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10-Q 1 d344913d10q.htm FORM 10-Q Form 10-Q

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 June 30, 2012

¨	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.

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:


35,432,809 shares		As of July 31, 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 June 30, 2012 and December 31, 2011		3
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2012 and 2011		4
	Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2012		5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011		6
	Notes to Consolidated Financial Statements		7

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3 -	Quantitative and Qualitative Disclosures About Market Risk		26

Item 4 -	Controls and Procedures		26

PART II - OTHER INFORMATION

Item 1-	Legal Proceedings		27

Item 1A -	Risk Factors		27

Item 2 -	Unregistered Sales of Equity Securities and use of Proceeds		35

Item 3 -	Defaults Upon Senior Securities		35

Item 5 -	Other Information		35

Item 6 -	Exhibits		36

PART I - FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2012 AND DECEMBER 31, 2011

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


	June 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,150		$	4,736
Accounts receivable, less allowances of $2,382 and $2,307, respectively		5,142			7,556
Inventories		20,713			20,250
Deferred income taxes, net		398			338
Other current assets		993			1,187

Total current assets		31,396			34,067

Inventories, long-term		3,388			2,581
Property, plant and equipment, net		22,040			23,072
Intangible assets, net		2,699			2,703
Long-term deferred income taxes, net		5,137			5,687
Other assets		469			466

Total assets	$	65,129		$	68,576


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,261		$	6,185
Accrued liabilities		1,718			2,601
Current portion of long-term debt		3,393			4,202
Line of credit		1,500			—

Total current liabilities		9,872			12,988
Other long-term liabilities		210			210
Long-term debt, less current portion		6,258			7,711

Total liabilities		16,340			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: 35,448,386 and 34,838,240 shares issued and outstanding, respectively		354			348
Additional paid-in capital		267,288			266,668
Accumulated other comprehensive loss		(397	)		(378	)
Accumulated deficit		(218,456	)		(218,971	)

Total stockholders’ equity		48,789			47,667

Total liabilities and stockholders’ equity	$	65,129		$	68,576

See accompanying notes to consolidated financial statements.

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Amounts in thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30, 2012			Three Months Ended June 30, 2011			Six Months Ended June 30, 2012			Six Months Ended June 30, 2011
Revenue:
Product sales	$	14,203		$	16,581		$	29,164		$	27,046
License fees		—			179			—			358

		14,203			16,760			29,164			27,404

Costs and expenses:
Cost of product sales		6,837			8,854			13,998			14,315
Research and development		3,232			4,234			6,586			8,767
Sales and marketing		2,293			2,605			4,422			4,665
General and administrative		1,394			1,826			2,683			3,880

		13,756			17,519			27,689			31,627

Operating income (loss)		447			(759	)		1,475			(4,223	)
Interest expense		(215	)		(206	)		(436	)		(420	)
Other income (expense), net		4			12			(13	)		(44	)

Income (loss) before income tax (provision) benefit		236			(953	)		1,026			(4,687	)
Income tax (provision) benefit		(167	)		270			(511	)		1,625

Net income (loss)	$	69		$	(683	)	$	515		$	(3,062	)


Other comprehensive (loss), net of tax:
Foreign currency translation adjustments		(11	)		(13	)		(19	)		(21	)

Comprehensive income (loss)	$	58		$	(696	)	$	496		$	(3,083	)


Net income (loss) per share:
Basic and diluted	$	0.00		$	(0.02	)	$	0.02		$	(0.11	)

Weighted average shares outstanding:
Basic		34,102			27,964			34,042			27,714

Diluted		34,344			27,964			34,287			27,714

See accompanying notes to consolidated financial statements.

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(Amounts in thousands, except par value amounts)

(Unaudited)


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

Balances, December 31, 2011		34,838	$	348	$	266,668		$	(378	)	$	(218,971	)	$	47,667
Exercise of options		47		1		106			—			—			107
Stock-based compensation expense		—		—		801			—			—			801
Shares and cash issued for restricted stock and restricted stock units ⁽¹⁾		563		5		(287	)		—			—			(282	)
Foreign currency translation adjustments		—		—		—			(19	)		—			(19	)
Net income		—		—		—			—			515			515

Balances, June 30, 2012		35,448	$	354	$	267,288		$	(397	)	$	(218,456	)	$	48,789

(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.

RAMTRON INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Unaudited)

(Amounts in thousands)


	June 30,			June 30,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	515		$	(3,062	)
Adjustments used to reconcile net income to net cash used in operating activities:
Depreciation		1,962			1,029
Amortization		126			126
Net loss from asset dispositions		7			—
Bad debt recovery		(6	)		(28	)
Stock-based compensation		801			788
Deferred income taxes		490			(1,653	)
Imputed interest on note payable		11			19
Provision for inventory write-off and scrap		340			531

Changes in assets and liabilities:
Accounts receivable		2,420			(478	)
Inventories		(1,610	)		(5,824	)
Accounts payable and accrued liabilities		(4,005	)		3,520
Deferred revenue		—			(319	)
Other		191			640

Net cash provided by (used in) operating activities		1,242			(4,711	)


Cash flows from investing activities:
Purchase of property, plant and equipment		(349	)		(2,762	)
Proceeds from sale of assets		14			—
Purchase of intellectual property		(122	)		(116	)

Net cash used in investing activities		(457	)		(2,878	)


Cash flows from financing activities:
Proceeds from line of credit		4,375			1,500
Payments on line of credit		(2,875	)		—
Principal payments on debt		(2,677	)		(1,812	)
Net issuance (purchase) of common stock		(175	)		1,252

Net cash provided by (used in) financing activities		(1,352	)		940


Effect of foreign currency		(19	)		(23	)

Net decrease in cash and cash equivalents		(586	)		(6,672	)

Cash and cash equivalents, beginning of period		4,736			9,945

Cash and cash equivalents, end of period	$	4,150		$	3,273

Supplemental disclosure of cash flow information:
Cash paid for interest	$	402		$	432

Cash paid for income taxes	$	72		$	70

Property, plant and equipment financed by capital leases	$	404			—

See accompanying notes to consolidated financial statements.

RAMTRON INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 June 30, 2012, and for the three and six months ended June 30, 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 June 30, 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.

NOTE 2.

INVENTORIES

Inventories consist of the following as of June 30, 2012 and December 31, 2011:


(in thousands)	June 30, 2012		December 31, 2011

Finished goods	$	6,606	$	3,726
Work in process - current portion		14,107		16,524

	$	20,713	$	20,250


Work in process - long-term ⁽¹⁾	$	3,388	$	2,581

(1)	Long-term inventory relates to items that the Company does not forecast to sell within one year, based upon expected sales as a result of our analysis of current orders, backlog and forecast of future demand. Management believes this inventory will be sold in the future and is fully recoverable.

NOTE 3.

OTHER CONSOLIDATED FINANCIAL STATEMENT DETAIL

Other Current Assets consist of:


(in thousands)	June 30, 2012		December 31, 2011

Prepaid expenses	$	549	$	783
Prepaid insurance		116		170
Supplies inventory		244		231
Other		84		3

Total	$	993	$	1,187

Accrued Liabilities consist of:


(in thousands)	June 30, 2012		December 31, 2011

Compensation-related liabilities	$	641	$	1,827
Accrued property taxes		84		188
Accrued external commissions		319		230
Other		674		356

Total	$	1,718	$	2,601

NOTE 4.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of:


(in thousands)	Estimated Useful Lives (In Years)	June 30, 2012			December 31, 2011

Land	—	$	668		$	668
Buildings and improvements	7, 10 and 18		7,343			7,343
Equipment	3 and 5		23,465			23,998
Office furniture and equipment	5 and 7		385			764
Leasehold Improvements	3 and 10		7,101			6,719
Construction in progress	—		1,152			1,046

			40,114			40,538
Less accumulated depreciation and amortization			(18,074	)		(17,466	)

		$	22,040		$	23,072

Depreciation expense for property, plant and equipment was $996,000 and $526,000 for the three months ended June 30, 2012 and 2011, respectively and $1.9 million and $1.0 million for the six months ended June 30, 2012 and 2011, respectively.

NOTE 5.

INTANGIBLE ASSETS

Intangible assets consist of:


(in thousands)	June 30, 2012			December 31, 2011

Patents and core technology	$	4,795		$	4,672
Accumulated amortization		(2,096	)		(1,969	)

Intangible assets, net	$	2,699		$	2,703

Amortization expense for intangible assets was $63,000 for each of the three month periods ended June 30, 2012 and 2011, and $126,000 for each of the six month periods ended June 30, 2012 and 2011. Estimated amortization expense for intangible assets is $250,000 annually for the years ending 2012 through 2016 and a total of $1.6 million thereafter.

NOTE 6.

LONG-TERM DEBT


(in thousands)	June 30, 2012			December 31, 2011

Long-term debt:
Capital leases	$	3,578		$	4,246
National Semiconductor promissory note		490			478
Mortgage note		3,361			3,439
Term loan		2,222			3,750

		9,651			11,913
Current maturities of long-term debt		(3,393	)		(4,202	)

Total	$	6,258		$	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 accounts receivable and eligible raw materials, work in process and finished goods inventory, capped at $1.0 million for domestic inventory and $3.0 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 June 30, 2012, we had $1.5 million outstanding on the secured line of credit facility, at an interest rate of 5.75%, and remaining net availability under this facility of $3.2 million.

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 June 30, 2012, we were in compliance with all covenant requirements.

The Company currently has seven capital leases outstanding totaling $3.6 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 five of the lessors for approximately $1.7 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 June 30, 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 June 30, 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 June 30, 2012:


(in thousands)	2012		2013		2014		2015		2016		Total

Term loan	$	556	$	1,110	$	556	$	—	$	—	$	2,222
National Semiconductor promissory note		250		250		—		—		—		500
Mortgage note		81		168		179		190		2,743		3,361
Capital leases		1,143		1,467		1,388		—		—		3,998
Less amount representing interest on the capital leases and promissory note												(430	)

Total debt											$	9,651

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


	June 30, 2012				December 31, 2011
(in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Term loan	$	2,222	$	2,215	$	3,750	$	3,758
National Semiconductor promissory note		490		485		478		473
Capital leases		3,578		3,679		4,246		4,271
Mortgage note		3,361		3,258		3,439		3,389

	$	9,651	$	9,637	$	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.

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 June 30, 2012, are as follows:


Years Ending December 31:	Operating Leases (in thousands)

2012 (July to December)	$	133
2013		189
2014		39

Total	$	361

Total expense on all operating leases was $552,000 and $515,000 for the three months ending June 30, 2012 and 2011, respectively, and $1.1 million for the each of the six month periods ending June 30, 2012 and 2011.

Manufacturing Alliances

In 2007, the Company and Texas Instruments (“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.

On July 20, 2012, we executed a long-term, multi-year Manufacturing and License Partnering Agreement with ROHM Co., Ltd. (“ROHM”), which provides for ROHM to manufacture F-RAM semiconductor product wafers for us on ROHM’s established manufacturing line, as well as for our distribution of certain products manufactured by ROHM. Under the terms of the Agreement, the Company and ROHM also cross-licensed their F-RAM and certain related intellectual property and technology. There are currently no purchase commitments or contingencies in connection with this agreement.

Purchase Commitments

At June 30, 2012, the Company had certain commitments which were not included on the consolidated balance sheet at that date. These include outstanding capital purchase commitments of approximately $70,000 and wafer purchase commitments of approximately $2.7 million under current purchase orders, and $4.0 million related to minimum monthly purchase commitments under an existing supplier contract, through June 30, 2015.

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 June 30, 2012.

In June 2012, Paul Dent (“Plaintiff”), a purported Ramtron stockholder, filed a putative class action complaint against the Company and certain of its officers and directors (the “Individual Defendants” or, collectively with the Company, the “Defendants”), in the District Court for El Paso County, Colorado, captioned Dent v. Ramtron International Corporation, et al., Docket No. 44906737. Plaintiff purports to bring this action as a class action on behalf of himself and other similarly situated Ramtron stockholders. The complaint alleges that Defendants breached their fiduciary duties in connection with the June 12, 2012 proposal by Cypress Semiconductor Corporation (“Cypress”), pursuant to which Cypress would acquire all of the outstanding shares of the Company for $2.48 in cash. Specifically, the complaint alleges that the Individual Defendants violated their fiduciary duties by rejecting all approaches by Cypress and refusing to engage in any negotiations with Cypress or by failing to seek any higher offer that could be achieved through negotiations. The complaint seeks, among other things, injunctive relief as follows: an order declaring the action to be properly maintainable as a class action, a declaration that Defendants have breached their fiduciary duties to the Plaintiff and the class, an order directing Defendants to consider and respond in good faith to acquisition offers that would maximize value to the Plaintiff and the class, an order permanently enjoining the Defendants from initiating any further defensive measures that may render the acquisition of the company unduly burdensome or expensive for a potential acquirer, an order directing the Individual Defendants to account to the Plaintiff and the class for all damages suffered as a result of the Individual Defendants’ wrongdoing, and an award of attorneys’ fees and costs. The Company believes the lawsuit is without merit and intends to defend it vigorously.

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

On June 5, 2012, our stockholders approved the 2012 Incentive Award Plan (the “2012 Plan”), which reserves a total of 3,879,864 shares of our common stock for issuance under stock option or restricted stock grants. Of these reserved shares, 379,864 remained available for issuance under our previous 2005 Incentive Award Plan (the “2005 Plan”) at June 5, 2012. In accordance with the terms of the 2012 Plan, these shares were carried forward to and included in the reserve of shares available for issuance pursuant to the 2012 Plan. From January 1, 2012 through June 5, 2012, stock option and restricted stock grants were made under the 2005 Plan. As of June 5, 2012, the 2005 Plan and the previous and expired 1995 Stock Option Plan, as amended, are only relevant to grants outstanding under these plans or forfeitures that increase the available shares under the 2012 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 2012 Plan, and the maximum term of each grant is seven years. The 2012 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 June 30, 2012, we had not granted any incentive stock options under either the 2012 Plan or the 2005 Plan.

At June 30, 2012, the number of shares available for future grant under the 2012 Plan was 3,830,863.

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


	Three months ended				Six months ended
(in thousands)	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011
Income Statement Classifications:
Cost of Sales	$	74	$	38	$	152	$	73
Research and development		98		125		224		208
Sales and marketing		72		82		132		164
General and administrative		124		196		293		343

Total	$	368	$	441	$	801	$	788

Stock Options

Stock options granted become exercisable in full or in installments pursuant to the terms of each agreement evidencing options granted. As of June 30, 2012, there was approximately $990,000 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.

For grants issued during 2012, the fair value for stock options was estimated at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions. Expected volatility was estimated based on the historical volatility of our stock over the past 6 years, which approximates the calculated expected term of our options over the past 10 years, a period we considered a fair indicator of future exercises. We based the risk-free interest rate that we use in the option valuation model on U.S. Treasury Notes with remaining terms similar to the expected terms on the options. Forfeitures are estimated at the time of grant based upon historical experience. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option pricing model.

The assumptions used to value option grants for the quarter ended June 30, 2012 are as follows:


Risk free interest rate		1.0%
Expected dividend yield		0%
Expected term (in years)		5.0 – 6.0 years
Expected volatility		68%

The weighted average fair value per share of options granted during the six months ended June 30, 2012 and 2011 were $1.27 and $1.68, respectively.

The following table summarizes stock option activity related to our plans for the six months ended June 30, 2012:


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

Outstanding at December 31, 2011		3,962		$	2.88
Granted		158		$	2.15
Forfeited		—			—
Exercised		(48	)	$	2.26
Expired		(63	)	$	3.44

Outstanding at June 30, 2012		4,009		$	2.85

The intrinsic value of $1,827,000 for outstanding options is the difference between the market value as of June 30, 2012, and the exercise price of the options that are below the market value. The closing market value as of June 30, 2012, was $3.02 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 June 30, 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 3.2 years.

A summary of non-vested restricted shares during the six months ended June 30, 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		628		$	2.09
Forfeited		(19	)	$	2.88
Vested/Released		(301	)	$	2.48

Outstanding at June 30, 2012		1,293		$	2.32

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.

A summary of the Company’s restricted stock units, as of June 30, 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		(18	)
Vested/Released		(68	)

Outstanding at June 30, 2012		166			0.90

As of June 30, 2012, approximately $344,000 remained in unrecognized compensation costs related to unvested outstanding restricted stock units, with a weighted-average recognition period of 1.3 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:


	Six months ended
(in thousands)	June 30, 2012			June 30, 2011

Income (loss) before income taxes	$	1,026		$	(4,687	)
(Provision for) benefit from income taxes		(511	)		1,625
Effective tax rate		49.8	%		34.7	%

The 49.8% effective tax rate for the six months ended June 30, 2012 differs from the statutory federal rate of 35% due primarily to state taxes of 3.5% and permanent tax differences of 11.5% related to nondeductible expenses, stock compensation and research and development credits.

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.

At June 30, 2012 and December 31, 2011, our deferred tax asset and related valuation allowance were as follows:


(in thousands)	June 30, 2012			December 31, 2011

Gross deferred tax assets	$	29,570		$	30,384
Less valuation allowance		(24,035	)		(24,359	)

Net deferred tax assets	$	5,535		$	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 and six months ended June 30, 2012 and 2011:


	Three months ended						Six months ended
(in thousands, except per share amounts)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011

Net income (loss)	$	69		$	(683	)	$	515		$	(3,062	)


Common shares outstanding:
Historical common shares outstanding at beginning of period		35,345			28,107			34,838			27,540
Less: Non-vested restricted stock at beginning of period		(1,261	)		(432	)		(985	)		(191	)
Weighted average common shares issued during period		18			289			189			365

Weighted average common shares at end of period - basic		34,102			27,964			34,042			27,714


Effect of other dilutive securities:
Options		63			—			55			—
Restricted stock		179			—			190			—

Weighted average common shares at end of period - diluted		34,344			27,964			34,287			27,714

Net income (loss) per share:
- basic and diluted	$	0.00		$	(0.02	)	$	0.02		$	(0.11	)

As of June 30, 2012 and June 30, 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				Six months ended
(in thousands)	June 30, 2012		June 30, 2011		June 30, 2012		June 30, 2011

Stock Options		3,750		4,270		3,773	4,270
Restricted stock/units		432		734		456		734

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 based on product shipping destination, and to significant customers were as follows:


	Three months ended						Six months ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Percentage of net sales:

Sales to distributors		73	%		69	%		77	%		72	%
Sales to direct customers		27	%		31	%		23	%		28	%

		100	%		100	%		100	%		100	%

Geographic area net sales:

United States		10	%		12	%		16	%		10	%
International		90	%		88	%		84	%		90	%

		100	%		100	%		100	%		100	%


Significant distributors/customers:

Tokyo Electron Device		14	%		8	%		14	%		10	%
MSC Vertriebs GMBH		3	%		12	%		6	%		14	%

Except as presented above, no other direct customer or distributor accounted for greater than 10% of our net sales for the three or six months ended June 30, 2012, or June 30, 2011.

Balances due from our significant distributors or direct customers at June 30, 2012 and December 31, 2011, as a percentage of total gross accounts receivable, were as follows:


	Percentage of Gross Accounts Receivable
	June 30, 2012			December 31, 2011

Tokyo Electron Device		12	%		7	%
Action Technology		12	%		23	%

No other direct customer or distributor accounted for more than 10% of our accounts receivable as of June 30, 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 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.

Our forecasts, including forecasts for future demand, are developed using a bottom-up approach with input from our field sales force and supply chain management teams. These forecasts, coupled with our backlog, are then compared to our inventory levels. Any excess is included in our inventory allowance reserve.

In recent periods, estimates of future demand were difficult to determine due to the supply constraints we experienced when our previous wafer foundry ceased the production of wafers for us. During the transition to another wafer foundry, we underestimated demand, as well as the amount of time it would take to establish the new foundry for production. This situation forced us to put customers on allocation. As a result of this allocation, some customers placed orders beyond their actual needs at the time. As we began to fill those orders, many customers rescheduled shipments to later dates, which caused our inventory levels to rise. We have since revised our policy and require customers to give a 60-day notice when revising shipment dates, which is an industry standard.

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 our 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 June 30, 2012 and December 31, 2011, the Company’s reserve for sales returns was $2.4 million and $2.3 million, respectively.

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 Three Months Ended June 30, 2012

•

We named Gery E. Richards as chief financial officer in May, 2012. Mr. Richards joined the Company in 2004, became controller in 2008, and was appointed interim chief financial officer in October 2011.

•

We appointed Erik Wood as director of business development, bringing 17 years of solution sales and high-tech market development experience with expertise in the defense/aerospace, supply chain, transportation, oil and gas, healthcare, identification and security markets.

Product Highlights for the Three Months Ended June 30, 2012

•

The Company was added to NVIDIA’s Preferred Vendor List and participated in the 2012 GPU Technology Conference in San Jose, CA.

•

We announced availability of the MaxReader Development Kit (the “Kit”) to enhance the adoption of our wireless memory products. The Kit allows system designers to quickly evaluate, thoroughly test, and rapidly prototype Ramtron’s MaxArias^™ wireless memory for a broad range of RF-enabled applications.

Financial Highlights for the Three Months Ended June 30, 2012

•

Total revenue for the three months ended June 30, 2012 was $14.2 million, which was a decrease of 15% from $16.8 million in the three months ended June 30, 2011.

•

Net income was $69,000, or $0.00 per share, for the three months ended June 30, 2012, compared with net loss of $683,000, or $(0.02) per share, for the three months ended June 30, 2011.

•

Product gross margin for the three months ended June 30, 2012 was 52%, which was 5% higher than a gross margin of 47% for the three months ended June 30, 2011.

Financial Highlights for the Six Months Ended June 30, 2012

•

Total revenue for the six months ended June 30, 2012 was $29.2 million, which was an increase of 7% from $27.4 million in the six months ended June 30, 2011.

•

Net income was $515,000, or $0.02 per share, for the six months ended June 30, 2012, compared with a net loss of $3.1 million, or ($0.11) per share, for the six months ended June 30, 2011.

•

Product gross margin for the six months ended June 30, 2012 was 52%, which was 5% higher than a gross margin of 47% for the six months ended June 30, 2011.

Unsolicited Tender Offer by Cypress Semiconductor

On June 21, 2012, Cypress Semiconductor Corporation (“Cypress”) and Rain Acquisition Corp., a wholly-owned subsidiary of Cypress, commenced an unsolicited tender offer (the “Offer”) to acquire all of the outstanding shares of common stock of the Company at a purchase price of $2.68 net per share in cash. As amended, the Offer will expire on August 3, 2012. The Company’s Board of Directors (“Board”) has engaged legal and financial advisors to assist the Company in evaluating and responding to the Offer. The Board has reviewed the Offer with the assistance of the Company’s management and legal and financial advisors and, after careful consideration, the Board has unanimously determined that the Offer is inadequate, does not reflect the intrinsic value of the Company, and is not in the best interest of the Company and its stockholders.

Business Outlook for 2012

In light of limited near-term visibility, we are modifying our guidance policy from providing an outlook for full-year 2012 to an outlook for the next reportable quarter. As visibility and industry conditions improve, management will re-evaluate its guidance policy.

The following statements are based on current expectations of results for the third quarter of 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.

For the three months ended September 30, 2012:

•

Management expects revenue of approximately $14.0 to $14.5 million with a gross product margin of 52%.

•

In terms of operating expenses, by expense line item as a percent of total revenue, management expects sales and marketing to be 18% of total revenue, research and development to be 22%, and general and administrative to be 16%. Included in general and administrative expenses are expected fees and expenses totaling approximately 5% of total revenue, associated with the tender offer commenced by Cypress Semiconductor Corporation.

During the remainder of 2012, management plans to:

•

Focus on driving demand creation activities to place the Company in the best position to accelerate global adoption of F-RAM and achieve our growth objectives;

•

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 AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

Revenue


(in thousands, except average selling price)	Three Months Ended June 30, 2012				Three Months Ended June 30, 2011		Six Months Ended June 30, 2012				Six Months Ended June 30, 2011

Product sales	$	14,203			$	16,581	$	29,164			$	27,046
% change compared to prior period			(14	%)					8	%
Units shipped		12,056				15,974		23,299				25,114
% change compared to prior period			(25	%)					(7	%)
Average selling price	$	1.18			$	1.04	$	1.25			$	1.08
% change compared to prior period			13	%					17	%
Other revenue		—			$	179		—			$	358
% change compared to prior period			(100	%)					(100	%)
Total revenue	$	14,203			$	16,760	$	29,164			$	27,404
% change compared to prior period			(15	%)					6	%

Three Months:

Product revenue decreased $2.4 million, or 14%, for the three months ended June 30, 2012, compared to the same period last year. The revenue decrease was due to shipping 3.9 million fewer units than the same quarter last year as a result of softening demand in the semiconductor industry and a general decline in the worldwide economy. The decrease in shipments was partially offset by an increase in our average selling price due to increased sales of higher-density products.

For the three months ended June 30, 2012, we had no other revenue, compared to license and development fees of $179,000 for the three months ended June 30, 2011, which was in connection with a license fee arrangement that ended in 2011.

Six Months:

Product revenue increased $2.1 million for the six months ended June 30, 2012, compared to the same period last year. Although our units shipped decreased 7% from the same period of 2011, our average selling price increased 17%, from $1.08 to $1.25 per unit. The increase in our average selling price was due to increased sales of higher-density products.

For the six months ended June 30, 2012, we had no other revenue, compared to license and development fees of $358,000 during the same period of 2011, which was in connection with a license fee arrangement that ended in 2011.

Cost of Product Sales


	Three months ended						Six months ended
(in thousands)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011

Cost of product sales	$	6,837		$	8,854		$	13,998		$	14,315
Gross margin percentage		52	%		47	%		52	%		47	%

Three Months:

Cost of product sales was $6.8 million for the three months ended June 30, 2012, which was a decrease of $2.0 million from the same period in 2011. This decrease was due to a 25% decrease in units shipped, combined with improved gross product margins. Gross product margin increased to 52%, compared with 47% for the same period last year. The increase in gross margin was due primarily to improved cost control measures and a change in product mix, toward higher-margin, high-density products.

Six Months:

Cost of product sales for the six months ended June 30, 2012 was $14.0 million, which was a decrease of $317,000 from the same period in 2011. This decrease was due to a reduction in units shipped, combined with improved gross product margins. Product gross margin for the six months ended June 30, 2012 increased by 5%, to 52%, compared with 47% for the same period last year. The increase in gross margin was due primarily to improved cost control measures and a change in product mix toward sales of higher-margin, high-density products.

Research and Development Expense


	Three months ended						Six months ended
(in thousands)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011

Research and development expense	$	3,232		$	4,234		$	6,586		$	8,767
Percent of total revenue		23	%		25	%		23	%		32	%

Three Months:

Research and development expense for the three months ended June 30, 2012 was $3.2 million, which was a $1.0 million decrease from the same period of 2011. This decrease was primarily due to a $950,000 decrease in engineering wafers, supplies, consulting fees, and a $215,000 decrease in labor costs due to reduced headcount. These cost reductions were partially offset by increased depreciation expense of approximately $300,000.

Six Months:

Research and development expense for the six months ended June 30, 2012 was $6.6 million, which was a $2.2 million decrease from the same period in 2011. This decrease was due primarily to a $350,000 decrease in mask revision charges, a $1.4 million decrease in engineering wafers, and a $300,000 decrease in maintenance costs in connection with our wafer foundry in Burlington, Vermont. We also had a decrease in compensation-related expenses and outside services of approximately $570,000, which was offset by increased depreciation of a similar amount.

Sales and Marketing Expense


	Three months ended						Six months ended
(in thousands)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011

Sales and marketing expense	$	2,293		$	2,605		$	4,422		$	4,665
Percent of total revenue		16	%		16	%		15	%		17	%

Three Months

Sales and marketing expense was $2.3 million for the three months ended June 30, 2012, which was a decrease of $312,000 from the same period of 2011. This decrease was primarily the result of a reduction in sales commissions and travel expenses.

Six Months

Sales and marketing expense was $4.4 million for the six months ended June 30, 2012, which was a $243,000 decrease from the same period of 2011. This decrease was primarily due to a reduction in internal and external sales commissions totaling approximately $500,000, and a decrease of $140,000 in travel costs. These reductions were partially offset by increased compensation-related costs as a result of personnel additions, and increased costs relating to trade shows and outside services.

General and Administrative Expense


	Three months ended						Six months ended
(in thousands)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011

General and administrative expense	$	1,394		$	1,826		$	2,683		$	3,880
Percent of total revenue		10	%		11	%		9	%		14	%

Three Months

General and administrative expense for the three months ended June 30, 2012 was $1.4 million, which was a $432,000 decrease from the same period of 2011. This decrease was due primarily to reductions in variable and stock-based compensation expenses of $230,000, and legal and consulting expenses of approximately $200,000.

Six Months

General and administrative expense for the six months ended June 30, 2012 was $2.7 million, compared to $3.9 million for the same period of 2011. The $1.2 million decrease was primarily the result of a $400,000 decrease in salary and benefits relating to the resignation of our former CEO, combined with a $350,000 reduction in variable compensation expenses, and a decrease in relocation, travel, staff selection, and other miscellaneous expenses totaling approximately $350,000.

Other Non-Operating Income (Expenses)


	Three months ended						Six months ended
(in thousands)	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011

Interest expense	$	(215	)	$	(206	)	$	(436	)	$	(420	)
Other income (expense)	$	4		$	12		$	(13	)	$	(44	)
Income tax (provision) benefit	$	(167	)	$	270		$	(511	)	$	1,625

Three Months

Interest expense was $215,000 for the three months ended June 30, 2012, which was an increase of $9,000 from the three months ended June 30, 2011. This increase was due to an increase in interest in connection with capital leases and borrowings against our line of credit.

Other income was $4,000 for the three months ended June 30, 2012, compared with $12,000 for the same period in 2011. The decrease in other income was due primarily to reduced foreign exchange gains.

For the three months ended June 30, 2012, the Company recorded a $167,000 income tax provision. During the three months ended June 30, 2011, the Company recorded a $270,000 income tax benefit due to an operating loss for the period.

Six Months

Interest expense was $436,000 during the six months ended June 30, 2012, which was a $16,000 increase from the six months ended June 30, 2011. This increase was due to increased borrowings against our line of credit and an increase in interest expense in connection with capital leases.

Other expense was $13,000 for the six months ended June 30, 2012, which was a decrease of $31,000 compared to the six months ended June 30, 2011. This decrease was due to reduced foreign exchange losses in the six months ended June 30, 2012, compared to the same period of 2011.

Income tax provision for the six months ended June 30, 2012 was $511,000, with an effective tax rate of 49.8%. During the six months ended June 30, 2011, the Company recorded an income tax benefit of $1.6 million as a result of our operating loss for that period.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows for the six months ended June 30, 2012 and 2011, are summarized as follows:


(in thousands)	2012			2011

Cash provided by (used in):
Operating activities	$	1,242		$	(4,711	)
Investing activities		(457	)		(2,878	)
Financing activities		(1,352	)		940
Effect of exchange rate changes on cash		(19	)		(23	)

Net (decrease) increase in cash and cash equivalents	$	(586	)	$	(6,672	)

Cash Flows from Operating Activities

The net amount of cash provided by operating activities during the six months ended June 30, 2012 was $1.2 million and was primarily due to net income of $515,000, adjusted for non-cash charges to depreciation, stock-based compensation and deferred income taxes. Working capital used a net of $3.0 million in cash due primarily to an increase in inventory of $1.6 million and a decrease in accounts payable and accrued liabilities of $4.0 million, partially offset by a decrease in accounts receivable of $2.4 million.

The net amount of cash used in operating activities during the six months ended June 30, 2011 was $4.7 million and was primarily due to our loss from operations of $3.1 million, after adjusting for non-cash items of $800,000, resulting in a net use of cash of $2.3 million. Working capital used an additional $2.4 million in cash due primarily to an increase in inventory of $5.8 million. This was offset by a $3.5 million increase in accounts payable and accrued liabilities.

Cash Flows from Investing Activities

The net amount of cash used in investing activities during the six months ended June 30, 2012 was $457,000, which was primarily related to photomask capital purchases.

The net amount of cash used in investing activities during the six months ended June 30, 2011 was $2.9 million, which was primarily related to capital purchases associated with our Burlington, Vermont wafer foundry and test equipment to expand our back-end capacity.

Cash Flows from Financing Activities

The net amount of cash used in financing activities during the six months ended June 30, 2012 of $1.3 million was due to principal payments on debt, partially offset by net proceeds from our line of credit facility of $1.5 million.

The net amount generated by financing activities during the six months ended June 30, 2011 of $900,000 was due to a $1.5 million draw on our line of credit and $1.3 million in proceeds from the exercise of stock options. This was partially offset by principal payments on our debt, primarily our capital leases and term loan, of $1.8 million.

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 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 $4.2 million in cash and cash equivalents at June 30, 2012. We also had approximately $3.2 million available to us under our $7.5 million secured line of credit facility. As of June 30, 2012, we had $1.5 million outstanding under this facility, which has been extended until February 28, 2013.

Inventories increased by $2.7 million during the first quarter of 2012, and decreased $1.4 million in the second quarter of 2012. We expect further decreases in inventories through the remainder of 2012, as we focus on returning to desired inventory levels and converting inventory into cash through product sales.

If the Cypress tender offer, as described earlier in this Item 2., and subsequent acquisition is not consummated, we expect payments due in connection with the transaction during the second half of 2012 and the first quarter of 2013 to total in excess of $750,000, and further required payments during the second quarter of 2013 to be in excess of $1.25 million. These payments include primarily legal, advisory, and other professional fees, as well as proxy solicitation costs.

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, execute our business strategy, or pay expenses associated with the Cypress tender offer. 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 accounts receivable and 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 June 30, 2012 we had $1.5 million outstanding on the secured line of credit facility, with a remaining net availability under this facility of $3.2 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 seven capital leases outstanding, totaling approximately $3.6 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 five of the lessors for approximately $1.7 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. We expect to make the 2012 payment, which was due in April, during the second half of 2012. As of June 30, 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 June 30, 2012 was $500,000.

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, 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, which are immaterial.

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.

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 June 30, 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 $69,000 and $445,000 during the quarters ended June 30, 2012 and March 31, 2012, respectively, 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 June 30, 2012, our accumulated deficit was $218 million. Our ability to increase revenue and achieve profitability in the future will depend substantially on our ability to increase sales of our products by gaining new customers and increasing sales to our existing customers, our success in reducing manufacturing costs, while increasing our contract manufacturing capacity, our ability to significantly increase sales of existing products, and our success in introducing and profitably selling new products.

Cypress Semiconductor’s (“Cypress”) unsolicited tender offer and unsolicited acquisition proposal may continue to distract our management and employees, result in substantial legal and other advisory expenses, and create uncertainty that may adversely affect our business and results.

On June 21, 2012, Cypress and Rain Acquisition Corp., made an unsolicited tender offer to purchase all of the outstanding shares of common stock of the Company for $2.68 per share. As amended, the Offer will expire on August 3, 2012. As more fully described in the Company’s Solicitation/Recommendation on Schedule 14D-9 filed with the SEC on July 5, 2012 in response to the offer, the Company’s board of directors unanimously recommended that the Company’s stockholders reject the offer and not tender their shares to Cypress for purchase. As of June 30, 2012, the Company has recorded approximately $200,000 of expenses incurred in connection with the offer, consisting primarily of legal, advisory and other professional fees as well as proxy solicitation costs.

The review, consideration, and response to Cypress’ efforts to gain control of our company require the expenditure of significant time and resources by us and may be a significant distraction for our management and employees. Acquisition efforts have also created uncertainty for our employees and this uncertainty may adversely affect our ability to retain key employees and to attract new employees. In addition, Cypress’ acquisition efforts have created and may continue to create uncertainty for current and potential partners, suppliers and customers. Also, we, certain of our executive officers and our board of directors have been named in a lawsuit relating to Cypress’ acquisition efforts as more fully described under “Legal Proceedings” in Part II., Item 1. of this Form 10-Q. This lawsuit or any future lawsuits may be time consuming and expensive.

The impact of Cypress’ acquisition efforts due to these or other factors may undermine our business and have a material adverse effect on our results of operations, and may cause increased volatility and wide price fluctuations in our stock price.

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 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.

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, and have recently executed a contract with ROHM Co., Ltd. for additional foundry capacity in the near future. 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.

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.

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 June 30, 2012, was $3.2 million, or 23% 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.

We depend on IBM, Texas Instruments, and ROHM, our 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 June 30, 2012, approximately 43% 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 75% of our product sales for the first six months 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.

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;

•

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


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
April 1 – April 30, 2012		—		—		—		—
May 1 – May 31, 2012		13,230	$	1.94		—		—
June 1 – June 30, 2012(1)		—		—		—		—

Total		13,230	$	1.94		—		—

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

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5.

OTHER INFORMATION

None.

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 *

100.LAB		XBRL Taxonomy extension label linkbase *

101.PRE		XBRL Taxonomy extension presentation linkbase *

Notes to Exhibits List:

*	Submitted electronically herewith.

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 and six months ended June 30, 2012 and 2011, (ii) Condensed Consolidated Balance Sheet at June 30, 2012 and December 31, 2011, (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 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.

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

Chief Financial Officer

(Principal Accounting Officer and

Duly Authorized Officer of the Registrant)

Date: August 3, 2012

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