Edgar Filing: SIMTEK CORP

As filed with the Securities and Exchange Commission on August 27, 2003
Registration 333-104854
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Post Effective Amendment No. 2 to Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SIMTEK CORPORATION
(Exact name of registrant as specified in its charter)

Colorado 84-1057605
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

4250 Buckingham Dr. #100
Colorado Springs, Colorado 80907
(719) 531-9444
(Address, including zip code, and telephone number,
including area code, of Principal Executive Offices)
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Douglas M. Mitchell
Chief Executive Officer, President and Chief Financial Officer (acting)
Simtek Corporation
4250 Buckingham Dr. #100
Colorado Springs, CO 80907
(719) 531-9444
(Name, address, including zip code and telephone
number, including area code, of agent for service)

Copies to:
Garth B. Jensen, Esq.
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, CO 80203
(303) 861-7000

Approximate Date of Commencement of Proposed Sale to the Public: From time
to time after the effective date of this Registration Statement.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462 (d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.

CALCULATION OF REGISTRATION FEE

Title of each class of Proposed maximum Proposed maximum
securities to be Amount to offering price aggregate Amount of
registered be registered per share(2) offering price(1) registration fee(3)
---------------------- ---------------- ----------------- ----------------- -------------------

Common stock, $.01 par 9,615,384 shares $0.255 $2,451,923 $198.36
value per share(1)

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(1) Issuable upon conversion of convertible debentures issued to the selling
securityholders.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).

(3) A registration fee of $198.36 was previously paid; accordingly, no
additional registration fee is due at this time.

---------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities nor does it seek an offer to
buy these securities in any jurisdiction where the offer or sale is not
permitted.

PROSPECTUS (SUBJECT TO COMPLETION) DATED AUGUST 27, 2003

9,615,384 Shares

SIMTEK CORPORATION

Common stock
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This prospectus is being used to register 9,615,384 shares of Simtek
Corporation's common stock being offered by Renaissance Capital Group, Inc. as
agent for three investment funds, Renaissance Capital Growth and Income Fund
III, Inc., Renaissance US Growth & Income Trust, PLC and BFS US Special
Opportunities Trust, PLC. These shares are issuable upon conversion of
debentures issued to the investment funds.

Our common stock is traded on the OTC Bulletin Board under the symbol
"SRAM." On August 25, 2003, 2003, the closing sale price of our common stock was
$0.77 per share.

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SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU SHOULD CONSIDER
BEFORE BUYING OUR STOCK.

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Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal
offense.

The date of this Prospectus is August 27, 2003.

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TABLE OF CONTENTS

Summary........................................................................3
Risk Factors...................................................................5
Use of Proceeds...............................................................11
Capitalization................................................................11
Market for our Common Stock and Related Secondary Holder Matters..............12
Selected Financial Data.......................................................13
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................14
Business......................................................................28
Directors, Executive Officers, Promoters and Control Persons..................39
Security Ownership............................................................45
Selling Shareholders..........................................................47
Specific relationships and Related Transactions...............................48
Description of Securities.....................................................48
Plan of Distribution..........................................................48
Legal Matters.................................................................50
Experts .....................................................................50
Available Information.........................................................51
Index of Financial Statements................................................F-1

SUMMARY

This summary highlights selected information from this prospectus and does
not contain all of the information that may be important to you. Please
carefully read the entire prospectus and the documents incorporated by
reference.

OUR COMPANY

We develop, market and subcontract the production of nonvolatile
semiconductor memories and programmed semiconductor logic products.
Nonvolatility prevents loss of programs and data when electrical power is
removed from the semiconductor. Our memory products feature fast data access and
programming speeds. Our logic products route electronic signals to perform tasks
in electronic systems that use our products. All of our products are targeted
for use in commercial or military electronic equipment markets. These markets
are industrial control systems, office automation, medical instrumentation,
telecommunication systems, cable television, and numerous military systems,
including communications, radar, sonar and smart weapons. Our wholly owned
subsidiary, Q-DOT Group, Inc., specializes in advanced technology research and
development for data acquisition, signal processing, imaging and data
communications.

Our principal executive office is located at 4250 Buckingham Dr. #100;
Colorado Springs, Colorado 80907. Our telephone number is 719-531-9444.

THE OFFERING

We are registering 9,615,384 shares of our common stock that may be offered
for resale by Renaissance Capital Group, Inc. as agent for three investment
funds, Renaissance Capital Growth and Income Fund III, Inc., Renaissance US
Growth & Income Trust, PLC and BFS US Special Opportunities Trust, PLC. We refer
to these investment funds as the "selling securityholders."

On July 1, 2002, we received $3,000,000 from the selling securityholders in
return for issuing 7.5% convertible debentures with an aggregate principal
amount of $3,000,000. The convertible debentures have a conversion rate of
$0.312 and a maturity date of June 28, 2009.

SUMMARY FINANCIAL INFORMATION

In the table below, we provide you with our summary financial information.
The summary financial information presented below is not necessarily comparable
from period to period and you should read it together with our historical
financial statements and related notes.

Year Ended December 31, Six Months Ended June 30,
----------------------------- ------------------------------
2002 2001 2003 2002
---- ---- ----- ----
(Unaudited) (Unaudited)

Statement of Operations Data:
Net revenues....................... $14,326,705 $16,950,487 $ 7,355,100 $ 7,523,734
Total expenses..................... 15,289,572 18,066,206 8,808,489 8,191,100
Operating loss..................... (859,240) (1,120,291) (1,453,389) (667,366)
Loss before taxes.................. (962,867) (1,120,350) (1,453,389) (667,366)
Net loss........................... $ (962,867) $(1,120,350) $(1,453,389) $ (667,366)
Net loss per share:
Basic and diluted............. $ (.02) $ (.02) $ (.03) $ (.01)
=========== =========== =========== ===========

Year Ended Six Months Ended
December 31,2002 June 30, 2003
---------------- ----------------
(Unaudited)

Balance Sheet Data:
Cash and cash equivalents................. $3,127,732 $2,325,672
Working capital........................... 5,828,591 1,241,933
Total assets.............................. 8,507,050 7,462,894
Shareholders' equity...................... 3,663,683 2,221,764

RISK FACTORS

You should consider carefully the following risk factors, as well as the
other information in this prospectus before buying our shares. The semiconductor
industry is changing rapidly. Therefore, the forward-looking statements and
statements of expectations, plans and intent in this prospectus are subject to a
greater degree of risk than similar statements regarding some other industries.

OUR LIMITED OPERATING CAPITAL AND OUR ABILITY TO RAISE ADDITIONAL MONEY MAY HARM
OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS

To date, we have required significant capital for product development,
subcontracted production and marketing. We have funded this from the sale of
products, the sale of product and technology licenses and from royalties as well
as from the sale of our convertible debt and equity securities.

We have not seen an increase in our product sales in the past year and our
gross margins are not what we have anticipated. Therefore, our cash requirements
for the development, subcontracted production and marketing of our existing
product families have been difficult to maintain. We are not sure, however,
whether we will be able to achieve this increase in product sales and gross
margins. We may need more capital in the next year and after that to develop new
products. We are not sure that we will be able to raise more capital on
reasonable terms, if at all. If we cannot, then we may not be able to develop
and market new products. The development, subcontracted production and marketing
of our existing products may also suffer, causing our financial position and
stock price to deteriorate.

WE MAY EXPERIENCE OPERATING LOSSES IN THE NEXT SEVERAL YEARS

We began business in 1987. Through June 30, 2003, we had accumulated losses
of approximately $36.0 million. We realized net income for the first time for
the year ended December 31, 1997 and continued to realize net income through
June 30, 2000. Subsequent to June 30, 2000 and through June 30, 2003, we
realized net losses primarily as a result of accounting charges from the
purchase of incomplete research and development in September 2000, decreased
revenue, decreased gross margins and increased research and development costs
related to new product development. We may continue to experience net operating
losses for the foreseeable future. Continuing net operating losses could
materially harm our results of operations, increase our need for additional
capital in the future, and hurt our stock price. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Net Loss
-Semiconductor Devices, Net (Loss) -- Government Contracts."

WE MIGHT NOT BE ABLE TO RE-GAIN COMPLIANCE WITH CERTAIN COVENANTS SET FORTH IN
OUR LOAN AGREEMENT WITH RENAISSANCE CAPITAL GROUP; IF WE ARE UNABLE TO DO SO,
RENAISSANCE CAPITAL GROUP COULD ACCELERATE THE $3 MILLION LOAN AND FORECLOSE ON
THE COLLATERAL THAT WE GRANTED TO IT

Our loan agreement with Renaissance Capital Group contains various
financial covenants. Currently, we are not in compliance with all of the
financial covenants. Renaissance Capital Group has granted us a waiver through
October 1, 2003 with respect to such covenants. Although we are attempting to
reach compliance by October 1, 2003, we cannot assure you that we will be able
to achieve such compliance. If we do not regain compliance, Renaissance Capital
Group has the right to accelerate our payment obligation for the entire $3
million at any time and to foreclose on the security interest it holds in all of
our accounts, property, licenses, intellectual property and other assets. Such
acceleration or foreclosure could harm our business and our stock price.

BECAUSE OUR COMMON STOCK IS LISTED ONLY ON THE OTC ELECTRONIC BULLETIN BOARD, IT
WILL BE MORE DIFFICULT TO SELL OUR COMMON STOCK

Our common stock is listed on the OTC Electronic Bulletin Board under the
symbol "SRAM." Our common stock was listed on the Nasdaq Small-Cap Market until
July 18, 1995, but, because we no longer met Nasdaq's listing requirements,

our common stock transferred to the OTC Electronic Bulletin Board as mandated by
Nasdaq rules. We may not be able to meet the requirements for relisting our
common stock on Nasdaq in the near future or in the longer term.

Securities that are not listed on the Nasdaq Small-Cap Market are subject
to a Securities and Exchange Commission rule that imposes special requirements
on broker-dealers who sell those securities to persons other than their
established customers and accredited investors. The broker-dealer must determine
that the security is suitable for the purchaser and must obtain the purchaser's
written consent prior to the sale. These requirements may make it more difficult
for our security holders to sell their securities and may affect our ability to
raise more capital. It may also make it harder for you to sell our stock than
the stock of some other companies.

IF WE CANNOT REACH AN ACCEPTABLE AGREEMENT WITH CHARTERED SEMICONDUCTOR
MANUFACTURING ABOUT MOVING THE PRODUCTION OF SOME OF OUR MEMORY PRODUCTS TO
ANOTHER FABRICATION FACILITY, OUR REVENUES, EARNINGS AND STOCK PRICE COULD
SUFFER

We received notification from Chartered Semiconductor Manufacturing that
they will close their wafer fabrication facility #1 by March 2004. We currently
purchase silicon wafers, the raw materials used to produce our nonvolatile
semiconductor memory products, from fabrication facility #1. We are working with
Chartered Semiconductor Manufacturing to transfer the manufacturing process of
our memory wafers to Chartered Semiconductor Manufacturing's facility #2.
Chartered Semiconductor Manufacturing's facility #2 is newer and more modern
than its facility #1, processing 8 inch wafers rather than the older 6 inch
wafers processed in facility #1. Assuming the transfer can produce memory wafers
that meet our specifications, we anticipate the transfer to be completed in nine
to 12 months. This would provide uninterrupted supply of our current 0.8 micron
family of nonvolatile Static Random Access memory products, and would have no
material impact on our ability to support our customers. If we cannot complete
the transfer of manufacturing into Chartered Semiconductor Manufacturing's
facility #2 or if we cannot contract with another supplier, this will have a
material negative impact on our future revenues and earnings.

BECAUSE UNITED MICROELECTRONICS WILL BE UNABLE TO SUPPLY US WITH OUR SILICON
WAFERS AFTER AUGUST 2003, OUR REVENUES MAY DECREASE AND OUR STOCK PRICE MAY FALL

We received notification from United Microelectronics that it will be
unable to supply us with the silicon wafers that we use to produce our
programmed semiconductor logic products after August 2003. We plan to support
customers with 0.5 micron logic wafers manufactured at United Microelectronics
through December 2003 by offering opportunities to purchase their life-time
requirements for these products with deliveries scheduled by the end of the
year. After this period, we do not plan to support sales of 0.5 micron logic
products to the market. These products accounted for approximately 7% of our
revenues in 2002. If revenues from our other products do not increase, our total
revenues and stock price may fall.

SINCE WE DEPEND GREATLY ON SUBCONTRACTORS, THEIR POOR PERFORMANCE COULD HURT OUR
OPERATIONS

We subcontract the silicon wafer processing, product assembly, and product
testing portions of our business to independent companies. Our operating results
depend on these subcontractors' ability to supply us with silicon wafers that
meet our specifications and to assemble and test enough of our products to meet
our customers' needs.

Currently, we depend on Chartered Semiconductor Manufacturing to
manufacture all of our silicon wafers for our 0.8 micron memory products and
0.35 micron logic products, which account for collectively approximately 80% of
our total revenue for 2002. We depend on United Microelectronics Group of Taiwan
to manufacture all of our silicon wafers for our 0.5 micron logic products,
which account for approximately 7% of our total revenue for 2002. These wafers
are the raw materials required to manufacture our semiconductor products.
Without these wafers, we would be unable to sell our products. If Chartered
Semiconductor Manufacturing or United Microelectronics Group is unable to meet
our silicon wafer needs on time and at a price that we find acceptable, we would
have to find other wafer manufacturers. If we cannot find other suppliers,
manufacturers or assemblers on acceptable terms, we may not be profitable. In
addition, our subcontractors must be audited and recertified by us on a regular
basis for us to continue to produce military-qualified products. We cannot
assure you that we will be able to complete this recertification successfully or
in a timely manner.

THE UNCERTAINTY INVOLVED IN MANUFACTURING SEMICONDUCTORS MAY INCREASE THE COSTS
AND DECREASE THE PRODUCTION OF OUR PRODUCTS

In order for us to be profitable, we must keep our manufacturing costs down
and secure the production of sufficient product. Semiconductor manufacturing
depends on many factors that are very complex and beyond our control and often
beyond the control of our subcontractors. These factors include contaminates in
the manufacturing environment, impurities in the raw materials used and
equipment malfunctions. Under our arrangements with our subcontractors, our
subcontractors pass on to us substantially all of their costs that are unique to
the manufacture of our products. Accordingly, these factors could increase the
cost of manufacturing our products and decrease our profits. These factors could
also reduce the number of semiconductors that our subcontractors are able to
make in a production run. If our subcontractors produce fewer of our products,
our revenues may decline.

DELAYS IN MANUFACTURING MAY NEGATIVELY IMPACT OUR REVENUE AND NET INCOME

It takes approximately three months for us to manufacture our
semiconductors. Any delays in receiving silicon wafers from our subcontractors
will delay our ability to deliver our products to customers. This would delay
sales revenue and could cause our customers to cancel existing orders or not
place future orders. In addition, if we are not able to make all of our planned
semiconductors in a production run this could delay delivery of our products.
These delays could occur at any time and would affect our net income.

WE DEPEND ON INDEPENDENT SALES REPRESENTATIVES AND DISTRIBUTORS TO SELL OUR
PRODUCTS AND THE TERMINATION OF ANY OF THESE RELATIONSHIPS MAY HARM OUR REVENUE

We use independent sales representatives and distributors to sell the
majority of our products. The agreements with these sales representatives and
distributors can be terminated without cause by either party with only 30 to 90
days written notice. If one or more of our sales representatives or distributors
terminates our relationship, we may not be able to find replacement sales
representatives and distributors on acceptable terms or at all. This would
affect our profitability. In addition, during 2002 approximately 12 % of our
product sales were to one distributor and during the first six months of 2003,
approximately 29% of our product sales were to two distributors. We are not sure
that we will be able to maintain our relationship with these distributors.

DELAYS IN OR FAILURE OF PRODUCT QUALIFICATION MAY HARM OUR BUSINESS

Prior to selling a product, we must establish that it meets expected
performance and reliability standards. As part of this testing process, known as
product qualification, we subject representative samples of products to a
variety of tests to ensure that performance in accordance with commercial,
industrial and military specifications, as applicable. If we are unable to
successfully accomplish product qualification for our future products, we will
be unable to sell these future products. Even with successful initial product
qualifications, we cannot be assured that we will be able to maintain product
qualification or achieve sufficient sales to meet our operating requirements.

SINCE THE SEMICONDUCTOR INDUSTRY IS FAST CHANGING, OUR SUCCESS DEPENDS ON OUR
ABILITY TO INTRODUCE NEW PRODUCTS

The semiconductor industry is characterized by rapid changes in technology
and product obsolescence. Our success in the semiconductor industry depends in
part upon our ability to expand our existing product families and to develop and
market new products. The technology we currently use may be made obsolete by
other competing or newly developed memory or other technologies. The development
of new semiconductor designs and technologies typically requires substantial
costs for research and development. Even if we are able to develop new products,
the success of each new product depends on several factors including whether we
selected the proper product and our ability to introduce it at the right time,
whether the product is able to achieve acceptable production yields and whether
the market accepts the new product. We cannot guarantee you that we will be
successful in developing new products or whether any products that we do develop
will satisfy the above factors. In August 2003, we reported that we received the
first complete processed silicon from this development, and that positive
initial test results indicate that samples of a new 1 megabit 3 volt nonvolatile
semiconductor memory product are on schedule for shipment to prospective
customers in the middle of the third quarter of 2003. We cannot assure you that

we will not discover technical problems or manufacturing concerns with this new
product, that demand will develop for the new product or that we will be able to
sell this new product at a profit.

THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY MAY PREVENT US FROM MAINTAINING A
CONSISTENT REVENUE STREAM AND MAY HARM OUR STOCK PRICE

The semiconductor industry has historically experienced significant peaks
and valleys in sales volumes resulting in large variations of revenues and
resulting profits or losses. We do not have direct influence on the nature of
the broad semiconductor market. Variations in the revenues and profits within
the semiconductor industry may cause us significant losses in the future. If the
stock prices of many semiconductor companies decrease, our stock price may also
suffer. Recently, the semiconductor industry has experienced increased losses
and the stock prices of many semiconductor companies, including us, have
fluctuated.

OUR AGREEMENT WITH ANAM SEMICONDUCTOR TO CO-DEVELOP A SEMICONDUCTOR PROCESS
MODULE THAT COMBINES OUR NONVOLATILE TECHNOLOGY WITH THEIR ADVANCED 0.25 MICRON
DIGITAL COMPLEMENTARY METAL-OXIDE SEMICONDUCTOR FABRICATION WILL RESULT IN
SIGNIFICANT EXPENDITURES

We entered into an agreement with Amkor Technology to cooperate to develop
a semiconductor process module that combines our nonvolatile technology with
Amkor's advanced 0.25 micron digital complementary metal-oxide semiconductor, or
"CMOS," fabrication line. The module will incorporate silicon oxide nitride
oxide silicon technology, which will be used to manufacture both high density
silicon oxide nitride oxide silicon flash and nonvolatile Static Random Access
memories, for stand alone and embedded products. During 2002, our research and
development team along with Amkor's research and development team worked
aggressively on the co-development program. The co-development program is
scheduled to yield a qualified 1 megabit 3.0 volt nonvolatile Static Random
Access memory as the primary development vehicle. In February 2003, Amkor
Technology sold a controlling interest of their wafer fabrication facility to
Anam Semiconductor. All contractual obligations were transferred to Anam U.S.A.,
a wholly-owned subsidiary of Anam Semiconductor. Our co- development program has
not been affected by the change in ownership and we do not expect any material
changes in the support required to complete the program. There could, however,
be changes made by the newly combined management team that could postpone or
cancel this co-development project.

Since entering into the agreement with Amkor Technology we estimate that we
have spent approximately $3,100,000 in development costs. These costs include
increases in headcount, contract engineering services, equipment leases,
maintenance agreements for software and wafer fabrication costs. If Anam
Semiconductor terminates our agreement there is no guarantee that we could find
a suitable replacement. If we cannot find a replacement, a significant delay and
cost increase in the introduction of new products could result.

THE INTENSE COMPETITION IN THE SEMICONDUCTOR INDUSTRY MAY CAUSE US TO LOSE SALES
REVENUE TO OTHER SUPPLIERS

There is intense competition in the semiconductor industry. We experience
competition from a number of domestic and foreign companies, most of which have
significantly greater financial, technical, manufacturing and marketing
resources than we have. Our competitors include major corporations with
worldwide silicon wafer fabrication facilities and circuit production facilities
and diverse, established product lines. We also compete with emerging companies
attempting to obtain a share of the market for our product families. If any of
our new products achieve market acceptance, other companies may sell competitive
products at prices below ours. This would have an adverse effect on our
operating results. We have sold product and technology licenses to Zentrum
Mikroelektronik Dresden. We have granted this company unlimited rights to much
of our technology through its license agreements with us. Zentrum
Mikroelektronik Dresden has entered the market and has become one of our
significant competitors.

GIVEN THE SCARCITY OF TRAINED PERSONNEL IN THE SEMICONDUCTOR INDUSTRY, THE LOSS
OF KEY EMPLOYEES COULD MATERIALLY AFFECT OUR FINANCIAL RESULTS

Our success depends in large part on our ability to attract and retain
qualified technical and management personnel. There are limited personnel
trained in the semiconductor industry resulting in intense competition for these
personnel. If we lose any of our key personnel, this could have a material
adverse affect on our ability to conduct our business and on our financial
results.

OUR PATENTS MAY NOT PROVIDE US EFFECTIVE INTELLECTUAL PROPERTY PROTECTION; THIS
COULD HARM OUR BUSINESS

We have been issued 26 U.S. patents relating to specific aspects of our
current products and we have four applications pending. We have also applied
outside the United States for patents on our technology. We plan to continue to
protect our intellectual property. We are not sure that any of the patents for
which we have applied will be issued or, even if they are issued, will provide
us with meaningful protection from competition. We may also not have the money
required to maintain or enforce our patent rights. Notwithstanding our patents,
other companies may obtain patents similar or relating to our patents.

We seek to protect a significant portion of our intellectual property as
trade secrets, rather than patents. Unlike patents, trade secrets must remain
confidential in order to retain protection as proprietary intellectual property.
We cannot assure you that our trade secrets will remain confidential. If we lose
trade secret protection, our business could suffer.

IF OUR PRODUCTS AND TECHNOLOGY INFRINGE ON THIRD PARTY PATENTS, OUR PRODUCT
SALES MAY SUFFER

We have not determined whether our products are free from infringement of
others' patents. If patent infringement claims are asserted against us and are
upheld, we will try to modify our products so that they are non-infringing. If
we are unable to do so, we will have to obtain a license to sell those products
or stop selling the products for which the claims are asserted. We may not be
able to obtain the required licenses. Any successful infringement claim against
us, our failure to obtain any required license or requirement for us to stop
selling any of our products, may force us to discontinue production and shipment
of these products. This may result in reduced product sales and harm our
revenues.

We were notified of possible patent infringement by one company in December
1989. After reviewing the related patents we responded in the same month with a
position that our products were still under development, but that the analysis
revealed no infringement. There was no further response from this company. In
January of 1991 a second company sent us a package of nonvolatile memory and
other memory patents for review to evaluate for any possible infringement and to
seek licenses as appropriate. Our internal evaluation determined that there were
no obvious infringements requiring the pursuit of licenses from this company. In
both cases we believe that there are no definitive claims for infringement
against our products, so no further actions have been taken, although there has
not been direct recognition of this position by the other parties. However, we
cannot assure you that these companies will not assert patent infringement
claims against us in the future.

In 1998, we received notice of a claim for an unspecified amount from a
foundation that owns approximately 180 patents and 70 pending applications. The
foundation claimed that some of the machines and processes used in the building
of our semiconductor devices infringe on the foundation's patents. In April
1999, we reached an agreement with the foundation for us to purchase a
nonexclusive license of the foundation's patents, based on our product offerings
and sales forecast at that time. If our products or actual sales revenue vary
significantly from the time of the agreement, we may be subject to additional
payments.

In late 2002, we received notice of possible patent infringement from a
corporation that has acquired a portfolio of patents. We are currently reviewing
any potential infringements. If there are any infringements, we believe we will
need to enter into a licensing agreement with such company without any material
impact on us.

FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS MAY INCREASE OUR COSTS, LOWER OUR
REVENUES AND CAUSE LOSS OF CUSTOMERS TO OUR COMPETITORS

We purchase materials, including silicon wafers, from outside the United
States. In 2002, over 45% of our sales were to customers located outside of the
United States. We operate using United States dollars as the functional
currency. Changes in foreign currency exchange rates can reduce our revenues and
increase our costs. For example, our subcontractors may increase the prices they
charge us, on a per purchase order basis, for silicon wafers if the United
States dollar weakens. Any large exchange rate fluctuation could affect our
ability to compete with manufacturers who operate using foreign currencies. We
do not try to reduce our exposure to these exchange rate risks by using hedging
transactions. Although we have not had any material losses due to exchange rate
fluctuations over the last three years, we cannot assure you that we will not
incur significant losses in the future.

BECAUSE WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE, YOUR
INVESTMENT RETURN MAY BE LIMITED

We have never paid cash dividends on our common stock. We do not expect to
pay dividends in the foreseeable future. We intend to use any earnings to
finance growth. You should not expect to receive dividends on your shares of
common stock.

IF OUR BOARD OF DIRECTORS AUTHORIZES THE ISSUANCE OF PREFERRED STOCK, HOLDERS OF
OUR COMMON STOCK COULD BE DILUTED AND HARMED

Our board of directors has the authority to issue up to 2,000,000 shares of
preferred stock in one or more series and to establish the preferred stock's
voting powers, preferences and other rights and qualifications without any
further vote or action by the shareholders. The issuance of preferred stock by
our board of directors could dilute and harm the rights of the holders of our
common stock. It could potentially be used to discourage attempts by others to
obtain control of us through merger, tender offer, proxy contest or otherwise by
making such attempts more difficult to achieve or more costly. Our board of
directors has no specific intention to issue shares of preferred stock, but
given our present capital requirements, it is possible that we may need to raise
capital through the sale of preferred stock in the future.

OUR FAILURE TO HOLD ANNUAL SHAREHOLDERS' MEETINGS TO RE-ELECT OFFICERS LIMITS
OUR SHAREHOLDERS' CONTROL OVER MANAGEMENT

Since 1991, we have held only four annual shareholders' meetings at which
shareholders elect directors. We have had some special shareholders meetings at
which shareholders have voted on matters other than the election of directors.
We last held a shareholders meeting on November 16, 2000. We have not held more
meetings to elect directors primarily due to the costs associated with having
the meetings. If we want to hold a meeting to elect directors, we must print and
mail to each shareholder prior to the meeting an annual report. Based on the
number of our shareholders, the printing and mailing cost would be approximately
$30,000. If you would like to nominate directors for election, you would have to
solicit proxy materials for an annual meeting we hold or request that we hold a
special shareholders meeting. Under our bylaws, special meetings of our
shareholders must be called by our president at the request of holders of not
less than one-tenth of all of our outstanding shares entitled to vote at the
meeting. Since we currently have outstanding 54,653,731 shares of common stock,
holders of at least 5,465,373 shares of our common stock must request a special
meeting in order for such shareholders to effect a meeting. At this time, we are
unsure of when we will hold our next annual meeting to elect directors. The
infrequent annual shareholders' meetings limits the ability of shareholders to
elect new members to the board of directors and to change our management.

USE OF PROCEEDS

9,615,384 shares are covered by this prospectus. These shares are issuable
upon conversion of the convertible debentures that we issued to the selling
securityholders on July 1, 2002. We will not receive any proceeds from the sale
of the shares.

CAPITALIZATION

The following table shows our capitalization at June 30, 2003.

Treasury stock, 10,000 shares $ (12,504)

Preferred stock, $1.00 par value, 2,000,000 shares authorized,
none issued and outstanding 0

Common stock, $0.01 par value, 80,000,000 shares authorized,
54,461,023 issued and outstanding 544,611

Additional paid in capital 37,605,557

Accumulated deficit as of June 30, 2003 (35,915,900)

Shareholders' equity $ 2,221,764

MARKET FOR OUR COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

Our common stock is listed on the OTC Electronic Bulletin Board under the
symbol "SRAM". Securities not included in the Nasdaq Small-CAP Market are
covered by the Securities and Exchange Commission rule that imposes additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, the rule may affect the ability of broker-dealers to sell our
securities, which will have an adverse effect on the ability of our security
holders to sell their securities and our ability to raise additional capital.

Shown below is the closing high bid and the closing low offer for our
common stock as reported by the OTC Electronic Bulletin Board on the last day of
the quarter.

Common Stock
--------------------
High Bid Low Bid
-------- -------
2001
First Quarter...................................... $.7344 $.6562
Second Quarter..................................... .55 .49
Third Quarter...................................... .37 .33
Fourth Quarter .................................... .43 .38
2002
First Quarter...................................... .41 .33
Second Quarter..................................... .26 .24
Third Quarter...................................... .18 .15
Fourth Quarter .................................... .17 .16
2003
First Quarter...................................... .16 .14
Second Quarter..................................... .43 .36

Third Quarter (August 25, 2003).................... .79 .73

The quotations listed above reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.

As of August 14, 2003, we had 477 shareholders of record. This number does
not reflect shareholders who beneficially own common stock held in nominee or
"street name."

We have not paid any dividends on our common stock since inception and we
do not intend to pay any dividends on our common stock in the foreseeable
future.

Pursuant to a Convertible Loan Agreement, dated as of June 28, 2002, we
issued convertible debentures to the selling security holders. We received
$3,000,000 in funding. The convertible debentures have 7-year terms at a 7.5%
per annum interest rate; each selling securityholder invested $1,000,000. The
holder of the debentures has the right, at any time, to convert all, or in
multiples of $100,000, any part of the debenture into shares of our common
stock. The debentures are convertible into our common stock at $0.312 per share.
There is no public trading market for the debentures. We have agreed to register
for resale all of the common stock issuable upon conversion of the debentures.

SELECTED FINANCIAL DATA

The statements of operations for the years ended December 31, 2002 and 2001
and the balance sheet data as of December 31, 2002 have been derived from the
financial statements that have been audited by Hein + Associates LLP,
independent auditors. The balance sheet as of June 30, 2003 and the statements
of operations for the six months ended June 30, 2003 and 2002 are unaudited. In
our opinion, these financial statements include all adjustments necessary for
the fair presentation of the financial position as of June 30, 2003 and
statements of operations for the six months ended June 30, 2003 and 2002. The
balance sheet as of June 30, 2003 and the statements of operations for the six
months ended June 30, 2003 and 2002 were prepared on a consistent basis with our
year end financial information. The balance sheet as of December 31, 2002 has
been audited by Hein + Associates LLP. This financial data should be read in
conjunction with our financial statements and the notes thereto included
elsewhere in this prospectus and "Management's Discussion and Analysis of
Results of Operations and Financial Condition."

For the Year Ended December 31, Six Months Ended June 30,
------------------------------- -------------------------
2002 2001 2003 2002
---- ---- ---- ----
(Unaudited)

Statement of Operations Data:
Net Sales........................................ $14,326,705 $ 16,950,487 $ 7,355,100 $ 7,523,734
Cost of Sales.................................... 8,481,262 11,273,116 4,920,526 4,617,150
----------- ------------ ----------- -----------
Gross Margin..................................... 5,845,443 5,677,371 2,434,574 2,906,584
Operating Expenses:
Research and development.................... 4,308,499 3,155,360 2,483,142 2,270,118
General and administrative.................. 754,676 1,239,568 475,899 393,396
Sales and Marketing......................... 1,641,508 1,672,301 820,327 905,516
Investor relations.......................... - 730,433 - -
----------- ----------- ----------- -----------
Total Operating Expenses................ 6,704,683 6,797,662 3,779,368 3,569,030
Other income (expense), net...................... (103,627) 4,572 (108,595) (4,920)
Equity in losses of QDA and write off of related
advances...................................... - (4,631) - -
----------------- ----------- ----------- -----------
Net loss before taxes............................ (962,867) (1,120,350) (1,453,389) (667,366)
Provision for income taxes.................. - - - -
----------- ----------- ----------- -----------
Net loss ........................................ $ (962,867) $(1,120,350) $(1,453,389) $ (667,366)
=========== =========== =========== ===========
Net loss per common share:
Basic and diluted EPS....................... $ (.02) $ (.02) $ (.03) $ (.01)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic and diluted .......................... 54,204,525 53,713,415 54,440,139 54,114,604
=========== =========== =========== ===========

Year Ended Six Months Ended
December 31, 2002 June 30, 2003
----------------- ----------------
Balance Sheet Data: (Unaudited)
Working capital.................................. $ 5,828,591 $ 1,241,933
Total assets..................................... 8,507,050 7,462,894
Shareholders' equity............................. $ 3,663,683 $ 2,221,764

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW OF CERTAIN ACQUISITIONS AND OTHER TRANSACTIONS

On July 1, 2002, we received $3,000,000 in a financing transaction with
Renaissance Capital Group, Inc. Renaissance Capital Group is the agent for the
selling securityholders. The $3,000,000 funding consists of convertible
debentures with a 7-year term at a 7.5% per annum interest rate; each of three
funds equally invested $1,000,000. The holders of the debentures has the right,
at any time, to convert all, or in multiples of $100,000, any part of the
debenture into fully paid and nonassessable shares of our common stock. The
debentures are convertible into our common stock at $0.312 per share, which was
in excess of the market price per share on July 1, 2002. Based on the conversion
rate of $0.312 per share, it would entitle each fund to 3,205,128 shares,
totalling approximately 18% post-conversion for the three funds, of our common
stock.

In March 2001, we acquired Q-DOT Group in exchange for approximately
5,172,000 shares of our common stock. One of the Q-DOT Group subsidiaries
specializes in advanced technology research and development for data
acquisition, signal processing, imaging and data communications. Q-DOT Group's
projects have been supported by "conventional" government and commercial
contracts in addition to government contracts sponsored by the Small Business
Innovation Research program. Independent government agencies, such as the
Department of the Army, Department of the Navy and Department of the Air Force
may award contracts directly, or "conventionally," or may award contracts
through the Small Business Innovation Research program. The Small Business
Innovation Research program is a Department of Defense program that funds
early-stage research projects at small technology companies. We operate Q-DOT
Group's government contract research and development operations as our wholly
owned subsidiary. The acquisition was accounted for as a pooling of interest,
and the results of Q-DOT Group are consolidated with ours in our financials as
if we have been merged throughout the periods. Q-DOT Group held a 1% membership
interest in QD Acoustics, LLC. QD Acoustics specializes in high performance
semiconductor applications for sonar and medical imaging products such as
ultrasound equipment. We do not expect that our ownership interest in QD
Acoustics will be material to our business.

RESULTS OF OPERATIONS

GENERAL. We have designed and developed nonvolatile Static Random Access
products since we commenced business operations in May 1987. We have
concentrated on the design and development of our nonvolatile Static Random
Access memory product families and technologies, marketing, distribution
channels, and sources of supply, including production at subcontractors. During
2000, we added the capability to design, develop and produce gate array
integrated circuits, or our logic products.

Our business was founded on a specialized technology that supports
development of nonvolatile Static Random Access memories. We developed our
current memory products out of this technology. This single product family does
not allow growth into a broad range of applications. Therefore, in an effort to
expand our products, we acquired from WebGear incomplete research and
development of Bluetooth technology. "Bluetooth" is an industry standard, short
range wireless communications technology designed to allow a variety of
electronic devices, such as wireless telephones, Personal Digital Assistants,
notebook computers, desktop computers, peripheral input-output devices,
television set-top boxes and Internet appliances to exchange data without the
use of physical cabling. During the twelve month period ending December 31,
2002, we spent approximately $123,000 on the development of our Bluetooth
technology. Due to a poor semiconductor market and delays related to widespread
adoption of Bluetooth technology, we have decided to stop further development of
our Bluetooth technology until the semiconductor market recovers and the
Bluetooth technology becomes generally accepted.

In September 1991, we began the sale of our commercially qualified 64
kilobit nonvolatile Static Random Access memory products based on a 1.2 micron

process technology. A 1 micron process technology is manufactured with spacing
between design elements of approximately one millionth of one meter. Generally
speaking, the smaller the spacing between design elements, the less expensive
the production cost of our memory products. Accordingly, we generally try to
design with lower micron technology. Kilobits are a measure of the amount of
data that can be stored. More kilobits imply more storage.

After initial qualification of our first product in 1991, we began
expanding the 64 kilobit nonvolatile Static Random Access memory product family.
By the end of 1993, we had qualified the complete product family for commercial,
industrial and military markets and had commenced sales of these products. When
we say we "qualify" a product, we mean that our internal quality organization
confirms the product's performance to the product's data sheet and accepted
industry standards. Commercial products operate from 0 degrees to 70 degrees
Centigrade, industrial products from -40 degrees to 85 degrees Centigrade and
military products from -55 degrees to 125 degrees Centigrade. Specific customers
require operation over different temperatures for their applications. During
1995, we developed our 64 kilobit nonvolatile Static Random Access memory
products based on a 0.8 micron process technology. Qualification of this product
occurred in 1996. In late 1996 and into 1997, we, along with assistance from
Zentrum Mikroelektronik Dresden, completed the design, installation and
qualification of our 256 kilobit nonvolatile Static Random Access memory product
based on 0.8 micron process technology into Zentrum Mikroelektronik Dresden's
silicon wafer fabrication facility. In 1997, we installed the 256 kilobit
nonvolatile Static Random Access memory product built on 0.8 micron process
technology in Chartered Semiconductor Manufacturing's silicon wafer fabrication
facility. Qualification of this product for use in the commercial and industrial
market occurred in 1997 and qualification for use in the military market
occurred in the second quarter of 1998. In the fourth quarter 1997, we qualified
the 64 kilobit nonvolatile Static Random Access memory product built on 0.8
micron process technology for sale in the commercial and industrial markets. In
2002, we developed and qualified for sale, into the commercial and industrial
markets, a 3 volt version of our 256 kilobit nonvolatile Static Random Access
memory product built on 0.8 micron process technology in Chartered Semiconductor
Manufacturing's silicon wafer fabrication facility.

In February 2003, we received notification from Chartered Semiconductor
Manufacturing that it will close its wafer fabrication facility #1 by March
2004. The memory wafers we purchase from Chartered Semiconductor Manufacturing
are manufactured in facility #1. We are working with Chartered Semiconductor
Manufacturing to transfer the process of manufacturing our memory wafers to
Chartered Semiconductor Manufacturing's facility #2. Facility #2 is newer and
more modern than facility #1, processing 8 inch wafers rather than the older 6
inch wafers processed in facility #1. Assuming the transfer can produce memory
wafers that meet our specifications, we anticipate the transfer to be completed
in nine to twelve months. This would provide uninterrupted supply of our current
0.8 micron family of nonvolatile Static Random Access memory products, and would
have no material impact on our ability to support our customers. If we cannot
complete the transfer of manufacturing into facility #2 or if we cannot contract
with another supplier, this will have a material negative impact on our future
revenues and earnings.

Our programmed semiconductor logic products are supported with silicon
wafers, built on 0.5 micron process technology, purchased from United
Microelectronics and silicon wafers purchased from Chartered Semiconductor
Manufacturing built on a 0.35 micron process technology. Products manufactured
with smaller spacing generally support lower product costs by reducing the
amount of raw material required for the product. In February 2003, we received
notification from United Microelectronics that they will be unable to supply us
with logic wafers after August 2003. We plan to support customers with 0.5
micron logic wafers manufactured at United Microelectronics through December
2003 by offering opportunities to purchase their life-time requirements for
these products with deliveries scheduled by the end of the year. After this
period, we do not plan to support sales of 0.5 micron logic products to the
market.

Sales of products built on wafers purchased from Chartered Semiconductor
Manufacturing and United Microelectronics accounted for all of our semiconductor
product sales revenue for 2001 and 2002.

REVIEW OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 31, 2002 - SEMICONDUCTOR
DEVICES

Total product sales of our semiconductor devices for 2002 were
approximately $12,400,000. We saw a decrease in volume production orders in
2002, which caused a decrease in unit shipments and a slightly lower average
selling price as compared to 2001. Revenues from our 4/16 kilobit, 64 kilobit

and 256 kilobit commercial products saw decreases in 2002 by approximately 30%,
55% and 13%, respectively. These decreases were due to the depressed
semiconductor market in 2002. Sales of our 64 kilobit and 256 kilobit high-end
industrial and military market saw increases of approximately 29% and 142%,
respectively. These increases were due to increased government spending on
existing and newer, state-of-the-art, military systems. Sales of our logic
products saw an increase of approximately 24% in 2002 as compared to 2001. This
increase was due primarily to an increase in new customer requirements for these
products.

Due to the increase in high-end industrial and military product revenues
and reduced product costs, we had an approximate 6% increase in our gross
margins for 2002 as compared to 2001.

REVIEW OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2003 - SEMICONDUCTOR DEVICES

Beginning in the fourth quarter 2001, we began to experience the downturn
that has been occurring in the global semiconductor industry since late fourth
quarter 2000, which gave rise to declining revenues in 2001 and 2002. We have
seen an increase in unit shipments for the six months ended June 30, 2003 as
compared to the six months ended June 30, 2002. The majority of the increase was
for large production orders, with competitive bidding, which resulted in a
decrease of average selling prices. Our net revenue for the semiconductor
portion of our business was $6,332,296 for the first six months of 2003 down
from $6,604,905 for the comparable period of 2002. The decrease in revenues for
the six month period ending June 30, 2003 as compared to the same period in 2002
was primarily due to lower average selling prices of our commercial nonvolatile
semiconductor memory products and a decrease in demand of our logic products.

The decline in revenue, along with higher manufacturing costs, for the six
months ended June 30, 2003 compared to the six months ended June 30, 2002 had an
impact on our profitability. This decline along with research and development
costs related to our 1 megabit product development accounted for losses in the
six month period ending June 30, 2003.

REVIEW OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 31, 2002 - GOVERNMENT
CONTRACTS

Total revenue received from our research and development contracts for 2002
was approximately $1,900,000 up from the $1,500,000 in 2001. This was equal to
13% of our total revenue in 2002.

REVIEW OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2003 - GOVERNMENT CONTRACTS

Total revenue received from our research and development contracts for the
first six months of 2003 was approximately $1,023,000 up from the $919,000 for
the same period in 2002. This was equal to 14% of our total revenue for the
first six months of 2003.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 2002 AND 2001 AND THREE
MONTHS ENDED MARCH 31, 2003 AND 2002

REVENUES TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001- SEMICONDUCTOR
DEVICES

The following table sets forth our net revenues for semiconductor devices
by product markets for the twelve months ended December 31, 2002 and 2001 (in
thousands):

2002 2001 Variance
------ ------- --------

Commercial $ 8,892 $13,070 $(4,178)
High-end industrial and
military $ 2,433 $ 1,494 $ 939
Logic products $ 1,097 $ 886 $ 211
------- ------- -------
Total Semiconductor
Revenue $12,422 $15,450 $(3,028)

Commercial product revenues decreased by $4,178,000 for the twelve month
period ending December 31, 2002 as compared to the same period in 2001. The
decrease was primarily due to a depressed semiconductor market which resulted in
lower product demand and lower average selling prices.

High-end industrial and military product revenues accounted for an increase
of $939,000 for the twelve month period ending December 31, 2002 as compared
with the same period in 2001. The increase in revenue was due to an increase in
defense contracts.

Revenues from our logic products increased by $211,000 for the twelve month
period ending December 31, 2002 as compared to the same period in 2001. The
increase was due primarily to non-recurring engineering charges received from
new customers and the shipment of production orders to new customers and
pre-existing customers.

One distributor and one direct customer accounted for approximately 33% of
our semiconductor device product sales for the twelve months ended December 31,
2002. Products sold to distributors are sold without significant recourse.
Distributor contracts allow distributors to return up to 5% in value of product
inventory in each six month period. This allows them to keep inventory current
to market demand. Distributors resell our products to various end customers. If
one of these distributors was to terminate its relationship with us, we believe
that there would not be a material impact on our semiconductor device product
sales.

REVENUES SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - SEMICONDUCTOR DEVICES

The following table sets forth our net revenues for semiconductor devices
by product markets for the six months ended June 30, 2003 and 2002 (in
thousands):

Six Months Ended
----------------
June 30,
--------
2003 2002 Variance
----- ---- --------

Commercial $5,101 $5,198 $ (97)
High-end industrial and
military 816 810 6
Logic products 415 597 (182)
--- --- -----

Total Semiconductor
Revenue $6,332 $6,605 $(273)
====== ====== ======

Commercial revenues decreased by $97,000 for the six months ended June 30,
2003 period when compared to the comparable period in 2002. The $97,000 decrease
for the six month period was due primarily to a decrease in average selling
prices of our commercial nonvolatile semiconductor memory products.

High-end industrial and military product revenues accounted an increase of
$6,000 for the six months ended June 30, 2003 as compared to the comparable
period in 2002.

Revenues from our logic products decreased by $182,000 for the six months
ended 2003 as compared to the same period in 2002. The decreases were due to a
reduction in demand for this product and our decision to eliminate this product
line effective December 31, 2003.

Two distributors and two direct customers accounted for approximately 55%
of our semiconductor devices product sales for the six months ended June 30,
2003. Products sold to distributors are re-sold to various end customers.

COST OF SALES AND GROSS MARGINS TWELVE MONTHS ENDED DECEMBER 31, 2002 AND
2001 - SEMICONDUCTOR DEVICES

We recorded costs of sales for semiconductor devices of $7,578,000 and
$10,458,000 for the twelve months ended December 31, 2002 and December 31, 2001,
respectively. These costs reflect an approximate 6% improvement in gross margin
percentages for twelve months ended December 31, 2002 as compared to the twelve
months ended December 31, 2001. Actual gross margin percentages were 39% and 33%
for the twelve months ended December 31, 2002 and 2001, respectively. The
increases were due primarily to increased sales of higher margin semiconductor

products, logic products and high-end industrial and military products. The
increases in gross margin percentages were partially due to lower material and
test costs of our commercial product.

During 2002, we purchased silicon wafers built on 0.8 micron technology
from Chartered Semiconductor Manufacturing to support sales of our nonvolatile
Static Random Access memory products. Sales of our logic products were supported
with 0.5 micron silicon wafers purchased from United Microelectronics Corp. of
Taiwan and 0.35 micron silicon wafers purchased from Chartered Semiconductor
Manufacturing.

COST OF SALES AND GROSS MARGINS SIX MONTHS ENDED JUNE 30, 2003 AND 2002-
SEMICONDUCTOR DEVICES

We recorded cost of sales for semiconductor devices of $4,407,000 for the
six months ended June 30, 2003 as compared with the $4,217,000 for the six
months ended June 30, 2002. These costs reflect an approximate 6% decrease in
gross margin percentages for the six months ended June 30, 2003 as compared to
the six months ended June 30, 2002. Actual gross margin percentages for the six
month periods ending June 30, 2003 were 30%. The decrease in gross margin
percentages for the six month period was also affected by decreased average
selling prices.

During the first six months of 2003, we purchased wafers built on 0.8
micron technology from Chartered Semiconductor Manufacturing Plc. of Singapore
to support sales of our nonvolatile semiconductor memory products. Sales of our
logic products were supported with 0.5 micron wafers purchased from United
Microelectronics Corp. of Taiwan and 0.35 micron wafers purchased from Chartered
Semiconductor Manufacturing.

RESEARCH AND DEVELOPMENT TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001 -
SEMICONDUCTOR DEVICES

We believe that continued investments in new product development are
required for us to remain competitive in the markets we serve. Beginning in the
fourth quarter 2001, our research and development department has been focusing
its efforts on developing a 3 volt version of our 256 kilobit nonvolatile Static
Random Access memory device and the installation of our process at Amkor
Technology for the development of a 1 megabit 3 volt nonvolatile Static Random
Access memory. During 2002, we qualified our 3 volt 256 kilobit nonvolatile
Static Random Access memories for sales into commercial and industrial
applications. Development of the 1 megabit 3 volt nonvolatile Static Random
Access memory is continuing and we are anticipating the arrival of samples
during the second quarter of 2003.

Total research and development expenses related to the semiconductor
portion of our business were $3,795,000 and $2,695,000 for the twelve months
ended December 31, 2002 and December 31, 2001, respectively.

The $1,100,000 increase for the twelve month period was related to
increases in payroll and payroll overhead costs of $478,000, contract

engineering services of $199,000, new product development costs of $290,000,
equipment leases, maintenance agreements for software and depreciation of
$294,000 and a reduction in miscellaneous other expenses of $161,000 which were
related primarily to reduced costs of our logic development. The primary
increase in payroll costs is related to an increase in employee headcount.
Increased headcount and contract engineering services are required in order to
meet production schedules of our new products. New product development costs are
primarily due to the purchases of silicon wafers and reticles required to
develop new products. Equipment leases, maintenance agreements for software and
depreciation are related primarily to software licenses and hardware required to
design our new products.

RESEARCH AND DEVELOPMENT SIX MONTHS ENDED JUNE 30, 2003 AND 2002 -
SEMICONDUCTOR DEVICES

We believe that continued investments into new product development are
required for us to remain competitive in the markets we serve. Beginning in the
fourth quarter 2001, our research and development department has been focusing
its efforts on the installation of our process at Anam Semiconductor for the
development of a 1 megabit 3 volt nonvolatile semiconductor memory. During the
first six months of 2003, we continued to see increased demand for our 3 volt
256 kilobit nonvolatile semiconductor memories. Development of the 1 megabit 3
volt nonvolatile semiconductor memory is continuing and we anticipate delivering
samples to customers during the third quarter of 2003.

Total research and development expenses related to the semiconductor
portion of our business were $2,120,000 for the six months ended June 30, 2003
compared to $1,965,000 for the six months ended June 30, 2002.

The increase of $155,000 for the six month period was related to the net
between increases in payroll and payroll costs of $278,000, equipment leases,
maintenance agreements for software and depreciation of $179,000 and reductions
in contract engineering services of $42,000, new product development costs of
$252,000 and other expenses of $8,000. The primary increase in payroll costs is
related to an increase in employee headcount. Increased headcount and contract
engineering services are required in order to meet production schedules of our
new products. New product development costs are primarily due to the purchases
of silicon wafers and reticles required to develop new products. Equipment
leases, maintenance agreements for software and depreciation are related
primarily to software licenses and hardware required to design our new products.

SALES AND MARKETING TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001 -
SEMICONDUCTOR DEVICES

Total marketing expenses related to the semiconductor portion of our
business were $1,336,000 and $1,510,000 for the twelve months ended December 31,
2002 and December 31, 2001, respectively.

The $174,000 decrease for the twelve month period was related to decreases
in advertising, contract services and sales commissions of $58,000, $81,000 and
$61,000, respectively. The decrease in sales commissions is a direct result of
decreased revenue. These decreases were offset by an increase in travel expenses
of $26,000.

SALES AND MARKETING SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - SEMICONDUCTOR
DEVICES

Total marketing expenses related to the semiconductor portion of our
business were $671,000 for the six months ended June 30, 2003 as compared to
the$777,000 for the six months ended June 30, 2002.

The decrease of $106,000 for the six month period ended June 30, 2003 as
compared to June 30, 2002 was due to decreases in payroll and payroll related
costs of $67,000, travel of $29,000 and miscellaneous expenses of $10,000. The
reduction in payroll and payroll related costs was a direct result of reduced
headcount. The decrease of travel expenses was due to a reduction in travel
within the sales organization.

ADMINISTRATION AND INVESTOR RELATIONS TWELVE MONTHS ENDED DECEMBER 31, 2002
AND 2001 - SEMICONDUCTOR DEVICES

Total administration expenses related to the semiconductor portion of our
business were $639,000 and $989,000 for the twelve months ended December 31,
2002 and December 31, 2001, respectively.

The $350,000 decrease was due primarily to decreased legal costs, audit
fees and contract services of $186,000, $100,000 and $94,000, respectively.
These decreases were directly related to costs associated with the acquisition

of Q-DOT in March 2001 and an overall decrease in legal and audit fees related
to filings with the Securities and Exchange Commission. The decreases were
offset by an increase of $30,000 in payroll costs which were a direct result of
headcount increases.

The decrease of $730,000 in investor relations expense, for the twelve
month period ending December 31, 2002 as compared to December 31, 2001 was
related to the completion of the amortization of the issuance of stock to two
investment banking firms in September 2000 for services they performed.

ADMINISTRATION SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - SEMICONDUCTOR
DEVICES

Total administration expenses related to the semiconductor portion of our
business were $409,000 for the six months ended June 30, 2003 as compared to the
$338,000 for the six months ended June 30, 2002.

The $71,000 increase for the six months ended June 30, 2003 compared to
June 30, 2002, respectively, were primarily due to an increase in professional
services and an increase in payroll costs. Many of these additions were
implemented to ensure ongoing compliance with newly enacted regulations
resulting from the Sarbanes-Oxley Act.

TOTAL OTHER INCOME (EXPENSE) TWELVE MONTHS ENDED DECEMBER 31, 2002 AND
2001 - SEMICONDUCTOR DEVICES

The $109,000 decrease in total other income (expense) for the twelve month
period ending December 31, 2002 as compared to the twelve month period ending
December 31, 2001 was primarily related to an increase of interest expense and
an increase in interest income which was a direct result of the $3,000,000
funding we received on July 1, 2002 from Renaissance Capital Group.

TOTAL OTHER INCOME (EXPENSE) SIX MONTHS ENDED JUNE 30, 2003 AND 2002 -
SEMICONDUCTOR DEVICES

The increases of $104,000 in total other income (expense) for the six month
period ended June 30, 2003 as compared to June 30, 2002, respectively, was
primarily due to an increase in interest expense, offset by an increase in
interest income. This increase was a direct result of the $3,000,000 funding we
received on July 1, 2002.

NET LOSS TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001 - SEMICONDUCTOR
DEVICES

We recorded a net loss of $1,028,000 and $925,000 for the twelve months
ended December 31, 2002 and December 31, 2001, respectively. The increase of
$103,000 in net loss for the twelve month period was due primarily to increased
research and development costs and decreased sales.

NET LOSS SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - SEMICONDUCTOR DEVICES

We recorded a net loss of $1,382,000 for the six months ended June 30, 2003
as compared to a net loss of $697,000 for the six months ended June 30, 2002.
The increase in net loss for the six month period was due primarily to increased
research and development costs, decreased sales and decreased gross margin
percentages.

REVENUES TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001 - GOVERNMENT
CONTRACTS

The following table sets forth our net revenues from the government
contracts portion of our business for the twelve months ended December 31, 2002
and December 31, 2001 (in thousands):

2002 2001 Variance
---- ---- --------

Government Contracts $1,905 $1,500 $ 405

The increase of revenue for the twelve months ended December 31, 2002 as
compared to the twelve months ended December 31, 2001 was the result of
increased direct labor costs and increased materials and services that were
invoiced against development contracts. Direct labor increased due to the
addition of employees.

Costs on contracts with the government (including allocable indirect costs)
are subject to audit and adjustment by negotiations between Q-DOT and government
representatives. Costs submitted for reimbursement are subject to government
audits for compliance with government cost accounting standards, federal
acquisitions regulations and other contract terms. Negotiations for all of the
years through March 31, 1999 have been completed without any material
adjustments. Management does not believe the results of the March 31, 2000,
December 31, 2000, December 31, 2001 and December 31, 2002 government audits and
subsequent negotiations will have a material effect on the accompanying
financial statements.

REVENUES SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - GOVERNMENT CONTRACTS

The following table sets forth our net revenues from our government
contracts portion of our business for the three months ended June 30, 2003 and
2002 (in thousands):

Six Months Ended
----------------
June 30,
--------
2003 2002 Variance
---- ---- --------

Government Contracts $1,023 $ 919 $ 104

The increase of revenue for the six month period ending June 30, 2003 as
compared to the same period in 2002 was the result of increased direct labor
costs and increased materials and services that were invoiced against
development contracts. Direct labor increased due to the addition of employees
needed for additional contracts.

COST OF SALES AND GROSS MARGIN TWELVE MONTHS ENDED DECEMBER 31, 2002 AND
2001 - GOVERNMENT CONTRACTS

We recorded cost of sales for government contracts of $903,000 and $815,000
for the twelve months ended December 31, 2002 and December 31, 2001,
respectively. These costs reflect a 7% improvement in gross margin percentages
for the twelve months ended December 31, 2002 as compared to twelve months ended
December 31, 2001. The improvement in gross margin percentages was primarily due
to a one time adjustment of costs from research and development to costs of
sales that occurred in twelve month period ending December 31, 2001. Actual
gross margin percentages for the twelve months ending December 31, 2002 and
December 31, 2001 were 53% and 46%, respectively.

COST OF SALES AND GROSS MARGIN SIX MONTHS ENDED JUNE 30, 2003 AND 2002 -
GOVERNMENT CONTRACTS

The cost of sales for the government contracts portion of our business was
$513,000 for the six months ended June 30, 2003 as compared to the $400,000 for
the same periods in 2002. This was equivalent to gross margin percentages of 50%
for the six months ended June 30, 2003 as compared to gross margin percentages
of 56% for the same period in 2002. The decrease in gross margin percentages
were primarily due to an increase in non direct labor which could not be billed
as revenue.

RESEARCH AND DEVELOPMENT TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001 -
GOVERNMENT CONTRACTS

Total research and development expenses related to the government contracts
portion of our business were $514,000 and $460,000 for the twelve months ended
December 31, 2002 and December 31, 2001, respectively.

The $54,000 increase for the twelve month period was related to increases
in payroll and payroll overhead costs of $32,000 and external wafer foundry
costs of $22,000.

RESEARCH AND DEVELOPMENT SIX MONTHS ENDED JUNE 30, 2003 AND 2002 -
GOVERNMENT CONTRACTS

Total research and development expenses related to the government contracts
portion of our business were $363,000 for the six months ended June 30, 2003
compared to $305,000 for the six months ended June 30, 2002.

The $58,000 increase for the six month period ending June 30, 2003 as
compared to the same period in 2002 was related to a decrease of $5,000 in
employment related expenses which was offset by a $63,000 increase in software
maintenance contracts.

MARKETING TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001 - GOVERNMENT
CONTRACTS

Total marketing expenses related to the government contracts portion of our
business were $306,000 and $162,000 for the twelve months ended December 31,
2002 and December 31, 2001, respectively.

The increase of $144,000 for the twelve months ended December 31, 2002 as
compared to December 31, 2001 was primarily due to an increase of $133,000 in
bid and proposal activities required to complete small business innovative
research proposals requiring engineering and administrative support and an
$11,000 increase in travel expenses.

MARKETING SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - GOVERNMENT CONTRACTS

Total marketing expenses related to the government contracts portion of our
business were $149,000 for the six months ended June 30, 2003 as compared to the
$128,000 for the six months ended June 30, 2002.

The increases of $21,000 for the six month periods ended June 30, 2003 as
compared to June 30, 2002 were primarily due to increased bid and proposal
activities.

ADMINISTRATION TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001 - GOVERNMENT
CONTRACTS

Total administration expenses related to the government contracts portion
of our business were $116,000 and $251,000 for the twelve month period ended
December 31, 2002 and December 31, 2001, respectively.

The $135,000 decrease for the twelve months ended December 31, 2002 as
compared to December 31, 2001 was due to decreased legal, audit fees and payroll
costs that were primarily related to our acquisition of Q-DOT.

ADMINISTRATION SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - GOVERNMENT
CONTRACTS

Total administration expenses related to the government contracts portion
of our business were $67,000 for the six months ended June 30, 2003 as compared
to the $55,000 for the six months ended June 30, 2002.

The increase of $12,000 for the six months ended June 30, 2003 as compared
to the same period in 2002 was primarily due to a $8,000 decrease in outside
consulting work which was offset by a $20,000 increase in payroll related
expenses.

NET INCOME (LOSS) TWELVE MONTHS ENDED DECEMBER 31, 2002 AND 2001 -
GOVERNMENT CONTRACTS

We recorded a net income of $65,000 and a net loss of $195,000 for twelve
months ended December 31, 2002 and December 31, 2001, respectively, for the
government contracts portion of our business. The increase in net income from a
net loss for the twelve month period was due primarily to the elimination of
costs related to our acquisition of Q-DOT and increased revenue.

NET INCOME (LOSS) SIX MONTHS ENDED JUNE 30, 2003 AND 2002 - GOVERNMENT
CONTRACTS

We recorded a net loss of $71,000 for the six months ended June 30, 2003 as
compared to a net income of $29,000 for the six months ended June 30, 2002. The
decrease in net income was primarily due to indirect overhead costs that could
not be billed to specific government contracts.

FUTURE RESULTS OF OPERATIONS

Our ability to achieve profitability will depend primarily on our ability
to continue reducing our manufacturing costs and increasing net product sales by

improving the availability of existing products, by the introduction of new
products and by expanding our customer base. We are also dependent on the
overall state of the semiconductor industry and the demand for semiconductor
products by equipment manufacturers.

We are continuing our co-development program with Amkor technology to
develop a semiconductor process module that combines our nonvolatile technology
with Amkor's advanced 0.25 micron digital complementary metal-oxide
semiconductor, or "CMOS," fabrication line. CMOS is the semiconductor technology
used in the transistors that are manufactured into most of today's computer
microchips. The module will incorporate silicon oxide nitride oxide silicon
technology, which will be used to manufacture both high density silicon oxide
nitride oxide silicon flash and nonvolatile Static Random Access memories, for
stand alone and embedded products. The co-development program is scheduled to
yield qualified shipments in the second quarter of 2003, with a 1 megabit 3.0
volt nonvolatile Static Random Access memory as the primary development vehicle.
In February 2003, Amkor Technology sold controlling interest of their wafer
fabrication facility to Anam Semiconductor. All contractual obligations were
transferred to Anam U.S.A., a wholly owned subsidiary of Anam Semiconductor. Our
co-development program has not been affected by the change in ownership and we
do not expect any material changes in the support required to complete the
program. Please see "Risk Factors - Since the semiconductor industry is fast
changing, our success depends on our ability to introduce new products."

As of June 30, 2003, we had a backlog of unshipped customer orders of
approximately $1,754,000 expected to be filled by December 31, 2003. Orders are
cancelable without penalty at the option of the purchaser prior to 30 days
before scheduled shipment and therefore are not necessarily a measure of future
product revenue.

We cannot assure you that the growth in demand, or demand for our products,
will increase in the future. We continue to explore alternatives to further
reduce our cost to manufacture our existing products built on 0.8 micron
technology. In 2001, we received reduced pricing from our packaging supplier and
our silicon wafer supplier and we also implemented test time reduction programs
that have further reduced our test costs. In 2002, we continued to focus on
yield improvement of our products built on our 0.8 micron technology with the
hopes of further reducing costs. We are currently reviewing additional cost
reduction measures that may have the potential to improve our earnings.

In 2001 and 2002, we purchased all of our silicon wafers for our
nonvolatile Static Random Access memory products from a single supplier,
Chartered Semiconductor Manufacturing. Approximately 80% of our semiconductor
device sales for 2002 and 86% of our semiconductor product sales for 2001 were
from finished units produced from these silicon wafers. We had an agreement with
Chartered Semiconductor Manufacturing to provide wafers through September 1998.
Although Chartered Semiconductor Manufacturing continues to provide us wafers
under the terms defined in this contract we do not have a current signed
agreement. In February 2003, we received notification from Chartered
Semiconductor Manufacturing that it will close its wafer fabrication facility #1
by March 2004. The memory wafers we purchase from Chartered Semiconductor
Manufacturing are manufactured in facility #1. We are working with Chartered
Semiconductor Manufacturing to transfer the manufacturing process of our memory
wafers to Chartered Semiconductor Manufacturing's facility #2. Facility #2 is
newer and more modern than facility #1, processing 8 inch wafers rather than the
older 6 inch wafers processed in facility #1. Assuming the transfer can produce
memory wafers that meet our specifications, we anticipate the transfer to be
completed in nine to twelve months. This would provide uninterrupted supply of
our current 0.8 micron family of nonvolatile Static Random Access memory
products, and would have no material impact on our ability to support our
customers. If we cannot complete the transfer of manufacturing into Chartered
Semiconductor Manufacturing's facility #2 or if we cannot contract with another
supplier, this will have a material negative impact on our future revenues and
earnings.

In 2001 and 2002, we purchased all of our silicon wafers built on a 0.5
micron process technology and our silicon wafers built on a 0.35 micron process
technology for our programmed semiconductor logic products from United
Microelectronics and Chartered Semiconductor Manufacturing, respectively.
Approximately 7% of our logic semiconductor device sales for 2002 and 5% of our
logic semiconductor device sales for 2001 were from finished units produced from
these wafers. Currently, we do not have a current signed agreement for either of
these companies to furnish us wafers, however, we have seen no disruption in
their supply to us. In February 2003, we received notification from our supplier
of logic wafers, United Microelectronics in Taiwan, that they will be unable to
supply us with our logic wafers after August 2003. We plan to support customers
with 0.5 micron logic wafers manufactured at United Microelectronics through
December 2003 by offering opportunities to purchase their life-time requirements
for these products with deliveries scheduled by the end of the year. After this
period, we do not plan to support sales of 0.5 micron logic products to the
market.

Zentrum Mikroelektronik Dresden, through their license agreement with us,
has the worldwide right to sell nonvolatile Static Random Access memory products
developed jointly by us and Zentrum Mikroelektronik Dresden. As it has
established volume production, Zentrum Mikroelektronik Dresden continues selling
such nonvolatile Static Random Access memory products. In the past year, we did
see increased competition with Zentrum Mikroelektronik Dresden as compared to
the previous year. However, due to Zentrum Mikroelektronik Dresden creating a
second source for nonvolatile Static Random Access memory products, we believe
that its presence may have a positive impact because many large manufacturers
require two sources from which to purchase product. We will not be receiving any
further license payments from our contract with Zentrum Mikroelektronik Dresden.

We intend to continue designing, developing and subcontracting the
production of our memory products. We also propose to continue to sell to
existing and new customers through our normal sales and marketing efforts. We
will also begin development of high performance data communications products
based on Silicon Germanium process expertise gained through our acquisition of
Q-DOT Group. We believe that the addition of data communication products will
allow us to expand our product offering into new applications and additional
customers. We anticipate that this will reduce our dependence on any single
product line and provide additional potential sources of revenue.

LIQUIDITY AND CAPITAL RESOURCES

On July 1, 2002, we received $3,000,000 in a financing transaction with
Renaissance Capital Group, Inc. Renaissance Capital Group is the agent for three
investment funds, Renaissance Capital Growth and Income Fund III, Inc.,
Renaissance US Growth & Income Trust, PLC and BFS US Special Opportunities
Trust, PLC. The $3,000,000 funding consists of convertible debentures with a
7-year term at a 7.5% per annum interest rate; each fund equally invested
$1,000,000. The holder of the debenture has the right, at any time, to convert
all, or in multiples of $100,000, any part of the debenture into fully paid and
nonassessable shares of our common stock. The debentures are convertible into
our common stock at $0.312 per share, which was in excess of the market price
per share on July 1, 2002. Based on the conversion rate of $0.312 per share, it
would entitle each fund to 3,205,128 shares, totalling approximately 18% for the
three funds, of our common stock. At June 30, 2003, we were in non-compliance of
certain covenants set forth in the loan agreement. We have received a waiver
from Renaissance through October 1, 2003 with respect to such covenants. We are
attempting to reach compliance with the stipulated covenant requirements by the
end of the waiver period, but cannot be sure that it will achieve such
compliance. Therefore, we have reclassified the note as a current liability as
of June 30, 2003. We have a long term relationship with Renaissance and believe
that we will be able to revise our current covenant requirements prior to
October 1, 2003. We cannot, however, provide assurances that we will be able to
meet the covenant requirements by October 1, 2003 or that such covenants will be
revised. Please see "Risk Factors-We might not be able to re-gain compliance of
certain covenants set forth in our loan agreement with Renaissance; if we are
unable to do so, Renaissance could accelerate the $3 million loan and foreclose
on the collateral that we granted to it."

The change in cash flows for the six months ended June 30, 2003 provided by
operating activities was primarily a result of a net loss of $1,453,389, which
is offset by $245,575 in depreciation and amortization, decreases in accounts
receivable, inventory, prepaid expenses and deferred revenue of $313,731,
$2,451, $103,737 and $40,500, respectively and increases in accounts payable,
accrued expenses and customer deposits of $152,530, $188,765 and $33,075,
respectively. The decrease of $313,731 in accounts receivable was directly
related to certain customers paying invoices within our payment terms at the end
of second quarter 2003. The increase in accounts payable of $152,530 was
primarily due to the timing of payments for standard operating expenses. The
increase in accrued expenses was due primarily to increased vacation payable and
accrued wages. These increases have occurred due to certain employees foregoing
their vacation time until later in 2003. The change in cash flows used in
investing activities of $292,527 was primarily due to the purchase of equipment
required to test our nonvolatile semiconductor memory products and software
acquired for research and development activities. The cash flows used in
financing activities of $65,611 were due primarily to payments on a capital
lease obligation.

The change in cash flows for the year ended December 31, 2002 used in
operating activities was primarily a result of a net loss of $962,867, which is
offset by $443,146 in depreciation and amortization and an increase in deferred
revenue of $25,500. These increases were offset by a decrease in allowance
accounts, inventory, accounts payable and accrued expenses of $71,150, $261,442,

$328,848 and $122,594, respectively and increases in accounts receivable and
prepaid expenses of $618,653 and $123,972. The $261,442 decrease in inventory
and the $618,653 increase in accounts receivable, were due to an increase in
customer demand in the late fourth quarter of 2002, this increase allowed us to
dispose of inventory on hand. The $328,848 decrease in accounts payable was
primarily due to the timing of raw materials received within the period.
Materials were received and paid for late in 2001, but due to soft market
demand, had not been fully consumed, resulting in larger inventory levels at
December 31, 2001. The $122,594 decrease in accrued expenses was due to our
completing payments of accrued salary and vacation payments to our former Chief
Financial Officer. The $123,972 increase in prepaid expenses and other was
directly related to in increase in software licensing and maintenance agreements
that are required to be paid in advance. These software licensing agreements are
required for us to design our 1 megabit nonvolatile Static Random Access memory
product. The change in cash flows used in investing activities of $163,657 was
primarily due to the purchase of hardware and software required for research and
development activities and equipment required to manufacture our semiconductor
devices at Chartered Semiconductor Manufacturing and United Microelectronics
Corp. The cash flows provided by financing activities of $2,699,678 were due
primarily to the $3,000,000, net of $116,175 in financing fees, received from
Renaissance Capital Group, borrowings and payments on notes payable and a
capital lease obligation and the exercise of stock options by our employees.

The change in cash flows for the year ended December 31, 2001, used in
operating activities was primarily a result of a net loss of $1,120,350 which is
offset by $462,083 in depreciation and amortization, $730,433 in investor
relations expense, loss of disposal of assets of $58,699, and an increase in
allowance accounts of $23,883. The change in net loss was also offset by
decreases in accounts receivable, prepaid expenses and other, an increase in
accounts payable and increases in receipts from deferred revenue of $48,084,
$62,349, $331,424 and $15,000, respectively. These amounts were offset by an
increase in inventory, and a decrease in accrued expenses of $798,972, and
$158,076, respectively. The increase in inventory was related to increased
product availability and demand. The change in cash flows used in investing
activities was due to the purchase of $509,698 of equipment required to test our
products and software required to design our programmed semiconductor logic
products. The change in cash flows provided by financing activities of $77,076
was due primarily to borrowings from a line of credit and the issuance of a note
of $100,163, payments on the line of credit and notes payable of $84,050,
borrowings on a capital lease of $97,520 and payments on the capital lease of
$52,977, the exercise of stock options by our employees and directors and the
buyback of our common stock.

Short-term liquidity.

Our cash balance at June 30, 2003 was $2,325,672.

Our future liquidity will depend on our revenue growth and our ability to
sell our products at positive gross margins and control of our operating
expenses. Over the coming year, we expect to spend approximately $8,000,000 for
operating expenses. We expect to meet these capital needs from sales revenues
and, to the extent we do not have sufficient revenues, from our existing cash
reserves.

Long-term liquidity.

We will continue to evaluate our long term liquidity. We currently do not
have any material plan of financing for the medium or long term or out of the
ordinary demands of our cash. We expect to continue to meet our capital needs
from sales revenues.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Simtek's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America,
which require us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and the related
disclosures. A summary of these significant accounting policies can be found in
Simtek's Notes to Consolidated Financial Statements included in this Form SB-2.
The estimates used by management are based upon Simtek's historical experiences
combined with managements understanding of current facts and circumstances.
Certain of our accounting polices are considered critical as they are both
important to the portrayal of our financial condition and the results of our
operations and require significant or complex judgments on our part. We believe
that the following represent the critical accounting policies of Simtek as
described in Financial Reporting Release No. 60, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, which was issued by the
Securities and Exchange Commission: inventories; deferred income taxes;
allowance for doubtful accounts; and, allowance for sales returns.

The valuation of inventories involves complex judgments on our part. Excess
finished goods inventories are a natural component of market demand of
semiconductor devices. We continually evaluate and balance the levels of
inventories based on sales projections, current orders scheduled for future
delivery and historical product demand. While certain finished goods items will
sell out, quantities of other finished goods items will remain. These finished
goods are reserved as excess inventory. We believe we have adequate controls
with respect to the amount of finished goods inventories that are anticipated to
become excess. While we believe this process produces a fair valuation of
inventories, changes in general economic conditions of the semiconductor
industry could materially affect valuation of our inventories.

The allowance for doubtful accounts reflects a reserve that reduces
customer accounts receivable to the net amount estimated to be collectible.
Estimating the credit worthiness of customers and the recoverability of customer
accounts requires management to exercise considerable judgment. In estimating
uncollectible amounts, we consider factors such as industry specific economic
conditions, historical customer performance and anticipated customer
performance. While we believe our processes to be adequate to effectively
quantify our exposure to doubtful accounts, changes in industry or specific
customer conditions may require us to adjust our allowance for doubtful
accounts.

We record an allowance for sales returns as a net adjustment to customer
accounts receivable. The allowance for sales returns consists of two separate
segments, distributor stock rotation and distributor price reductions. When we
record the allowance, the net method reduces customer accounts receivables and
gross sales. Generally, we calculate the stock rotation portion of the allowance
based upon distributor inventory levels. The contracts we have with our
distributors allow them to return to us a 5% percent of their inventory in
exchange for inventory which better meets their demands. At times, we are
required to allow our distributors to lower the selling price of a specific
device in order to meet competition. When this occurs, we record an allowance
for potential credit that our distributor's will be requesting. This allowance
is based on approved pricing changes, inventory affected and historical data. We
believe that our processes to adequately predict our allowance for sales returns
are effective in quantifying our exposures due to industry or specific customer
conditions.

We record an allowance that directly relates to the warranty of our
products for one year. The allowance for warranty return reduces our gross
sales. This allowance is calculated by looking at annual revenues and historical
rates of our products returned due to warranty issues. While we believe this
process adequately predicts our allowance for warranty returns, changes in the
manufacturing or design of our product could materially affect valuation of our
warranties.

We have various government contracts which are subject to audit by the
government. However, audits for the periods ending March 31, 2000, December 31,
2000, December 31, 2001 and December 31, 2002 have not been completed. In
addition, certain of these contracts are based on our estimate as to their
percentage of completion as of the balance sheet date. Our historical experience
has not resulted in a material adjustment to prior recorded revenue amounts.

We have recorded a valuation allowance on deferred tax assets. Future
operations may change our estimate in connection with potential utilization of
these assets.

ACCOUNTING STATEMENTS

In April 2002, the FASB approved for issuance Statements of Financial
Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145 rescinds
previous accounting guidance, which required all gains and losses from
extinguishment of debt be classified as an extraordinary item. Under SFAS 145
classification of debt extinguishment depends on the facts and circumstances of
the transaction. SFAS 145 is effective for fiscal years beginning after May 15,
2002 and adoption is not expected to have a material effect on the Company's
financial position or results of its operations.

In July 2002, the FASB issued Statements of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by SFAS 146
include lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other
exit or disposal activity. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS 146
is not expected to have a material effect on the Company's financial position or
results of its operations.

In December 2002, the FASB issued Statements of Financial Accounting
Standards No.148, "Accounting for Stock- Based compensation - Transition and
Disclosure - an amendment of FASB Statement 123" (SFAS 123). For entities that
change their accounting for stock-based compensation from the intrinsic method
to the fair value method under SFAS 123, the fair value method is to be applied
prospectively to those awards granted after the beginning of the period of
adoption (the prospective method). The amendment permits two additional
transition methods for adoption of the fair value method. In addition to the
prospective method, the entity can choose to either (i) restate all periods
presented (retroactive restatement method) or (ii) recognize compensation cost
from the beginning of the fiscal year of adoption as if the fair value method
had been used to account for awards (modified prospective method). For fiscal
years beginning December 15, 2003, the prospective method will no longer be
allowed. The Company currently accounts for its stock-based compensation using
the intrinsic value method as prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and plans on continuing using
this method to account for stock options , therefore, it does not intend to
adopt the transition requirements as specified in SFAS 148. The Company has
adopted the new disclosure requirements of SFAS 148 in these financial
statements.

In April 2003, the FASB issued Statements of Financial Accounting Standards
No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" (SFAS 149). SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. Management does not believe that
the adoption of SFAS 149 will have a material impact on its financial position
or results of operations.

In May 2003, the FASB issued Statements of Financial Accounting Standards
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity" (SFAS 150). SFAS 150 requires issuers to classify
as liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003
and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. Management believes the adoption of SFAS 150 will
have no immediate impact on its financial position or results of operations.

The FASB issued Interpretation ("FIN") No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, in November 2002 and FIN No. 46, Consolidation of
variable Interest Entities, in January 2003. FIN No. 45 is applicable on a
prospective basis for initial recognition and measurement provisions to
guarantees issued after December 2002; however, disclosure requirements are
effective immediately. FIN No. 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee and expands the required disclosures to be
made by the guarantor about its obligation under certain guarantees that it has
issued. The adoption of FIN No. 45 did not have a material impact on the
Company's financial position or results of operations. FIN No. 46 requires that
a company that controls another entity through interest other than voting
interest should consolidate such controlled entity in all cases for interim
periods beginning after June 15, 2003. Management does not believe the adoption
of FIN No. 46 will have a material impact on its financial position or results
of operations.

INFLATION

The impact of inflation on our business has not been material.

BUSINESS
GENERAL

We were formed as a Colorado corporation on January 7, 1986. We provide
integrated circuits to the electronics market for use in a variety of systems,
such as computers, copiers, factory controllers, electric meters and military
systems. We design, market and sell our products, but we subcontract the
majority of our manufacturing requirements. We have designed and developed
nonvolatile Static Random Access Memory products since we began business
operations in May 1987. We have concentrated on the design and development of
the 4, 16, 64 and 256 kilobit nonvolatile Static Random Access memory product
families and technologies, distribution channels, and sources of supply,
including production at subcontractors. Kilobits are a measure of the amount of
data that can be stored; more kilobits imply more storage. During 2000, we added
the capability to design, develop and produce programmed semiconductor logic
products.

Having established a core business within the nonvolatile memory
application segment, we have been expanding into other technology areas
including logic and data communication markets.

In March 2001, we acquired Q-DOT Group, Inc. Q-DOT Group specializes in
advanced technology research and development for data acquisition, signal
processing, imaging and data communications. Their projects are supported by
"conventional" government and commercial contracts in addition to government
contracts sponsored by the Small Business Innovation Research program. We
operate Q-DOT Group's government contract research and development operations as
our wholly owned subsidiary. This acquisition was intended to enable us to enter
the high speed data communications market, addressing both wired and wireless
applications, based on advanced "Silicon Germanium" process technology.

As of June 30, 2003, our backlog for released purchase orders was
approximately $1,754,000, all of which is expected to ship by December 31, 2003.
Orders are cancelable without penalty at the option of the purchaser prior to 30
days before scheduled shipment and are, therefore, not necessarily a measure of
future product revenue.

We are in production of our first four families of memory products; 256
kilobit, 64 kilobit, 16 kilobit and 4 kilobit nonvolatile Static Random Access
memories. Our 256 kilobit nonvolatile Static Random Access memory product was
qualified by our internal quality organization to the product's data sheet and
in accordance with accepted industry standard practices in 1997 for sales into
commercial and industrial markets and in 1998 for shipment into the military
market. During 2002, we designed and qualified a 3 volt version of our 256
kilobit nonvolatile Static Random Access memory product for sale into commercial
and industrial markets. Our 64 kilobit nonvolatile Static Random Access memories
have been qualified for sale into commercial, industrial and military markets.
Our 16 kilobit and 4 kilobit nonvolatile Static Random Access memories have been
qualified for sales into commercial and industrial markets. Our nonvolatile
Static Random Access memories are physically smaller and require less
maintenance than Static Random Access Memory devices that achieve nonvolatility
through the use of internal batteries and are more convenient to use than Static
Random Access Memory devices that achieve nonvolatility by being combined with
additional chips.

Our programmed semiconductor logic products are used to replace
programmable logic devices when a customer has completed its system design and
requires cost-reduced integrated circuits for volume manufacturing. Each
programmed semiconductor logic product is configured using the individual
customer's design files and is built to their specific requirements.

We have merged our logic design engineers into our memory design group in
order to incorporate unique features into our next generation memory products
currently under development.

We reduce capital requirements by subcontracting all phases of the
manufacturing process. Chartered Semiconductor Manufacturing began providing
silicon wafers for our nonvolatile Static Random Access memory products in
September 1993 and continues to provide wafers based on our product technology.
In February 2003, we received notification from Chartered Semiconductor
Manufacturing that it will close its wafer fabrication facility #1 by March
2004. The memory wafers we purchase from Chartered Semiconductor Manufacturing
are manufactured in facility #1. We are working with Chartered Semiconductor
Manufacturing to transfer the manufacturing process of our memory wafers to
Chartered Semiconductor Manufacturing's facility #2. Facility #2 is newer and
more modern than facility #1, processing 8 inch wafers rather than the older 6
inch wafers processed in facility #1. Assuming the transfer can produce memory
wafers that meet our specifications, we anticipate the transfer to be completed
in nine to twelve months. This would provide uninterrupted supply of our current

0.8 micron family of nonvolatile Static Random Access memory products, and would
have no material impact on our ability to support our customers. If we cannot
complete the transfer of manufacturing into Chartered Semiconductor
Manufacturing's facility #2 or if we cannot contract with another supplier, this
will have a material negative impact on our future revenues and earnings.

United Microelectronics and Chartered Semiconductor Manufacturing provide
silicon wafers for our programmed semiconductor logic products based on 0.5
micron and 0.35 micron product technology, respectively. In February 2003, we
received notification from United Microelectronics that they will be unable to
supply us with logic wafers after August 2003. We plan to support customers with
0.5 micron logic wafers manufactured at United Microelectronics through December
2003 by offering opportunities to purchase their life-time requirements for
these products with deliveries scheduled by the end of the year. After this
period, we do not plan to support sales of 0.5 micron logic products to the
market. Amkor Technology and Amkor Test Services provide assembly and final test
services, respectively, for our nonvolatile Static Random Access memory products
built from the wafers purchased from Chartered Semiconductor Manufacturing.
Advanced Semiconductor Engineering Inc. provides assembly services for our
programmed semiconductor logic products. Testing of our programmed semiconductor
logic products is done either internally or by Advanced Interconnect
Technologies.

During 2002, all of the wafers used to produce our nonvolatile Static
Random Access memories were purchased from Chartered Semiconductor
Manufacturing. Sales of these products accounted for approximately 80% of our
revenue for 2002. Wafers were purchased from both Chartered Semiconductor
Manufacturing and United Microelectronics in 2002 to support our programmed
semiconductor logic products. Sales of these products accounted for
approximately 7% of our revenue for 2002. The remaining 13% of our revenue was
from research and development contracts.

We currently have three sales and marketing offices, located in Colorado
and Georgia for the western and eastern North American markets, respectively,
and in Windsor, England for the European market. Asia is currently covered from
Colorado with plans to add an Asian sales office in 2003. We have engaged over
20 independent representative organizations with over 30 sales offices in North
America, Europe and Asia and distributor organizations with over 100 sales
offices worldwide. These organizations have multiple sales offices and technical
sales personnel covering specific geographic territories. Through these
organizations and their sales offices we believe that we are capable of serving
a significant portion of the worldwide market with our full line of products.

MEMORY INDUSTRY AND PRODUCT BACKGROUND

The semiconductor memory market is large and highly differentiated. This
market covers a wide range of product densities, speeds, features and prices. We
believe that the ideal memory would have:

o high bit density per chip to minimize the number of chips required in a
system;

o fast data read and write speeds to allow a system's microprocessor to
access data without having to wait;

o the ability to read and modify data an unlimited number of times; o the
ability to retain its data indefinitely when power is interrupted (i.e.
nonvolatility);

o availability in a variety of package types for modern assembly techniques;
and

o the ability to be tested completely by the manufacturer to ensure the
highest quality and reliability.

Although customers would like to have memory components with all of these
attributes, such components currently are not technically feasible. Therefore,
the memory market is segmented with different products combining different mixes
of these attributes.

Semiconductor memories can be divided into two main categories, volatile
and nonvolatile. Volatile memories generally offer high densities and fast data
access and programming speeds, but lose data when electrical power is
interrupted. Nonvolatile memories retain data in the absence of electrical
power, but typically have been subject to speed and testing limitations. They
also wear out if they are modified too many times. There are a number of common
volatile and nonvolatile product types, as set forth below. The list of products
under "Combinations" is limited to single packages and does not include

combinations of the listed memories in separate packages, such as Static Random
Access Memories in combination with Electrically Erasable Programmable Read Only
Memories and Erasable Programmable Read Only Memories.

Volatile Nonvolatile Combinations
-------- ----------- ------------

Static Random Access Memories Electrically Erasable Programmable Nonvolatile Static Random Access
Read Only Memory Memory

Dynamic Random Access Memory Flash Memory Nonvolatile Random Access
Memory

Erasable Programmable Read Only Static Random Access Memory
Memory plus lithium battery

Programmable Read Only Memory

Read Only Memory

VOLATILE MEMORIES. Rewritable semiconductor memories store varying amounts
of electronic charge within individual memory cells to perform the memory
function. In a Dynamic Random Access Memory the charge must be electrically
refreshed many times per second or data are lost even when power is continuously
applied. In a Static Random Access Memory the charge need not be refreshed, but
data can be retained only if power is not interrupted.

NONVOLATILE MEMORIES. A Read Only Memory is programmed, or written, once in
the later stages of the manufacturing process and cannot be reprogrammed by the
user. Programmable Read Only Memory can be programmed once by the user, while
Erasable Programmable Read Only Memory may be reprogrammed by the user a limited
number of times if the Erasable Programmable Read Only Memory is removed from
the circuit board in the equipment. Both Flash memory and Electrically Erasable
Programmable Read Only Memory may be reprogrammed electrically by the user
without removing the memory from the equipment. However, the reprogramming time
on both Electrically Erasable Programmable Read Only Memory and Flash memory is
excessively long compared to the read time such that in most systems the
microprocessor must stop for a relatively long time to rewrite the memory.

COMBINATIONS. Many customers use a combination of volatile and nonvolatile
memory functions to achieve the desired performance for their electronic
systems. By using Static Random Access Memories in combination with Erasable
Programmable Read Only Memory and Electrically Erasable Programmable Read Only
Memory chips, customers can achieve nonvolatility in their systems and still
retain the high data read and write speeds associated with Static Random Access
Memory. This approach, however, is not desirable in many applications because of
the size and cost disadvantages associated with using two or more chips to
provide a single memory function. Also, it may take up to several seconds to
transfer the data from the Static Random Access Memory to the Electrically
Erasable Programmable Read Only Memory; an excessive time at power loss. As a
result, attempts have been made to combine nonvolatile and volatile memory
features in a single package or silicon chip. One approach combines a Static
Random Access Memory with lithium batteries in a single package.

Nonvolatile Random Access Memories combine volatile and nonvolatile memory
cells on a single chip and do not require a battery. We believe our nonvolatile
Static Random Access memory represents a significant advance over existing
products that combine volatility and nonvolatility on a single silicon chip. We
combine a Static Random Access Memory cell with an Electrically Erasable
Programmable Read Only Memory cell to create a small nonvolatile Static Random
Access memory cell. Our unique and patented memory cell design enables the
nonvolatile Static Random Access memory to be produced at densities higher than
existing Nonvolatile Random Access Memories and at a lower cost per bit. In
addition to high density and nonvolatility, the nonvolatile Static Random Access
memory has fast data access and program speeds and the Static Random Access
Memory portion of the memory can be modified an unlimited number of times
without wearing out.

MEMORY TECHNOLOGY

We use an advanced implementation of silicon-nitride-oxide-semiconductor
technology. Silicon-nitride-oxide-semiconductor technology stores electrical
charge within an insulator, silicon nitride, and uses a thin tunnel oxide layer

to separate the silicon nitride layer from the underlying silicon substrate.
Silicon-nitride-oxide-semiconductor technology prevents tunnel oxide rupture in
the memory cell from causing an immediate loss of data. Oxide rupture has been a
major cause of failures in Flash and Electrically Erasable Programmable Read
Only Memories using floating gate technology, where charge is stored on a
polysilicon conductor surrounded by insulators. To protect against these
failures, many floating gate Electrically Erasable Programmable Read Only
Memories have required error correction circuitry and redundant memory cells.
This increases product cost by requiring more silicon area. Error correction and
redundancy are not required for our products to protect against tunnel oxide
rupture. In addition, our product designs incorporate a special test feature
which can predict data retention time for every individual memory cell based on
measuring the rate of charge loss out of the silicon nitride.

The Silicon-nitride-oxide-semiconductor technology coupled with our
nonvolatile Static Random Access memory cell allows high performance nonvolatile
Static Random Access Memory to be manufactured using complementary metal oxide
semiconductor technology. The Silicon-nitride-oxide-semiconductor technology
that we use has proven to be highly reliable, as demonstrated by our product
qualification results to date.

OUR MEMORY PRODUCTS

Our 256 kilobit, 64 kilobit, 16 kilobit and 4 kilobit nonvolatile Static
Random Access memory product families consist of nonvolatile memories that
combine fast Static Random Access Memory and nonvolatile Electrically Erasable
Programmable Read Only Memory characteristics within each memory cell on a
single chip of silicon. The Static Random Access Memory portion of the
nonvolatile Static Random Access memories is operated in the same manner as most
existing Static Random Access Memory products. The Static Random Access Memory
can be written to and read from an unlimited number of times. The Electrically
Erasable Programmable Read Only Memory can be programmed, depending upon device
type, by user control or automatically by transferring the Static Random Access
Memory contents into the Electrically Erasable Programmable Read Only Memory.
The Electrically Erasable Programmable Read Only Memory data can be transferred
back into the Static Random Access Memory by user control or the data can be
transferred automatically.

Our nonvolatile Static Random Access memories have fast data access speeds
of 25, 35 and 45 nanoseconds. These data access speeds correspond to those of
fast Static Random Access Memory and meet the requirements of much of the fast
Static Random Access Memory market. The high speed characteristics of our
nonvolatile Static Random Access memories allow them to be used in applications
with various high performance microprocessors and digital signal processors such
as those manufactured by Intel Corp., Texas Instruments and Motorola. Our
nonvolatile Static Random Access memories can be used to replace Static Random
Access Memories with lithium batteries and multiple chip solutions such as
Static Random Access Memory plus Electrically Erasable Programmable Read Only
Memory or Flash Memory.

The various combinations of density and speed allow our nonvolatile Static
Random Access memory products to meet the design and performance requirements of
many different types of systems.

We finalized commercial and industrial qualification of two versions of our
initial 64 kilobit nonvolatile Static Random Access memory product offering in
September 1991 and April 1992, respectively. We completed military qualification
of our initial nonvolatile Static Random Access memories in May 1992. We began
sales into the commercial market of our initial 16 kilobit nonvolatile Static
Random Access memory product family in 1992. The nonvolatile Static Random
Access memory product family also includes the 4 kilobit version. We completed
the development and product qualification of the 64 kilobit AutoStoreTM
nonvolatile Static Random Access memory in 1993. The AutoStoreTM version
automatically detects power loss and transfers the data from the Static Random
Access Memory cells into the Electrically Erasable Programmable Read Only Memory
cells. This device does not require instructions or intervention from the system
microprocessor to notify it of the power loss. Commercial and industrial
qualification of our 256 kilobit nonvolatile Static Random Access memory
occurred in 1997 and military qualification of our 256 kilobit nonvolatile
Static Random Access memory was completed in the second quarter of 1998. In
2002, we qualified our 256 kilobit 3 volt nonvolatile Static Random Access
memory for use in commercial and industrial applications.

PROGRAMMABLE LOGIC DEVICE INDUSTRY

The electronics industry uses logic integrated circuits to route electrical
signals to perform tasks unique to that system. These unique operations
differentiate one system capability from another. Field Programmable Gate Arrays

and Complex Programmable Logic Devices have become popular for this purpose, and
are supplied by a number of major suppliers, such as Xilinx and Altera. These
products provide high performance, flexible solutions, but the technology
required to allow these products to be programmable is expensive when compared
to non-programmable, fixed function, application specific products.

OUR PROGRAMMED SEMICONDUCTOR LOGIC PRODUCTS

Programmed semiconductor logic products are built to order based on
customer designs that are electronically transferred to our design workstations.
Our engineers then verify the design and implement it in the appropriate
technology to provide a cost effective solution for the customer.

Our customers often ask that we provide them with programmed semiconductor
logic products at a lower price than their existing logic products without
sacrificing the products' functionality. Our software conversion tools translate
our clients' design files of their logic products generally allowing us to
provide our clients with a logic product that has the same functionality but at
a lower cost than their existing logic products. We have also developed a
testability feature that allows us to test our programmed semiconductor logic
products without dedicating a portion of the chip area to such testing.

We subcontract the production of our semiconductor logic products to
various fabrication facilities. We provide the fabrication facilities with the
design of our programmed semiconductor logic products and these facilities
install our designs on the chips through standard wafer processing. We currently
contract with United Microelectronics for 0.5 micron technology and with
Chartered Semiconductor Manufacturing for 0.35 micron technology, in each case
through purchase orders on a case- by-case basis. In February 2003, we received
notification from United Microelectronics that it will be unable to supply us
with logic wafers after August 2003. We plan to support customers with 0.5
micron logic wafers manufactured at United Microelectronics through December
2003 by offering opportunities to purchase their life-time requirements for
these products with deliveries scheduled by the end of the year. After this
period, we do not plan to support sales of 0.5 micron logic products to the
market.

PRODUCT WARRANTIES

We presently provide a one-year limited warranty on our products.

RESEARCH AND DEVELOPMENT

Our research and development activities are centered around developing new
products and reducing the cost of our nonvolatile Static Random Access memory
products as well as the development and design of customer specific programmed
semiconductor logic products. We continually work to improve yield on the 0.8
micron technology in order to reduce costs. In order to further reduce costs,
since late 1997 we have used outside experts for testing of our products. We
have a test floor used for evaluation of our technologies, product designs and
product quality. The test floor is also used for production testing of silicon
wafers.

During 2002, we developed and qualified a 3 volt version of our 256 kilobit
nonvolatile Static Random Access memory product, built on the 0.8 micron
technology from Chartered Semiconductor Manufacturing. The 3 volt version of our
256 kilobit nonvolatile Static Random Access memory product is qualified for use
in commercial and industrial applications.

In October 2001, we entered into an agreement with Amkor Technology to
cooperate to develop a semiconductor process module that combines our
nonvolatile technology with Amkor's advanced 0.25 micron digital complementary
metal- oxide semiconductor, or "CMOS," fabrication line. CMOS is the
semiconductor technology used in the transistors that are manufactured for most
of today's computer microchips. The module will incorporate silicon oxide
nitride oxide silicon technology, which will be used to manufacture both high
density silicon oxide nitride oxide silicon flash and nonvolatile Static Random
Access memories, for stand alone and embedded products. During 2002, our
research and development team along with Amkor's research and development team
worked aggressively on the co-development program. The co-development program is
scheduled to yield qualified shipments in the third quarter of 2003, with a 1
megabit 3.0 volt nonvolatile Static Random Access memory as the primary
development vehicle. In February 2003, when Amkor Technology sold controlling
interest of their wafer fabrication facility to Anam Semiconductor. All
contractual obligations were transferred to Anam U.S.A., a wholly-owned
subsidiary of Anam Semiconductor. Our co-development program has not been

affected by the change in ownership and we do not expect any material changes in
the support required to complete the program. In August 2003, we reported that
we received the first complete processed silicon from this development, and that
positive initial test results indicate that samples of a new 1 megabit 3 volt
nonvolatile semiconductor memory product are on schedule for shipment to
prospective customers in the middle of the third quarter of 2003. We cannot
assure you that we will not discover technical problems or manufacturing
concerns with this new product, that demand will develop for the new product or
that we will be able to sell this new product at a profit.

In an effort to expand our products, we acquired, from WebGear, incomplete
research and development of technology that we intended to apply within the
emerging Bluetooth market segment. "Bluetooth" is an industry standard, short
range wireless communications technology designed to allow a variety of
electronic devices, such as wireless telephone, personal digital assistants,
notebook computers, desktop computers, peripheral input-output devices,
television set-top boxes and Internet appliances to exchange data without the
use of physical cabling. During the twelve month period ending December 31,
2002, we spent approximately $123,000 on the development of our Bluetooth
technology. Due to a poor semiconductor market and delays related to widespread
adoption of Bluetooth technology, we have decided to stop further development of
our Bluetooth technology until the semiconductor market recovers and the
Bluetooth technology becomes generally accepted.

We anticipate that our acquisition of Q-DOT Group will enable us to enter
the high speed data communications market, addressing both wired and wireless
applications, based on advanced Silicon Germanium process technology. Silicon
Germanium is rapidly becoming the technology of choice for many analog, mixed
signal and high speed digital circuits. During 2002, we spent approximately
$107,000 on marketing and engineering efforts to determine which applications
our integrated circuits, built on the Silicon Germanium process technology,
would best fit into. In the next twelve months, we anticipate spending
approximately $200,000 in order to develop and manufacture integrated circuits
using the Silicon Germanium process technology.

Our research and development expenditures for the years ended December 31,
2002 and 2001 were $4,308,499 and $3,155,360, respectively. We intend to
continue expenditures on research and development; however, the percentage of
research and development expenditures is expected to decrease relative to
expenditures relating to the commercial production of our existing products.

MANUFACTURING AND QUALITY CONTROL

Our manufacturing strategy is to use subcontractors whose production
capabilities meet the requirements of our product designs and technologies.

In 1992, we entered into a manufacturing agreement with Chartered
Semiconductor Manufacturing to provide us with silicon wafers for our products.
Under the manufacturing agreement with this subcontractor, it has installed a
manufacturing process for versions of our current and future memory products. In
February 2003, we received notification from Chartered Semiconductor
Manufacturing that they will close their wafer fabrication facility #1 by March
2004. The memory wafers we purchase from Chartered Semiconductor Manufacturing
are manufactured in facility #1. We are working with Chartered Semiconductor
Manufacturing to transfer the manufacturing process of our memory wafers to
Chartered Semiconductor Manufacturing's facility #2. Facility #2 is newer and
more modern than facility #1, processing 8 inch wafers rather than the older 6
inch wafers processed in facility #1. Assuming the transfer can produce memory
wafers that meet our specifications, we anticipate the transfer to be completed
in nine to twelve months. This would provide uninterrupted supply of our current
0.8 micron family of nonvolatile Static Random Access memory products, and would
have no material impact on our ability to support our customers. If we cannot
complete the transfer of manufacturing into Chartered Semiconductor
Manufacturing's facility #2 or if we cannot contract with another supplier, this
will have a material negative impact on our future revenues and earnings.

We use United Microelectronics for wafer procurement of our 0.5 micron
programmed semiconductor logic products and Chartered Semiconductor
Manufacturing for wafer procurement of our 0.35 micron programmed semiconductor
logic products. In February 2003, we received notification from United
Microelectronics that they will be unable to supply us with logic wafers after
August 2003. We plan to support customers with 0.5 micron logic wafers
manufactured at United Microelectronics through December 2003 by offering
opportunities to purchase their life-time requirements for these products with

deliveries scheduled by the end of the year. After this period, we do not plan
to support sales of 0.5 micron logic products to the market. During 2002, all of
our product revenue was based on wafers purchased from Chartered Semiconductor
Manufacturing and United Microelectronics.

Device packaging of our nonvolatile Static Random Access memory products
continues at the Amkor facilities in the Philippines and South Korea. Final test
for our nonvolatile Static Random Access memory products continues with Amkor
Test Services, in Wichita, Kansas. Device packaging of our programmed
semiconductor logic products continues at Advanced Semiconductor Eng., Inc. in
Taiwan. Final test of our programmed semiconductor logic products is completed
in our Colorado Springs facility and at Advanced Interconnect Technologies in
San Jose, California.

Our subcontractors provide quality control for the manufacture of our
products. We maintain our own quality assurance personnel and testing capability
to assist the subcontractors with their quality programs and to perform periodic
audits of the subcontractors' facilities and finished products to ensure product
integrity.

Our quality and reliability programs were audited by several commercial and
military customers during 2002 and 2001 as part of routine supplier
certification procedures. All such audits were completed satisfactorily. We are
currently implementing policies and procedures required to achieve ISO 9001
certification by the end of 2003.

MARKETS

Our memory products are targeted at fast nonvolatile Static Random Access
Memory markets, Static Random Access Memory plus Electrically Erasable
Programmable Read Only Memory markets and other nonvolatile memory products
broadly used in commercial, industrial and military electronic systems.

Simtek products are typically used to store critical data when power is
removed from the system. Often this data must be captured very quickly and we
believe that the fast write time of Simtek's nonvolatile Static Random Access
Memory products is a significant benefit over nonvolatile memory alternatives.
Also, our products are used in systems that are "write intensive" such as data
collection, event recording and others where we believe that the unlimited write
endurance of our nonvolatile Static Random Access Memory is superior to
alternative nonvolatile memory solutions.

Until now Simtek's markets have been limited by the density at which Simtek
could cost effectively produce products. We believe that the introduction of our
1 megabit nonvolatile Static Random Access Memory products in 2003 manufactured
on 0.25 micron technology and the introduction of our Value Added Memory (VAM)
solutions will greatly increase our served market segments. By "VAM solutions"
we are describing our new nonvolatile memory product architecture that includes
logic functions in addition to standard memory functions on the same product,
thus increasing a functionality for prospective customers.

Airborne and Space Computers * Lighting *
Automotive Control & Monitoring* Medical Instruments *
Portable Telephone Modems Control Systems *
Portable Computers Currency Changers*
Postal Meters Data Monitoring Equipment *
Printers * Disk Drives *
Process Control Equipment * Facsimile Machines *
Radar and Sonar Systems * Gaming *
Telecommunications Systems * GPS Navigational Systems*
Terminals * Guidance and Targeting Systems *
Test Equipment * High Performance Workstations*
Utility Meters * Laser Printers *
Vending Machines Mainframe Computers
Weapon Control Systems * CD Writers *
Security Systems * Copiers *
Broadcase Equipment * Cable TV Set Top Converter Boxes *
Studio Recording Equipment * Multi- Function Printers*
Servers* RAID Controllers*
Factory Automation Systems* Robotics*
Mass Storage Systems*

The applications marked with an asterisk currently use our products. The
other applications use similar products, but may use our products in newer
designs.

We are increasing marketing and sales emphasis on office automation
products such as copiers and mass storage systems as well as increasing sales
efforts in data communications and automotive applications.

SALES AND DISTRIBUTION

Our strategy is to generate sales through the use of independent sales
representative agencies and distributors. We believe this strategy provides one
of the fastest and most cost effective ways to assemble a large and professional
sales force.

Independent sales representatives typically sell a limited number of
non-competing products to semiconductor users in particular geographic assigned
territories. Distributors inventory and sell products from a larger number of
product lines to a broader customer base. These sales channels are
complementary, as representatives and distributors often work together to
consummate a sale, with the representative receiving a commission from us and
the distributor earning a markup on the sale of products. We supply sales
materials to the sales representatives and distributors.

For our marketing activities, we evaluate external marketing surveys and
forecasts and perform internal studies based, in part, on inputs from our
independent sales representative agencies. Marketing decisions are also based on
forecasts and inputs from our current and prospective customers. We prepare
brochures, data sheets , application notes, product collateral and product
advertising with our internal marketing resources and contracted outside
services.

CUSTOMERS AND BACKLOG

We have shipped qualified nonvolatile Static Random Access memory products
to customers directly and through distributors since the September 1991
commercial product qualification. The majority of our sales are to Fortune 500
companies. Approximately 55% of our net product sales during 2002 were to
customers in the United States, approximately 28% were to customers in the
Pacific Rim, and approximately 11% were to customers in Europe. The remaining
product sales were to customers in other locations.

As of June 30, 2003, we had a backlog of unshipped customer orders of
approximately $1,754,000, which is expected to be filled by December 31, 2003.
Orders are cancelable without penalty at the option of the purchaser prior to 30
days before scheduled shipment and therefore are not necessarily a measure of
future product revenue.

LICENSES

Zentrum Mikroelektronik Dresden. In June of 1994, we signed a joint
development agreement with Zentrum Mikroelektronik Dresden to install the 1.2
micron products for manufacture at Zentrum Mikroelektronik Dresden and to
jointly develop the 0.8 micron technology at Chartered Semiconductor
Manufacturing. The agreement was modified in August of 1994 by a Letter of
Intent between us to bypass the installation of our nonvolatile Static Random
Access memory products based on a 1.2 micron process technology at Zentrum
Mikroelektronik Dresden and instead modify the 0.8 micron technology to run in
the Zentrum Mikroelektronik Dresden factory. Zentrum Mikroelektronik Dresden has
paid us all the monetary requirements under this agreement including any
royalties we may receive from sales of these jointly developed products.

Future License Sales. We intend to sell product and technology licenses on
a selective basis. We will continue to seek licensing partners who can
contribute to the development of the nonvolatile Static Random Access memory
market and provide a meaningful level of revenue to us while not posing an undue
threat in the marketplace.

COMPETITION

Our products compete on the basis of several factors, including data access
and programming speeds, density, data retention, reliability, testability, space
savings, manufacturability, ease of use and price.

Products that compete with our family of Nonvolatile Static Random Access
Memories fall into three categories. The first category of products that compete
with our Nonvolatile Static Random Access Memories are volatile and nonvolatile
chips used in combination, such as fast Static Random Access Memories used with
Erasable Programmable Read Only Memories, Electrically Erasable Programmable
Read Only Memories, or Flash memory. We believe that we have advantages over
these products because the nonvolatile static randon access memory allows data
to be stored in milliseconds as compared to seconds for chips used in pairs. Our
single chip solution provides a space savings and easier manufacturing. Our
single chip solution generally provides increased reliability versus multiple
chips. We believe it will be able to compete with many solutions requiring
density up to 256 kilobits; however, in those instances where the density
requirement is beyond 256 kilobits the Nonvolatile Static Random Access Memory
does not compete. New systems designs tend to use larger memory densities
greater than 256 kilobits, reducing the market available to us. We estimate that
less than 10% of the market uses 256 kilobit or smaller memories. Competitors in
the multiple chip category include Cypress Semiconductor Corp., Integrated
Technology, Inc., Toshiba, Fujitsu, Advanced Micro Devices, Inc., Atmel and
National Semiconductor Corp. We currently hold less than 1% market share this
market category.

The second category of products that compete with our Nonvolatile Static
Random Access Memories are products that combine Static Random Access Memories
with lithium batteries in specially adapted packages. These products generally
are slower in access speeds than our Nonvolatile Static Random Access Memories
due in part to limitations caused by life of the lithium battery when coupled
with a faster Static Random Access Memory. Our Nonvolatile Static Random Access
Memories are offered in standard, smaller, less expensive packages, and do not
have the limitation on lifetime imposed on the Static Random Access
Memory/battery solutions by the lithium battery. Our Nonvolatile Static Random
Access Memories can also be used for wave soldered automatic insertion circuit
board assembly since they do not have the temperature limitations of lithium
batteries. However, lithium battery-backed Static Random Access Memory products
are available in densities of 1 megabit and greater per package. Companies
currently supplying products with lithium batteries include Dallas Semiconductor
Corp., ST Microelectronics and Texas Instruments. We currently hold
approximately 10% of this market category.

The third category consists of Nonvolatile random access memories that
combine Static Random Access Memory cells and Electrically Erasable Programmable
Read Only Memory memory cells on a monolithic chip of silicon. Our current
product offerings are of higher density, faster access times and we believe can
be manufactured at lower costs per bit than competitor's Nonvolatile Random
Access Memories. We believe that traditional manufacturers of Nonvolatile Random
Access Memories have discontinued manufacturing their products.

Zentrum Mikroelektronik Dresden, through their license agreement with us,
has the worldwide right to sell under the Zentrum Mikroelektronik Dresden label
nonvolatile Static Random Access memories developed jointly by Zentrum
Mikroelektronik Dresden and us. With volume production established at Zentrum
Mikroelektronik Dresden, Zentrum Mikroelektronik Dresden is selling such
Nonvolatile Static Random Access Memories. This has had a positive impact for us
by creating a second source, which is required by many larger companies, for our
Nonvolatile Static Random Access Memory products. However, in 2001 and 2002, we
were required to reduce prices to specific markets due to the increased
competition from Zentrum Mikroelektronik Dresden. We believe that the
competition from Zentrum Mikroelektronik Dresden has increased the number of
companies using nonvolatile Static Random Access Memories, but may have put
downward pressure on average selling prices.

We are aware of other semiconductor technologies for nonvolatile memory
products. These technologies include ferroelectric memory and thin film magnetic
memory. Each of these requires a newly developed process technology which has
processing risk, but may deliver performance characteristics superior to our

technology if perfected. Each of these processes integrates materials into the
silicon processing steps which are not commonly used for semiconductor memory
products today. If successful, these products could perform the same functions
in a system that our products currently perform, but may be manufactured in
higher density or lower cost products. Ramtron, Raytheon, Symetrix, and others
are developing ferroelectric products. IBM, Motorola and Cypress Semiconductor
are developing magnetic film products.

Programmed semiconductor logic-type solutions are supported by
semiconductor companies such as AMI Semiconductor, NEC, Flextronics, and Temic.
These competitors provide a wide variety of solutions using semiconductor
processes ranging from 0.8 micron process technology to 0.25 micron process
technology. The business of converting customers' programmable logic products to
non-programmable logic products is highly dependent on the customers' designs
and system performance requirements. Each competitor's process technology and
software tools will affect its ability to support any particular requirement.

PATENTS AND INTELLECTUAL PROPERTY

We undertake to protect our product designs and technologies under the
relevant intellectual property laws as well as by utilizing internal disclosure
safeguards. Under our licensing programs, we exercise control over the use of
our protected intellectual property and have not permitted our licensees to
sublicense our nonvolatile Static Random Access memory products or technology.

It is common in the semiconductor industry for companies to obtain
copyright, trademark, trade secret and patent protection of their intellectual
property. We believe that patents are significant in our industry, and we are
seeking to build a patent portfolio. We expect to enter into patent license and
cross-license agreements with other companies. We have been issued 26 patents in
the United States on our Nonvolatile Static Random Access Memory cell and other
circuit designs. These patents relate to circuit implementations used to design
our nonvolatile memory products. The use of these patents allows us to design
circuits with lower power consumption and faster store timing than would be
possible otherwise giving us a competitive advantage over other technologies.
These patents have terms that expire through 2008 to 2013. We have also taken
steps to obtain European patents in the large European countries, including
Germany, France, the United Kingdom and Sweden on the nonvolatile memory patents
that would have potential value in international markets. We have four
applications that have been allowed and intend to prepare patent applications on
additional circuit designs we have developed. However, as with many companies in
the semiconductor industry, it may become necessary or desirable in the future
for us to obtain licenses from others relating to our products.

Many of our product designs are not protected by patents. We have one
patent on our logic product technology but protect most of our logic product
technology as trade secrets. Our logic products accounted for approximately 7%
of our sales for the year ended December 31, 2002. We also protect aspects of
our technology that relate to our semiconductor memory products as trade
secrets. There are disadvantages to protecting intellectual property as trade
secrets rather than patents. Unlike patents, trade secrets must remain
confidential in order to retain protection as proprietary intellectual property.
We cannot assure you that our trade secrets will remain confidential. If we lose
trade secret protection, our business could suffer.

We have received federal registration of the term "Novcel" a term we use to
describe our technology. We have not sought federal registration of any other
trademarks, including "Simtek" and "QuantumTrapTM" or our logo.

Late in 2002, we were contacted by Syndia Corporation regarding possible
infringement on certain patents. Syndia Corporation informed us that it had
acquired a portfolio patents issued to Jerome Lemelson. This patent portfolio
was not included in the portfolio owned by Lemelson Foundation Partnership, an
entity with which we reached a licensing agreement in 1999. We are currently
reviewing any potential infringements. If there are any infringements, we
believe that we can reach a reasonable licensing agreement with Syndia
Corporation.

EMPLOYEES

As of the date of this prospectus we had 53 full-time employees.

PROPERTIES

We lease approximately 16,000 square feet of space in Colorado Springs,
Colorado. This space includes a product engineering test floor of approximately
3,000 square feet. The lease expires on February 28, 2008. We lease
approximately 17,000 square feet of space in Colorado Springs which is occupied
by Q-DOT, our wholly-owned subsidiary. This space includes a research and
development lab facility of approximately 2,500 square feet. The lease expires
on April 30, 2005. Through May 31, 2002, approximately 2,400 square feet of the
space was subleased and the tenants did not renew the lease.

LEGAL PROCEEDINGS

We are not aware of any legal proceedings against us, where our property is
the subject of the proceeding, or that a government authority is contemplating
as of the date of this prospectus.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Our directors and executive officers are as follows:

Name Age Position
---- --- --------

Douglas M. Mitchell.......... 54 Director, Chief Executive Officer, President and Chief
Financial Officer (acting) and Chairman of the Board
of Q-DOT Subsidiary

Thomas Linnenbrink........... 60 Director, President, Chief Executive Officer, and
Technical Director of Q-DOT Subsidiary

Donald G. Carrigan........... 55 Vice President Sales and Marketing, Corporate
Secretary

David W. Still............... 47 Vice President of Engineering

Klaus C. Wiemer.............. 66 Director

Robert H. Keeley............. 62 Director

Harold Blomquist............. 51 Director

John Heightley............... 67 Director

Robert C. Pearson............ 68 Director

DOUGLAS M. MITCHELL, served as our Chief Operating Officer from July 1,
1997 until January 1, 1998 at which time he became Chief Executive Officer,
President and a director. Mr. Mitchell is also the Chairman of the Board of our
subsidiary, Q-DOT. Mr. Mitchell has over 20 years of experience in the
semiconductor and electronics systems industry holding various marketing and
sales management positions. Prior to joining us, he was President and Chief
Executive Officer of a wireless communications company, Momentum Microsystems.
Prior to this Mr. Mitchell was Vice President of Marketing with SGS-Thomson
Microelectronics, responsible for marketing and applications engineering of
Digital Signal Processing, transputer, microcontroller and graphics products in
North America. SGS- Thomson had acquired Inmos Corporation where Mr. Mitchell
had been Manager, US Marketing and Sales. Mr. Mitchell has held management
positions at Texas Instruments and Motorola and has been responsible for various
product definition and product development. Mr. Mitchell holds a Bachelors
degree in electrical engineering from the University of Texas and a Masters of
Business Administration degree from National University.

THOMAS E. LINNENBRINK, has served as President, Chief Executive Officer,
Technical Director and a director of Q-DOT, Inc. since he co-founded it in 1977.
Mr. Linnenbrink also founded Q-DOT Group, in 1990 and served as its President,
Chief Executive Officer, and a director until it was acquired by Simtek in
March, 2001. Mr. Linnenbrink has served in various technical management and
marketing positions for more than 35 years while advancing the state-of-the-art
in data acquisition and signal processing. He pioneered high-speed
charge-coupled device (CCD) and silicon germanium (SiGe) technology and
applications. Mr. Linnenbrink has published numerous technical papers and holds
more than a dozen patents. He currently chairs IEEE Technical Committee 10 which
writes and promotes standards for ADCs, DACs, digital waveform recorders, and
pulse technology. Mr. Linnenbrink holds a Bachelors degree in electrical
engineering from the Illinois Institute of Technology and a Masters of Science
degree in engineering science with emphasis on automatic control from Rensselaer
Polytechnic Institute.

DONALD G. CARRIGAN, has served as Vice President of Sales and Marketing and
Corporate Secretary since joining Simtek in September of 2001. Mr. Carrigan has
over 29 years experience in the semiconductor industry. Prior to joining Simtek
he was vice president of sales for Ramtron International Corporation and an

executive officer of Ramtron. During his 12 years at Ramtron, Mr. Carrigan held
various marketing and sales positions as well as General Manager of the
ferroelectric product business unit. Prior to joining Ramtron, Mr. Carrigan was
with Inmos Corporation for 8 years where he held various positions in
engineering and marketing management including the Director of Marketing
position. Mr. Carrigan also held positions in engineering management and R & D
with NCR Microelectronics and Texas Instruments. Mr. Carrigan holds a Bachelors
degree in Electrical Engineering from the University of Tennessee, Knoxville,
Tennessee and a Masters degree in Electrical Engineering from Southern Methodist
University, Dallas, Texas.

DAVID W. STILL has served as the Vice President of Engineering at Simtek
since December of 2001. Mr. Still has over 24 years experience in various
corporate, management, and technical positions within the semiconductor
industry, where he has successfully managed engineering teams developing
products in CMOS, bipolar, and GaAs processes, as well as associated CAD
software. Prior to his work at Simtek, he served as Vice President of IC
engineering for Comsilica, developing SOC WLAN products for 802.11a and b
wireless networks. Previously, he served as manager of the Colorado Design
Center for Lattice Semiconductor (formerly Minc), an FGPA / CPLD CAD software
company. Mr. Still was also a Vice President of Engineering at Array
Microsystems, a digital video product company, where he managed the CMOS IC
design and software development groups. He has also held engineering management
positions with Prisma and Honeywell. At Honeywell, he received two technical
excellence awards for his contributions to PLA designs. Mr. Still has published
over 18 technical papers and has received 2 patents. Mr. Still holds a Masters
degree in Electrical Engineering from Arizona State University and a Bachelors
degree in Electrical Engineering from the University of Nebraska.

KLAUS C. WIEMER, has served as a director since May 1993. He also serves on
the boards of InterFET Corp of Garland, TX, UTAC of Singapore and Scientific
Systems of Dublin, Ireland. From July 1993 to May 1994, Dr. Wiemer served as
President and Chief Executive Officer of our company. Dr. Wiemer is the founder
of Communicant Semiconductor Technologies AG, an integrated circuit foundry
start-up company located in Frankfurt/Oder, Germany, and served as its CEO until
May 2002. Since May 1994, Dr. Wiemer has been an independent consultant. From
April 1991 to April 1993, Dr. Wiemer was President and Chief Executive Officer
of Chartered Semiconductor Manufacturing Pte., Ltd. in Singapore, and from July
1987 to March 1991, Dr. Wiemer was President and Chief Operating Officer of
Taiwan Semiconductor Manufacturing Company. Prior to 1987, Dr. Wiemer was a
consultant for the Thomas Group specializing in the area of integrated circuit
manufacturing and previously worked for fifteen years with Texas Instruments.
Dr. Wiemer holds a Bachelors degree in physics from Texas Western College, a
Masters degree in physics from the University of Texas and a Ph.D. in physics
from Virginia Polytechnic Institute.

ROBERT H. KEELEY, has served as a director since May 1993. He is currently
the El Pomar Professor of Business Finance at the University of Colorado at
Colorado Springs. From 1986 until he joined the faculty at the University of
Colorado at Colorado Springs in 1992, Dr. Keeley was a professor in the
Department of Industrial Engineering and Engineering Management at Stanford
University. Prior to joining Stanford, he was a general partner of Hill and
Carmen (formerly Hill, Keeley and Kirby), a venture capital firm. Dr. Keeley
holds a Bachelors degree in electrical engineering from Stanford University, an
M.B.A. from Harvard University and a Ph.D. in business administration from
Stanford University. Dr. Keeley is also a director of two private companies.

HAROLD A. BLOMQUIST, was originally appointed as a director in May 1998,
resigned from the Board in July 2001 and was re-appointed in January 2002. Mr.
Blomquist is currently employed as Sr. Vice President of Tower Semiconductor,
Ltd, and Chief Executive Officer of Tower's US subsidiary, Tower Semiconductor
USA, Inc. He has served as a Director on the Board of Microsemi, Inc. since
February 2003 and as a consultant to venture investors and early stage
technology companies particularly in the semiconductor and electronic components
areas. In the past, he was employed as President and CEO of ZMD America, Inc.
Before ZMD America, Inc., Mr. Blomquist served as Sr. Vice President of AMI
Semiconductor as well as in several other executive capacities within AMIS'
foreign subsidiaries. Before joining AMI in April 1990, Mr. Blomquist held a
series of increasingly responsible positions in engineering, sales, and
marketing for several semiconductor firms, including Texas Instruments, Inmos
Corporation and General Semiconductor. Mr. Blomquist was granted a BSEE degree
from the University of Utah and also attended the University of Houston, where
he pursued a joint Juris Doctor/MBA course of study.

JOHN HEIGHTLEY, was appointed as a director in September 1998. Mr.
Heightley is currently executive vice president, chief technology officer and a
director for United Memories of Colorado Springs. From 1990 to 1996, Mr.
Heightley was president and chief executive officer of Adaptive Solutions, Inc.
In 1986 and 1987, he held the position of president and chief executive officer
of Gigabit Logic, Inc.; in 1987 he was appointed chairman of Gigabit along with
his responsibilities as president and chief executive officer. Mr. Heightley
held these positions until 1990. Prior to Gigabit, Mr. Heightley served as

president and chief executive officer of Ramtron Corporation from 1985 to 1986
and from 1978 to 1985 he served as a member of the board of directors,
president, chief operating officer and vice president of memory products for
Inmos International, plc. Mr. Heightley was granted a B.S. degree in Engineering
Science from Penn State University and earned a M.S. degree in Electrical
Engineering from M.I.T.

ROBERT C. PEARSON, has served as a director since July 2002. He joined
Renaissance Capital Group, Inc. in April 1997 and is Senior Vice
President-Investments. From May 1994 to May 1997, Mr. Pearson was an independent
financial management consultant primarily engaged by Renaissance. From May 1990
to May 1994, he served as Chief Financial Officer and Executive Vice President
of Thomas Group, Inc., a management consulting firm, where he was instrumental
in moving a small privately held company from a start-up to a public company
with over $40 million in revenues. Prior to 1990, Mr. Pearson spent 25 years at
Texas Instruments Incorporated where he served in several positions including
Vice President-Controller and later as Vice President-Finance. Mr. Pearson holds
a BS in Business from the University of Maryland and was a W.A. Paton Scholar
with an MBA from the University of Michigan. He is currently a Director of Poore
Brothers, Inc., CaminoSoft, Inc., Advanced Power Technology, Inc., and Simtek,
all publicly held. He is also a Director of eOriginal, Inc., a privately held
company.

Subject to the requirement that the board of directors be classified if it
consists of six or more persons, directors serve until the next annual meeting
or until their successors are elected and have qualified. Officers serve at the
discretion of the board of directors. Vacancies on the board of directors are
filled by the existing directors.

In 1994, we entered into a Product License Development and Support
Agreement, with Zentrum Mikroelektronik Dresden. This agreement, modified later
in 1994 and again in 1995, provides Zentrum Mikroelektronik Dresden the right to
appoint two members to our board of directors which members must be acceptable
to, and approved by, our board of directors. Although this agreement and its
modifications do not have a set termination date, Zentrum Mikroelektronik
Dresden's two nominees to our board of directors resigned in April 1998 and
Zentrum Mikroelektronik Dresden has not attempted to nominate anyone to our
board since then. Zentrum Mikroelektronik Dresden currently holds a competitive
position to us in the marketplace. Furthermore, Zentrum Mikroelektronik
Dresden's right to appoint two members to our board of directors was subject to
Zentrum Mikroelektronik Dresden's compliance with the terms of the Product
License Development and Support Agreement and its amendments. We cannot assure
you that Zentrum Mikroelektronik Dresden will not claim that it has the right to
appoint two members to our board of directors in the future, again acceptable to
and approved by our board of directors, or that Zentrum Mikroelektronik Dresden
will not succeed in securing such appointment.

SPECIAL PROVISIONS IN ARTICLES OF INCORPORATION

Our articles of incorporation contain a provision limiting the liability of
directors to the fullest extent permitted under the Colorado Business
Corporation Act. The Colorado Business Corporation Act allows a corporation to
limit the personal liability of a director to the corporation or its
shareholders for monetary damages for breaches of fiduciary duty as a director
except:

o breaches of the director's duty of loyalty to the corporation or to its
shareholders;

o acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law;

o other acts specified in the Colorado Business Corporation Act, such as acts
involving voting for or assenting to a distribution made in violation of
the Colorado Business Corporation Act or our articles of incorporation;

o transactions from which the director derived an improper personal benefit.

The provisions of the Colorado Business Corporation Act will not impair our
ability to seek injunctive relief for breaches of fiduciary duty. Such relief,
however, may not always be available as a practical matter.

Our articles of incorporation also contain a provision that requires us to
indemnify, to the fullest extent permitted under the Act, directors and officers
against all costs and expenses reasonably incurred in connection with the
defense of any claim, action, suit or proceeding, whether civil, criminal,
administrative, investigative or other, in which such person may be involved by
virtue of being or having been a director, officer or employee.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of Simtek pursuant to the foregoing provisions, or otherwise, Simtek has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

EXECUTIVE COMPENSATION

The following table sets forth information for each of our last three
fiscal years with respect to the annual and long-term compensation of the only
individual acting as the Chief Executive Officer during the fiscal year ended
December 31, 2002 and each other executive officer of the Company as of December
31, 2002 whose annual salary and bonus for the fiscal year ended December 31,
2002 exceeded $100,000.

Summary Compensation Table

Long Term Compensation
----------------------
Annual Compensation Awards
------------------------------------------------------------------------

Name Other
and Annual
Principal Compen- Options/
Position Year Salary($) Bonus($) sation($) SARs(#)
- --------- ------------------------------------------------------------------------

Douglas M. Mitchell(1) 2002 $175,000 -- -- --
Chief Executive Officer 2001 $167,708 $34,375 -- 300,000
Chief Financial Officer 2000 $150,000 $62,500 -- 40,000
(acting) and President

Thomas Linnenbrink(2) 2002 $135,408 -- -- 30,000
Chief Executive Officer 2001 $111,447 $13,520(3) $5,700(4) 150,000
President and Technical
Director of Q-DOT
Subsidiary

Donald G. Carrigan(5) 2002 $130,000 $42,228(6) -- --
Vice President of Sales 2001 $ 40,625 -- -- 250,000
and Marketing

David W. Still(7) 2002 $130,000 -- -- --
Vice President of 2001 $ 20,417 -- -- 250,000
Engineering

(1) Mr. Mitchell became our Chief Executive Officer and President on January 1,
1998.

(2) Simtek acquired Q-DOT on March 14, 2001 and these payments reflect what he
was paid after that date in his capacity as President of our Q-DOT
subsidiary.

(3) Mr. Linnenbrink personally secured bank loans used in the operations of
Q-DOT. Mr. Linnenbrink was guaranteed compensation for personally securing
these loans. The loans were paid off on March 14, 2002 and Mr. Linnenbrink
will receive no further compensation related to these loans.

(4) At the time of the Q-DOT acquisition, Mr. Linnenbrink was paid for vacation
hours that were in excess of Simtek's vacation policy.

(5) Mr. Carrigan became our Vice President of Sales and Marketing on August 31,
2001.

(6) Mr. Carrigan is on a bonus plan that is directly related to net revenue and
department spending.

(7) Mr. Still became our Vice President of Engineering on December 3, 2001.

OPTION GRANT TABLE

The following table sets forth certain information with respect to options
granted by us during the fiscal year ended December 31, 2002 to the individuals
named in the summary compensation table above.

Shares Potential
subject to Market Realizable Value
Options/SAR's Price at Assumed
Shares Granted to Exercise per Annual Rate of
subject to Employees in Price Share on Stock Price
Options/SAR's Fiscal Year Per Date of Expiration Appreciation for
Name Granted % of Total Share Grant Date Option Term
---------------------- ---------------- -------------- ------------- ------------ ------------ -----------------------
5% 10%
-----------------------

Thomas Linnenbrink 30,000(1) 3.83% $0.41 $0.41 1/01/2009 $5,007 $11,669

(1) 30,000 options were granted to Mr. Linnenbrink in his capacity as Chief
Executive Officer, President and Technical Director of our Q-DOT
subsidiary; these options vest at 1/36th per month over 3 years.

YEAR-END OPTION TABLE

The following table sets forth, as of December 31, 2002, the number of
shares subject to unexercised options held by the individuals named in the
summary compensation table above. 1,094,723 options had an exercise price
greater than the last sale price of our common stock underlying the options as
reported by the OTC Electronic Bulletin Board on the last trading day of the
fiscal year ended December 31, 2002.

Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values

Value of Unexercised
Number of Unexercised in-the-money
Options/SARs at Fiscal Options/SARs
Shares Value Year-End at Fiscal Year-End
Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Name Exercise (#) ($) (#) (#) ($) ($)
----------------------------------------------------------------------------------------------------------------------

Douglas Mitchell - - 810,556 109,444 - -

Thomas Linnenbrink - - 96,667 83,333 - -

Donald G. Carrigan - - 104,167 145,833 - -

David W. Still - - 83,333 166,667 - -

Employment Agreements

EQUITY COMPENSATION PLAN INFORMATION

Number of securities
remaining available for
future issuance under
Number of securities to be Weighted-average exercise equity compensation plans
issued upon exercise of price of outstanding (excluding securities
outstanding options, options, warrants and reflected in column)
Plan Category warrants and rights rights
------------- -------------------------- -------------------------- -------------------------

Equity compensation plans
approved by security
holders -- -- --

Equity compensation plans
not approved by security
holders 5,539,386 $0.47 1,726,757

Total 5,539,386 $0.47 1,726,757

EMPLOYMENT AGREEMENTS

Mr. Mitchell is employed as President and Chief Executive Officer pursuant
to an employment agreement with us. Under the terms of the employment agreement,
Mr. Mitchell receives an annual salary of $175,000 and such additional benefits
that are generally provided other employees. Mr. Mitchell's employment agreement
expired June 1, 2001 but was, and is, automatically renewed for successive
one-year terms unless we or Mr. Mitchell elects not to renew. If we terminate
the employment of Mr. Mitchell without cause, Mr. Mitchell is entitled to
continuation of his base salary and benefits, mitigated by income Mr. Mitchell
may earn, for the remainder of the term of the agreement. Mr. Mitchell is
subject to a noncompetition covenant for a period of one year from the date of
termination.

CONFIDENTIALITY AND NONDISCLOSURE AGREEMENTS

We generally require our employees to execute confidentiality and
nondisclosure agreements upon the commencement of employment with us. The
agreements generally provide that all inventions or discoveries by the employee
related to our business and all confidential information developed or made known
to the employee during the term of employment shall be the exclusive property of
us and shall not be disclosed to third parties without the prior approval of us.

DIRECTORS' COMPENSATION

Each director who is not also an employee receives $1,000 for each meeting
of the Board, attended in person, and $500 for each meeting of a committee of
the Board. Directors are also reimbursed for their reasonable out-of-pocket
expenses incurred in connection with their duties to us. During the fiscal year
ended December 31, 2002, 15,000 stock options were granted, at the market price
on date of grant, to Dr. Klaus Wiemer, Dr. Robert Keeley, and Mr. John Heightley
which market price was $0.41 per share. During 2002, Mr. Harold Blomquist was
granted 55,000 stock options at the market price on date of grant which market
price was $0.41 per share.

SECURITY OWNERSHIP

The table below sets forth information regarding ownership of our
common stock as of August 21, 2003, by each person who is known by us to
beneficially own more than five percent of our common stock, by each director,
by each executive officer named in the summary compensation table and by all
directors and executive officers as a group. Shares issuable within sixty days
after August 21, 2003 upon the exercise of options and are deemed outstanding
for the purpose of computing the percentage ownership of persons beneficially
owning such options or holding such notes but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Shares
issuable upon the conversion of the debentures have been included for the
purpose of computing the percentage ownership. To the best of our knowledge, the
persons listed below have sole voting and investment power with respect to the
shares indicated as owned by them subject to community property laws where
applicable and the information contained in the notes to the table.

Name and Amount and Nature
Address of of Beneficial Percent of
Beneficial Owner Ownership Class
---------------- ---------------- ----------

Hugh Norman Chapman 3,122,017 (1) 4.73%
4250 Buckingham Dr. #100
Colorado Springs, CO 80907

Douglas M. Mitchell 998,275 (2) 1.51%
205 Ridge Dr.
Woodland Park, CO 80863

Klaus C. Wiemer 165,000 (3) *
5705 Archer Court
Dallas, TX 75252

Robert H. Keeley 100,000 (4) *
P. O. Box 25599
Silverthorne, CO 80497

John D. Heightley 100,000 (5) *
1275 Log Hollow Point
Colorado Springs, CO 80906

Thomas E. Linnenbrink 1,047,461 (6) 1.59%
1457 Smoochers Circle
Colorado Springs, CO 80904

Harold A. Blomquist 70,000 (7) *
13625 Antelope Station
Poway, CA 92064

Donald G. Carrigan 181,611 (8) *
425 Scrub Oak Circle
Monument, CO 80132

David W. Still 165,278 (9) *
4250 Buckingham Dr. Suite 100
Colorado Springs, CO 80907

Robert Pearson 15,000 (10) *
8080 N. Central Expressway,
Suite 210-LB59
Dallas, TX 75203

Renaissance Capital Group (11) 11,615,384 (12) 17.58%
8080 N. Central Expressway,
Suite 210-LB59
Dallas, TX 75203

All officers and directors as a
group (9 persons) 14,458,009 (13) 21.88%

-------------------
* Less than one percent.

(1) Represents 2,884,100 shares of our common stock that Mr. Chapman received
upon our acquiring Integrated Logic Systems and includes 237,917 shares
issuable upon exercise of options.

(2) Represents 44,386 shares of our common stock that Mr. Mitchell acquired
through our acquisition of Q-DOT, 20,000 shares of our common stock that
Mr. Mitchell personally owns and includes 933,889 shares issuable upon
exercise of options.

(3) Represents 75,000 shares of our common stock that Mr. Wiemer acquired upon
the exercise of 75,000 options and includes 90,000 shares issuable upon
exercise of options.

(4) Includes 90,000 shares issuable upon exercise of options. Includes 10,000
shares of our common stock held by Mr. Keeley's wife, Sandra D. Keeley. Mr.
Keeley disclaims beneficial ownership of these shares.

(5) Includes 100,000 shares issuable upon exercise of options.

(6) Represents 894,128 shares of our common stock that Mr. Linnenbrink acquired
through our acquisition of Q-DOT and includes 153,333 shares issuable upon
exercise of options.

(7) Includes 70,000 shares issuable upon exercise of options.

(8) Represents 500 shares of our common stock that Mr. Carrigan personally owns
and includes 181,111 shares issuable upon exercise of options.

(9) Includes 165,278 shares issuable upon exercise of options.

(10) Includes 15,000 shares issuable upon exercise of options.

(11) Pursuant to the Convertible Loan Agreement, dated as of June 28, 2002, by
and among Simtek, Renaissance Capital Growth and Income Fund III, Inc.,
Renaissance US Growth & Income Trust, PLC and BFS US Special Opportunities
Trust, PLC., and Renaissance Capital Group, Inc., Renaissance Capital
Group, Inc. has the right to designate a nominee to serve as a member of
the board of directors. Mr. Robert C. Pearson currently serves on Simtek's
board of directors as such nominee.

(12) Assumes conversion, at a conversion price of $0.312 per share, of all
debentures issued to affiliates of Renaissance Capital Group, Inc.

(13) Includes 1,798,611 shares issuable upon exercise of options.

SELLING SHAREHOLDERS

The following table sets forth information about the selling shareholders.

Number of Number of Percentage
Shares Beneficially Number of Shares of Class
Owned Before Shares Following Following
Name and Address of Selling Shareholder Offering Offered the Offering the Offering
--------------------------------------- ------------------- ---------- ------------ ------------

Renaissance Capital Growth & Income Fund III, Inc. 4,205,128(1) 3,205,128 1,000,000 1.83%
c/o Renaissance Capital Group, Inc.
8080 N. Central Expressway, Suite 210-LB59
Dallas, TX 75206

Renaissance US Growth & Income Trust PLC 4,205,128(2) 3,205,128 1,000,000 1.83%
c/o Renaissance Capital Group, Inc.
8080 N. Central Expressway, Suite 210-LB59
Dallas, TX 75206

BFSUS Special Opportunities Trust PLC 3,205,128 3,205,128 0 0%
c/o Renaissance Capital Group, Inc.
8080 N. Central Expressway, Suite 210-LB59
Dallas, TX 75206

(1) Includes 1,000,000 shares held by Renaissance Capital Growth & Income Fund
III, Inc. that were issued in 2000 upon the conversion of debentures
originally issued on June 12, 1998.
(2) Includes 1,000,000 shares held by Renaissance US Growth & Income Trust PLC
that were issued in 2000 upon the conversion of debentures originally
issued on June 12, 1998.

On July 1, 2002, we received $3,000,000 in a financing transaction with
Renaissance Capital Group. Renaissance Capital Group is the agent for the
selling securityholders. The $3,000,000 funding consists of convertible
debentures with a 7- year term at a 7.5% per annum interest rate; each fund
equally invested $1,000,000. The holder of the debenture has the right, at any
time, to convert all, or in multiples of $100,000, any part of the debenture
into fully paid and nonassessable shares of our common stock. The debentures are
convertible into our common stock at $0.312 per share, which was in excess of
the market price per share on July 1, 2002. Based on the conversion rate of
$0.312 per share, it would entitle each fund to 3,205,128 shares, totalling
approximately 18% post-conversion for the three funds, of our common stock.

The selling securityholders and its affiliates beneficially own 11,615,384
shares of our common stock (assuming conversion of all debentures issued to the
selling securityholders and their affiliates). Mr. Robert Pearson is an
Executive Vice President of Renaissance Capital Group, an officer of Renaissance
Capital Growth & Income Fund III, Inc. and an investment advisor to all three
selling securityholders. Mr. Pearson also holds the position of a director of
Simtek's Board of Directors.

SPECIFIC RELATIONSHIPS AND RELATED TRANSACTIONS

Our president and director, Douglas Mitchell was also a director of Q-DOT
Group prior to our acquisition of Q-DOT Group. Mr. Mitchell disclosed all
material facts as to his conflict of interest in the acquisition. The board of
directors determined that the acquisition was fair to us and in our best
interest. Mr. Mitchell abstained from the vote of the Q-DOT Group and Simtek
board of directors decision to approve the acquisition. At the time of
acquisition, Mr. Mitchell owned approximately 1% of the Q- DOT Group shares and
he received 44,386 shares of our common stock in connection with our acquisition
of Q-DOT Group, pro rata with the terms that all of the other Q-DOT Group
shareholders.

On May 9, 2000, we entered into a stock exchange agreement with Mr. Hugh N.
Chapman pursuant to which we acquired Integrated Logic Systems. At the time of
the acquisition, Mr. Chapman was not a holder of 5% of our stock. As a result of
the acquisition, however, Mr. Chapman became a holder of 5% of our outstanding
stock and as of the date of this prospectus holds approximately 5.61% of our
stock. Incident to the acquisition, we entered into an "at will" employment
agreement with Mr. Chapman, terminable by either party at any time with or
without cause. We believe that the terms of our transactions with Mr. Chapman
were no less favorable to us than we could have obtained from unrelated parties.

On July 1, 2002, we received funding of $3,000,000 in a convertible
debenture financing transaction with Renaissance Capital Group. Renaissance
Capital Group is the agent for the selling securityholders. Mr. Robert Pearson,
a Senior Vice President of Renaissance Capital Group, an officer of Renaissance
Capital Growth & Income Fund III, Inc. and an investment advisor to all three
selling securityholders, became a Simtek director following such transaction.
Renaissance Capital Group, or its affiliates, owns 2,000,000 shares of our
common stock in addition to the shares offered through this prospectus.

DESCRIPTION OF SECURITIES

COMMON STOCK

We are authorized to issue 80,000,000 shares of common stock, par value
$0.01 per share. Each share of common stock entitles the holder thereof to one
vote on all matters submitted to a vote of the shareholders. Holders of common
stock do not have preemptive rights or rights to convert their common stock into
other securities. Holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. In the event of our liquidation, dissolution or winding up,
holders of the common stock have the right to a ratable portion of the assets
remaining after payment of liabilities.

PREFERRED STOCK

Our Articles of Incorporation authorize 2,000,000 shares of $1.00 par value
preferred stock. The board of directors has the authority to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series and the designation
of such series, without further vote or action by the shareholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of us without further action by the shareholders and may
adversely affect the voting power and other rights of the holders of common
stock, including the loss of voting control to others. As of the date of this
prospectus, there are no shares of preferred stock outstanding.

PLAN OF DISTRIBUTION

These shares are being offered hereby for sale by the selling
securityholders who received these shares in a private transaction. These shares
will be offered by the selling shareholders from time to time (i) on the
over-the-counter market, where the common stock is traded, or elsewhere, at
fixed prices which may be changed, at market prices prevailing at the time of
offer and sale, at prices related to such prevailing market prices or at
negotiated prices and (ii) in negotiated transactions, through the writing of
options on the shares, or a combination of such methods of sale. The selling
shareholders may effect such transactions by offering and selling the shares
directly or to or through securities broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the selling shareholders and/or the purchasers of the shares for whom such
broker-dealers may act as agent or to whom the selling shareholders may sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customer commissions).

The selling shareholders and any broker-dealers who are in connection
with the sale of the shares hereunder may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any commissions received
by them and profit on any resale of the shares as principal might be deemed to
be underwriting discounts and commissions under the Securities Act.

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon by Holme
Roberts & Owen LLP, Denver, Colorado.

EXPERTS

The financial statements of Simtek Corporation as of December 31, 2002 and
for the years ended December 31, 2002 and December 31, 2001 included within this
prospectus have been so included in reliance on the report of Hein + Associates
LLP, independent auditors, given on the authority of said firm as experts in
auditing and accounting.

AVAILABLE INFORMATION

We are subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Accordingly, we file reports,
proxy statements and other information with the Securities and Exchange
Commission. You may inspect our reports, proxy statements and other information
without charge at the public reference facilities of the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, NY 10048. You may also obtain
copies there at the prescribed rates. You may obtain information on the
operation of the Commission's public reference facilities by calling the
Commission in the United States at 1-800-SEC-0330. The Commission also maintains
a web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.

We have filed with the Commission, a registration statement on Form SB-2
under the Securities Act of 1933, as amended (the"Securities Act"), with respect
to the common stock we are offering (the "registration statement"). This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information about
us and the common stock offered, you should refer to the registration statement,
including the exhibits and schedules thereto, which may be inspected at, and
copies thereof may be obtained at prescribed rates from, the public reference
facilities of the Commission at the addresses set forth above.

SIMTEK CORPORATION

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Independent Auditor's Report.................................................F-2

Consolidated Balance Sheet - December 31, 2002...............................F-3

Consolidated Statements of Operations - For the Years Ended
December 31, 2002 and 2001.............................................F-4

Consolidated Statements of Changes in Shareholders' Equity - For
the Years Ended December 31, 2002 and 2001.............................F-5

Consolidated Statements of Cash Flows - For the Years Ended
December 31, 2002 and 2001.............................................F-6

Notes to Consolidated Financial Statements - For the Years Ended
December 31, 2002 and 2001........................................F-7-F-19

Consolidated Balance Sheet (Unaudited) - June 30, 2003......................F-20

Consolidated Statement of Operations (Unaudited) -
For the six months ended June 30, 2003 and 2002.......................F-21

Consolidated Statement of Cash Flows (Unaudited) - For the
six months ended June 30, 2003 and 2002..............................F-22

Notes to Unaudited Consolidated Financial Statements - For
the six months ended June 30, 2003 and 2002......................F-23-F-25

F-1

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Shareholders
Simtek Corporation
Colorado Springs, Colorado

We have audited the accompanying consolidated balance sheet of Simtek
Corporation and subsidiary as of December 31, 2002 and the related statements of
operations, changes in shareholders' equity and cash flows for each of the years
in the two-year period ended December 31, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Simtek Corporation
as of December 31, 2002, and the results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Hein + Associates LLP
HEIN + ASSOCIATES LLP

Denver, Colorado
January 28, 2003

F-2

SIMTEK CORPORATION

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002

ASSETS
------

CURRENT ASSETS:
Cash and cash equivalents $ 3,127,732
Certificate of deposit, restricted 300,000
Accounts receiveable - trade, net of allowance for
doubtful accounts and return allowances
of $259,262 2,309,965
Inventory 1,608,242
Prepaid expenses and other 239,507
-----------
Total current assets 7,585,446
EQUIPMENT AND FURNITURE, net 725,888
DEFERRED FINANCING COSTS 107,877
OTHER ASSETS 87,839
-----------
TOTAL ASSETS $ 8,507,050
===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES:
Accounts payable $ 1,087,947
Accrued expenses 313,460
Accrued wages 26,830
Accrued vacation payable 155,633
Deferred Revenue 40,500
Obligation under capital leases 132,485
-----------
Total current liabilities 1,756,855
NOTES PAYABLE 10,000
DEBENTURES 3,000,000
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT PORTION 76,512
-----------
Total liabilities 4,843,367
COMMITMENTS (Note 6)

SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 2,000,000 shares
authorized, none issued -
Common stock, $.01 par value; 80,000,000 shares
authorized, 54,382,273 shares issued and
outstanding 543,823
Additional paid-in capital 37,594,875
Treasury Stock (12,504)
Accumulated deficit (34,462,511)
-----------
Total shareholders' equity 3,663,683
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,507,050
===========

See accompanying notes to these consolidated financial statements.

F-3

SIMTEK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------

2002 2001
----------------- ------------------

NET SALES $14,326,705 $16,950,487

Cost of sales 8,481,262 11,273,116
----------- -----------

GROSS MARGIN 5,845,443 5,677,371

OPERATING EXPENSES:
Research and development costs 4,308,499 3,155,360
Sales and marketing 1,641,508 1,672,301
General and administrative 754,676 1,239,568
Investor relations - 730,433
----------- -----------

Total operating expenses 6,704,683 6,797,662
----------- -----------

LOSS FROM OPERATIONS (859,240) (1,120,291)
----------- ------------

OTHER INCOME (EXPENSE):
Interest income 42,447 79,497
Interest expense (147,921) (22,565)
Other income (expense) 1,847 (52,360)
----------- ------------

Total other income (expense) (103,627) 4,572
------------ -----------

EQUITY IN LOSSES OF QDA AND WRITE-OFF OF RELATED ADVANCES - (4,631)
----------- ------------

LOSS BEFORE PROVISION FOR INCOME TAXES $ (962,867) $(1,120,350)

Provision for income taxes - -
----------- -----------

NET LOSS $ (962,867) $(1,120,350)
============ ============

NET LOSS PER COMMON SHARE:
Basic and diluted EPS $ (.02) $ (.02)
=========== ===========
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING:
Basic and diluted EPS 54,204,525 53,713,415
=========== ===========

See accompanying notes to these consolidated financial statements.

F-4

SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

Common Stock Additional Prepaid Total
------------------------ Paid-in Treasury Investor Accumulated Shareholders'
Shares Amount Capital Stock Relations Deficit Equity
---------- ---------- ----------- -------- --------- ------------ -------------

BALANCES, January 1, 2001 53,634,245 $536,342 $37,497,590 $ - $(730,433) $(32,379,294) $ 4,924,205

Exercise of stock options 392,028 3,920 50,000 - - - 53,920
Purchase 10,000 shares of
common stock - - - (12,504) - - (12,504)

Expenses recorded for stock
issuance - - - - 730,433 - 730,433
Net loss - - - - - (1,120,350) (1,120,350)
---------- --------- ------------ -------- --------- ------------ ----------
BALANCES, December 31, 2001 54,026,273 540,262 37,547,590 (12,504) - (33,499,644) 4,575,704
---------- --------- ------------ -------- --------- ------------ ----------

Exercise of stock options 356,000 3,561 47,285 - - - 50,846
Net loss - - - - - (962,867) (962,867)
---------- -------- ----------- -------- --------- ------------ -----------
BALANCES, December 31, 2002 54,382,273 $543,823 $37,594,875 $(12,504) $ - $(34,462,511) $ 3,663,683
========== ======== =========== ======== ========= ============ ===========

See accompanying notes to these consolidated financial statements.

F-5

SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------

2002 2001
---------------- -----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (962,867) $(1,120,350)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 443,146 462,083
Common stock issued for investor relations expense - 730,433
Loss on disposal of assets 5,705 58,699
Net change in allowance accounts (71,150) 23,883
Deferred financing fees 8,298 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (618,653) 48,084
Inventory 261,442 (798,972)
Prepaid expenses and other (123,972) 62,349
Increase (Decrease) in:
Accounts payable (328,848) 331,424
Accrued expenses (122,594) (158,076)
Deferred revenue 25,500 15,000
----------- -----------

Net cash used in operating activities (1,483,993) (345,443)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase/Sales of equipment and furniture, net (163,657) (509,698)
----------- -----------
Net cash used in investing activities (163,657) (509,698)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from line-of-credit and the issuance of a note - 100,163
Payments on lines of credit - (84,050)
Payments on notes payable (109,976) (24,996)
Payments on capital lease obligation (125,017) (52,977)
Borrowings on capital lease obligation - 97,520
Convertible debentures, net of deferred financing fees 2,883,825 -
Exercise of stock options 50,846 53,920
Purchase of stock from market - (12,504)
----------- -----------
Net cash provided by financing activities 2,699,678 77,076
----------- -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,052,028 (778,065)

CASH AND CASH EQUIVALENTS, beginning of year 2,075,704 2,853,769
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 3,127,732 $ 2,075,704
=========== ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
Purchase of equipment through payables and capital leases $ 88,457 $ 97,520
=========== ===========
Cash paid for interest $ 146,804 $ 19,586
=========== ===========

See accompanying notes to these consolidated financial statements.

F-6

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------------

NATURE OF BUSINESS OPERATIONS - Simtek Corporation (the "Company") designs,
develops, markets and subcontracts the production of high performance
nonvolatile semiconductor memories and programmed semiconductor logic
products. The Company's operations have concentrated on the design and
development of the 256 kilobit, 64 kilobit, and 16 kilobit nonvolatile
semiconductor memory product families and associated products and
technologies as well as the development of sources of supply and
distribution channels. The Company also provides electronics engineering
research and development contracts.

POOLING OF INTERESTS - On March 13, 2001, Simtek acquired 100% of the
common stock of Q-DOT Group ("Q- DOT'). Q-DOT specializes in advanced
technology, research, and development for data acquisition, signal
processing, imaging and data communications. Shareholders of Q-DOT
exchanged their shares in Q-DOT for shares in Simtek in a business
combination that has been accounted for as a pooling of interests. The
consolidated financial statements and the accompanying notes reflect
Simtek's financial position and the results of operations as if Q-DOT was a
wholly-owned subsidiary of Simtek since inception.

CONSOLIDATION POLICY - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary Q-DOT.
The Company holds 1% interest in Q-DOT Acoustics, LLC (QDA) but has
effective control over it due to an operating agreement which gives the
Company control of all operational decisions. In addition, all losses of
QDA are allocated to the company and net profits are allocated first to the
Company to the extent of any previous allocations of losses. Any additional
profits of QDA are allocated prorata based on percentage of ownership. The
other major shareholders of QDA are minor shareholders of the Company. QDA
is accounted for by the equity method of accounting.

REVENUE RECOGNITION SEMICONDUCTOR PRODUCTS - Product sales revenue is
recognized when a valid purchase order has been received and the products
are shipped to customers, including distributors. Customers receive a one-
year product warranty and sales to distributors are subject to a limited
product exchange program and product pricing protection in the event of
changes in the Company's product price. The Company provides a reserve for
possible product returns, price changes and warranty costs at the time the
sale is recognized.

REVENUE RECOGNITION GOVERNMENT CONTRACTS - Revenues from cost-plus-fee
contracts are recognized on the basis of costs incurred during the period
plus the fee earned. Revenues from fixed-price contracts are recognized on
the percentage-of-completion method. The percentage-of-completion is
measured by the total costs incurred to date to estimated total costs for
each contract. This method is used because management considers costs
incurred to be the best available measure of progress on these contracts.
Because of inherent uncertainties in estimating costs, it is reasonably
possible that the estimates used will change within the near term.

CONTRACT REVENUES AND RELATED COSTS - Substantially all of Q-DOT revenues
result from contract services performed for the various agencies of United
States Government (the "Government") under a variety of contracts and
subcontracts, some of which provide for reimbursement of costs-plus-fees,
and others which are fixed-price. The majority of the contracts are for
services performed in Colorado. For some services rendered on Government
contracts, the time between providing the services and the final cash
realization from the sale of such services may extend two or more years.

Costs on contracts with the government (including allocable indirect costs)
are subject to audit and adjustment by negotiations between the Company and

F-7

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Government representatives. Costs submitted for reimbursement are subject
to Government audits for compliance with government cost accounting
standards, federal acquisitions regulations and other contract terms.
Negotiations for all of the years through March 31, 1999 have been
completed without any material adjustments. Management does not believe the
results of the March 31, 2000, December 31, 2000, December 31, 2001 and
December 31, 2002 Government audits and subsequent negotiations will have a
material effect on the accompanying financial statements.

Direct costs of contracts include all direct labor, supplies, and equipment
costs. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability and final contract settlements
may result in revisions to costs and income and are recognized in the
period in which the revisions are determined.

At the time a loss on a contract becomes known, the entire amount of the
estimated loss on both short and long- term contracts is accrued.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. As of December 31, 2002, substantially all of the Company's
cash and cash equivalents were held by a single bank, of which
approximately $3,320,980 was in excess of Federally insured amounts.

INVENTORY - The Company records inventory using the lower of cost
(first-in, first-out) or market. Inventory at December 31, 2002 includes:

Raw materials $ 65,169
Work in process 1,169,669
Finished goods 529,987
----------
1,764,825
Less reserves (156,583)
----------

$1,608,242
==========

DEPRECIATION & Amortization - Equipment and furniture are recorded at cost.
Depreciation is provided over the assets' estimated useful lives of three
to seven years using the straight-line and accelerated methods. The cost
and accumulated depreciation of furniture and equipment sold or otherwise
disposed of are removed from the accounts and the resulting gain or loss is
included in operations. Maintenance and repairs are charged to operations
as incurred and betterments are capitalized.

In September 2000, the Company purchased incomplete research and
development, patents and certain trademarks from WebGear, Inc. The
incomplete research and development consists of hardware and software
developed for wireless data communications that needs to be modified for
use with the Bluetooth technology standard. The Company has valued the
purchased patents and trademarks at $125,000, which was capitalized and
recorded as intangible assets, the Company is currently amortizing the
patents and trademarks over a five year life.

RESEARCH AND DEVELOPMENT COSTS - Research and development costs are charged
to operations in the period incurred.

F-8

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ADVERTISING - The Company incurs advertising expense in connection with the
marketing of its product. Advertising costs are expensed as advertising
takes place. Advertising expense was $15,162 and $70,705 in 2002 and 2001,
respectively.

LOSS PER SHARE - The loss per share is presented in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. Basic EPS is calculated by dividing the income or loss
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. As the Company
incurred losses in 2001 and 2002, all common stock equivalents would be
considered anti-dilutive. For purposes of calculating diluted EPS,
5,539,386 and 5,286,872 options for 2002 and 2001, respectively, were
excluded from diluted EPS as they had an anti-dilutive effect.

ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The actual
results could differ from those estimates. The Company's financial
statements are based upon a number of significant estimates, including the
allowance for doubtful accounts, technological obsolescence of inventories,
the estimated useful lives selected for property and equipment, sales
returns, warranty reserve, percentage of completion on projects in process
at year-end, potential adjustments for government contracts and the
valuation allowance on the deferred tax assets.

FINANCIAL INSTRUMENTS - The estimated fair values for financial instruments
are determined at discrete points in time based on relevant market
information. These estimates involve uncertainties and cannot be determined
with precision. The carrying amounts of the accounts receivable, accounts
payable and accrued liabilities approximate fair value because of the
short-term maturities of these instruments.

CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to significant concentration of credit risk consist
primarily of accounts receivable. The Company has no significant off-
balance sheet concentrations of credit risk. Accounts receivable are
typically unsecured and are derived from transactions with and from
customers located worldwide.

IMPAIRMENT OF LONG-LIVED ASSETS - In the event that facts and circumstances
indicate that the cost of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow value is required.

STOCK-BASED COMPENSATION - As permitted under the SFAS No. 123, Accounting
for Stock-Based Compensation, the Company accounts for its stock-based
compensation in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As
such, compensation expense is recorded on the date of grant if the current
market price of the underlying stock exceeds the exercise price. Certain
pro forma net income and EPS disclosures for employee stock option grants
are also included in the notes to the financial statements as if the fair
value method as defined in SFAS No. 123 had been applied. Transactions in
equity instruments with non-employees for goods or services are accounted
for by the fair value method. In fiscal 2000, the Company adopted the
Financial Accounting Standards Board Interpretation No. 44 which requires
that outside directors be considered employees for purposes of stock option
accounting, if the Company is accounting for its employee stock-based

F-9

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

compensation in accordance with APB 25. It also affects modifications to
fixed stock options or awards that effects the life, exercise price, or the
number of shares to be issued. The adoption of this interpretation did not
have a material effect on the Company's consolidated financial statements.

INCOME TAXES - The Company accounts for income taxes under the liability
method of SFAS No. 109, whereby current and deferred tax assets and
liabilities are determined based on tax rates and laws enacted as of the
balance sheet date. Deferred tax expense represents the change in the
deferred tax asset/liability balance. Valuation allowances are recorded for
deferred tax assets that are not expected to be realized.

BUSINESS SEGMENTS - The Company has adopted Statement of Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information ("SFAS 131"), which established standards for the way companies
report information about their operating segments. Prior period amounts
have been restated to conform to the requirements of this new statement.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In October 2001, the FASB
approved SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS 144 replaces SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The new
accounting model for long-lived assets to be disposed of by sale applies to
all long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, Reporting Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, for the disposal of
segments of a business. Statement 144 requires that those long-lived assets
be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be measured
at net realizable value or include amounts for operating losses that have
not yet occurred. Statement 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can
be distinguished from the rest of the entity and that will be eliminated
from the ongoing operations of the entity in a disposal transaction. The
provisions of Statement 144 are effective for financial statements issued
for fiscal years beginning after December 15, 2001 and, generally, are to
be applied prospectively. At this time, we do not believe adoption of this
standard has a material effect on our financial statements.

In April 2002, the FASB approved for issuance Statements of Financial
Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of SFAS 13, and Technical Corrections" ("SFAS 145"). SFAS 145
rescinds previous accounting guidance, which required all gains and losses
from extinguishment of debt be classified as an extraordinary item. Under
SFAS 145 classification of debt extinguishment depends on the facts and
circumstances of the transaction. SFAS 145 is effective for fiscal years
beginning after May 15, 2002 and adoption is not expected to have a
material effect on the Company's financial position or results of its
operations.

In July 2002, the FASB issued Statements of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. Examples of costs covered by
SFAS 146 include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued operation,
plant closing, or other exit or disposal activity. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated after
December 31, 2002. The adoption of SFAS 146 is not expected to have a
material effect on the Company's financial position or results of its
operations.

F-10

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2002, the FASB issued Statements of Financial Accounting
Standards No.148, "Accounting for Stock-Based compensation - Transition and
Disclosure - an amendment of FASB Statement 123" (SFAS 123). For entities
that change their accounting for stock-based compensation from the
intrinsic method to the fair value method under SFAS 123, the fair value
method is to be applied prospectively to those awards granted after the
beginning of the period of adoption (the prospective method). The amendment
permits two additional transition methods for adoption of the fair value
method. In addition to the prospective method, the entity can choose to
either (i) restate all periods presented (retroactive restatement method)
or (ii) recognize compensation cost from the beginning of the fiscal year
of adoption as if the fair value method had been used to account for awards
(modified prospective method). For fiscal years beginning December 15,
2003, the prospective method will no longer be allowed. The Company
currently accounts for its stock-based compensation using the intrinsic
value method as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and plans on continuing using
this method to account for stock options , therefore, it does not intend to
adopt the transition requirements as specified in SFAS 148. The Company has
adopted the new disclosure requirements of SFAS 148 in these financial
statements.

2. ACQUISITIONS:
------------

On March 13, 2001, the Company acquired Q-DOT in exchange for approximately
5,172,000 shares of our Common Stock. Q-DOT specializes in advanced
technology research and development for data acquisition, signal
processing, imaging and data communications. Q-DOT will be operated as a
wholly owned subsidiary of Simtek for its government contract research and
development operations. The acquisition has been accounted for as a pooling
of interests, and the results of Q-DOT have been consolidated with those of
Simtek as if the two businesses had been merged throughout the periods
presented.

Separate revenues and net income of the Company and Q-DOT Group, Inc. are
presented in the following table:

2002 2001
---- ----

Revenue:
Simtek Corporation $12,422,087 $15,449,981
Q-DOT 1,904,618 1,500,506
----------- -----------
Revenue, as reported $14,326,705 $16,950,487
=========== ===========

Net Income (Loss):
Simtek Corporation $(1,027,908) $ (925,098)
Q-DOT 65,041 (195,252)
----------- -----------
Net (loss) as reported $ (962,867) $(1,120,350)
=========== ===========

3. EQUIPMENT AND FURNITURE:
------------------------

Equipment and furniture at December 31, 2002 consists of the following:

F-11

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leased software under capital leases $ 441,550
Research and development equipment 1,442,388
Computer equipment and software 1,620,056
Office furniture 235,135
Other equipment 257,604
-----------
3,996,733
Less accumulated depreciation and amortization (3,270,845)
-----------

$ 725,888
===========

The cost of equipment and furniture acquired for research and development
activities that has alternative future use is capitalized and depreciated
over its estimated useful life.

Depreciation and amortization expense of $422,736 and $462,083 was charged
to operations for the years ended December 31, 2002 and 2001 respectively.
Included in the amortization expense for 2002 and 2001 was $83,886 and
$55,991, respectively, of amortization of software under capital leases. At
December 31, 2002, accumulated amortization for software under capital
leases was $208,031.

4. REVOLVING LINE-OF-CREDIT AND LETTER-OF-CREDIT:
----------------------------------------------

As of December 31, 2002, the Company had a $250,000 revolving
line-of-credit (LOC). The LOC bears interest at prime plus .75% (5.00% at
December 31, 2002), matures in April 2003, and is collateralized by the
assets of the Company. No amounts were outstanding as of December 31, 2002.

When the Company acquired Integrated Logic Systems, they also acquired a
note payable related to a reorganization plan that Integrated Logic Systems
went through. The reorganization plan required that annual payments of
$5,000, with no interest, be made to a legal entity serving as a trustee
for these creditors, payments started on September 15, 1995. The legal
entity serving as the trustee for these creditors was dissolved in 1995 and
all payments made to the trustee by the Company have been returned. Based
on the statue of limitations for the State of Colorado, the Company may
begin writing off $5,000 for each of the next two years. At December 31,
2002, the note payable was $10,000.

The Company has a letter of credit arrangement with one of the Company's
suppliers which requires the Company to maintain a $300,000 certificate of
deposit as collateral, which is reflected as restricted cash.

5. CONVERTIBLE DEBENTURES:
-----------------------

On July 1, 2002, the Company received funding of $3,000,000 in a financing
transaction with Renaissance Capital Group, Inc. ("Renaissance").
Renaissance is the agent for three investment funds, Renaissance Capital
Growth and Income Fund III, Inc., Renaissance US Growth & Income Trust, PLC
and BFS US Special Opportunities Trust, PLC. The $3,000,000 funding
consists of convertible debentures with a 7-year term at a 7.5% per annum
interest rate. Each fund equally invested $1,000,000. The Holder of the
debenture shall have the right, at any time, to convert all, or in
multiples of $100,000, any part of the Debenture into fully paid and
nonassessable shares of Simtek Corporation common stock. The debentures are
convertible into Simtek common stock at $0.312 per share, which was in
excess of the market price per share on July 1, 2002. Based on the
conversion rate of $0.312 per share, it would entitle each fund to
3,205,128 shares of Simtek common stock.

F-12

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. COMMITMENTS:
------------

Offices Leases - The Company leases office space under a lease, which
expires on February 28, 2008. Monthly lease payments are approximately
$15,000.

Through the acquisition of Q-DOT, the Company has non-cancelable long-term
lease agreements for office space, office furnishings and equipment that
expire at various dates through December 2005. A facility lease and the
equipment leases contain an option to extend the leases for an additional
one-year period.

The Company leases furniture, equipment, and its office under operating
leases, which expire over the next seven years.

Future minimum lease payments under the equipment, furniture and office
leases described above are approximately as follows:

Year
------------
2003 $ 703,038
2004 522,672
2005 327,969
2006 208,184
2007 & After 252,829
----------
$2,014,692
==========

Office rent and equipment lease expense totaled $603,344 and $450,747 for
the years ended December 31, 2002 and 2001, respectively.

In addition, the Company leases research and development software under
three capital leases, which will expire over the next two years. At
December 31, 2002, future minimum lease payments under the lease described
above is approximately as follows:

Year
------------
2003 $ 176,752
2004 98,053
---------
Total net minimum lease payments 274,805
Less interest and taxes (65,808)
---------
Present value of net minimum lease payments 208,997
Less current portion of capital leases (132,485)
---------
$ 76,512
=========

Accrued Salary - Due to limited working capital of the Company, the
Company's former CFO agreed with the Company's Board of Directors to defer
his salary from April 1, 1994 through December 31, 1996. In July 2001, the
Company entered into an agreement to begin paying the former CFO's accrued
salary and accrued vacation over an 18 month period. The Company made the
first payment in July 2001 and made the last payment in December 2002. As
of December 31, 2002, all amounts due were paid in full.

F-13

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. SHAREHOLDERS' EQUITY:
---------------------

On September 14, 2000, the Company entered into a one-year contract with
two investment bankers, E.B.M. Associates, Inc. and World Trade Partners.
Each company has received 500,000 shares of common stock, which were
nonforfeitable and fully vested upon issuance on September 14, 2000, the
grant date. Both companies assisted the Company in broadening our financial
market presence and establishing new relationships within the industry,
investment community and financial media, by arranging meetings for our
management with industry analysts, presenting company profiles to analysts
and brokerage firms, mailings and constant personal communication with
investors. E.B.M. Associates Inc. supported these activities primarily in
retail investment markets, while World Trade Partners supported these
activities primarily in institutional markets. E.B.M. Associates and World
Trade Partners cooperated to coordinate their activities. On September 14,
2000, the closing share price for the Company's common stock was $1.0312
per share and accordingly $1,031,200 was assigned to prepaid investor
relations. The cost associated with this transaction was amortized over the
life of the contract. At December 31, 2002 this transaction was fully
amortized.

On March 13, 2001, the Company acquired Q-DOT in exchange for approximately
5,172,000 shares of Simtek's common stock. Q-DOT specializes in advanced
technology research and development for data acquisition, signal
processing, imaging and data communications. Q-DOT's projects have been
supported by conventional government and commercial contracts in addition
to government contacts sponsored by the Small Business Innovation Research
(SBIR) contracts. Q-DOT is operated as a wholly owned subsidiary of Simtek
for its government contract research and development operations. The
acquisition was accounted for as a pooling of interest, and the results of
Q-DOT will be consolidated with Simtek's as if they had been merged
throughout the periods.

STOCK OPTION PLANS - The Company has approved two stock option plans that
authorize 600,000 incentive stock options and 9,900,000 non-qualified stock
options that may be granted to directors, employees, and consultants. On
September 26, 2001, the Incentive Stock Option Plan terminated. All options
outstanding at the time of the plan termination may be exercised in
accordance with their terms. The Non-Qualified Stock Option Plan which was
adopted in 1994 remains in effect. The plans permitted the issuance of
incentive and non-statutory options and provide for a minimum exercise
price equal to 100% of the fair market value of the Company's common stock
on the date of grant. The maximum term of options granted under the plans
are 10 years and options granted to employees expire three months after the
termination of employment. None of the options may be exercised during the
first six months of the option term. No options may be granted after 10
years from the adoption date of each plan.

Following is a summary of activity under these stock option plans for the
years ended December 31, 2002 and 2001:

F-14

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2002 2001
------------------------------ -------------------------------

Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
------------- ---------------- --------------- ----------------

Outstanding, beginning of year 5,286,872 $ .46 3,137,722 $ .47

Granted 912,500 .35 2,643,750 .41
Expired (153,986) .14 -
Exercised (356,000) (.14) (387,100) (.14)
Canceled (150,000) (.31) (107,500) (.87)
--------- ---------

Outstanding, end of year 5,539,386 $ .47 5,286,872 $ .46
========= =========

All options granted during 2002 and 2001, were at the current market price
and the weighted average fair value was $0.29 and $0.35, respectively. At
December 31, 2002, options for 3,635,983 shares were exercisable and of the
remaining options of 1,215,382, 606,979, and 81,042 shares will become
exercisable in 2003, 2004, and 2005, respectively.

The following information summarizes stock options outstanding at December
31, 2002:

Outstanding Exercisable
---------------------------------------------------------- -----------------------------
Weighted Average
-----------------------------------------
Remaining Weighted
Exercise Number Contractual Exercise Number Average
Price Outstanding Life in Months Price Exercisable Exercise Price
-------- ----------- -------------- --------- ----------- --------------

$0.13 - 0.19 633,677 42 $0.17 468,677 $0.17
$0.22 - 0.32 1,330,055 48 $0.27 749,395 $0.26
$0.35 - 0.50 2,150,654 50 $0.40 1,391,800 $0.40
$0.60 - 0.80 820,000 62 $0.63 511,389 $0.63
$1.13 - 1.50 605,000 53 $1.28 514,722 $1.28
-------- --------
5,539,386 3,635,983
========= =========

INCENTIVE STOCK OPTION PLAN - At the time of the acquisition of Q-DOT,
Q-DOT had an Incentive Stock Option Plan for the benefit of its employees.
At December 31, 2000, Q-DOT had outstanding options to purchase 5,356
shares of its stock. At the time of closing, these options converted into
94,601 options to purchase Simtek Common Stock. No further options will be
issued under this plan and all options outstanding will continue to vest
per their original vesting schedule. These options have not been included
in the above tables.

PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES - The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options
and warrants which are granted to employees. Accordingly, no compensation
cost has been recognized for grants of options and warrants to employees
since the exercise prices were not less than the market value of the
Company's common stock on the grant dates. Had compensation cost been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's net
income and EPS would have been reduced to the pro forma amounts indicated
below.

F-15

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31,
------------------------------

2002 2001
------------ ------------

Net loss applicable to common shareholders:
As reported $ (962,867) $(1,120,350)
Pro forma (1,584,568) (1,623,545)

Net loss per common shareholders:
As reported - basic and diluted $ (.02) $ (.02)
Pro forma - basic and diluted $ (.03) $ (.03)

The fair value of each option granted in 2002 and 2001 was estimated on the
date of grant, using the Black- Scholes option-pricing model with the
following:

Options Granted During
------------------------------

2002 2001
--------------- --------------

Expected volatility 132.9% 138.7%
Risk-free interest rate 3.2% 3.9%

Expected dividends - -

Expected terms (in years) 4.0 4.0

OTHER - Preferred Stock may be issued in such series and preferences as
determined by the Board of Directors.

8. SIGNIFICANT CONCENTRATION OF CREDIT RISK, MAJOR CUSTOMERS, AND OTHER RISKS
--------------------------------------------------------------------------
AND UNCERTAINTIES:
------------------

Sales by location for the year ended December 31, 2002 and 2001 were as
follows (as a percentage of sales):

2002 2001
---- ----

United States 61% 53%
Europe 9% 13%
Far East 24% 27%
All Others 6% 7%
---- ----
Total 100% 100%

Sales from government contracts accounted for approximately 13% and 9% of
total sales for the years ended December 31, 2002 and 2001, respectively.
Sales from our military products accounted for approximately 17% and 9% of
total sales for the years ended December 31, 2002 and 2001, respectively.

Sales to unaffiliated customers which represent 10% or more of the
Company's sales for the years ended December 31, 2002 and 2001 were as
follows (as a percentage of sales):

F-16

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Customer 2002 2001
-------- ------ ------

A 12% 19%
B 16% 16%
C - 10%

All customers identified above are from the semiconductor segment of the
Company's business.

At December 31, 2002, the Company had gross trade receivables totaling
$699,037 due from the above two customers.

In 2002 and 2001, the Company purchased all of its memory wafers, based on
0.8 micron technology from a single supplier Chartered Semiconductor
Manufacturing. Approximately 80% and 86% of the Company's net revenue for
2002 and 2001, respectively, were from finished units produced from these
wafers. The Company had an agreement with Chartered Semiconductor
Manufacturing to provide wafers, which expired in September 1998. This
agreement has not been extended or terminated, however, this supplier still
provides wafers to the Company. In February 2003, we received notification
from Chartered Semiconductor Manufacturing that they will close their wafer
fabrication facility #1 by March 2004. We currently purchase memory wafers
manufactured in this facility #1, and we are currently in discussion to
move manufacturing to Chartered Semiconductor's Manufacturing facility #2.
In addition, the Company purchased all of its logic wafers from two
suppliers located in Singapore and Taiwan. Approximately 7% and 5% of its
net revenue for 2002 and 2001, respectively, were from finished units
produced from these wafers. The Company does not have an agreement with
either supplier, however, the Company has not seen any disruption in wafer
deliveries. In February 2003, the Company received notification from its
supplier of logic wafers in Taiwan that they will be unable to supply the
Company with logic wafers after August 2003. Facility #2 is newer and more
modern than facility #1, processing 8 inch wafers rather than the older 6
inch wafers processed in facility #1. Assuming acceptable terms are reached
to move our process into facility #2 we expect the project will take nine
to twelve months to complete. This would provide uninterrupted supply of
our current 0.8 micron family of nonvolatile Static Random Access memory
products, and would have no material impact on our ability to support our
customers. If we cannot reach acceptable terms with Chartered Semiconductor
Manufacturing or another supplier, this will have a material negative
impact on our future revenues and earnings. Based on discussions with
Chartered Semiconductor Manufacturing, we believe that we will be able to
reach an acceptable agreement.

9. TAXES
-----

Under SFAS No. 109, deferred taxes result from temporary differences
between the financial statement carrying amounts and the tax bases of
assets and liabilities. The components of deferred taxes are as follows:

F-17

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Tax
Assets (Liability)
------------------

Current:
Allowance for doubtful accounts $ 4,000
Reserves 86,000
Warranty reserve 39,000
Accrued expenses 103,000
-------------
Net current deferred tax before valuation allowance 232,000
Valuation allowance (232,000)
-------------
Total current deferred tax $ -
=============

Non-Current:
Net operating losses $ 10,772,000
Property and equipment (85,000)
R&D credit carryforward 36,000
AMT credit 8,000
-------------
Net non-current deferred tax asset before valuation allowance 10,731,000
Valuation allowance (10,731,000)
-------------
Total non-current deferred tax asset $ -
=============

The net current and non-current deferred tax assets have a 100% valuation
allowance resulting from the inability to predict sufficient future taxable
income to utilize the assets. The valuation allowance for 2002 decreased
$2,213,000 and $109,000 in 2001.

At December 31, 2002, the Company has approximately $29,000,000 available
in net operating loss carryforwards which begins to expire from 2004 to
2016. As a result of certain non-qualified stock options which have been
exercised, approximately $3,280,000 of the net operating loss carryforward
will be charged to "paid in capital," when, and if, the losses are
utilized. Also, a substantial portion of the net operating loss may be
subject to Internal Revenue Code Section 382 limitations.

Total income tax expense for 2002 and 2001 differed from the amounts
computed by applying the U.S. Federal statutory tax rates to pre-tax income
as follows:

2002 2001
--------- --------

Statutory rate (34.0)% (34.0)%
State income taxes, net of Federal income tax benefit (3.3)% (3.3)%
Increase (reduction) in valuation allowance related to
of net operating loss carryforwards and change in
temporary differences 37.3% 37.3%
------- -------
$ - $ -
======= =======

F-18

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. BUSINESS SEGMENTS
-----------------

The Company has two reportable segments. One segment designs and produces
semiconductor devices for sale into the semiconductor market. The second
segment specializes in advanced technology research and development for
data acquisition, signal processing, imaging and data communications that
is supported by government and commercial contracts. Although both segments
are managed as part of an integrated enterprise, they are reported herein
in a manner consistent with the internal reports prepared for management.

Transactions between reportable segments are recorded at cost.
Substantially all operating expenses are identified per each segment.
Substantially all of the Company's assets are located in the United States
of America.

Description Year Semiconductor Government Total
Devices Contracts

Net Sales 2002 $ 12,422,087 $1,904,618 $14,326,705
2001 15,449,981 1,500,506 16,950,487
Loss from
Operations 2002 $ (1,027,908) $ 65,041 $ (962,867)
2001 (925,098) (195,252) (1,120,350)

Interest income 2002 $ 42,447 $ - $ 42,477
2001 79,420 77 79,497

Interest expense 2002 $ (146,176) $ (1,745) $ (147,921)
2001 (20,214) (2,351) (22,565)
Depreciation and
amortization 2002 $ 407,193 $ 35,953 $ 443,146
2001 389,405 72,678 462,083

Total Assets 2002 $ 7,931,832 $ 575,218 $ 8,507,050
2001 6,587,283 428,830 7,016,113

F-19

SIMTEK CORPORATION

CONSOLIDATED BALANCE SHEET

ASSETS
------ June 30, 2003
-------------
(unaudited)

CURRENT ASSETS:
Cash and cash equivalents............................................... $ 2,325,672
Certificate of deposit, restricted...................................... 300,000
Accounts receivable - trade, net........................................ 2,006,224
Inventory, net ......................................................... 1,590,810
Prepaid expenses and other.............................................. 135,719
------------
Total current assets................................................ 6,358,425

EQUIPMENT AND FURNITURE, net............................................... 934,090
DEFERRED FINANCING COSTS................................................... 99,579
OTHER ASSETS............................................................... 70,800
------------

TOTAL ASSETS............................................................... $ 7,462,894
============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES:
Accounts payable ....................................................... $ 1,240,477
Accrued expenses........................................................ 389,027
Accrued wages........................................................... 106,840
Accrued vacation payable................................................ 218,710
Debentures.............................................................. 3,000,000
Deferred Revenue........................................................ -
Obligation under capital leases......................................... 161,438
------------
Total current liabilities........................................... 5,116,492

NOTES PAYABLE.............................................................. 10,000
DEBENTURES................................................................. -
OBLIGATION UNDER CAPITAL LEASES............................................ 114,638
------------
Total liabilities................................................... 5,241,130

SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 2,000,000 shares
authorized and none issued and outstanding ......................... -
Common stock, $.01 par value, 80,000,000 shares authorized,
54,461,023 and 54,382,273 shares issued and outstanding
at June 30, 2003.................................................... 544,611
Additional paid-in capital.............................................. 37,605,557
Treasury Stock...................................................... (12,504)
Accumulated deficit..................................................... (35,915,900)
------------
Shareholder's equity.................................................... 2,221,764
------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 7,462,894
============

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

F-20

SIMTEK CORPORATION

STATEMENTS OF OPERATIONS
(unaudited)

Six Months Ended June 30,
-----------------------------
2003 2002
---- ----

NET SALES.................................................. $ 7,355,100 $ 7,523,734

Cost of sales........................................ 4,920,526 4,617,150
------------ ------------

GROSS MARGIN............................................... 2,434,574 2,906,584

OPERATING EXPENSES:
Design, research and development...................... 2,483,142 2,270,118
Administrative........................................ 475,899 393,396
Marketing............................................. 820,327 905,516
------------ ------------

Total Operating Expenses.......................... 3,779,368 3,569,030

NET LOSS FROM OPERATIONS................................... (1,344,794) (662,446)
------------ ------------

OTHER INCOME (EXPENSE):
Interest income....................................... 17,435 14,607
Interest expense...................................... (124,637) (18,985)
Other income (expense), net........................... (1,393) (542)
------------ ------------

Total other income (expense)...................... (108,595) (4,920)
------------ ------------

NET LOSS BEFORE TAXES...................................... (1,453,389) (667,366)

Provision for income taxes............................ - -
------------ ------------

NET LOSS................................................... $ (1,453,389) $ (667,366)
============ ============

NET LOSS PER COMMON SHARE:
Basic and diluted EPS................................. $ (.03) $ (.01)
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted..................................... 54,440,139 54,114,604

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

F-21

SIMTEK CORPORATION

STATEMENTS OF CASH FLOWS
(unaudited)

Six Months Ended June 30,
-----------------------------------
2003 2002
---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $ (1,453,389) $ (667,366)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................. 245,575 225,317
Net change in allowance accounts.............................. 1,805 (22,915)
Deferred financing fees....................................... 8,298 (29,700)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable....................................... 313,731 (133,789)
Inventory................................................. 2,451 (501,504)
Prepaid expenses and other ............................... 103,737 (16,519)
Increase (decrease) in:
Accounts payable.......................................... 152,530 469,306
Accrued expenses.......................................... 188,765 (28,293)
Deferred revenue.......................................... (40,500) 2,500
Customer deposits......................................... 33,075 -
------------ ------------
Net cash used in operating activities............................... (443,922) (702,963)
------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture ................................ (292,527) (145,980)
------------ ------------
Net cash used in investing activities............................... (292,527) (145,980)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and lines of credit..................... - 150,000
Payments on notes payable and lines of credit....................... - (159,899)
Payments on capital lease obligation................................ (77,081) (61,348)
Exercise of stock options........................................... 11,470 19,485
------------ ------------
Net cash used in by financing activities............................ (65,611) (51,762)
------------ ------------

NET DECREASE IN CASH AND CASH
EQUIVALENTS........................................................ (802,060) (900,705)
------------ ------------

CASH AND CASH EQUIVALENTS, beginning of period........................... 3,127,732 2,075,704
------------ ------------

CASH AND CASH EQUIVALENTS, end of period................................. $ 2,325,672 $ 1,174,999
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Purchase of equipment through payables andcapital leases............ $ 144,160 $ 88,457
============ ============

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

F-22

SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES:

The financial statements included herein are presented in accordance with
the requirements of Form 10-QSB and consequently do not include all of the
disclosures normally made in the registrant's annual Form 10-KSB filing. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in Simtek Corporation's Annual Report and Form 10-KSB
filed on March 24, 2003 for fiscal year 2002.

In the opinion of management, the unaudited financial statements reflect
all adjustments of a normal recurring nature necessary to present a fair
statement of the results of operations for the respective interim periods. The
year-end balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. Results of operations for the interim periods are not necessarily
indicative of the results of operations for the full fiscal year.

2. LINE OF CREDIT:

In April 2003, Simtek Corporation ("Simtek" or the "Company") renewed its
revolving line of credit in the amount of $250,000.

3. CONVERTIBLE DEBENTURES:

On July 1, 2002, the Company received $3,000,000 in a financing transaction
with Renaissance Capital of Dallas, Texas ("Renaissance"). The $3,000,000
funding consists of convertible debentures with a 7-year term at a 7.5% per
annum interest rate. The debentures are convertible at the option of the holder
into Simtek common stock at $0.312 per share, which was in excess of the market
price per share on July 1, 2002. Renaissance has exercised its right to appoint
one member to the Simtek Board of Directors. Mr. Robert Pearson was appointed to
Simtek's board of directors on July 25, 2002. At June 30, 2003, the Company was
in non-compliance of certain covenants set forth in the loan agreement. The
Company has received a waiver from Renaissance through October 1, 2003 with
respect to such covenants. The Company is attempting to reach compliance with
the stipulated covenant requirements by the end of the waiver period, but cannot
be sure that it will achieve such compliance. Therefore, the Company has
reclassified the note as a current liability as of June 30, 2003. The Company
has a long term relationship with Renaissance and believes that it will be able
to revise its current covenant requirements prior to October 1, 2003, whereby
the loan will not be called on this date. The Company, however, cannot provide
assurances that it will be able to meet its covenant requirements by October 1,
2003 or that such covenants will be revised.

4. GEOGRAPHIC CONCENTRATION:

Sales of our semiconductor products by location for the six months ended
June 30, 2003 and 2002 were as follows (as a percentage of semiconductor product
sales only):

Six Months Ended
June 30,
2003 2002
---- ----

United States 39% 49%
Europe 12% 11%
Far East 43% 29%
All others 6% 11%
---- ----
100% 100%

F-23

SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. BUSINESS SEGMENTS:

The Company has two reportable segments. One segment designs and produces
semiconductor devices for sale into the semiconductor market. The second segment
specializes in advanced technology research and development for data
acquisition, signal processing, imaging and data communications that is
supported by government and commercial contracts. Although both segments are
managed as part of an integrated enterprise, they are reported herein in a
manner consistent with the internal reports prepared for management.

Six Months Ended
June 30,
----------------------------
2003 2002
---- ----
Description

Net Sales:
Semiconductor Devices $ 6,332,296 $ 6,604,905
Government Contracts 1,022,804 918,829
----------- -----------
Total $ 7,355,100 $ 7,523,734

Net Income (Loss):
Semiconductor Devices $(1,382,230) $ (696,614)
Government Contracts (71,159) 29,248
----------- -----------
Total $(1,453,389) $ (667,366)

June 30, 2003 December 31, 2002
------------- -----------------
Total Assets:
Semiconductor Devices $ 7,032,168 $ 7,931,831
Government Contracts 430,726 575,219
----------- -----------
Total $ 7,462,894 $ 8,507,050

6. PRO FORMA STOCK-BASED COMPENSATION DISCLOSURE

The Company applies APB Opinion 25 and related interpretations in
accounting for its stock options which are granted to its employees.
Accordingly, no compensation cost has been recognized for grants of options to
employees since the exercise prices were not less than the market value of the
Company's common stock on the grant dates. Had compensation cost been determined
based on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net loss and EPS would
have been adjusted to the pro forma amounts indicated below.

F-24

SIMTEK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended
June 30,
----------------------------
2003 2002
---- ----

Net loss as reported $(1,453,389) $ (667,366)
Add: stock based compensation
included in reported net loss - -
Deduct: Stock-based compensation
cost under SFAS 123 (271,669) (310,851)
----------- -----------

Pro Forma net loss $(1,725,058) $ (978,217)
----------- -----------

Pro forma basic and diluted net
loss per share:
Pro forma shares used in the
calculation of pro forma net loss
per common share basic and diluted 54,440,139 54,114,604

Reported net loss per common
share basic and diluted $ (.03) $ (.01)
Pro forma net loss per common
share basic and diluted $ (.03) $ (.02)

F-25

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Colorado Business Corporation Act provides that a corporation may
indemnify a person made a party to a proceeding because the person is or was a
director against liability incurred in the proceeding if (a) the person
conducted himself or herself in good faith, (b) the person reasonably believed
(1) in the case of conduct in an official capacity with the corporation, that
his or her conduct was in the corporation's best interests; and (2) in all other
cases, that his or her conduct was at least not opposed to the corporation's
best interests and (c) in the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful. Such
indemnification is permitted in connection with a proceeding by or in the right
of the corporation only to the extent of reasonable expenses incurred in
connection with the proceeding. A corporation may not indemnify a director (a)
in connection with a proceeding by or in the right of the corporation in which
the director was adjudged liable to the corporation; or (b) in connection with
any other proceeding charging that the director derived an improper personal
benefit, whether or not involving action in an official capacity, in which
proceeding the director was adjudged liable on the basis that he or she derived
an improper personal benefit. The Colorado Business Corporation Act further
provides that a corporation, unless limited by its articles of incorporation,
shall indemnify a person who was wholly successful, on the merits or otherwise,
in the defense of any proceeding to which the person was a party because the
person is or was a director or officer, against reasonable expenses incurred by
him or her in connection with the proceeding.

Our articles of incorporation contain a provision that requires us to
indemnify, to the fullest extent permitted under the Securities Act of 1933, as
amended (the "Act"), directors and officers against all costs and expenses
reasonably incurred in connection with the defense of any claim, action, suit or
proceeding, whether civil, criminal, administrative, investigative or other, in
which such person may be involved by virtue of being or having been a director,
officer or employee. Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of
Simtek pursuant to the foregoing provisions, or otherwise, Simtek has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee are estimated:

Securities and Exchange Commission registration fee........... $ 200
Legal fees and expenses ................................... 7,500
Accounting fees............................................... 3,500
Miscellaneous................................................. 2,500
-----

Total......................................................... $13,700
=======

The above expenses will be borne by us.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

In September 2000, we issued 2,900,000 shares of our common stock to
WebGear as consideration, together with 1,250,000 shares of WebGear common
stock, for our acquisition of intellectual property assets of WebGear. These
assets primarily relate to the wireless data communications industry. No
advertising or general solicitation occurred with respect to these transactions
involving WebGear. WebGear received or had access to the same type of
information about us as a registration statement would disclose. WebGear was
financially sophisticated and an "accredited investor."

In September 2000, we issued 500,000 shares of our common stock each to
both E.B.M. Associates and World Trade Partners in consideration for their
agreement to provide financial advisory services. No advertising or general
solicitation occurred with respect to our issuance of stock to E.B.M. Associates
or World Trade Partners. We only offered to issue, and did issue, stock to
E.B.M. Associates and World Trade Partners. E.B.M. Associates and World Trade

II-1

Partners received or had access to the same type of information about us as a
registration statement would disclose. We reasonably believed that E.B.M.
Associates and World Trade Partners were financially sophisticated.

On March 14, 2001, we completed the merger of Q-DOT Group, Inc. with and
into us in exchange for approximately 5,172,000 shares of our common stock,
valued at $4,000,000. Although duly notified of their appraisal rights, no Q-DOT
Group stockholder exercised appraisal rights. Q-DOT Group's 30 stockholders
received, on a pro rata basis, a total of approximately 5,172,000 shares of our
common stock. The transaction was a private placement exempt from registration
pursuant to Rule 506 of Regulation D promulgated by the SEC. There were fewer
than 35 purchasers of our securities accredited investors. We provided each
purchaser with the information required under Regulation D. We reasonably
believed that each purchaser who was not an accredited investor, either alone or
with such person's purchaser representative, was capable of evaluating the risks
and merits of investing in our stock. No general solicitation or advertising
occurred. Following the merger, we filed a Form D with the SEC as required by
Regulation D.

Pursuant to a Convertible Loan Agreement, dated as of June 28, 2002, we
issued convertible debentures to Renaissance Capital Growth and Income Fund III,
Inc., Renaissance US Growth & Income Trust, PLC and BFS US Special Opportunities
Trust, PLC on July 1, 2002. We received $3,000,000 in funding. The convertible
debentures have 7-year terms at a 7.5% per annum interest rate; each fund
equally invested $1,000,000. The holder of the debentures has the right, at any
time, to convert all, or in multiples of $100,000, any part of the debenture
into shares of our common stock. The debentures are convertible into our common
stock at $0.312 per share. Each purchaser of the debentures was an accredited
investor. No general solicitation or advertising occurred.

With respect to our acquisition of Q-DOT Group, we issued securities in
reliance upon Rule 506 of Regulation D. The other issuances described above were
deemed to be exempt from registration under the Act, in reliance on Section 4(2)
of the Act as transactions by an issuer not involving a public offering.

II-2

ITEM 27. EXHIBITS

All exhibits listed below are incorporated herein by reference, except
----------------------------------------------------------------------
Exhibit 23.1.
-------------

3.1 Amended and Restated Articles of Incorporation.(2)
3.2 Amended and Restated Articles of Incorporation November 1997.(7)
3.3 Bylaws.(2)
4.1 1987-I Employee Restricted Stock Plan.(1)
4.2 Form of Restricted Stock Agreement between the Company and
Participating Employees.(1)
4.3 Form of Common Stock Certificate.(3)
4.4 Simtek Corporation 1991 Stock Option Plan.(4)
4.5 Form of Incentive Stock Option Agreement between the Company and
Eligible Employees.(4)
4.6 1994 Non-Qualified Stock Option Plan.(5)
4.7 Amendment to the 1994 Non-Qualified Stock Option Plan.(6)
4.8 Q-DOT Group, Inc. Incentive Stock Option Plan of March 1994 adopted by
Simtek (15)
4.9 Form of Q-DOT Group, Inc. Incentive Stock Option Agreement between the
Company and Eligible Employees.(15)
4.10 Amendment to the 1994 Non-Qualified Stock Option Plan.(15)
5.1 Opinion of Holme Roberts & Owen LLP*
10.1 Form of Non-Competition and Non-Solicitation Agreement between the
Company and certain of its employees.(1)
10.2 Form of Employee Invention and Patent Agreement between the Company
and certain of its employees.(1)
10.3 Product License Development and Support Agreement between Simtek
Corporation and Zentrum Mikroelektronik Dresden GmbH dated June 1,
1994(5)
10.4 Cooperation Agreement between Simtek Corporation and Zentrum
Mikroelektronik Dresden GmbH dated September 14, 1995(6)
10.5 Manufacturing Agreement between Chartered Semiconductor Manufacturing,
PTE, LTD. and Simtek Corporation dated September 16, 1992(6)
10.6 Employment agreement between the Simtek Corporation and Douglas M.
Mitchell(8)
10.7 Share Exchange Agreement dated May 9, 2000 between Simtek Corporation
and Hugh N. Chapman (9)
10.8 Share Exchange Agreement dated June 16, 2000 between Simtek
Corporation and WebGear Inc. (9)
10.9 Share Exchange Agreement dated July 31, 2000 between Simtek
Corporation and Jaskarn Johal and Kashmira S. Johal (10)
10.10 Asset Purchase Agreement between Simtek Corporation and WebGear, Inc.
(11)
10.11 Amendment to Asset Purchase Agreement between Simtek Corporation and
WebGear, Inc. (12)
10.12 Agreement and Plan of Merger among Simtek Corporation, W-DOT Group,
Inc. and Q-DOT, Inc. (13)
10.13 Employment Agreement between Simtek Corporation and Hugh N. Chapman
(14)
10.14 Technology Development, License and Product Agreement between Amkor
Technology and Simtek (16)
10.15 Manufacturing Services Agreement between Amkor Technology, Inc. and
Simtek Corp (16)
10.16 Convertible Loan Agreement between Simtek Corporation as borrower and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth and Income Trust, PLC and BFSUS Special Opportunities Trust,
PLC as lenders (17)
10.17 7.5% $1,000,000 Convertible Debenture between Simtek Corporation and
BSFSUS Special Opportunities Trust, PLC (17)
10.18 7.5% $1,000,000 Convertible Debenture between Simtek Corporation and
Renaissance Capital Growth & Income Fund III, Inc. (17)
10.19 7.5% $1,000,000 Convertible Debenture between Simtek Corporation and
Renaissance Capital US Growth & Income Trust, PLC (17)
10.20 Borrowers Security Agreement between Simtek Corporation as borrower
and Renaissance Capital Growth & Income Fund III, Inc. and Renaissance
US Growth and Income Trust, PLC and BFSUS Special Opportunities Trust,
PLC as lenders (17)
10.21 Pledge Agreement between Simtek Corporation as borrower and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth and Income Trust, PLC and BFSUS Special Opportunities Trust,
PLC as lenders (17)

II-3

10.22 Technology Development, License and Product Agreement between Amkor
Technology and Simtek - Amended September 2002 (18)
10.23 Assignment, dated February 21, 2003, of the Agreement(s) between
Simtek Corporation and Amkor Technology, Inc.(19)
23.1 Consent of Independent Public Accountants
23.2 Consent of Holme Roberts & Owen LLP is included in Exhibit 5.1*

* Previously filed.

----------------------
(1) Incorporated by reference to the Company's Form S-1 Registration Statement
(Reg. No. 33-37874) filed with the Commission on November 19, 1990.
(2) Incorporated by reference to the Company's Amendment No.1 to Form S-1
Registration Statement (Reg. No. 33-37874) filed with the Commission on
February 4, 1991.
(3) Incorporated by reference to the Company's Amendment No.2 to Form S-1
Registration Statement (Reg. No. 33-37874) filed with the Commission on
March 4, 1991.
(4) Incorporated by reference to the Company's Form S-1 Registration Statement
(Reg. No. 33-46225) filed with the Commission on March 6, 1992.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 25, 1995
(6) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 27, 1996
(7) Incorporated by reference to the Company's Annual Report on Form 10-K filed
with the Commission on March 24, 1998
(8) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 12, 1999
(9) Incorporated by reference to the Form SB-2 Registration Statement (Reg. No.
333-40988) filed with the Commission on July 7, 2000
(10) Incorporated by reference to the Form 8-K filed with the Commission on
August 14, 2000
(11) Incorporated by reference to the Form 8-K filed with the Commission on
October 13, 2000
(12) Incorporated by reference to the Company's Amendment No. 2 to From SB-2
Registration Statement (Reg. No. 333-40988)
(13) Incorporated by reference to the Company's Form 8-K filed with the March
23, 2001
(14) Incorporated by reference to the Form SB-2 Registration Statement Amendment
#3 (Reg. No. 333-60492) filed with the Commission on September 4, 2001
(15) Incorporated by reference to the Company's Form S-8 Registration Statement
(Reg. No. 333-73794) filed with the Commission on November 20, 2001
(16) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 27, 2002
(17) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
filed with the Commission on August 13, 2002
(18) Incorporated be reference to the Company's Quarterly Report on Form 10-QSB
filed with the Commission on November 8, 2002
(19) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 27, 2003

II-4

Item 28. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to:

(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;

(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (17 C.F.R. ss. 230.424(b)) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.

(iii) Include any additional or changed material information on the plan of
distribution.

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

[The undersigned registrant hereby undertakes to, for determining any
liability under the Securities Act, treat each post-effective amendment that
contains a form of prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the securities at
that time as the initial bona fide offering of those securities.]

II-5

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Colorado Springs, State of Colorado on August 27,
2003.

Simtek Corporation,
a Colorado corporation

By: /s/Douglas M. Mitchell
-------------------------------------------
Douglas M. Mitchell
Chief Executive Officer and President

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.

SIGNATURE

/s/Douglas M. Mitchell
------------------------------------------------------
Douglas M. Mitchell
Director, Chief Executive Officer, President and Chief
Financial Officer (acting)
August 27, 2003

/s/Robert H. Keeley *
------------------------------------------------------
Robert H. Keeley
Director
August 27, 2003

/s/Harold Blomquist *
------------------------------------------------------
Harold Blomquist
Director
August 27, 2003

/s/Klaus Wiemer *
------------------------------------------------------
Klaus Wiemer
Director
August 27, 2003

/s/Kimberley Carothers
------------------------------------------------------
Kimberley Carothers
Controller (Principal Accounting Officer)
August 27, 2003

* By /s/Douglas M. Mitchell, Attorney in Fact

II-6