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EX-31.2 - SECTION 302 CFO CERTIFICATION - RAMTRON INTERNATIONAL CORPd329279dex312.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended March 31, 2012

OR

 

¨ 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

 

 

 

LOGO

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  x    No  ¨

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  x    No  ¨

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   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

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

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

 

35,326,202 shares   As of May 2, 2012

Common Stock, $0.01 par value

 

 

 

 


TABLE OF CONTENTS

 

          Page  

PART I - FINANCIAL INFORMATION

  
Item 1 -    Unaudited Financial Statements:   
   Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011    3   
  

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2012 and 2011

   4   
   Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2012    5   
   Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011    6   
   Notes to Consolidated Financial Statements    7   
Item 2 -    Management’s Discussion and Analysis of Financial Condition and Results of Operations    16   
Item 3 -    Quantitative and Qualitative Disclosures About Market Risk    24   
Item 4 -    Controls and Procedures    24   

PART II - OTHER INFORMATION

  
Item 1-    Legal Proceedings      25   
Item 1A -    Risk Factors      25   
Item 2 -    Unregistered Sales of Equity Securities and use of Proceeds      32   
Item 3 -    Defaults Upon Senior Securities      32   
Item 5 -    Other Information      32   
Item 6 -    Exhibits      33   

 

2


PART I - FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2012 AND DECEMBER 31, 2011

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

 

     March 31,
2012
    December 31,
2011
 
     (unaudited)        
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 4,356      $ 4,736   

Accounts receivable, less allowances of $2,607 and $2,307, respectively

     6,258        7,556   

Inventories

     21,397        20,250   

Deferred income taxes, net

     933        338   

Other current assets

     1,119        1,187   
  

 

 

   

 

 

 

Total current assets

     34,063        34,067   

Inventories, long-term

     4,086        2,581   

Property, plant and equipment, net

     22,309        23,072   

Intangible assets, net

     2,684        2,703   

Long-term deferred income taxes, net

     4,727        5,687   

Other assets

     535        466   
  

 

 

   

 

 

 

Total assets

   $ 68,404      $ 68,576   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 4,295      $ 6,185   

Accrued liabilities

     2,659        2,601   

Current portion of long-term debt

     3,457        4,202   

Line of credit

     2,875        —     
  

 

 

   

 

 

 

Total current liabilities

     13,286        12,988   

Other long-term liabilities

     210        210   

Long-term debt, less current portion

     6,624        7,711   
  

 

 

   

 

 

 

Total liabilities

     20,120        20,909   
  

 

 

   

 

 

 
Commitments and Contingencies (Note 7)     

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: 35,344,702 and 34,838,240 shares issued and outstanding, respectively

     353        348   

Additional paid-in capital

     266,841        266,668   

Accumulated other comprehensive loss

     (384     (378

Accumulated deficit

     (218,526     (218,971
  

 

 

   

 

 

 

Total stockholders’ equity

     48,284        47,667   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 68,404      $ 68,576   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(Amounts in thousands, except per share amounts)

(Unaudited)

 

     Three Months
Ended March 31,
2012
    Three Months
Ended March 31,
2011
 

Revenue:

    

Product sales

   $ 14,918      $ 10,440   

License and royalty revenue

     43        204   
  

 

 

   

 

 

 
     14,961        10,644   
  

 

 

   

 

 

 

Costs and expenses:

    

Cost of product sales

     7,160        5,461   

Research and development

     3,355        4,533   

Sales and marketing

     2,130        2,060   

General and administrative

     1,289        2,054   
  

 

 

   

 

 

 
     13,934        14,108   
  

 

 

   

 

 

 

Operating income (loss)

     1,027        (3,464

Interest expense

     (221     (213

Other expense, net

     (18     (56
  

 

 

   

 

 

 

Income (loss) before income tax (expense) benefit

     788        (3,733

Income tax (expense) benefit

     (343     1,355   
  

 

 

   

 

 

 

Net income (loss)

   $ 445      $ (2,378
  

 

 

   

 

 

 

Other comprehensive loss, net of tax:

    

Foreign currency translation adjustments

     (6     (8
  

 

 

   

 

 

 

Comprehensive income (loss)

   $ 439      $ (2,386
  

 

 

   

 

 

 

Net income (loss) per common share:

    

Basic and diluted:

   $ 0.01      $ (0.09
  

 

 

   

 

 

 

Weighted average common shares outstanding:

    

Basic

     33,886        27,462   
  

 

 

   

 

 

 

Diluted

     34,130        27,462   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Amounts in thousands, except par value amounts)

(Unaudited)

 

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

Balances, December 31, 2011

     34,838       $ 348       $ 266,668      $ (378   $ (218,971   $ 47,667   

Stock-based compensation expense

     —           —           433        —          —          433   

Shares and cash issued for restricted stock and restricted stock units (1)

     507         5         (260     —          —          (255

Cumulative foreign currency translation adjustments

     —           —           —          (6     —          (6

Net income

     —           —           —          —          445        445   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balances, March 31, 2012

     35,345       $ 353       $ 266,841      $ (384   $ (218,526   $ 48,284   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes shares withheld from vested restricted stock and restricted stock units to satisfy the minimum withholding requirement for federal and state taxes.

See accompanying notes to consolidated financial statements.

 

5


RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(Amounts in thousands)

(Unaudited)

 

     March 31,
2012
    March 31,
2011
 

Cash flows from operating activities:

    

Net income (loss)

   $ 445      $ (2,378

Adjustments used to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation

     966        503   

Amortization

     64        63   

Net loss from asset dispositions

     11        —     

Bad debt recovery

     (3     (23

Stock-based compensation

     433        347   

Deferred income taxes

     365        (1,369

Imputed interest on note payable

     7        10   

Provision for inventory write-off and scrap

     252        283   

Changes in assets and liabilities:

    

Accounts receivable

     1,301        2,495   

Inventories

     (2,904     (1,883

Accounts payable and accrued liabilities

     (1,747     602   

Deferred revenue

     —          (158

Other

     (1     457   
  

 

 

   

 

 

 

Net cash used in operating activities

     (811     (1,051
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property, plant and equipment

     (309     (265

Proceeds from sale of assets

     10        —     

Purchase of intellectual property

     (45     (52
  

 

 

   

 

 

 

Net cash used in investing activities

     (344     (317
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from line of credit

     2,875        —     

Principal payments on debt

     (1,839     (790

Net issuance (purchase) of common stock

     (255     513   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     781        (277
  

 

 

   

 

 

 

Effect of foreign currency

     (6     (8
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (380     (1,653

Cash and cash equivalents, beginning of period

     4,736        9,945   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 4,356      $ 8,292   
  

 

 

   

 

 

 

Supplemental information:

    

Cash paid for interest

   $ 215      $ 202   
  

 

 

   

 

 

 

Cash paid for income taxes

   $ 32      $ 53   
  

 

 

   

 

 

 

Amounts included in capital expenditures but not yet paid

     —        $ 2,266   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


RAMTRON INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

 

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Description of Business. We are a fabless semiconductor company that designs, develops and markets specialized semiconductor memory and integrated semiconductor solutions, which are 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 with our memory products wireless communication capabilities as well as analog and mixed-signal functions such as microprocessor supervision, tamper detection, timekeeping, and power failure detection functions. 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, development and royalty arrangements entered into with a limited number of established semiconductor manufacturers involving the development and sale of specific applications and products based on our technologies. 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.

The accompanying unaudited, interim consolidated financial statements at March 31, 2012, and for the three months ended March 31, 2012 and 2011, and the audited balance sheet at December 31, 2011, 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 are in conformity with generally accepted accounting principles in the United States. Certain amounts reported in prior periods have been reclassified to conform to the current presentation.

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, 2011, which includes all disclosures required by GAAP. The results of operations for the period ended March 31, 2012, are not necessarily indicative of expected operating results for the full year.

Use of 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. 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, 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.

New Accounting Standards. In June 2011, the FASB issued an accounting pronouncement that provides new guidance on the presentation of comprehensive income (FASB ASC Topic 220) in financial statements. Entities are required to present total comprehensive income either in a single, continuous statement of comprehensive income or in two separate, but consecutive, statements. Under the single-statement approach, entities must include the components of net income, a total for net income, the components of other comprehensive income and a total for comprehensive income. The Company has elected the single statement approach. The provisions for this pronouncement are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.

 

7


NOTE 2. INVENTORIES

Inventories consist of the following as of March 31, 2012 and December 31, 2011:

 

(in thousands)    March 31,
2012
     December 31,
2011
 

Finished goods

   $ 5,754       $ 3,726   

Work in process - current portion

     15,643         16,524   
  

 

 

    

 

 

 
   $ 21,397       $ 20,250   
  

 

 

    

 

 

 

Work in process - long-term (1)

   $ 4,086       $ 2,581   
  

 

 

    

 

 

 

 

(1) Long-term inventory relates to items that the Company does not forecast to sell within one year.

 

NOTE 3. OTHER CONSOLIDATED FINANCIAL STATEMENT DETAIL

Other Current Assets consist of:

 

(in thousands)    March 31,
2012
     December 31,
2011
 

Prepaid expenses

   $ 631       $ 783   

Prepaid insurance

     132         170   

Supplies inventory

     249         231   

Other

     107         3   
  

 

 

    

 

 

 

Total

   $ 1,119       $ 1,187   
  

 

 

    

 

 

 

Accrued Liabilities consist of:

 

(in thousands)    March 31,
2012
     December 31,
2011
 

Accrued property taxes

   $ 152       $ 188   

Compensation-related liabilities

     1,741         1,827   

Other

     766         586   
  

 

 

    

 

 

 

Total

   $ 2,659       $ 2,601   
  

 

 

    

 

 

 

 

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of:

 

(in thousands)    Estimated
Useful Lives
(In Years)
   March 31,
2012
    December 31,
2011
 

Land

      $ 668      $ 668   

Buildings and improvements

   7, 10 and 18      7,343        7,343   

Equipment

   3 and 5      24,081        23,998   

Office furniture and equipment

   5 and 7      764        764   

Leasehold Improvements

   3 and 10      6,719        6,719   

Construction in progress

        1,157        1,046   
     

 

 

   

 

 

 
        40,732        40,538   

Less accumulated depreciation and amortization

        (18,423     (17,466
     

 

 

   

 

 

 
      $ 22,309      $ 23,072   
     

 

 

   

 

 

 

 

8


Depreciation expense for property, plant and equipment was $966,000 and $503,000 for the three months ended March 31, 2012 and 2011, respectively.

 

NOTE 5. INTANGIBLE ASSETS

Intangible assets consist of:

 

(in thousands)    March 31,
2012
    December 31,
2011
 

Patents and core technology

   $ 4,717      $ 4,672   

Accumulated amortization

     (2,033     (1,969
  

 

 

   

 

 

 

Intangible assets, net

   $ 2,684      $ 2,703   
  

 

 

   

 

 

 

Amortization expense for intangible assets was $64,000 and $63,000 for the three months ended March 31, 2012 and 2011, respectively. Estimated amortization expense for intangible assets is $250,000 annually for the years ending 2012 through 2016 and a total of $1.4 million thereafter.

 

NOTE 6. LONG-TERM DEBT

 

(in thousands)    March 31,
2012
    December 31,
2011
 

Long-term debt:

    

Capital leases

   $ 3,695      $ 4,246   

National Semiconductor promissory note

     485        478   

Mortgage note

     3,401        3,439   

Term loan

     2,500        3,750   
  

 

 

   

 

 

 
     10,081        11,913   

Current maturities of long-term debt

     (3,457     (4,202
  

 

 

   

 

 

 

Total

   $ 6,624      $ 7,711   
  

 

 

   

 

 

 

On February 29, 2012, we executed an Amended and Restated Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement provides for a maximum of $7.5 million working capital line of credit and a $6.0 million term loan with a fixed interest rate of 6.5% per annum. The borrowing base under the line of credit includes eligible raw materials, work in process and finished goods inventory, capped at $1 million for domestic inventory and $3 million for export inventory, further reduced by 50% of the outstanding balance under our term loan. The Loan Agreement provides for interest on the line of credit at a floating rate equal to the SVB prime lending rate plus 1.75% to 2.25% per annum depending upon cash balances maintained at SVB and borrowing base availability, with an expiration date of February 28, 2013. The Loan Agreement also required an additional principal payment against the term loan of $875,000 before March 31, 2012, which reduced our remaining 27 monthly principal payments to approximately $93,000 each, plus accrued interest. Security for the Loan Agreement includes all of the Company’s assets except for real estate and leased equipment. The Company draws upon the line of credit for working capital purposes and to fund capital requirements as needed.

As of March 31, 2012, we had $2.9 million outstanding on the secured line of credit facility, and remaining net availability under this facility of $3.3 million.

 

9


We are required to comply with certain covenants under the Loan Agreement, calculated on a monthly basis. These covenants include requirements to maintain a minimum EBITDA level and a minimum liquidity ratio, and restrictions on certain business actions, such as payment of cash dividends, without the consent of SVB. As of March 31, 2012, we were in compliance with all covenant requirements.

The Company currently has six capital leases outstanding totaling $3.7 million, with terms between two and three years and effective interest rates between 9% and 10%. Under these leases, we have standby letters of credit in favor of four of the lessors for approximately $1.8 million.

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 March 31, 2012, the present value of this promissory note was $485,000. We discounted the note at 5.75%. The face value of this note as of March 31, 2012 was $500,000.

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.

Payments of our outstanding promissory notes and leases are as follows as of March 31, 2012:

 

(in thousands)    2012      2013      2014      2015      2016      Thereafter      Total  

Term loan

   $ 833       $ 1,111       $ 556       $ —         $ —         $ —         $ 2,500   

National Semiconductor promissory note

     250         250         —           —           —           —           500   

Mortgage note

     121         168         179         190         2,743         —           3,401   

Capital leases

     1,650         1,312         1,152         —           —           —           4,114   

Less amount representing interest on the capital leases and promissory note

                       (434
                    

 

 

 

Total debt

                     $ 10,081   
                    

 

 

 

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

 

     March 31, 2012      December 31, 2011  
(in thousands)    Carrying
Amount
     Estimated
Fair Value
     Carrying
Amount
     Estimated
Fair Value
 

Term loan

   $ 2,500       $ 2,498       $ 3,750       $ 3,758   

National Semiconductor promissory note

     485         480         478         473   

Capital leases

     3,695         3,815         4,246         4,271   

Mortgage note

     3,401         3,313         3,439         3,389   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,081       $ 10,106       $ 11,913       $ 11,891   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

10


NOTE 7. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company has commitments under non-cancelable operating leases expiring through 2014 for various equipment, software, and facilities. Minimum future annual lease payments for leases that have initial or remaining non-cancelable terms in excess of one year as of March 31, 2012, are as follows:

 

Years Ending December 31:

   Operating
Leases

(in  thousands)
 

2012 (April to December)

   $ 206   

2013

     189   

2014

     39   
  

 

 

 

Total

   $ 434   
  

 

 

 

Total expense on all operating leases was $521,000 and $553,000 for the three months ending March 31, 2012 and 2011, respectively.

Manufacturing Alliances

In 2007, the Company and TI entered into a commercial manufacturing agreement for F-RAM memory products, which was amended in 2011 and 2012. Under that agreement, the Company provides certain design, testing and other activities associated with product development, and TI provides certain foundry and related services. As amended, the agreement provides for automatic renewals unless it is terminated for cause or notice of termination without cause is given prior to the end of any renewal period. If notice of termination without cause is given, the agreement terminates three years thereafter and the Company may place last orders and take delivery of product during the following year. The agreement contains various obligations of the parties, including obligations for us regarding minimum orders and negotiated pricing of products we purchase.

Purchase Commitments

At March 31, 2012, the Company had certain commitments which were not included on the condensed consolidated balance sheet at that date. These include outstanding capital purchase commitments of approximately $446,000 and wafer purchase commitments of approximately $2.7 million under current purchase orders and $3.8 million related to minimum monthly purchase commitments under an existing supplier contract.

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 our semiconductor manufacturing licensees in connection with use of our technology could materially and adversely impact the Company’s results of operations.

In June 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 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. After the first hearing held in 2010 and the second hearing in 2011, in 2013 all parties will submit their final motions. We intend to vigorously contest the trustee’s claims. We are unable to estimate a range of possible liability, if any, that we may incur as result of the trustee’s claims and have not recorded any expense or liability in the consolidated financial statements as of March 31, 2012.

 

11


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 8. STOCK-BASED COMPENSATION

Stock-based Compensation Plans

We grant stock options and restricted stock under the 2005 Incentive Award Plan (the “2005 Plan”). The previous and expired 1995 Stock Option Plan (the “1995 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, of which 1,603,544 shares were incorporated from our 1995 Plan. The additional shares from the 1995 Plan were incorporated into the 2005 Plan because the shares had not been issued, were subject to awards under the 1995 Plan that had expired, or were forfeited or became unexercisable for any reason. In accordance with the terms of the 2005 Plan, the shares were carried forward to and included in the reserve of shares available for issuance pursuant to 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 under the 2005 Plan, and the maximum term of each grant is ten years. The 2005 Plan permits the issuance of incentive stock options, the issuance of restricted stock, and other types of awards. The exercise of stock options and issuance of restricted stock and restricted stock units is satisfied by issuing authorized unissued common stock or treasury stock. As of March 31, 2012, we had not granted any incentive stock options.

The number of shares available for future grant under the 2005 Plan was 533,435 as of March 31, 2012.

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

Income Statement Classifications

 

(in thousands)    March 31, 2012      March 31, 2011  

Cost of product sales

   $ 78       $ 35   

Research and development

     126         83   

Sales and marketing

     60         82   

General and administrative

     169         147   
  

 

 

    

 

 

 

Total

   $ 433       $ 347   
  

 

 

    

 

 

 

Stock Options

Stock options granted become exercisable in full or in installments pursuant to the terms of each agreement evidencing options granted. As of March 31, 2012, there was approximately $920,000 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 three years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

 

12


The following table summarizes stock option activity related to our Plans for the quarter ended March 31, 2012:

 

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

Outstanding at December 31, 2011

     3,962      $ 2.88   

Granted

     —          —     

Forfeited

     —          —     

Exercised

     —          —     

Expired

     (5   $ 3.78   
  

 

 

   

Outstanding at March 31, 2012

     3,957      $ 2.88   
  

 

 

   

The intrinsic value of $118,000 for outstanding options is the difference between the market value as of March 31, 2012, and the exercise price of the options that are below the market value. The closing market value as of March 31, 2012, was $1.99 as reported by the Nasdaq Global Market.

Restricted Stock

Restricted stock grants generally vest one to four years from the date of grant. 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. As of March 31, 2012, there was approximately $2.1 million of unrecognized compensation cost related to non-vested restricted shares, which will be recognized over a weighted-average period of 3.3 years.

A summary of non-vested restricted shares during the quarter ended March 31, 2012, is as follows:

 

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

Outstanding at December 31, 2011

     985      $ 2.53   

Granted

     540      $ 2.10   

Forfeited

     (19   $ 2.88   

Vested/Released

     (264   $ 2.43   
  

 

 

   

Outstanding at March 31, 2012

     1,242      $ 2.37   
  

 

 

   

Restricted Stock Units

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.

 

13


A summary of the Company’s restricted stock units, as of March 31, 2012, is as follows:

 

     Number of
Restricted Units
    Weighted Average
Remaining
Contractual Term
 
     (in thousands)     (in years)  

Outstanding at December 31, 2011

     252     

Granted

     —       

Forfeited

     (14  

Vested/Released

     (68  
  

 

 

   

Outstanding at March 31, 2012

     170        1.14   
  

 

 

   

As of March 31, 2012, there was approximately $417,000 remaining in unrecognized compensation costs related to unvested outstanding restricted stock units, with a weighted-average recognition period of 1.5 years.

 

NOTE 9. INCOME TAXES

The Company estimates its annual effective tax rate at the end of each quarter. In making these estimates, the Company considers, among other things, annual pre-tax income, the application and interpretation of tax laws, treaties and judicial developments, in collaboration with its tax advisors.

The following table presents the provision for income taxes and the effective tax rates:

 

     Three Months Ended  
(in thousands)    March 31,
2012
    March 31,
2011
 

Income (loss) before income taxes

   $ 788      ($ 3,733

(Provision for) benefit from income taxes

     (343     1,355   

Effective tax rate

     43.5     36.3

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.

 

14


At March 31, 2012 and December 31, 2011, our deferred tax asset and related valuation allowance were as follows:

 

(in thousands)    March 31,
2012
    December 31,
2011
 

Gross deferred tax assets

   $ 29,987      $ 30,384   

Less valuation allowance

     (24,327     (24,359
  

 

 

   

 

 

 

Net deferred tax assets

   $ 5,660      $ 6,025   
  

 

 

   

 

 

 

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.

The following table sets forth the calculation of net income (loss) per common share for the three months ended March 31, 2012 and 2011:

 

     Three Months Ended
March 31,
 
(in thousands, except per share amounts)    2012     2011  

Net income (loss)

   $ 445      $ (2,378
  

 

 

   

 

 

 

Common shares outstanding:

    

Historical common shares outstanding at beginning of period

     34,838        27,540   

Less: Non-vested restricted stock at beginning of period

     (985     (191

Weighted average common shares issued during period

     33        113   
  

 

 

   

 

 

 

Weighted average common shares at end of period—basic

     33,886        27,462   
  

 

 

   

 

 

 

Effect of other dilutive securities:

    

Options

     48        —     

Restricted stock awards and units

     196        —     
  

 

 

   

 

 

 

Weighted average common shares at end of period—diluted

     34,130        27,462   
  

 

 

   

 

 

 

Net income (loss) per share:

    

- basic and diluted

   $ 0.01      $ (0.09
  

 

 

   

 

 

 

As of March 31, 2012 and March 31, 2011, we had 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:

 

     Three Months Ended March 31,  
(in thousands)    2012      2011  

Stock Options

     3,725         5,126   

Restricted stock/units

     672         788   

 

15


NOTE 11. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS

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

We sell our products to direct customers and to electronic components distributors. Net sales by customer type, by geographic area and to significant customers were as follows:

 

     Percentage of Net Sales  
     Three Months Ended
March 31, 2012
    Three Months Ended
March 31, 2011
 

Sales to distributors

     81     78

Sales to direct customers

     19     22
  

 

 

   

 

 

 
     100     100
  

 

 

   

 

 

 

Geographic area net revenue:

    

United States

     21     6

International

     79     94
  

 

 

   

 

 

 
     100     100
  

 

 

   

 

 

 

Significant distributors/customers:

Tokyo Electron Device

     14     10

Digi-Key

     10     —     

MSC Vertriebs GMBH

     8     17
    

Except as presented above, no other direct customer or distributor accounted for greater than 10%of our net sales for the three months ended March 31, 2012, or March 31, 2011.

Balances due from our significant distributors or direct customers at March 31, 2012 and December 31, 2011, as a percentage of total gross accounts receivable, were as follows:

 

 

     Percentage of Gross Accounts Receivable  
     March 31, 2012     December 31, 2011  

Digi-Key

     15     2

MSC Vertriebs GMBH

     12     —     

Tokyo Electron Device

     10     7

Action Technology

     8     23

No other direct customer or distributor accounted for more than 10% of our accounts receivable as of March 31, 2012 or December 31, 2011.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS; FACTORS AFFECTING FUTURE RESULTS

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

 

16


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, 2011. 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,” “targeting,” and “potential,” or other similar words. The information included in this Form 10-Q is provided as of the filing date with the Securities and Exchange Commission and future events or circumstances could differ significantly from the forward-looking statements included herein.

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 and allow limited rights of return to certain customers. 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, or 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 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 that will ultimately not be collected.

An allowance for sales returns 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. We estimate these rebates at the time of sale and record a related allowance. At March 31, 2012 and December 31, 2011, the Company’s reserve for sales returns was $2.6 million and $2.3 million, respectively.

 

17


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 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.

Intangible Assets. Intangible assets are recorded at cost and are amortized on a straight-line basis over their estimated useful lives, ranging from 15 to 17 years, and reviewed for impairment when events or changes in circumstances indicate that the intangible asset may be impaired. The amounts capitalized for patents are primarily the cost of securing the patent. Expenditures incurred to renew or extend the life of intangible assets are expensed.

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.

Warranty Costs. We make periodic provisions for expected warranty costs. Historically, warranty costs have been insignificant.

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

Business Highlights for the Quarter Ended March 31, 2012

 

   

Revenue for the first quarter of 2012 was 41% higher than the first quarter of 2011, and order flow began to normalize following last year’s supply constraints.

 

   

We expanded distribution by signing a global distribution agreement with Digi-Key Corporation, an electronic components distributor that is recognized by design engineers around the world as having the industry’s largest selection of electronic components available for immediate shipment. By taking advantage of Digi-Key’s comprehensive product launch, technical training, and online support infrastructure, the Company extends the worldwide reach of its F-RAM-based semiconductor solutions.

 

18


   

New product development was enhanced by entering into a partnership with Revere Security Corporation to enable the integration of Revere’s Hummingbird security technology into our nonvolatile F-RAM products. The Company and Revere Security are working together on joint product development and go-to-market approaches for secure semiconductor solutions that satisfy the growing need for industrial-strength cryptographic solutions in applications that benefit from fast communications and frequent key exchanges at very low energy consumption.

Product Highlights for the Quarter Ended March 31, 2012

 

   

Announced a 2-megabit (Mb) high-performance serial F-RAM device, which is a cost-effective drop-in replacement for 2Mb serial Flash and EEPROM memories in a large number of applications including industrial controls, metering, medical, military, gaming, and computing systems.

 

   

Unveiled and sampled to customers the world’s lowest energy nonvolatile memory products. The Ultra Low Energy F-RAM memories achieve levels of power consumption that are not possible with older and more power hungry nonvolatile memory technologies, such as EEPROM. The devices open up new possibilities in power-sensitive “green” system design and promise to pave the way for the development of ultra-efficient battery powered products and energy harvesting applications, among others.

 

   

Disclosed how the Ramtron FM31L278 F-RAM-enabled Processor Companion offers compelling benefits to users of thermal label printers made by cab Produkttechnik GmbH & Co KG (“cab”). Designed with industrial e-metering, electronic point-of-sales, and inventory management products in mind, the Ramtron Processor Companion provides the fast read/write performance and unlimited endurance of nonvolatile F-RAM with a real-time clock, processor supervisor, and other common peripherals in a single package. The cab printer takes full advantage of the FM31L278 to improve the user experience for cab customers by providing precision, operational continuity, and ease-of-control.

Financial Highlights for the Quarter Ended March 31, 2012

 

   

Total revenue for the three months ended March 31, 2012 was $15.0 million, an increase of 41% from $10.6 million in the three months ended March 31, 2011.

 

   

Net income was $445,000, or $0.01 per share, for the three months ended March 31, 2012, compared with a net loss of $2.4 million, or ($0.09) per share, for the three months ended March 31, 2011.

 

   

Product gross margin for the three months ended March 31, 2012 was 52%, which was 4% higher than a gross margin of 48% for the three months ended March 31, 2011.

 

   

We executed a revised loan agreement with Silicon Valley Bank to provide for a $7.5 million working capital line of credit through February 28, 2013.

Business Outlook for 2012

The following statements are based on our current expectations of results for the full-year 2012. These statements are forward looking, and actual results may differ materially from those set forth in these statements. We intend to continue our policy of not updating forward-looking statements other than in publicly available documents, even if experience or future changes show that anticipated results or events will not be realized.

With indications of improving demand and ample supply available for immediate delivery, we expect revenue and profits to grow throughout the year, which will reduce inventory and generate cash, strengthening our balance sheet.

 

19


For full-year 2012:

 

   

We are reaffirming our total revenue target of approximately $70 million with a gross product margin of 52%.

 

   

We expect total operating expenses of 46% of total revenue; by expense line item, sales and marketing to be 14% of total revenue, research and development to be 23% of total revenue, and general and administrative to be 9% of total revenue.

 

   

Reflecting first quarter 2012 earnings per share of $0.01, and operational efficiencies, management now expects net income of approximately $0.06 per share for the full-year 2012.

 

   

Based on our revenue forecast, we expect to reduce inventories by approximately $8 million by the end of the year.

For the remainder of 2012, management plans to:

 

   

Introduce an upgrade to our wireless memory product;

 

   

Introduce the Company’s first secure memory product;

 

   

Introduce the Company’s first system-on-chip platform product.

PERIOD COMPARISONS FOR THE

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

Revenue

 

     Three Months Ended
March  31,
 
(in thousands, except average selling price)    2012     2011  

Product sales

   $ 14,918      $ 10,440   

% change compared to prior period

     43  

Units shipped

     11,243        9,141   

% change compared to prior period

     23  

Average selling price

   $ 1.33      $ 1.14   

% change compared to prior period

     17  

Other revenue

   $ 43      $ 204   

% change compared to prior period

     (79 %)   

Total revenue

   $ 14,961      $ 10,644   

% change compared to prior period

     41  

Product revenue was $14.9 million for the three months ended March 31, 2012, which was an increase of $4.5 million from the same period in 2011. This increase was due to the resolution of our supply constraints experienced in the first quarter of 2011, resulting in a 23% increase in units shipped. We also realized a 17% increase in average selling price as a result of a larger proportion of our higher density parts being sold in the current quarter, which have higher average selling prices.

Other revenue of $43,000 for the three months ended March 31, 2012 consisted solely of royalty revenue, compared to $204,000 of other revenue for the same period in 2011. The decrease resulted from less revenue from license and development fees, due to the expiration of a technology licensing agreement that we entered into 10 years ago.

Cost of Product Sales

 

     Three Months Ended
March  31,
 
(in thousands)    2012     2011  

Cost of product sales

   $ 7,160      $ 5,461   

Gross margin percentage

     52     48

 

20


Cost of product sales was $7.2 million, which was an increase of $1.7 million from the same period in 2011. This increase was due to a $4.5 million increase in product sales. Gross product margin increased from 48% to 52%, which was due to yield improvements, coupled with lower overhead costs on increased volumes, compared to the prior year quarter.

Research and Development Expense

 

     Three Months Ended
March  31,
 
(in thousands)    2012     2011  

Research and development expense

   $ 3,355      $ 4,533   

Percent of total revenue

     22     43

Research and development expense was $3.4 million, which was a decrease of $1.2 million from the same period in 2011. This decrease was due primarily to reduced operating expenses, combined with reduced cost of engineering wafers associated with the IBM foundry of approximately $700,000, reduced mask charges of $130,000, and salary reductions of $140,000, during the three months ended March 31, 2012.

Sales and Marketing Expense

 

      Three Months Ended
March  31,
 
(in thousands)    2012     2011  

Sales and marketing expense

   $ 2,130      $ 2,060   

Percent of total revenue

     14     19

Sales and marketing expense was $2.1 million, which was flat with the same period in 2011. For the three months ended March 31, 2012, salary and commission reductions were offset by increased accrued severance payments.

General and Administrative Expense

 

     Three Months Ended
March  31,
 
(in thousands)    2012     2011  

General and administrative expense

   $ 1,289      $ 2,054   

Percent of total revenue

     9     19

General and administrative expenses were $1.3 million, which was a decrease of $765,000 from the same period in 2011. This decrease was due primarily to an accrual of $400,000 in the first quarter of 2011 for salary and benefits relating to the resignation of our former CEO, combined with reduced salary and benefits of approximately $60,000 in connection with salary reductions taken during the first quarter of 2012, and a decrease in miscellaneous operating expenses and fees of $160,000 in 2012.

Other Non-Operating Income (Expenses)

 

     Three Months Ended
March  31,
 
(in thousands)    2012     2011  

Interest expense

   $ (221   $ (213

Other expense

   $ (18   $ (56

Income tax (expense) benefit

   $ (343   $ 1,355   

Interest expense was $221,000 for the three months ended March 31, 2012, which was essentially flat with the same period in 2011.

 

21


Other expense was $18,000 for the three months ended March 31, 2012, compared to $56,000 for the same period in 2011. The decrease of $38,000 is primarily due to a decrease in foreign exchange losses incurred in the current quarter.

For the three months ended March 31, 2012, the Company recorded a $343,000 income tax expense, compared to a $1.4 million income tax benefit for the three months ended March 31, 2011, as a result of our operating loss for that quarter.

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 March 31, 2012 and 2011, are summarized as follows:

 

(in thousands)    2012     2011  

Cash provided by (used in):

    

Operating activities

   $ (811   $ (1,051

Investing activities

     (344     (317

Financing activities

     781        (277

Effect of exchange rate changes on cash

     (6     (8
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

   $ (380   $ (1,653
  

 

 

   

 

 

 

Cash Flow from Operating Activities

The net amount of cash used in operating activities during the quarter ended March 31, 2012 was $811,000, which was due primarily to increases in inventory of $2.9 million, offset by our net income and non-cash charges of $2.5 million.

The net amount of cash used in operating activities during the quarter ended March 31, 2011 was $1.1 million, which was due primarily to our net loss of $2.4 million, less adjustments for non-cash items and changes in working capital. Contributions to operating cash flow included a decrease in accounts receivable of $2.5 million. Uses of operating cash included an increase in our inventory of $1.9 million from the prior fiscal quarter.

Cash Flows from Investing Activities

The net amount of cash used in investing activities, during the quarters ended March 31, 2012 and March 31, 2011, was $344,000 and $317,000, respectively, which was primarily related to capital equipment purchases.

Cash Flow from Financing Activities

For the quarter ending March 31, 2012, the primary source of cash from financing activities was a $2.9 million net advance under our line of credit. This was partially offset by $1.8 million of principal payments on our term loan and capital leases.

The net amount of cash used in financing activities, for the quarter ending March 31, 2011, was $277,000. This was due to principal payments of debt of $800,000, partially offset by proceeds from issuance of common stock related to stock option exercises.

Liquidity

Our future liquidity depends primarily on revenue, gross margins, control of operating expenses, management of our working capital and capital expenditures, and our ability to obtain financing. Based upon our expected future

 

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demand, current sales backlog and consumption of our inventory, we believe that we have sufficient resources from cash on hand, funds from operations, and availability under our secured line of credit facility to fund operations through at least the fourth quarter of 2013.

The Company had $4.4 million in cash and cash equivalents at March 31, 2012. We also have approximately $3.3 million available to us under our $7.5 million secured line of credit facility. As of March 31, 2012, we had $2.9 million outstanding under this facility, which has been extended until February 28, 2013.

Our cash and cash equivalents decreased by $5.2 million during 2011, primarily due to the funding of an $18.7 million increase in total inventories. As the semiconductor industry began to weaken toward the end of 2011, we reduced wafer orders during the fourth quarter of 2011, but some were non-cancellable, which caused the increase in our inventory at year-end. Inventories further increased by $2.9 million during the first quarter of 2012, but we expect to decrease inventories through the remainder of 2012. We are focused on returning to desired inventory levels and converting the inventory into cash through product sales.

Expenditures incurred for capital and engineering support for our IBM foundry project from inception to date have been approximately $32 million. Wafer production began on this line during 2011 and initial commercial shipments to customers began during the quarter ended March 31, 2012.

Our existing loan agreement with SVB requires SVB to approve any additional debt financing we may seek to obtain, other than specific approved debt, such as lease lines of credit. We may be required to seek additional debt or equity funds to repay our existing debt or execute our business strategy. Any issuance of equity securities to obtain additional funds would result in dilution of our existing stockholders’ interests.

Debt Instruments

On February 29, 2012, we executed an Amended and Restated Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement provides for a maximum of $7.5 million working capital line of credit and a $6.0 million term loan with a fixed interest rate of 6.5% per annum. The borrowing base under the line of credit includes eligible raw materials, work in process and finished goods inventory, capped at $1 million for domestic inventory and $3 million for export inventory, further reduced by 50% of the outstanding balance under our term loan. The Loan Agreement provides for interest on the line of credit at a floating rate equal to the SVB prime lending rate plus 1.75% to 2.25% per annum depending upon cash balances maintained at SVB and borrowing base availability, with an expiration date of February 28, 2013. The Loan Agreement also required an additional principal payment against the term loan of $875,000 before March 31, 2012, which reduced our remaining 27 monthly principal payments to approximately $93,000 each, plus accrued interest. Security for the Loan Agreement includes all of the Company’s assets except for real estate and leased equipment. The Company draws upon the loan facility for working capital purposes and to fund capital requirements as needed.

As of March 31, 2012 we had $2.9 million outstanding on the secured line of credit facility, with a remaining net availability under this facility of $3.3 million.

If we cannot sell and ship product consistently throughout the quarter, our borrowing base relating to accounts receivable could be materially impacted. If we cannot generate sufficient cash from operations or obtain a sufficient borrowing base on our secured line of credit facility, we may seek to obtain additional equity or debt financing. Additional debt financing would require approval from SVB in accordance with the covenants in our existing agreements. In addition, since our covenants are measured on a monthly basis, we could be at risk of violating our liquidity ratio covenant if our revenue is not consistent throughout the quarter.

We currently have six capital leases outstanding, totaling approximately $3.7 million, with terms between two and three years and effective interest rates between 9% and 10%. These leases have standby letters of credit in favor of four of the lessors for approximately $1.8 million.

In April 2004, we entered into a patent interference settlement agreement with National Semiconductor Corporation. We are required to pay National Semiconductor Corporation $250,000 annually through 2013. As of March 31, 2012, the present value of this promissory note is $485,000. We recorded this note at the discounted present value assuming an annualized discount rate of 5.75%. The face value of this note as of March 31, 2012 was $500,000.

 

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On December 15, 2005, Ramtron LLC, our wholly-owned subsidiary, closed on 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%. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. We do not use derivative financial instruments in our investment portfolio. Our investment portfolio is generally comprised of U.S. money market accounts and cash deposits. Our policy is to invest in instruments that meet high credit quality standards and have maturities of less than one and one half years with an overall average maturity of less than 90 days. These securities are subject to interest rate risk and could decline in value if there is a major change in interest rates. Due to the short duration of the securities in which we have balances outstanding, and the conservative nature of our debt instruments, a 10% move in interest rates over a one-year period would have an immaterial effect on our financial position, results of operations and cash flows.

The interest rate on our current secured line of credit facility is set as a floating rate equal to the SVB prime lending rate plus 1.75% to 2.25% per year. If we had outstanding borrowings of $7.5 million under our existing secured line of credit facility, the current credit limit, a 10% move in the interest rate over a one-year period would have an approximate $30,000 effect on our results of operations and cash flow.

Foreign Currency Exchange Rate Risk. The majority of our sales and research and development and marketing expenses are now transacted in U.S. dollars. We have a small amount of open sales orders relating to Yen based sales. These open orders are immaterial and are expected to be completed by the end of the second quarter of 2012.

Interest payable on the Company’s mortgage note is fixed at 6.17% over the term of the loan. In addition, our capital leases are based upon fixed rates negotiated at the inception of the lease.

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 March 31, 2012, 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.

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.

 

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In June 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 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. After the first hearing in 2010 and the second in 2011, all parties will submit their final motions in 2013. We intend to vigorously contest the trustee’s claims. We are unable to estimate a range of possible liability, if any, that we may incur as a result of the trustee’s claims and have not recorded any expense or liability in the consolidated financial statements as of March 31, 2012.

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 of $445,000 during the quarter ended March 31, 2012, which followed a net loss of $1.8 million for the year ended December 31, 2011. Our ability to generate 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 March 31, 2012, our accumulated deficit was $219 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 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. Under our existing financing arrangements, we would be required to obtain approval from our current lender, Silicon Valley Bank (SVB), for any additional debt financing. 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.

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

We are required to comply with certain covenants under our loan agreement, as amended, and our line of credit, as amended, including requirements to maintain a minimum EBITDA and maintain certain liquidity ratios, and restrictions on certain business actions without the consent of SVB. SVB may require new and more restrictive covenants in the future, with increased costs to the Company. If we are not able to comply with such covenants at a

 

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point of time in the future, our outstanding loan balance will become 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.

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 and wireless communication technologies. 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, flood, 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.

 

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

If a major earthquake, power outage or other natural disaster occurs that damages our contract manufacturers’ facilities or restricts their operations, or interrupts our suppliers’ or 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.

General economic trends and other factors, including another worldwide credit crisis, may negatively affect our business.

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 of products, or we could be obligated to accept product returns. Any of the foregoing could cause us to incur substantial costs and harm our business. 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.

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 TI and IBM for commercial manufacturing of our F-RAM products. Our foundry agreements with TI and with IBM may not be renewed at the end of the contract term or negotiation of new contract terms may not be acceptable. In this event, the engagement of alternative 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.

 

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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 require process design changes and 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, raw material shortages, or increased prices 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.

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 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 effect on our revenues and results of operations. Our competitors include companies such as ST Microelectronics, Everspin Technologies, Cypress Semiconductor, Microchip Technology, Atmel, Fujitsu, TI, and Maxim Integrated, that produce or may 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.

 

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A memory technology other than F-RAM nonvolatile memory technology, such as the competitive technologies mentioned above, 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. Additionally, the inability to supply customer orders with our F-RAM products on a timely basis may also cause those customers to sample or purchase alternative memory products, and thereafter choose to continue using such alternative products even after our F-RAM product supply availability returns.

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 March 31, 2012, was $3.4 million, or 22% of our total revenue.

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 selling 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 experience difficulties in manufacturing our existing products on our established or new manufacturing lines, we may have to commit our design and R&D resources to resolving those issues, which may delay the development of new products and compromise our competitive market position.

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 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.

 

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We depend on IBM and Texas Instruments, our only F-RAM product 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 and sell products based on our F-RAM technology and memory architecture to certain independent semiconductor device manufacturers. Fujitsu and TI, who are currently licensed to use our F-RAM technology, 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. We are not entitled to royalties from TI and TI may give the development and manufacture of their own F-RAM products a higher priority than given to our products. 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.

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 March 31, 2012, approximately 46% of our total product sales revenue was generated by five customers. Our top customers include our 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 that we would be able to replace these relationships in a timely manner or at all.

Our product allocations and inability to fulfill all of our customers’ orders on a timely basis during the first half of 2011 may have caused certain customers to seek substitute products from our competitors, or to design-out our products and substitute alternative technologies and systems. If any of our significant customers or a substantial number of our other customers find alternative suppliers or adopt alternative means of filling the need for our products, our future orders may be less than anticipated, which may result in increased inventories and decreasing revenues, which would materially and adversely affect our cash flows, operating results and financial condition.

In addition, approximately 80% of our product sales for 2011 and the first quarter of 2012 are through our distributor network. These distributors have a right of return for a percentage of their purchases and we could overstate our revenues if we underestimate the potential rate of returns.

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. 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.

 

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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. 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.

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.

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;

 

31


   

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 approximately 11% 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.

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. On March 2, 2011, the rights agreement was amended and its expiration extended to April 19, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) Issuer Purchases of Equity Securities:

 

Period

   Total
Number of
Shares
Purchased
     Average
Price Paid
per Share
     Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
     Maximum
Number of
Shares That May

Yet Be
Purchased Under
the Plans or
Programs
 

January 1 – January 31, 2012 (1)

     16,969       $ 2.07         —           —     

February 1 – February 29, 2012 (1)

     84,715         2.13         —           —     

March 1 – March 31, 2012

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     101,684       $ 2.12         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Represents shares withheld from vested restricted stock and restricted stock units to satisfy the minimum withholding requirement for federal and state taxes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

 

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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
101.INS    XBRL Instance document ***
101.SCH    XBRL Taxonomy extension schema ***
101.CAL    XBRL Taxonomy extension calculation linkbase ***
101.DEF    XBRL Taxonomy extension definition linkbase ***
101.LAB    XBRL Taxonomy extension label linkbase ***
101.PRE    XBRL Taxonomy extension presentation linkbase ***

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the quarters ended March 31, 2012 and 2011, (ii) Condensed Consolidated Balance Sheet at March 31, 2012 and December 31, 2011, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 and (iv) Notes to Condensed Consolidated Financial Statements. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

*** Submitted electronically herewith.

 

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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/ Gery E. Richards

Gery E. Richards
Interim Chief Financial Officer
(Principal Accounting Officer and
Duly Authorized Officer of the Registrant)

Date: May 4, 2012

 

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