RAMTRON INTERNATIONAL CORP - FORM 10-Q

Attached files

file	filename
EX-32.2 - CFOSECTION 906 CERTIFICATION - RAMTRON INTERNATIONAL CORP	f10q9302010ex32-2.htm
EX-32.1 - CEO SECTION 906CERTIFICATION - RAMTRON INTERNATIONAL CORP	f10q9302010ex32-1.htm
EX-31.1 - CEO SECTION 302 CERTIFICATION - RAMTRON INTERNATIONAL CORP	f10q9302010ex31-1.htm
EX-31.2 - CFO SECTION 302 CERTIFICATION - RAMTRON INTERNATIONAL CORP	f10q9302010ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010

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

For the transition period from _______________ to _______________

Commission File Number: 0-17739

RAMTRON INTERNATIONAL CORPORATION

____________________________________________________________________

(Exact name of registrant as specified in its charter)

Delaware	84-0962308
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1850 Ramtron Drive, Colorado Springs, CO	80921
(Address of principal executive offices)	(Zip Code)

(Registrant's telephone number, including area code: (719) 481-7000

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b2 of the Exchange Act.

Large accelerated filer o Accelerated filer o

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

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

Indicate the number of shares of the issuer's outstanding common stock, as of the latest practicable date:

27,433,060 shares	As of November 3, 2010
Common Stock, $0.01 par value

Table of Contents

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1 -	Financial Statements:	Page

	Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009	3
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months ended September 30, 2010 and 2009	4
	Consolidated Statement of Stockholders' Equity for the Nine Months ended September 30, 2010	5
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2010 and 2009	6
	Notes to Financial Statements	7

Item 2 -	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 4 -	Controls and Procedures	25

PART II - OTHER INFORMATION

Item 1-	Legal Proceedings	26

Item 1A -	Risk Factors	26

Item 6 -	Exhibits	34

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

(Amounts in thousands, except par value and share amounts)

	September 30, 2010			December 31, 2009
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	13,243		$	7,541
Accounts receivable, less allowances of $1,563 and $811, respectively		10,745			7,979
Inventories		5,771			6,838
Deferred income taxes, net		305			294
Other current assets		1,908			1,360
Total current assets		31,972			24,012

Property, plant and equipment, net		18,350			15,341
Intangible assets, net		2,717			2,800
Long-term deferred income taxes, net		4,828			5,499
Other assets		400			263
Total assets	$	58,267		$	47,915

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	6,339		$	5,275
Accrued liabilities		3,157			1,759
Deferred revenue		645			645
Current portion of long-term debt		3,323			1,341
Total current liabilities		13,464			9,020
Deferred revenue		86			564
Long-term debt, less current portion		9,654			5,873
Total liabilities		23,204			15,457

Contingencies (Note 6)

Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized: 0 shares issued and outstanding		--			--
Common stock, $.01 par value, 50,000,000 shares authorized: 27,399,837 and 27,190,152 shares issued, respectively and 27,399,837 and 27,169,587 shares outstanding, respectively		274			272
Additional paid-in capital		252,807			251,287
Accumulated other comprehensive loss		(335	)		(304	)
Accumulated deficit		(217,683	)		(218,797	)
Total stockholders' equity		35,063			32,458
Total liabilities and stockholders' equity	$	58,267		$	47,915

See accompanying notes to consolidated financial statements.

Table of Contents

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(Unaudited)

(Amounts in thousands, except per share amounts)

	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009			Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2009
Revenue:
Product sales	$	19,678		$	11,297		$	53,469		$	31,910
License and development fees		179			179			538			538
Royalties		25			70			67			570
Customer-sponsored research and development		--			50			--			100
		19,882			11,596			54,074			33,118
Costs and expenses:
Cost of product sales		9,370			5,297			26,186			16,346
Research and development		4,895			2,982			12,705			7,955
Customer-sponsored research and development		--			52			--			112
General and administrative		1,941			1,213			5,614			4,182
Sales and marketing		2,478			1,733			6,770			5,433
Restructuring expense		--			40			--			827
Impairment charge		--			--			--			5,372
		18,684			11,317			51,275			40,227
Operating income (loss)		1,198			279			2,799			(7,109	)
Interest expense		(250	)		(92	)		(578	)		(257	)
Other income (expense), net		(385	)		51			(406	)		237
Income (loss) before income tax (provision) benefit		563			238			1,815			(7,129	)
Income tax (provision) benefit		(221	)		(107	)		(701	)		547
Net income (loss)	$	342		$	131		$	1,114		$	(6,582	)

Other comprehensive loss, net of tax:
Foreign currency translation adjustments		(7	)		(24	)		(31	)		(233	)
Comprehensive income (loss)	$	335		$	107		$	1,083		$	(6,815	)

Net income (loss) per common share:
Basic and diluted:	$	0.01		$	0.01		$	0.04		$	(0.24	)
Weighted average common shares outstanding:
Basic		27,100			26,841			27,056			26,840
Diluted		28,364			26,975			27,932			26,840

See accompanying notes to consolidated financial statements.

Table of Contents

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(in thousands, except par value amounts)

(Unaudited)

	Common Stock
	($.01 Par Value)
	Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive (Loss)			Accumulated Deficit			Stockholders' Equity

Balances, December 31, 2009		27,170	$	272	$	251,287	$	(304	)	$	(218,797	)	$	32,458
Exercise of options		131		1		284		--			--			285
Stock-based compensation expense		--		--		1,236		--			--			1,236
Issuance of restricted stock		99		1		--		--			--			1
Foreign currency translation adjustments		--		--		--		(31	)		--			(31	)
Net income		--		--		--		--			1,114			1,114
Balances, September 30, 2010		27,400	$	274	$	252,807	$	(335	)	$	(217,683	)	$	35,063

See accompanying notes to consolidated financial statements.

Table of Contents

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(Unaudited)

(Amounts in thousands)

	September 30, 2010			September 30, 2009

Cash flows from operating activities:
Net income (loss)	$	1,114		$	(6,582	)
Adjustments used to reconcile net income to net cash used in operating activities:
Depreciation		1,358			1,374
Amortization		188			233
Net loss (gain) from asset disposition		398			(69	)
Stock-based compensation		1,236			1,090
Deferred income taxes		660			(590	)
Impairment charge		--			5,372
Imputed interest on note payable		33			42
Provision for inventory write-off, warranty charge, and scrap		1,014			456
Bad debt recovery		(111	)		--

Changes in assets and liabilities:
Accounts receivable		(2,655	)		2,604
Inventories		53			1,274
Accounts payable and accrued liabilities		3,614			(2,127	)
Deferred revenue		(478	)		(483	)
Other		(686	)		(1	)
Net cash provided by operating activities		5,738			2,593

Cash flows from investing activities:
Purchase of property, plant and equipment		(4,520	)		(7,269	)
Proceeds from insurance and sale of assets		4			87
Purchase of intellectual property		(105	)		(45	)
Net cash used in investing activities		(4,621	)		(7,227	)

Cash flows from financing activities:
Proceeds from line of credit		2,000			--
Payments on line of credit		(2,000	)		--
Proceeds from term loan		6,000			--
Principal payments on debt		(1,670	)		(457	)
Issuance of common stock		285			6
Net cash (used) provided by financing activities		4,615			(451	)

Net increase (decrease) in cash and cash equivalents		5,732			(5,085	)
Effect of foreign currency		(30	)		(79	)
Cash and cash equivalents, beginning of period		7,541			9,900
Cash and cash equivalents, end of period	$	13,243		$	4,736

Supplemental disclosure of cash flow information:
Cash paid for interest	$	541		$	264
Cash paid for income taxes	$	69		$	66
Property, plant and equipment financed by capital leases	$	1,400		$	2,201

See accompanying notes to consolidated financial statements.

Table of Contents

RAMTRON INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business. We are a fabless semiconductor company that designs, develops and markets specialized semiconductor memory, microcontrollers, and integrated semiconductor solutions, used in many markets for a wide range of applications. We pioneered the integration of ferroelectric materials into semiconductor products, which enabled the development of a new class of nonvolatile memory, called ferroelectric random access memory (F-RAM). F-RAM products merge the advantages of multiple memory technologies into a single device that retains information without a power source, can be read from and written to at very fast speeds, written to many times, consumes low amounts of power, and can simplify the design of electronic systems. In many cases, we are the sole provider of F-RAM enabled semiconductor products, which facilitates close customer relationships, long application lifecycles and the potential for high-margin sales.

We also integrate wireless communication capabilities as well as analog and mixed-signal functions such as microprocessor supervision, tamper detection, timekeeping, and power failure detection into our devices. This has enabled new classes of products that address the growing market need for more functional, efficient and cost effective semiconductor products.

Our revenue is derived from the sale of our products and from license and development arrangements entered into with a limited number of established semiconductor manufacturers involving the development of specific applications of the Company's technologies. Other revenue is generated from customer-sponsored research and development. Product sales have been made to various customers for use in a variety of applications including utility meters, office equipment, automobiles, electronics, telecommunications, disk array controllers, and industrial control devices, among others.

NOTE 2. BASIS OF PRESENTATION

The accompanying unaudited, interim consolidated financial statements at September 30, 2010 and for the three and nine months ended September 30, 2010 and 2009, and the audited balance sheet at December 31, 2009 have been prepared from the books and records of Ramtron International Corporation (the "Company," "we," "our," or "us").

The preparation of our consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires us to make estimates and judgments that affect the amounts reported in our financial statements and accompanying notes. Examples include the estimate of useful lives of our property, plant and equipment, and intellectual property costs, valuation allowances associated with our deferred tax assets, bad debts, inventories, valuation allowance for sales returns associated primarily with our sales to distributors, fair value estimates used in our intangible asset impairment tests, and the valuation of stock-based compensation. The statements reflect all normal recurring adjustments, which, in the opinion of the Company's management, are necessary for the fair presentation of financial position, results of operations and cash flows for the periods presented.

The accompanying financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 2009, which includes all disclosures required by GAAP. The results of operations for the period ended September 30, 2010 are not necessarily indicative of expected operating results for the full year.

Certain amounts reported in prior periods have been reclassified to conform to the current presentation.

Table of Contents

NOTE 3. INVENTORIES

Inventories consist of:

(in thousands)	September 30, 2010		December 31, 2009

Finished goods	$	1,392	$	2,147
Work in process		4,379		4,691
	$	5,771	$	6,838

NOTE 4. INTANGIBLE ASSETS

Intangible assets consist of:

(in thousands)	September 30, 2010			December 31, 2009

Patents	$	6,290		$	6,185
Accumulated amortization		(3,573	)		(3,385	)
Intangible assets, net	$	2,717		$	2,800

Long-lived assets, including property, plant and equipment and finite-lived intangible assets, are tested for recoverability whenever events indicate the carrying amount may not be recoverable.

Based upon the results of an impairment analysis performed as of March 1, 2009, we recorded an impairment charge for intangible assets and selected equipment located at our Montreal design center as follows:

	(in thousands)

Intangible assets	$	3,317
Property, plant and equipment		130
Total	$	3,447

We also tested goodwill for impairment on March 1, 2009. Based on the analysis we performed, there was no remaining implied value attributable to goodwill and accordingly, we recognized goodwill impairment charges of approximately $1.925 million in the first quarter of 2009.

(in thousands)

Description

Carrying Value as of March 1, 2009 (date our impairment testing performed)

Level 1: Quoted Prices in Active Markets for Identical Assets

Level 2: Significant Other Observable Inputs

Level 3: Significant Unobservable Inputs

Total Impairment Charges for Year Ended December 31, 2009

Intangible assets

3,317

Net property, plant and equipment

130

Goodwill

1,925

Total

5,372

______________

x = Inputs used in the Company's fair value analysis

Table of Contents

Amortization expense for intangible assets was $63,000 and $61,000 for the quarters ended September 30, 2010 and 2009, respectively. Estimated amortization expense for intangible assets is $250,000 annually for the years ending 2010 through 2014 and a total of $1.7 million thereafter.

NOTE 5. SIGNIFICANT CUSTOMERS

For the year to date and period ended September 30, 2010 and December 31, 2009, sales, accounts receivable and customer specific inventory for our largest direct customer are detailed as follows:

	Percentage of Company Total
	September 30, 2010	December 31, 2009

Sales	6%	11%
Accounts receivable	7%	28%
Inventory	4%	19%

NOTE 6. CONTINGENCIES

Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patents and other intellectual property rights. We cannot be certain that third parties will not make a claim of infringement against us or against our semiconductor company licensees in connection with their use of our technology. Any claims, even those without merit, could be time consuming to defend, result in costly litigation and diversion of technical and management personnel, or require us to enter into royalty or licensing agreements. These royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us or one of its semiconductor manufacturing licensees in connection with use of our technology could materially impact the Company's results of operations.

The Company received a summons by the trustee in the bankruptcy of Finmek S.p.A. and its affiliates (Finmek) to appear before the Padua, Italy court overseeing the bankruptcy. The claims of the trustee in the bankruptcy are that payments totaling approximately $2.8 million made to the Company for products shipped to Finmek prior to its bankruptcy filing in May 2004 are recoverable based on an alleged awareness of the Finmek affiliates' insolvency at the time the payments were made. The first hearing in the Finmek cases was to be held in January 2010 and at the request of both parties, the hearing was moved to April 2011 and May 2011. We intend to vigorously contest the trustee's claims. We are unable to estimate a range of possible losses, if any, which we may incur as result of the trustee's claims, and we have not recorded any expense or liability in the consolidated financial statements as of September 30, 2010.

The Company is involved in other legal matters in the ordinary course of business. Although the outcomes of any such legal actions cannot be predicted, management believes that there are no pending legal proceedings against or involving the Company for which the outcome would likely to have a material adverse effect upon the Company's financial position or results of operations.

NOTE 7. LONG-TERM DEBT

(in thousands)	September 30, 2010			December 31, 2009

Long-term debt:
Capital leases	$	3,041		$	2,582
National Semiconductor promissory note		687			904
Mortgage note		3,624			3,728
Term loan		5,625			--
		12,977			7,214

Long-term debt current maturities		(3,323	)		(1,341	)
Long-term debt less total current portion	$	9,654		$	5,873

Table of Contents

On August 18, 2009, we executed an Amended and Restated Loan and Security Agreement ("Amended Loan Agreement") with Silicon Valley Bank ("SVB"). The Amended Loan Agreement provides for a $6 million working capital line of credit with a $1.75 million sublimit for EXIM (Export-Import Bank qualified receivables) advances, $1.5 million sublimit for foreign accounts receivable, and a sublimit of $3 million for letters of credit and foreign exchange exposure and cash management services. The Amended Loan Agreement replaces our Amended and Restated Loan and Security Agreement dated September 15, 2005. The Amended Loan Agreement provides for interest at a floating rate equal to the SVB prime lending rate plus 1.75% to 2.25% per annum depending upon cash balances and loan availability maintained at SVB. The term is two years expiring on August 18, 2011, with a commitment fee of $40,000 paid at signing and $40,000 on the first anniversary. There is also a .375% unused line fee, payable monthly in arrears. Security for the Amended Loan Agreement includes all of the Company's assets except for real estate and leased equipment. The related borrowing base is comprised of the Company's trade receivables. We plan to draw upon our line of credit facility for working capital purposes as required. The net availability under our secured line of credit facility as of September 30, 2010 was $3.4 million reflecting letters of credit outstanding, cash management services sub limits, and ineligible accounts. As of September 30, 2010, we had no amount outstanding on the secured line of credit facility.

On August 18, 2009, we also entered into an Amended and Restated Intellectual Property Security Agreement with SVB that secures our obligations under the Amended Loan Agreement by granting SVB a security interest in all of our right, title and interest in, to and under its intellectual property.

On February 26, 2010, SVB approved an increase of $1.9 million over the sublimit for our eligible foreign accounts receivable from $1.5 million to $3.4 million based on our obtaining foreign account receivable credit insurance. We obtained this insurance with an effective date of November 1, 2009 and have renewed this policy that will expire in November 2011.

On June 28, 2010, we executed a Second Amendment ("Amendment") to the Company's Amended and Restated Loan and Security Agreement dated August 18, 2009, as amended, with SVB. The Amendment provides for a $6 million term loan with a fixed interest rate of 6.5% per annum. The term of the loan is four years with monthly payments of equal principal of $125,000 per month plus accrued interest. We paid a one time commitment fee of $60,000 at signing. We plan to use the proceeds from our term loan facility for working capital and to fund our capital requirements.

We are required to comply with certain covenants under the loan agreement, including minimum fixed charge coverage ratios measured quarterly and minimum quick ratio measured monthly. We were in compliance with all of our debt covenants under the loan agreement as of September 30, 2010.

We entered into three capital leases during 2009 totaling approximately $2.9 million with terms between two and three years with effective interest rates of approximately 10%. We have obtained standby letters of credit in favor of two of the three lessors for approximately $1.2 million.

In March 2010, we entered into a capital lease for $1.4 million with a 30-month term and an effective interest rate of 9%. We obtained a standby letter of credit in favor of the lessor for $700,000.

In April 2004, we entered into a patent interference settlement agreement with National Semiconductor Corporation. The Company is required to pay National Semiconductor Corporation $250,000 annually through 2013. As of September 30, 2010, the present value of this promissory note is $687,000. We discounted the note at 5.75%.

On December 15, 2005, the Company, through its subsidiary, Ramtron LLC, for which Ramtron International Corporation serves as sole member and sole manager, closed on its mortgage loan facility with American National Insurance Company. Ramtron LLC entered into a promissory note evidencing the loan with the principal amount of $4,200,000, with a maturity date of January 1, 2016, bearing interest at 6.17%. We are obligated to make monthly principal and interest payments of $30,500 until January 2016 and a balloon payment of $2,757,000 in January 2016. Ramtron LLC also entered into an agreement for the benefit of American National Insurance Company securing our real estate as collateral for the mortgage loan facility.

Table of Contents

Payments on our outstanding promissory notes and leases are as follows as of September 30, 2010:

(in thousands)	2010	2011	2012	2013	2014	Thereafter	Total

Promissory notes	$411	$1,858	$1,890	$1,915	$929	$2,933	$9,936
Capital leases	439	1,578	1,338	--	--	--	3,355
Less amount representing interest on the capital leases							(314)
Total debt							$12,977

The carrying amounts and estimated fair values of our long-term debt, which are our only material financial instruments, are as follows:

	September 30, 2010				December 31, 2009
(in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Term loan	$	5,625	$	5,616		--		--
Capital leases		3,041		3,129	$	2,582	$	2,582
National Semiconductor promissory note		687		674		904		879
Mortgage note		3,624		3,531		3,728		3,571
	$	12,977	$	12,950	$	7,214	$	7,032

The above fair values were estimated based on discounted future cash flows. Differences from carrying amounts are attributable to interest rate changes subsequent to when the transactions occurred.

NOTE 8. STOCK-BASED COMPENSATION

Stock-based Compensation Plans

We have one active stock option plan: the 2005 Incentive Award Plan (the "2005 Plan"). The expired 1995 Stock Option Plan and 1999 Stock Option Plan, as amended, are only relevant to grants outstanding under these plans or in respect of the 1995 Stock Option Plan, forfeitures that increase the available shares under the 2005 Plan. The 2005 Plan reserves a total of 6,603,544 shares of our common stock for issuance. In November 2009, the reserve under the 2005 Plan was increased by 1,603,544 shares of common stock. The additional shares were previously available for issuance under our 1995 Stock Option Plan, as such shares had not been issued, or were subject to awards under the 1995 Plan that had expired, were forfeited or became unexercisable for any reason, and were carried forward to and included in the reserve of shares available for issuance pursuant to the 2005 Plan in accordance with the terms of the 2005 Plan. The exercise price of all non-qualified stock options must be no less than 100% of the Fair Market Value on the effective date of the grant in 2005 Plans. The maximum term of each grant is ten years under the 2005 Plan. The 2005 Plan permits the issuance of incentive stock options, the issuance of restricted stock, and other types of awards. Restricted stock grants generally vest one to three years from the date of grant. Option grants generally vest over a term four years from the date of grant in equal annual installments. No exercise price or cash payment is required for the release of the restricted stock. The fair market value of the Company's common stock at the time of grant is amortized to expense on a straight-line basis over the vesting period. Options granted become exercisable in full or in installments pursuant to the terms of each agreement evidencing options granted. Restricted stock units represent rights to receive shares of common stock at a future date. No exercise price or cash payment is required for receipt of restricted stock units or the shares issued in settlement of the award. The fair market value of the Company's common stock at the time of the grant is amortized to expense on a straight-line basis over the vesting period. The exercise of stock options and issue of restricted stock and restricted stock units is satisfied by issuing authorized unissued common stock or treasury stock. As of September 30, 2010, we had not granted any incentive stock options.

Table of Contents

The number of shares available for future grant under the 2005 Plan was 1,507,188 as of September 30, 2010.

Total stock-based compensation recognized in our consolidated statement of income was as follows:

(in thousands)	Three Months Ended September 30, 2010		Three Months Ended September 30, 2009		Nine Months Ended September 30, 2010		Nine Months Ended September 30, 2009

Income Statement Classifications:
Cost of Sales	$	26	$	23	$	77	$	50
Research and development		92		80		272		230
Sales and marketing		67		54		194		161
General and administrative		232		219		693		649
Total	$	417	$	376	$	1,236	$	1,090

Stock Options

As of September 30, 2010, there was approximately $1.5 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested options granted to our employees and directors, which will be recognized over a weighted-average period of 2 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

For grants issued during 2010, the fair value of stock options was estimated at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions. Expected volatility was estimated based on the historical volatility of our stock over the past 6 years, which was the approximate expected term of our options and a fair indicator of future exercises. We based the risk-free interest rate that we use in the option valuation model on U.S. Treasury Notes with remaining terms similar to the expected terms on the options. Forfeitures are estimated at the time of grant based upon historical experience. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model.

The assumptions used to value option grants for the three and nine months ended September 30, 2010 and September 30, 2009 are as follows:

	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

Risk free interest rate	1.5%	2.5%	2.2%	2.7%
Expected dividend yield	0%	0%	0%	0%
Expected term (in years)	6.5 yrs	6 yrs	6.25 yrs	6 yrs
Expected volatility	66%	68%	67%	68%

The weighted average fair value per share of shares granted during the nine months ended September 30, 2010 and 2009 were $2.13 and $0.98, respectively.

Table of Contents

The following table summarizes stock option activity related to our plans for the nine months ended September 30, 2010:

	Number of Stock Options			Weighted Average Exercise Price Per Share
	(in thousands)

Outstanding at December 31, 2009		5,864		$	3.23
Granted		498		$	2.04
Forfeited		--
Exercised		(131	)	$	2.18
Expired		(169	)	$	7.69
Outstanding at September 30, 2010		6,062		$	3.03

The intrinsic value of the outstanding options at September 30, 2010 was $5.3 million and was calculated as the difference between the market value as of September 30, 2010 and the exercise price of the options. The closing market value as of September 30, 2010 was $3.70 as reported by the Nasdaq Global Market.

Cash received from option exercises for the nine months ended September 30, 2010 was $285,000. A tax benefit of $125,000 may be realized for the tax deduction from option exercises at some time in the future depending upon our utilization of existing net operating losses.

Restricted Stock

As of September 30, 2010, there was approximately $306,000 of unrecognized compensation cost related to non-vested restricted shares, which will be recognized over a weighted-average period of 1.6 years.

A summary of non-vested restricted shares during the nine months ended September 30, 2010 are as follows:

	Number of Restricted Shares			Weighted Average Grant Date Fair Value Per Share
	(in thousands)

Outstanding at December 31, 2009		232		$	1.51
Granted		99		$	1.97
Forfeited		--
Vested/Released		(50	)	$	1.85
Outstanding at September 30, 2010		281		$	1.61

Restricted Stock Units

A summary of the Company's restricted stock units as of September 30, 2010 are as follows:

(in thousands)	Number of Restricted Units	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value

Outstanding at December 31, 2009	232
Grants	--
Forfeited	--
Vested/Released	--
Outstanding at September 30, 2010	232	1.1	$858

Table of Contents

As of September 30, 2010, there was approximately $248,000 remaining in unrecognized compensation cost related to unvested outstanding restricted stock units with a weighted-average period of 1.9 years.

NOTE 9. INCOME TAXES

The Company accounts for income taxes using the asset and liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses and tax credit carryforwards.

A valuation allowance is required to the extent it is more likely than not that a deferred tax asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment.

For the nine months ended September 30, 2010, the Company recorded a $701,000 income tax provision. The provision recorded was a non-cash transaction.

For the nine months ended September 30, 2010, the Company's effective rate was approximately 39% as the Company's non-deductible items had a minimal impact to the effective rate.

Any significant increase or reduction in estimated future taxable income may require the Company to record additional adjustments to the valuation allowance against the remaining deferred tax assets. Any increase or decrease in the valuation allowance would result in additional or lower income tax expense in such period and could have a significant impact on the period's earnings.

NOTE 10. EARNINGS PER SHARE

Basic net income (loss) per share is computed by dividing reported net income (loss) available to common stockholders by weighted average shares outstanding. Diluted net income per share reflects the potential dilution assuming the issuance of common shares for all dilutive potential common shares outstanding during the period.

Table of Contents

The following table sets forth the calculation of net income (loss) per common share for the three and nine months ended September 30, 2010 and 2009:

(in thousands, except per share amounts)	Three Months Ended September 30, 2010			Three Months Ended September 30, 2009			Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2009

Net income (loss)	$	342		$	131		$	1,114		$	(6,582	)

Common shares outstanding:
Historical common shares outstanding at beginning of period		27,357			27,738			27,170			27,688
Less: Non-vested restricted stock at beginning of period		(282	)		(898	)		(232	)		(848	)
Weighted average common shares issued during period		25			1			118			--
Weighted average common shares at end of period - basic		27,100			26,841			27,056			26,840

Effect of other dilutive securities:
Options		937			--			606			--
Restricted stock		327			134			270			--
Weighted average common shares at end of period - diluted		28,364			26,975			27,932			26,840
Net income (loss) per share:
- basic and diluted	$	0.01		$	0.01		$	0.04		$	(0.24	)

As of September 30, 2010 and 2009, we had several equity instruments or obligations that could create future dilution to the Company's common stockholders and are not currently classified as outstanding common shares of the Company. The following table details the shares of common stock that are excluded from the calculation of earnings per share (prior to the application of the treasury stock method) due to their impact being anti-dilutive:

(in thousands)	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

Options	2,810	5,775	3,398	5,775
Restricted stock/units	--	866	--	953

NOTE 11. SEGMENT INFORMATION

Our continuing operations are conducted through one business segment. Our business develops, manufactures and sells ferroelectric nonvolatile random access memory products, microcontrollers, integrated products, and licenses the technology related to such products.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto and other financial data included elsewhere herein. Certain statements under this caption constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, and, as such, are based on current expectations and are subject to certain risks and uncertainties. You should not place undue reliance on these forward-looking statements for many reasons including those risks discussed under Part II- Item 1A "Risk Factors," and elsewhere in our Quarterly Report on Form 10-Q, and in our Annual Report on Form 10-K for the year ended December 31, 2009. Forward-looking statements may be identified by the use of forward-looking words or phrases such as "will," "may," "believe," "expect," "intend," "anticipate," "could," "should," "plan," "estimate," and "potential," or other similar words.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Significant Estimates. The preparation of our consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires us to make estimates and judgments that affect the amounts reported in our financial statements and accompanying notes. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we re-evaluate our judgments and estimates including those related to bad debts and sales returns and allowances, inventories, long-lived assets, intangible assets, income taxes, accrued expenses, stock compensation accruals, and other contingencies. We base our estimates and judgments on our historical experience, market trends, financial forecasts and projections and on other assumptions that we believe are reasonable under the circumstances, and apply them on a consistent basis. Any factual errors or errors in these estimates and judgments may have a material impact on our financial condition and operating results.

Recognition of Revenue. Revenue from product sales to direct customers and distributors is recognized upon shipment as we generally do not have any post-shipment obligations or allow for any acceptance provisions. In the event a situation occurs to create a post-shipment obligation, we would defer revenue recognition until the specific obligation was satisfied. We defer recognition of sales to distributors when we are unable to make a reasonable estimate of product returns due to insufficient historical product return information. The revenue recorded is dependent upon estimates of expected customer returns and sales discounts based upon both historical data and management estimates.

Revenue from licensing programs is recognized over the period we are required to provide services under the terms of the agreement. Revenue from research and development activities that are funded by customers is recognized as the services are performed. Revenue from royalties is recognized upon the notification to us of shipment of product from our technology license partners to direct customers.

Inventory Valuation/Scrap. We write-down our inventory, with a resulting increase in our scrap expense, for estimated obsolescence or lack of marketability for the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Allowance for Doubtful Accounts and Returns. We seek to maintain a stringent credit approval process although our management must make significant judgments in assessing our customers' ability to pay at the time of shipment. Despite this assessment, from time to time, customers are unable to meet their payment obligations. If we are aware of a customer's inability to meet its financial obligations to us, we record an allowance to reduce the receivable to the amount we believe we will be able to collect from the customer. For all other customers, we record an allowance based upon the amount of time the receivables are past due and collection attempts. If actual accounts receivable collections differ from these estimates, an adjustment to the allowance may be necessary with a resulting effect on operating expense. We continue to monitor customers' credit worthiness, and use judgment in establishing the estimated amounts of customer receivables which will ultimately not be collected.

Table of Contents

An allowance for sales returns and allowance is established based on historical and current trends in product returns and customer rebates. Our distributors have a right to return products under certain conditions. We recognize revenue on shipments to distributors at the time of shipment, along with a reserve for estimated returns based on historical data and future estimates. Also, certain distributors are granted rebates if specific end customers purchase our products. At September 30, 2010 and December 30, 2009, the Company's reserve for sales returns and allowances was $1.6 million and $800,000, respectively. The increase in allowance from December 31, 2009 is primarily due to a new rebate program in our Asia Pacific region.

Deferred Income Taxes. As part of the process of preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to estimate our income taxes on a consolidated basis. We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the consolidated financial statements, and for operating loss and tax credit carryforwards. Realization of the recorded deferred tax assets depends upon the generation of sufficient taxable income in future years to obtain benefit from the reversal of net deductible temporary differences and from tax credit and operating loss carryforwards. A valuation allowance is provided to the extent that management deems it more likely than not that the net deferred tax assets will not be realized. The amount of deferred tax assets considered realizable is subject to adjustment up or down in future periods if estimates of future taxable income are changed. Future adjustments could materially affect our financial results as reported in conformity with accounting principles generally accepted in the United States of America and, among other effects, could cause us not to achieve our projected results.

In assessing the potential to realize our deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced if estimates of future taxable income during the carryforward period are reduced.

Long-lived Assets. We review the carrying values of long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Under current standards, the assets must be carried at historical cost if the projected cash flows from their use will recover their carrying amounts on an undiscounted basis and without considering interest. However, if projected cash flows are less than their carrying value, the long-lived assets must be reduced to their estimated fair value. Considerable judgment is required to project such cash flows and, if required, estimate the fair value of the impaired long-lived asset. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance and may differ from actual cash flows. There can be no assurance that future long-lived asset impairments will not occur.

Share-based Payment Assumptions. We estimate volatility, forfeitures, and expected term of our options granted based upon historical data. All of these variables have an effect on the estimated fair value of our share-based awards.

RESULTS OF OPERATIONS

Overview

We are a fabless semiconductor company that designs, develops and markets specialized semiconductor memory, microcontrollers, and integrated semiconductor solutions, used in many markets for a wide range of applications. We pioneered the integration of ferroelectric materials into semiconductor products, which enabled the development of a new class of nonvolatile memory, called ferroelectric random access memory (F-RAM). F-RAM products merge the advantages of multiple memory technologies into a single device that retains information without a power source, can be read from and written to at very fast speeds, written to many times, consumes low amounts of power, and can simplify the design of electronic systems. In many cases, we are the sole provider of F-RAM enabled semiconductor products, which facilitates close customer relationships, long application lifecycles and the potential for higher-margin sales.

Table of Contents

Product Highlights for the Quarter Ended September 30, 2010

We announced the availability of commercial samples of our F-RAM enabled MaxArias™ wireless memory devices. The MaxArias wireless memory products combine the low power, high speed, and high endurance features of nonvolatile F-RAM memory technology with industry standard wireless access to enable innovative mobile data collection capabilities and are ideal for a wide range of applications such as high-value asset tracking, manufacturing and maintenance history collection, and smart utility metering, among others.

Financial Highlights for the Three Months Ended September 30, 2010

•	Total revenue in for the three months ended September 30, 2010 was $19.9 million, which was an increase of 71% from $11.6 million in the three months ended September 30, 2009.
•	Net income was $342,000, or $0.01 per share, for the three months ended September 30, 2010, compared with net income of $131,000, or $0.01 per share, for the three months ended September 30, 2009.
•	Product gross margin for the three months ended September 30, 2010 was 52%, which was 1% lower than a gross margin of 53% for the three months ended September 30, 2009.
•	Product revenue was $19.7 million for the three months ended September 30, 2010, which was 74% higher than product revenue of $11.3 million for the three months ended September 30, 2009.
•	Integrated product revenue grew to $3.4 million, or 17% of F-RAM product revenue, during the third quarter of 2010, compared with $2.6 million, or 23% of F-RAM revenue, for the third quarter of 2009.

Financial Highlights for the Nine Months Ended September 30, 2010

•	Total revenue for the nine months ended September 30, 2010 was $54.1 million, which was an increase of 63% from $33.1 million in the nine months ended September 30, 2009.
•	Net income was $1.1 million or $0.04 per share, for the nine months ended September 30, 2010, compared with net loss of $(6.6) million, or $(0.24) per share, for the nine months ended September 30, 2009. The results for 2009 included $6.2 million of impairment charges and restructuring expenses.
•	Product gross margin for the nine months ended September 30, 2010 was 51%, which was 2% higher than a gross margin of 49% for the nine months ended September 30, 2009.
•	Product revenue was $53.5 million for the nine months ended September 30, 2010, which was 67% higher than product revenue of $31.9 million for the nine months ended September 30, 2009.
•	Integrated product revenue grew to $10.4 million, or 19% of F-RAM product revenue in the nine months ended September 30, 2010, compared with $8.5 million, or 26% of F-RAM revenue in the nine months ended September 30, 2009.

Table of Contents

Business Outlook for Remainder of 2010

•	With our strong third-quarter results and our present visibility for the remainder of the year, we continue to expect our annual revenue to be within the range of our guidance of $69 million and $73 million.
•	We expect 2010 GAAP net income to be between 2% to 3.5% of total revenue.
•	We are entering the final stages of our IBM foundry transition and are working to improve product wafer yields, bring up additional manufacturing capacity at Texas Instruments and introduce new products to drive our future growth over the next two quarters.
•	We continue to transition from our remaining Fujitsu inventory to products built by Texas Instruments and to products from our anticipated supply from IBM. Due to higher than anticipated demand for our products during 2010, we are experiencing shortages on certain Fujitsu supplied devices as we work to bring up capacity at our alternative foundry sources. If IBM’s supply of products is delayed or we are not able to obtain sufficient products from Texas Instruments, we may not be able to fill certain customer orders.

PERIOD COMPARISONS FOR THE

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

Revenue
(in thousands, except average selling price)	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

Product sales	$19,678	$11,297	$53,469	$31,910
% change compared to prior period	74%		67%
Units shipped	16,962	14,167	55,996	38,546
% change compared to prior period	20%		45%
Average selling price	$1.16	$0.80	$0.95	$0.83
% change compared to prior period	45%		14%
Other revenue	$204	$299	$605	$1,208
% change compared to prior period	(32%)		(50%)
Total revenue	$19,882	$11,596	54,074	$33,118
% change compared to prior period	71%		63%

Three Months:

Product revenue increased $8.4 million, or 74%, for the three months ended September 30, 2010 compared to the prior year period. This increase was due to a 2.8 million increase in unit shipments coupled with a 45% increase in the average selling price (ASP), which was driven by the improved world-wide economy and an overall increase in demand for our products across all product lines. Our increase in ASP was due primarily to a decrease in lower priced and lower margin custom product sales to select customers. The increase was also driven by increased sales of higher ASP high-density memory products.

Other revenue, consisting of license and development fees and royalty income, was $204,000, which was a decrease of $95,000 from 2009. This decrease was due primarily to reductions in royalties and customer-sponsored research and development. The amount of other revenue for the quarter ended September 30, 2010 is indicative of expected future royalty amounts.

Table of Contents

Nine Months:

Product revenue increased $21.6 million, or 67%, for the nine months September 30, 2010 compared to the same period last year. This increase was due to a 17.4 million increase in unit shipments coupled with a 14% increase in our ASP, which was driven by the improved world-wide economy and an overall increase in demand for our products across all product lines.

Other revenue, consisting of license and development fees and royalty income, was $605,000, which was a decrease of $603,000 from 2009. This decrease was due to settlement of past due royalties from one customer during the prior year period, coupled with royalty agreements expiring on certain products in the prior year period. We expect our other revenue to continue at the 2010 reduced level.

Cost of Product Sales
(in thousands)	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

Cost of product sales	$9,370	$5,297	$26,186	$16,346
Gross margin percentage	52%	53%	51%	49%

Three Months:

Cost of product sales was $9.4 million, which was an increase of $4.1 million from the same period in 2009. This increase was due to an $8.4 million increase in product sales. Gross product margin decreased to 52%, compared with 53% for the same period last year. The decrease in product gross margin was due primarily to the strengthening of the Japanese Yen compared to the prior quarter, which increased the cost of manufacturing material we purchased in Yen. The decrease was also due in part to an obsolescence write-off in the current quarter. The decrease in product gross margin was offset by reduced sales of lower margin custom product sales to select customers.

Nine Months:

Cost of product sales was $26.2 million, which was an increase of $9.8 million from 2009. This increase was due to a $21.6 million increase in product sales. Product gross margin increased by 2% to 51%, compared with 49% for the same period last year. The product gross margin increase was primarily due to favorable fixed overhead variances compared to the prior nine-month period based upon increased production volumes.

Research and Development Expense
(in thousands)	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

Research and development expense (including customer-sponsored research and development)	$4,895	$3,034	$12,705	$8,067
Percent of total revenue	25%	26%	24%	24%

Table of Contents

Three Months:

Research and development expense was $4.9 million, which was an increase of $1.9 million from the same period in 2009. This increase was due primarily to increased engineering processing support expenses of $900,000 in connection with our IBM foundry project. Salary related expenses also increased by approximately $500,000 due to increased headcount and the use of outside contractors for new product development efforts, combined with a reinstatement of salaries that were reduced as a result of the March 2009 restructuring. Management and employee variable compensation accruals were made during the quarter ended September 30, 2010. We did not accrue variable compensation during 2009. We also incurred $300,000 in additional photomask and engineering expenses related to new product development during the quarter ended September 30, 2010.

Nine Months:

Research and development expense for the nine months ended September 30, 2010 was $12.7 million, which was an increase of $4.6 million over the nine months ended September 30, 2009. This increase was due to a $2 million increase in process support expenses in connection with our IBM foundry project. Salary related expenses, including outside services, and processing fees associated with new product design efforts increased $2.3 million. These expenses were offset by approximately $700,000 of reduced expenses related to our Montreal design center, which we closed as part of our restructuring effort during the first quarter of 2009.

Sales and Marketing Expense
(in thousands)	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

Sales and marketing expense	$2,478	$1,733	$6,770	$5,433
Percent of total revenue	12%	15%	13%	16%

Three Months

Sales and marketing expense was $2.5 million, which was an increase of $745,000 from the same period in 2009. This increase was due primarily to a $615,000 increase in internal and external commissions and salary related expenses in connection with increased sales, compared to the same period last year.

Nine Months

Sales and marketing expense was $6.8 million for the nine months ended September 30, 2010, which was a $1.3 million increase compared to nine months ended September 30, 2009. This increase was due to approximately $850,000 of additional expenses relating to salaries, internal commissions and management and employee variable compensation accrual and $350,000 for outside sales rep commissions.

General and Administrative Expense
(in thousands)	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

General and administrative expense	$1,941	$1,213	$5,614	$4,182
Percent of total revenue	10%	10%	10%	13%

Table of Contents

Three Months

General and administrative expense was $1.9 million, which was an increase of $728,000 from the same period in 2009. This increase was due primarily to a $415,000 increase in management and employee variable compensation accruals as well as the reinstatement of salaries that were reduced as a result of the March 2009 restructuring. Also contributing to this increase was increased outside services of $225,000, compared to the quarter ended September 30, 2009.

Nine Months

General and administrative expense for the nine months ended September 30, 2010 was $5.6 million, which was an increase of $1.4 million from the nine months ended September 30, 2009. This increase was primarily due to the reinstatement of salaries that were reduced as a result of the March 2009 restructuring and the management and employee variable compensation accruals in 2010. We did not accrue variable compensation for the nine months ended September 30, 2009.

Restructuring and Impairment
(in thousands)	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

Restructuring expense	--	$40	--	$827
Impairment charge	--	--	--	$5,372

Three Months

Restructuring expense primarily relates to termination benefits paid to employees as part of the 14% reduction in the Company's workforce associated primarily with the closing of our Montreal design center during the quarter ended March 31, 2009. During the three months ended September 30, 2009, we recorded $40,000 of expenses primarily relating to employee relocation costs. We do not expect further expenses relating to the restructuring.

Nine Months

During the first quarter of 2009, we tested for impairment our purchased intellectual property associated with our Montreal design center, certain long-lived assets located at the design center, and the carrying amount of goodwill. As a result of our test, we booked an impairment charge of $5.4 million. We do not expect further impairment charges during 2010.

The $827,000 restructuring expenses relates to the contract termination costs and employee termination benefits associated with the closing of our Montreal design center during the nine months ended September 30, 2009. We do not expect further restructuring charges during 2010.

Other Non-Operating Income (Expenses)
(in thousands)	Three Months Ended September 30, 2010	Three Months Ended September 30, 2009	Nine Months Ended September 30, 2010	Nine Months Ended September 30, 2009

Interest expense	$(250)	$(92)	$(578)	$(257)
Other income (expense)	$(385)	$51	$(406)	$237
Income tax benefit (provision)	$(221)	$(107)	$(701)	$547

Table of Contents

Three Months

Interest expense was $250,000 for the three months ended September 30, 2010, which was an increase of $158,000 from the quarter ended September 30, 2009. This increase was due to new capital leases and the bank term loan effective June 28, 2010.

Other expense was $385,000 for the three months ended September 30, 2010, compared with other income of $51,000 for the same period in 2009. The increase in expense was due primarily to $397,000 in write-down of obsolete photomasks and fixed asset disposals. The majority of this expense was for wafer photomasks for custom products we no longer produce. We do not expect further expense of this type.

For the three months ended September 30, 2010, the Company recorded a $221,000 income tax provision. The provision was a non-cash transaction and our effective tax rate was approximately 39%. During the three month ended September 30, 2010, we recorded a $107,000 non-cash tax provision based upon pre-tax income of $238,000.

Nine Months

Interest expense was $578,000 during the nine months ended September 30, 2010, which was a $321,000 increase from the nine months ended September 30, 2009. This increase was due to capital leases we initiated during the last six months of 2009 and the first quarter of 2010. Contributing to this increase was our 6.5%, 4-year $6 million term loan that was funded on June 30, 2010.

Other expense was $406,000 for the nine months ended September 30, 2010 compared to $237,000 other income for the nine months ended September 30, 2009. The $643,000 difference was due to interest income and a gain on disposition of fixed assets of $200,000 in 2009 compared to interest income of $25,000 in the first nine months of 2010 and a loss on the write-down of wafer photomasks of $397,000. The decrease in interest income was a result of lower interest rates coupled with lower average balances in our money market fund.

Income tax provision for the nine months ended September 30, 2010 was $701,000. The effective tax rate was 39%. During the nine months ended September 30, 2009, the Company recorded a $547,000 non-cash tax benefit due to our operating loss for this period.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows for the quarters ended September 30, 2010 and 2009, are summarized as follows:

(in thousands)	2010			2009

Cash provided by (used in):
Operating activities	$	5,738		$	2,593
Investing activities		(4,621	)		(7,227	)
Financing activities		4,615			(451	)
Effect of exchange rate changes on cash		(30	)		(79	)
Net (decrease) increase in cash and cash equivalents	$	(5,702	)	$	(5,164	)

Cash Flow from Operating Activities

The net amount of cash provided by operating activities during the nine months ended September 30, 2010 was $5.7 million, and was primarily due to earnings from operations after the add-back of non-cash expenses. This increase in cash was offset by a net increase of $200,000 in our net working capital resulting in cash used in our operations.

Table of Contents

The net amount of cash provided by operating activities during 2009 was $2.6 million. $1.3 million of this cash provided by operating activities pertains to cash provided by operations coupled with a net decrease in our working capital, which resulted in an additional $1.3 million in cash provided by operations.

Cash Flows from Investing Activities

The net amount of cash used in investing activities during the nine months ended September 30, 2010 and 2009 was $4.6 million and $7.2 million, respectively, which was primarily related to capital purchases associated with our IBM foundry initiative and capitalized wafer photomask charges relating to new products.

Cash Flow from Financing Activities

The net amount of cash generated by financing activities during the nine months ended September 30, 2010 was $4.6 million. The primary source of cash for financing activities was a $6 million term loan we obtained during the second quarter of 2010 offset by $1.7 million in principal payments.

We also financed $1.4 million of capital expenditures with a capital lease during the nine months ended September 30, 2010, which we reported as supplemental information on the cash flow statement.

For the nine months ended September 30, 2009, we used $451,000 to repay principal on our debt.

Liquidity

We had $13.2 million in cash and cash equivalents at September 30, 2010. Our future liquidity depends on revenue growth, steady gross margins and control of operating expenses. In addition to operating cash flow from product sales, we currently have approximately $3.4 million available to us under the $6 million secured line of credit facility. This secured line of credit facility expires on August 18, 2011. As of September 30, 2010, we had no amount outstanding on the secured line of credit facility. As of September 30, 2010, $5.6 million was outstanding under our $6 million term loan. The maturity date on our term loan is June 28, 2014. We have certain covenants under this credit facility that include minimum fixed charge coverage ratio and quick ratio. We were in compliance with these covenants at September 30, 2010 and expect to be in compliance for the remainder of the year.

If during 2011, IBM’s supply of products is delayed or we are not able to obtain replacement products in a timely manner, we will be unable to fill certain customer orders, which may have a material adverse effect on our revenue and results of operations. This could also cause the Company to be in default of its covenants and related term loan.

We believe we have sufficient resources from cash on hand, funds from operations and availability under our secured line of credit facility to fund current operations through at least mid-year 2011. If the IBM foundry project is significantly delayed beyond 2010, the Company may be required to seek additional debt or equity capital to fund operations for 2011 and beyond.

We have contracted with IBM to provide us with facility design and fit up, tool installation and tool qualification services in support of IBM's manufacture of our F-RAM products. We will provide certain tools, peripheral equipment, technology and specifications for IBM's manufacture of our products. We will also provide our F-RAM technology and engineering expertise to IBM to assist in the integration and process development of our F-RAM products. Expenditures relating to capital and engineering support expenses for our IBM foundry project incurred from inception to date were approximately $20 million, and we estimate an additional $3.5 million of capital expenditures and $1.8 million of expenses for the remainder of the year. If we do not generate enough cash from our operations or have sufficient available borrowings under our secured line of credit facility, or if actual expenditures for capital and engineering support for our IBM foundry project are higher than estimated, the IBM foundry project could be delayed and could be at risk of being cancelled.

If net cash flow is not sufficient to meet our cash requirements, we may use our line of credit facility mentioned above or any other credit facility we may obtain. We would be required to obtain approval from Silicon Valley Bank for any additional debt financing, other than specific debt such as approved lease lines of credit, per the terms of our existing loan agreement. Any issuance of common or preferred stock or convertible securities to obtain additional funding would result in dilution of our existing stockholders' interests.

Table of Contents

Debt Instruments

On August 18, 2009, we executed an Amended and Restated Loan and Security Agreement ("Amended Loan Agreement") with Silicon Valley Bank ("SVB"). The Amended Loan Agreement provides for a $6 million working capital line of credit with a $1.75 million sublimit for EXIM advances, $1.5 million sublimit for foreign accounts receivable, and a sublimit of $3 million for letters of credit and foreign exchange exposure and cash management services. On January 28, 2010, SVB approved an increase of $1.9 million over the sublimit for our eligible foreign accounts receivable from $1.5 million to $3.4 million based upon our obtaining foreign accounts receivable credit insurance. We obtained this insurance with an effective date of November 1, 2009. The Amended Loan Agreement replaces the Company's Amended and Restated Loan and Security Agreement dated September 15, 2005. The Amended Loan Agreement provides for interest at a floating rate equal to the SVB prime lending rate plus 1.75% to 2.25% per annum depending upon cash balances and loan availability maintained at SVB. The term is two years expiring on August 18, 2011, with a commitment fee of $40,000 paid at signing and $40,000 on the first anniversary. There is also a .375% unused line fee, payable monthly in arrears. Security for the Amended Loan Agreement includes all of our assets except for real estate and leased equipment. The related borrowing base is comprised of the Company's trade receivables. We plan to draw upon our loan facility for working capital purposes as required. The net availability under our secured line of credit facility as of September 30, 2010 was $3.4 million. An insufficient amount of funds available under our secured line of credit facility and term loan could cause us to delay or cancel the IBM foundry project. As of September 30, 2010, we had no amount outstanding on the secured line of credit facility.

On June 28, 2010, the Company and SVB executed a Second Amendment ("Amendment") to the Company's Amended and Restated Loan and Security Agreement dated August 18, 2009, as amended. The Amendment provides for a 4-year $6 million term loan with a fixed interest rate of 6.5% per annum. The maturity date for the term is June 28, 2014. Principal payments are fixed at $125,000 per month.

We are using equipment leases to finance part of the required equipment to support our IBM foundry project. We have obtained $4.3 million of lease financing secured by specific equipment with terms averaging 30 months.

On December 15, 2005, we, through our subsidiary, Ramtron LLC, for which we serve as sole member and sole manager, closed a mortgage loan facility with American National Insurance Company. Ramtron LLC entered into a promissory note evidencing the loan with the principal amount of $4.2 million, with a maturity date of January 1, 2016, bearing interest at 6.17%. As of September 30, 2010, approximately $3.6 million was outstanding on the mortgage loan facility. Ramtron LLC also entered into an agreement for the benefit of American National Insurance Company granting it a mortgage over real estate as collateral for the mortgage loan facility.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures and Related CEO and CFO Certifications

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure. In connection with the preparation of this Quarterly Report on Form 10-Q, as of September 30, 2010, an evaluation was performed under the supervision and with the participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective.

Table of Contents

Changes in Internal Control and Financial Reporting

There were no changes in the Company's internal control over financial reporting during its most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

During 2009, the Company received a summons by the trustee in the bankruptcy of Finmek S.p.A. and its affiliates (Finmek) to appear before the Padua, Italy court overseeing the bankruptcy. The claims of the trustee in the bankruptcy are that payments totaling approximately $2.8 million made to the Company for products shipped to Finmek prior to its bankruptcy filing in May 2004 are recoverable based on an alleged awareness of the Finmek affiliates' insolvency at the time the payments were made. The first hearing in the Finmek cases was to be held in January 2010 and at the request of both parties, the hearing was moved to April 2011 and May 2011. We intend to vigorously contest the trustee's claims. We are unable to estimate a range of possible losses, if any, which we may incur as result of the trustee's claims, and we have not recorded any expense or liability in the consolidated financial statements as of September 30, 2010.

ITEM 1A. RISK FACTORS

As previously discussed, our actual results could differ materially from our forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed below. These and many other factors described in this report could adversely affect our operations, performance and financial condition.

Our achievement of sustained profitability is uncertain.

We had net income during the nine months ended September 30, 2010 of $1.1 million. We recognized a net loss of $5.8 million for the year ended December 31, 2009. Our ability to reflect a profit from ongoing operations in future periods is subject to significant risks and uncertainties, including, but not limited to, our ability to successfully sell our products at prices that are sufficient to cover our operating costs, to enter into additional technology development and license arrangements, to obtain sufficient contract manufacturing capacity and, if necessary, to raise additional financing to fund our growth. There is no guarantee that we will be successful in reducing these risks.

We have spent substantial amounts of money in developing our products and in our efforts to obtain commercial manufacturing capabilities for those products. At September 30, 2010, our accumulated deficit was $218 million. Our ability to increase revenue and achieve profitability in the future will depend substantially on our ability to increase sales of our products by gaining new customers and increasing sales to our existing customers, our success in reducing manufacturing costs, while increasing our contract manufacturing capacity, our ability to significantly increase sales of existing products, and our success in introducing and profitably selling new products.

We may need to raise additional funds to finance our operations.

In view of our expected future working capital requirements in connection with the fabrication and sale of our specialized memory, microcontroller, and integrated semiconductor products, as well as our projected research and development and other operating expenditures, we may be required to seek additional equity or debt financing. We cannot be sure that any additional financing or other sources of capital will be available to us on acceptable terms, or at all. The inability to obtain additional financing when needed would have a material adverse effect on our business, financial condition and operating results, which could adversely affect our ability to continue our business operations. We would be required to obtain approval from Silicon Valley Bank for any additional debt financing, other than specific debt such as approved lease lines of credit, per the terms of our existing loan agreement. If additional equity financing is obtained, any issuance of common or preferred stock or convertible securities to obtain funding would result in dilution of our existing stockholders' interests.

Table of Contents

Expenditures relating to capital and engineering support expenses for our IBM foundry project are estimated to be an additional $5.3 million for the remainder of the year. If we cannot generate sufficient cash from operations, increase our borrowing base on our secured line of credit facility, or obtain other equity or debt financing, the IBM foundry project could be delayed and could be at risk of being cancelled, which would have a material adverse effect on our business operations.

If we fail to vigorously protect our intellectual property, our competitive position may suffer.

Our future success and competitive position depend in part upon our ability to develop additional and maintain existing proprietary technology used in our products. We protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements and employee and third party non-disclosure and assignment agreements. We cannot provide assurances that any of our pending patent applications will be approved or that any of the patents that we own will not be challenged, invalidated or circumvented by others or be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage.

Policing the unauthorized use of our intellectual property is difficult and costly, and we cannot be certain that the steps we have taken will prevent the misappropriation or unauthorized use of our technologies, particularly in countries where the laws may not protect our proprietary rights as fully as in the United States. In addition, we cannot be certain that we will be able to prevent other parties from designing and marketing semiconductor products or that others will not independently develop or otherwise acquire the same or substantially equivalent technologies as ours.

We may be subject to intellectual property infringement claims by others that result in costly litigation and could harm our business and ability to compete. Our industry is characterized by the existence of a large number of patents, as well as frequent claims and related litigation regarding these patents and other intellectual property rights. In particular, many leading semiconductor memory companies have extensive patent portfolios with respect to manufacturing processes, product designs, and semiconductor memory technology, including ferroelectric memory technology. We may be involved in litigation to enforce our patents or other intellectual property rights, to protect our trade secrets and know-how, to determine the validity of property rights of others, or to defend against claims of invalidity. This type of litigation can be expensive, regardless of whether we win or lose. Also, we cannot be certain that third parties will not make a claim of infringement against us or against our licensees in connection with their use of our technology. In the event of claims of infringement against our licensees with respect to our technology, we may be required to indemnify our licensees, which could be very costly. Any claims, even those without merit, could be time consuming to defend, result in costly litigation and diversion of technical and management personnel, or require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us or one of our semiconductor manufacturing licensees in connection with our use of our technology would harm our business and result in significant cash expense to us to cover litigation costs, as well as the reduction of future license revenue.

Catastrophic events causing system failures may disrupt our business.

We are a highly automated business and rely on our network infrastructure and enterprise applications, internal technology systems and our Web site for our development, marketing, operational, support, hosted services and sales activities. A disruption or failure of these systems in the event of a major earthquake, fire, telecommunications failure, cyber-attack, war, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, delays in our product development, breaches of data security and loss of critical data, and could prevent us from fulfilling our customers' orders. We have developed certain disaster recovery plans and certain backup systems to reduce the potentially adverse effect of such events, but a catastrophic event that results in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be adversely affected.

Table of Contents

Earthquakes, other natural disasters and power shortages or interruptions may damage our business.

Some of our contract manufacturers' facilities are located near major earthquake faults. If a major earthquake or other natural disaster occurs that damages those facilities or restricts their operations, or interrupts our and our suppliers' and customers' communications, our business, financial condition and results of operations would be materially adversely affected. A major earthquake or other natural disaster near one or more of our major suppliers could disrupt the operations of those suppliers, which could limit the supply of our products and harm our business.

Our future success depends in part on a relatively small number of key employees.

Our future success depends, among other factors, on the continued service of our key technical and management personnel and on our ability to continue to attract and retain qualified employees. We are particularly dependent on the highly skilled design, process, materials and testing engineers involved in the development and oversight of the manufacture of our semiconductor products and processes. The competition for these personnel is intense, and the loss of key employees, including our executive officers, or our inability to attract additional qualified personnel in the future, could have both an immediate and a long-term adverse effect on us. In addition, the substantial breadth of demands on our relatively small number of key management employees, including new product development, managing supplier and customer relationships, and seeking new capital sources and other business development activities are significant, and could divert our management’s attention from our business operations.

General economic trends and other factors, including the effects of the recent worldwide credit crisis, may negatively affect our business.

The worldwide economic slowdown and tightening of credit in the financial markets may impact the businesses of our customers, which could have an adverse effect on our business, financial condition or results of operations.

Adverse changes in general economic or political conditions in any of the major countries in which we do business could adversely affect our operating results.

Our products are complex and any defects in our products may result in liability claims, an increase in our costs and a reduction in our revenue.

Our products are complex and may contain defects, particularly when first introduced or as new versions are released or defects may result from the manufacturing process employed by our foundries. We develop integrated semiconductor products containing functions in addition to memory, thereby increasing the overall complexity of our products. We rely primarily on our in-house testing personnel to design test operations and procedures to detect any defects prior to delivery of our products to our customers. However, we rely on both in-house personnel and subcontractors to perform our testing. Because our products are manufactured by third parties and involve long lead times, we may experience delays in meeting key introduction dates or scheduled delivery dates to our customers if problems occur in the manufacture or operation or performance of our products. These defects also could cause us to incur significant re-engineering or production costs, divert the attention of our engineering personnel from our new product development efforts and cause significant customer relations issues and damage to our business reputation. Any defects could require product replacement, cost of remediation, or recall or we could be obligated to accept product returns. Any of the foregoing could cause us to incur substantial costs and harm our business. Our products are typically sold at prices that are significantly lower than the cost of the end-products into which they are incorporated. A defect or failure in our product could cause failure in our customer's end-product, so we could face product liability claims for property damage, lost profits damages, or consequential damages that are disproportionately higher than the revenue and profits we receive from the products involved. There can be no assurance that any insurance we maintain will sufficiently protect us from any such claims.

Table of Contents

We depend on a small number of suppliers for the supply of our products and the success of our business may be dependent on our ability to maintain and expand our relationships with foundries and other suppliers.

We currently rely on foundry services from Texas Instruments as well as a finite amount of inventory of products built by Fujitsu for our product supply needs. When Fujitsu notified us that they were going to cease manufacturing our products, they built a finite amount of product inventory to meet our anticipated demand as we completed a timely product manufacturing transition to alternative foundries. Due to higher than anticipated demand for our products during 2010, we are experiencing shortages on certain Fujitsu supplied devices as we work to bring up capacity at our alternative foundry sources. As a result, we have extended order lead times and begun putting certain Fujitsu fabricated products on allocation. We are working to transition certain customers to alternative or replacement products built at Texas Instruments or to replacement products that are expected to be built at IBM by the end of the first quarter of 2011. If IBM’s supply of products is delayed or we are not able to obtain qualified replacement products from Texas Instruments in a timely manner, we will be unable to fill our customers’ orders, which may have a material adverse effect on our revenue and results of operations. If customer demand for products to be supplied from the Fujitsu inventory falls short of the inventory we have committed to purchase, the Company may be required to obsolete excess inventory, which may adversely affect our business.

Our foundry agreements with Texas Instruments and IBM may not be renewed at the end of the contract term or negotiation of new contract terms may not be acceptable and the engagement of other foundry services will become necessary, which would require capital investment and related cash funding, and would likely result in our inability to fill our customers’ orders. In addition, we rely on a small number of other contract manufacturers and foundries to manufacture our other products. Reliance on a limited number of foundries involves several risks, including capacity constraints or delays in the timely delivery of our products, reduced control over delivery schedules and the cost of our products, variations in manufacturing yields, dependence on the foundries for quality assurance, and the potential loss of production and a slowdown in filling our orders due to seismic activity, other force majeure events and other factors beyond our control, including increases in the cost of the wafers we purchase from our foundries.

Although we continuously evaluate sources of supply and may seek to add additional foundry capacity in the future, there can be no assurance that such additional capacity can be obtained at acceptable prices, if at all. Because our products require the foundries to make specified modifications to their standard process technologies and integrate our ferroelectric materials into their processes, transitioning the manufacturing of our products to other foundries or other facilities of an existing foundry may requires process design changes and requires substantial lead time. Any delay resulting from such transition could negatively affect product performance, delivery, and yields or increase manufacturing costs.

We are also subject to the risks of service disruptions and raw material shortages affecting our foundry suppliers, which could also result in additional costs or charges to us.

We also rely on domestic and international subcontractors for packaging and testing of products, and are subject to risks of disruption of these services and possible quality problems. The occurrence of any supply or other problem resulting from these risks could have a material adverse effect on our revenue and results of operations.

We cannot provide any assurance that foundry or packaging and testing services will be available to us on terms and conditions, and at the times, acceptable to us. If we are unable to obtain foundry and packaging and testing services meeting our needs, we may be unable to produce products at the times and for the costs we anticipate and our relationships with our customers may be harmed and financial condition and results of operations may be adversely affected.

Table of Contents

We are a relatively small company with limited resources, compared to some of our current and potential competitors, and we may not be able to compete effectively and increase our market share.

Our nonvolatile memory, microcontroller, and integrated semiconductor products, which presently account for a substantial portion of our revenue, compete against products offered by current and potential competitors with longer operating histories, significantly greater financial and personnel resources, better name recognition and a larger base of customers than we have. In addition, many of our competitors have their own facilities for the production of semiconductor memory components or have recently added significant production capacity. As a result, these competitors may have greater credibility with our existing and potential customers. They also may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion and sale of their products than we can to ours. In addition, some of our current and potential competitors have already established supplier or joint development relationships with the decision makers at our current or potential customers. These competitors may be able to leverage their existing relationships to discourage their customers from purchasing products from us or persuade them to replace our products with their products. These and other competitive pressures may prevent us from competing successfully against current or future competitors, and may materially harm our business. Competition could force us to decrease our prices, reduce our sales, lower our gross profits or decrease our market share, any of which could have a material adverse affect on our revenues and results of operations. Our competitors include companies such as ST Microelectronics, Renesas Technology Corporation, Everspin Technologies Inc., Cypress Semiconductor Corporation, Microchip Technology Inc., NEC Corporation, Atmel Corporation, Fujitsu, Texas Instruments, and NXP, as well as specialized product companies such as Intersil Corporation, Maxim Integrated and Integrated Silicon Solution Inc., which produce products that compete with our current products and may compete with our future products. Our ability to compete with these and other competitors will depend on a number of factors, including our ability to continue to recruit and retain qualified engineers and other employees, our ability to introduce new and competitive products in a timely manner, the availability of foundry, packaging and testing services for our products to meet our customers’ demands, effective utilization and protection of our intellectual property rights, and general economic and regulatory conditions.

Emerging technologies and standards may pose a threat to the competitiveness of our products.

Competition affecting our F-RAM products may also come from alternative nonvolatile technologies such as magnetic random access memory or phase change memory, or other developing technologies. We cannot provide assurance that we will be able to identify new product opportunities successfully, develop and bring to market new products, achieve design wins or respond effectively to new technological changes or product announcements by our competitors. In addition, we may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. Our competitors or customers may offer new products based on new technologies, new industry standards or end-user or customer requirements, including products that have the potential to replace, or provide lower-cost or higher-performance alternatives to, our products. The introduction of new products by our competitors or customers could render our existing and future products obsolete or unmarketable.

A memory technology other than F-RAM nonvolatile memory technology may be adopted or become generally accepted in integrated semiconductor products, or in stand-alone memory products, and our competitors may be in a better financial and marketing position than we are to influence such adoption or acceptance. The adoption or acceptance of such alternative memory technology could also render our existing and future products obsolete or unmarketable.

Our research and development efforts are focused on a limited number of new technologies and products, and any delay in the development, or the abandonment, of these technologies or products by industry participants, or their failure to achieve market acceptance, could compromise our competitive position.

Our F-RAM semiconductor memory and integrated semiconductor products are used as components in electronic devices in various markets. As a result, we have devoted and expect to continue to devote a large amount of resources to develop products based on new and emerging technologies and standards that will be commercially introduced in the future. Our research and development expense, for the quarter ended September 30, 2010, was $4.9 million, or 25% of our total revenue.

Table of Contents

If we do not accurately anticipate new technologies and standards, or if the products that we develop based on new technologies and standards fail to achieve market acceptance, our competitors may be better positioned to satisfy market demand than us. Furthermore, if markets for new technologies and standards develop later than we anticipate, or do not develop at all, demand for our products that are currently in development would suffer, resulting in lower sales of these products or lower sale prices, or both, than we currently anticipate, which would adversely affect our revenue and gross profits. We cannot be certain that any products we may develop based on new technologies or for new standards will achieve market acceptance.

If we do not continually develop new products that achieve market acceptance, our revenue may decline.

We need to develop new products and new process and manufacturing technologies. We believe that our ability to compete in the markets in which we expect to sell our F-RAM based semiconductor memory and integrated semiconductor products will depend, in part, on our ability to produce products that address customer needs efficiently and in a cost-effective manner and also our ability to incorporate effectively other semiconductor functions with our F-RAM products. Our inability to successfully develop and have manufactured new products would harm our ability to compete and have a negative impact on our operating results.

If we fail to introduce new products in a timely manner or are unable to manufacture such products successfully, or if our customers do not successfully introduce new systems or products incorporating our products, or if market demand for our new products does not develop as anticipated, our business, financial condition and results of operations could be seriously harmed.

Our expansion into new products and markets may be unsuccessful.

We plan to introduce new products into new markets in the future. We do not have experience in the markets our new products will address and these products may not achieve acceptance in those markets because they do not solve a substantial market need or are not competitively priced. Even if our new products achieve substantial market penetration, we may not be able to produce them in sufficient quantities or at prices that will enable us to generate profits for several years. The introduction of new products into new markets also increases the demands on our management and key employees, who may fail to manage those demands successfully. Our introduction of new products may be unsuccessful or delayed, which would result in a reduction in projected revenue from such new products.

We will depend on IBM and Texas Instruments, our two primary contract manufacturers, to supply components of the new products, and, if the new products are ordered in substantial quantities, or, if for any other reason, those contract manufacturers are not able timely to supply sufficient components for the new products, our new products may be unsuccessful in the markets, which would result in our not achieving expected revenue from the new products.

We compete in certain markets with some of our F-RAM technology licensees, which may reduce our product sales.

We have licensed the right to fabricate products based on our F-RAM technology and memory architecture to certain independent semiconductor device manufacturers. Fujitsu and Texas Instruments, who we currently depend on for our F-RAM wafer supply, market certain F-RAM memory products that compete with certain of our F-RAM products. Some of our licensees have suspended or terminated their F-RAM initiatives, while others may still be pursuing a possible F-RAM based technology initiative or product development without our knowledge. We expect manufacturers that develop products based on our technology to sell such products worldwide. We are entitled to royalties from sales of F-RAM products by some but not all of these licensees, and we have the right under certain of our licensing agreements to negotiate an agreement for a portion of the licensee's F-RAM product manufacturing capacity. Our licensees may, however, give the development and manufacture of their own F-RAM products a higher priority than ours. Any competition in the marketplace from F-RAM products manufactured and marketed by our licensees could reduce our product sales and harm our operating results.

Table of Contents

We may not be able to replace our expected revenue from significant customers, which could adversely affect our business.

Our success depends upon continuing relationships with significant customers who, directly or indirectly, purchase significant quantities of our products. For the quarter ended September 30, 2010, approximately 45% of our total product sales revenue was generated by five distributors. Any reduction of product sales to our significant customers, without a corresponding increase in revenue from existing and new customers, may result in significant decreases in our revenue, which would harm our cash flows, operating results and financial condition. We cannot assure you that we would be able to replace these relationships in a timely manner or at all.

We expect that international sales will continue to represent a significant portion of our product sales in the future. As a result, we are subject to a number of risks resulting from such operations.

International sales comprise a significant portion of our product sales, which exposes us to foreign political and economic risks. Such risks include political and economic instability and changes in diplomatic and trade relationships, foreign currency fluctuations, unexpected changes in regulatory requirements, delays resulting from difficulty in obtaining export licenses for certain technology, tariffs and other barriers and restrictions, and the burdens of complying with a variety of foreign laws. Competitors based in the countries where we have substantial sales, such as Japan, may be able to supply products to customers in those countries more efficiently and at lower prices than we are able to do. There can be no assurance that such factors will not adversely impact our results of operations in the future or require us to modify our current business practices.

The majority of our revenue, expense and capital purchases are transacted in U.S. dollars. We purchase wafers from Fujitsu in Japanese Yen. At this time, we do not use financial derivatives to hedge our prices, therefore, we have some exposure to foreign currency price fluctuations. However, payments from Japanese customers and the Company's purchase of Yen on the open market for payment of our Yen invoices provides Yen currency for approximately 85% of our wafer purchase costs. As part of our risk management strategy, we frequently evaluate our foreign currency exchange risk by monitoring market data and external factors that may influence exchange rate fluctuations.

Our business is also subject to risks generally associated with doing business with third-party manufacturers in non-U.S. jurisdictions including, but not limited to, government regulations and political and financial unrest which may cause disruptions or delays in shipments to our customers or access to our inventories. Our business, financial condition and results of operations may be materially adversely affected by these or other factors related to our international operations.

We are subject to environmental laws that are subject to change and may restrict the marketability of certain of our products, which could adversely impact our financial performance or expose us to future liabilities.

We are subject to laws and regulations relating to the use of and human exposure to hazardous materials. Our failure to comply with these laws and regulations could subject us to future liabilities or result in the limitation or suspension of the sale or production of product, including without limitation, products that do not meet the various regulations relating to use of lead-free components in products. These regulations include the European Union's Restrictions on Hazardous Substances ("RoHS"), Directive on Waste Electrical and Electronic Equipment ("WEEE"), and the directive on End of Life for Vehicles (ELV); California's SB20 and SB50 which mimic RoHS; and China's WEEE adopted by the State Development and Reform Commission. New electrical and electronic equipment sold in the European Union may not exceed specified concentration levels of any of the six RoHS substances (lead, cadmium, hexavalent chromium, mercury, PBB, and PBDE) unless the equipment falls outside the scope of RoHS or unless one of the RoHS exemptions is satisfied. Our products as manufactured contain lead, but in ceramic form (the "ferroelectric memory capacitor") and are at levels below the threshold concentration levels specified by RoHS and similar directives. However, these directives are still subject to amendment and such changes may be unfavorable to our products. Any supply of products that infringe applicable environmental laws may subject us to penalties, customer litigation or governmental sanctions, which may result in significant costs to us, which could adversely impact our results of operations.

Table of Contents

Our business operations are also subject to strict environmental regulations and legal uncertainties, which could impose unanticipated requirements on our business in the future and subject us to liabilities.

Federal, state and local regulations impose various environmental controls on the discharge of chemicals and gases used in the manufacturing processes of our third-party foundry and contract manufacturers. Compliance with these regulations can be costly. Increasing public attention has been focused on the environmental impact of semiconductor operations. Any changes in environmental rules and regulations may impose the need for additional investments in capital equipment and the implementation of compliance programs in the future.

Any failure by us or our foundries or contract manufacturers to comply with present or future environmental rules and regulations regarding the discharge of hazardous substances could subject us to serious liabilities or cause our foundries or contract manufacturers to suspend manufacturing operations, which could seriously harm our business, financial condition and results of operations.

In addition to the costs of complying with environmental, health and safety requirements, in the future we may incur costs defending against environmental litigation brought by government agencies and private parties. We may be defendants in lawsuits brought by parties in the future alleging environmental damage, personal injury or property damage. A significant judgment against us could harm our business, financial condition and results of operations.

If our amortizable intangible assets become impaired, we may be required to record a significant charge to earnings.

Under GAAP, we review the carrying value of amortized intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Factors that may be considered a change in circumstances indicating that the carrying value of our amortizable intangible assets may not be recoverable include a decline in stock price and market capitalization, estimated future cash flows, and slower growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our amortizable intangible assets is determined, resulting in an impact on our results of operations.

Our stock price is extremely volatile and you may not be able to resell your shares at or above the price you paid.

The market price of our common stock has fluctuated widely in recent periods and is likely to continue to be volatile. A number of other factors and contingencies can affect the market price for our common stock, including the following:

·	actual or anticipated variations in our operating results;
·	the low daily trading volume of our stock, which has in recent years traded at prices below $5 per share;
·	announcements of technological innovations or new products by us or our competitors;
·	competition, including pricing pressures and the potential impact of competitors' products on our sales;
·	conditions or trends in the semiconductor memory products industry;
·	unexpected design or manufacturing difficulties;
·	any announcement of potential design or manufacturing defects in our products;
·	changes in financial estimates or recommendations by stock market analysts regarding us or our competitors;
·	announcements by us or our competitors of acquisitions, strategic partnerships or joint ventures; and additions or departures of our senior management; and
·	one shareholder owning 6% of our outstanding common stock, the sale of which could affect the stock price.

In addition, in recent years the stock market in general, and shares of technology companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of these technology companies. These broad market and industry fluctuations may harm the market price of our common stock, regardless of our operating results.

Table of Contents

We are subject to certain covenants related to our bank loan and such covenants may be challenging to the Company.

We are required to comply with certain covenants under the loan agreement, as amended, including requirements to maintain a minimum net worth and maintain certain leverage ratios, and restrictions on certain business actions without the consent of Silicon Valley Bank. If we are not able to comply with such covenants at a point of time in the future, the Company's outstanding loan balance will be due and payable immediately, our existing line of credit could be cancelled, and unless we are able to obtain a waiver from the bank for such covenant violations, our business, financial condition and results of operations would be harmed.

Provisions in our certificate of incorporation and preferred shares rights agreement may have anti-takeover effects and could affect the price of our common stock.

Our board of directors has the authority to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions of the preferred stock, without any vote or action by our stockholders. Our authority to issue preferred stock with rights preferential to those of our common stock could be used to discourage attempts by others to obtain control of or acquire us, including an attempt in which the potential purchaser offers to pay a per share price greater than the current market price for our common stock, by making those attempts more difficult or costly to achieve. In addition, we may seek in the future to obtain new capital by issuing shares of preferred stock with rights preferential to those of our common stock. This provision could limit the price that investors might be willing to pay in the future for our common stock.

We also entered into a preferred shares rights agreement with Citicorp N.A., as rights agent on April 19, 2001, which gives our stockholders certain rights that would likely delay, defer or prevent a change of control of us in a transaction not approved by our board of directors. On July 1, 2007, Computershare Trust Company, N.A. assumed these duties as rights agents.

ITEM 6. EXHIBITS

(a) Exhibits:

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1	Certification Pursuant to 18 U.S.C. Section 1350 of Principal Executive Officer
32.2	Certification Pursuant to 18 U.S.C. Section 1350 of Principal Financial Officer

SIGNATURES

Pursuant to the requirements 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.

RAMTRON INTERNATIONAL CORPORATION

(Registrant)

/s/ Eric A. Balzer

Eric A. Balzer

Chief Financial Officer

(Principal Accounting Officer and

Duly Authorized Officer of the Registrant)

Date: November 5, 2010

Attached files

Stock widget

Investing forum

RAMTRON INTERNATIONAL CORP Reports