Notes and related documents in February and October 2018, the interest rate was reduced to 8%, the maturity date of the Notes was extended to August 15, 2023, and the optional conversion price was reduced from $170.00 of Note principal per share of common stock to $11.434 of Note principal per share of common stock. The conversion price is subject to adjustment upon certain events, such as stock splits, reverse stock splits, stock dividends and similar kinds of transactions, as set forth in the Purchase Agreement. Pursuant to a security agreement entered into by the Company, the Notes are secured by a security interest in all of the assets of the Company. Accrued interest is payable semi-annually in cash or in kind through the issuance of identical new Notes, or with a combination of the two, at the Company’s option. The Notes are noncallable and nonredeemable by the Company. The Notes are redeemable at the election of the holders if the Company experiences a fundamental change (as defined in the Notes), which generally would occur in the event (i) any person acquires beneficial ownership of shares of common stock of the Company entitling such person to exercise at least 40% of the total voting power of all of the shares of capital stock of the Company entitled to vote generally in elections of directors, (ii) an acquisition of the Company by another person through a merger or consolidation, or the sale, transfer or lease of all or substantially all of the Company’s assets, or (iii) the Company’s current directors cease to constitute a majority of the board of directors of the Company within a 12-month period, disregarding for this purpose any director who voluntarily resigns as a director or dies while serving as a director. Effective February 18, 2018, pursuant to one amendment to the Notes, the redemption price was reduced from 120% to 100% of the principal amount of the Note to be repurchased plus accrued and unpaid interest as of the redemption date. No Note holder shall be entitled to convert such holder’s Notes if effective upon the applicable conversion date (i) the holder would have beneficial ownership of more than 19.9% of the voting capital stock of the Company as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, (with exceptions specified in the Purchase Agreement), or (ii) if the shares are being acquired or held with a purpose or effect of changing or influencing control of the Company, or in connection with or as a participant in any transaction having that purpose or effect, as determined in the sole discretion of the board of directors of the Company. There is 79 no required sinking fund for the Notes. The Notes have not been registered for resale, and the holder(s) do not have registration rights. The Notes restrict the ability of the Company to incur any indebtedness for borrowed money, unless such indebtedness by its terms is expressly subordinated to the Notes in right of payment and to the security interest of the Note holder(s) in respect to the priority and enforcement of any security interest in property of the Company securing such new debt; provided that the Note holder(s) security interest and cash payment rights under the Notes shall be subordinate to a maximum of $5,000,000 of indebtedness for a secured accounts receivable line of credit facility provided to the Company by a bank or institutional lender; and, provided further, that in no event may the amount of indebtedness to which the security interest of the Note holder(s) is subordinated exceed the outstanding balance of accounts receivable less than 90 days old for which the Company has not recorded an allowance for doubtful accounts pledged under such credit facility. The Notes define an event of default generally as any failure by the Company to pay an amount owed under the Notes when due (subject to cure periods), a default with respect to other indebtedness of the Company resulting in acceleration of such indebtedness, the commencement of bankruptcy or insolvency proceedings, or the cessation of business. If an event of default occurs under the Notes, the holder(s) of a majority-in-interest of the outstanding principal amount of the Notes may declare the outstanding principal amount thereof to be immediately due and payable and pursue all available remedies, including taking possession of the assets of the Company and selling them to pay the amount of debt then due, plus expenses, in accordance with applicable laws and procedures. The Company incurred debt issuance costs of approximately $0.1 million, which were recorded as a debt discount and were amortized to interest expense over the repayment period for the original loan term using the effective interest rate method. As of December 31, 2018, the debt discount was fully amortized. In accordance with the October 2018 amendment to the Notes, the Company used $7.4 million of the proceeds from its public offering of securities effected in October 2018 to repay a portion of the Notes. Semi-annual interest payments have been made in each of February 2019, August 2019, February 2020 and August 2020, for approximately, $78,000, $109,000, $112,000 and $122,000, respectively, in-kind with the issue of additional notes (Interest Notes) to the Purchasers. The Interest Notes have terms identical to the Notes. At December 31, 2020, the Notes and Interest Notes could be converted into a maximum of 271,121 shares of common stock at $11.434 per share, excluding the effects of future payments of interest in-kind. PPP Note On May 7, 2020, the Company entered into a Promissory Note with Wells Fargo Bank, N.A. (the Lender) in an aggregate principal amount of $579,330 (the PPP Note), pursuant to the Paycheck Protection Program (the PPP) under the CARES Act. The term of the PPP Note is two years. Interest will accrue on the outstanding principal balance of the PPP Note at a fixed rate of 1.0%, which shall be deferred for the first ten months of the term of the PPP Note. Monthly payments will be due and payable beginning in October 2021 and continue each month thereafter until maturity of the PPP Note. The Company may prepay principal of the PPP Note at any time in any amount without penalty. The Agreement contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties or provisions of the PPP Note. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining judgment against the Company. The Company may apply to the Lender for forgiveness of the PPP Note, under the terms of the PPP. No assurance is provided that the Company will obtain forgiveness of the PPP Note in whole or in part, but the Company believes it has used the proceeds in accordance with the PPP. If the PPP Note is not forgiven, principal payments will start in 2021. 80 Note 11 : Subsequent Events Warrants Subsequent to December 31, 2020, the Company received a total of $2,478,461 of proceeds from the exercise of 1,032,692 warrants to purchase shares of common stock at a price of $2.40 per share. Financing In February 2021, the Company completed a registered direct offering and sold 1,487,601 shares of common stock at a price of $5.00 per share to institutional investors. Net proceeds of the offering, after placement agent and other fees and expenses payable by the Company, were approximately $6,800,000. Notes Under an agreement with the holder of the Notes, who was also a holder of warrants, in January and February 2021, the Company used $1,473,098 of the proceeds from the Note holder’s warrant exercises to repay a portion of the principal amount of the Notes. In March 2021, the Company repaid in full the remaining principal amount of the Notes. 81