Edgar Filing: SIMTEK CORP

As filed with the Securities and Exchange Commission on November 18, 2004
Registration 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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:
Hendrik F. Jordaan, Esq.
Holme Roberts & Owen LLP
90 S. Cascade Avenue, Suite 1300
Colorado Springs, CO 80903
(719)473-3800

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. o

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. [X]

CALCULATION OF REGISTRATION FEE(1)

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

Common stock, $.01 par 5,159,959 $0.575(2) $2,966,976(2) $375.92
value per share

Common stock, $.01 par 2,966,977 $0.627(3) $1,860,295(3) $235.70
value per share
--------- ---------- -------
Total 8,126,936 $4,827,271 $611.62

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(1) Comprises 5,159,959 shares of common stock. 2,966,977 shares of common
stock issuable upon exercise of warrants with an exercise price of $0.627.

(2) Estimated solely for purpose of calculating the registration fee pursuant
to Rule 457(c), based on the average of the bid and the asked prices of our
common stock as reported on the Over-the-Counter Bulletin Board on November
10, 2004.

(3) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(g).

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

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 NOVEMBER 16, 2004
8,126,936 Shares

SIMTEK CORPORATION

Common stock

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This prospectus is being used to register 8,126,936 shares of Simtek
Corporation's common stock being offered by the selling security holders, SF
Capital Partners Ltd., Bluegrass Growth Fund LP, Bluegrass Growth Fund LTD and
Merriman Curhan Ford & Co. 5,159,959 of these shares have been issued to some of
the selling security holders in exchange for a $2,500,000 equity financing that
some of the selling security holders completed with us on October 12, 2004. In
addition to the 5,159,959 shares, the selling security holders received warrants
to acquire 2,966,977 shares of our common stock.

Our common stock is traded on the OTC Bulletin Board under the symbol
"SRAM." On November 10, 2004, the closing sale price of our common stock was
$.058 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 state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.

The date of this prospectus is November ____, 2004.

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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...................................................... 14
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 15
Business.................................................................... 30
Directors, Executive Officers, Promoters and Control Persons................. 41
Security Ownership........................................................... 47
Selling Security Holders..................................................... 50
Specific Relationships and Related Transactions.............................. 50
Description of Securities.................................................... 50
Plan of Distribution......................................................... 51
Legal Matters................................................................ 53
Experts ................................................................... 53
Available Information........................................................ 54
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. 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 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 8,126,936 shares of our common stock that may be offered
for resale by SF Capital Partners Ltd., Bluegrass Growth Fund LP, Bluegrass
Growth Fund LTD and Merriman Curhan Ford & Co. We refer to these companies as
the "selling security holders."

On October 12, 2004, we received $2,500,000 from SF Capital Partners Ltd.,
Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD in return for issuing
5,159,959 shares of our common stock and warrants to acquire 2,579,980 shares of
our common stock. In connection with the $2,500,000 equity financing, we issued
to Merriman Curhan Ford & Co. warrants to acquire 386,997 shares of our common
stock. The warrants issued to the selling security holders have 5-year terms
with an exercise price of $0.627 per share.

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.

Nine Months
Years Ended December 31, Ended September 30,
---------------------------- -----------------------------
2003 2002 2004 2003
---- ---- ---- ----
(Unaudited)

Statement of Operations Data:
Net revenues.......................... $14,503,771 $ 14,326,705 $10,381,210 $ 10,777,139
Total expenses........................ 16,534,054 15,185,945 13,593,976 12,585,621
Operating loss........................ (2,030,283) (859,240) (3,212,766) (1,808,482)
Loss before taxes..................... (2,272,641) (962,867) (3,378,897) (1,966,530)
Net loss.............................. $(2,272,641) $ (962,867) $(3,378,897) $ (1,966,530)
Net loss per share:
Basic and diluted................ $ (.04) $ (.02) $ (.06) $ (.04)
=========== =========== =========== ============

December 31,2003 September 30, 2004
---------------- ------------------
Balance Sheet Data: (Unaudited)
Cash and cash equivalents................. $ 3,431,679 $ 1,705,387
Working capital........................... 5,104,329 2,114,099
Total assets.............................. 7,997,787 5,551,184
Shareholders' equity...................... 3,049,688 26,751

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 any significant increase in our product sales in the past
year and our gross margins are less than we had 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
whether we will be able to achieve an 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 September 30, 2004, we had accumulated
losses of approximately $40.0 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 September 30, 2004, 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 RENN CAPITAL GROUP; IF WE ARE UNABLE TO DO SO, RENN
CAPITAL GROUP COULD ACCELERATE THE $3 MILLION LOAN AND FORECLOSE ON THE
COLLATERAL THAT WE GRANTED TO IT

Our loan agreement with RENN Capital Group (formerly Renaissance Capital
Group, Inc.) contains various financial covenants. As of December 31, 2003, we
were not in compliance with two of the covenants set forth in the loan agreement
which covenants relate to the interest coverage ratio and debt to equity ratio.
However, we subsequently received a waiver for one of the covenants and a
modification and a waiver to the loan agreement with respect to the other
covenant, the waiver and modification were effective through April 1, 2005.
During the quarter ended September 30, 2004, we determined it was highly likely
we would not meet the revised covenants as of September 30, 2005. On October 28,
2004, we received a waiver for the two covenants through October 1, 2005.
However, significant variances in future actual operations from our current
estimates could result in the reclassification of this note to a current
liability. If the note becomes due and we cannot pay it, RENN Capital Group may
foreclose on the assets that we pledged as security for the note. This would
significantly harm our business.

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 ACHIEVE ACCEPTABLE MANUFACTURING YIELDS AND CONTINUE PRODUCTION
WITH CHARTERED SEMICONDUCTOR MANUFACTURING OF SOME OF OUR MEMORY PRODUCTS IN ITS
WAFER FABRICATION FACILITY #2, OUR REVENUES, EARNINGS AND STOCK PRICE COULD
SUFFER

Chartered Semiconductor Manufacturing Plc. ("Chartered') of Singapore
closed its wafer fabrication facility #1 in March 2004. Prior to this closing we
had purchased silicon wafers, the raw materials used to produce our nonvolatile
semiconductor memory products, from fabrication facility #1. We have been
working with Chartered to transfer the manufacturing process of our memory
wafers to Chartered's facility #2. Chartered'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. In the third quarter of 2004, we qualified
and began shipping our 3 volt 256 kilobit nonvolatile semiconductor memory
product built on silicon wafers received from Chartered's facility 2 In the
third quarter of 2004, we began shipping our 5 volt 256 kilobit nonvolatile
semiconductor memory products, tested to production requirements on a
provisional qualification, built on silicon wafers received from Chartered's
facility 2. As of September 30, 2004, we received production wafers for our 64
kilobit nonvolatile semiconductor memory products from Chartered's facility #2
suitable for customer shipments. We believe our 64 kilobit and 5 volt 256
kilobit nonvolatile semiconductor memory products will be qualified early in the
fourth quarter of 2004. If production yields or wafer availability from
Chartered's facility #2 do not meet our production requirements, this may have a
material negative impact on our future revenues, earnings and stock price.

We have not had a manufacturing contract with Chartered since 1998.
However, we have maintained a good relationship with Chartered for the pricing
and delivery of our wafers. Due to our not having a contract with Chartered and
the volatility of the semiconductor market, we may have no control over the
pricing and availability of the wafers we require in order to build our
products. The risk of us not receiving the products and pricing we need from
Chartered has escalated, but we are evaluating alternative sources of supply. If
we are unable to obtain the products and pricing we need, our business could
suffer.

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.

We have depended on Chartered to manufacture all of our silicon wafers for
our 0.8 micron memory products which accounted for approximately 78% of our
total revenue for 2003. 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 is unable to meet our silicon wafer needs on
time and at a price that we find acceptable, we would have to find another wafer
manufacturer. 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 2003 approximately 30% 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 September 2003, we began shipping samples of
our 1 megabit 3 volt nonvolatile semiconductor memory product. 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 DONGBUANAM SEMICONDUCTOR TO CO-DEVELOP A SEMICONDUCTOR
PROCESS MODULE THAT COMBINES OUR NONVOLATILE TECHNOLOGY WITH ITS 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 2003, 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 its wafer fabrication facility to
DongbuAnam Semiconductor. All contractual obligations were transferred to Anam
U.S.A., a wholly-owned subsidiary of DongbuAnam 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 DongbuAnam Semiconductor we estimate
that we have spent approximately $4,700,000 in development costs. These costs
include increases in headcount, contract engineering services, equipment leases,
maintenance agreements for software and wafer fabrication costs. If DongbuAnam
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,
such as Ramtron International Corporation, 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 2003, over 54% 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.

IF WE ISSUE SECURITIES AT LOW PRICES IN THE FUTURE, SOME OF OUR SECURITY HOLDERS
MAY BE ENTITLED TO ACQUIRE MORE OF OUR SECURITIES WHICH MAY DILUTE AND HARM THE
HOLDERS OF OUR COMMON STOCK

We may be obligated under agreements with certain of our security holders
to issue to them additional securities in exchange for little or no
consideration if we sell our securities in the future at or below certain
prices. The issuance of such securities could dilute and harm the holders of our
common stock.

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. Given our present
capital requirements, it is possible that we may need to raise capital through
the sale of preferred stock in the future.

USE OF PROCEEDS

8,126,936 shares are covered by this prospectus. These shares include
shares of our common stock issuable upon exercise of warrants issued to the
selling security holders incident to our October 12, 2004 equity financing. We
will not receive any proceeds from the resale of these shares by the selling
security holders.

CAPITALIZATION

The following table shows our capitalization at September 30, 2004.

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, 300,000,000 shares
authorized, 57,713,387 issued and 57,703,387
shares outstanding 577,034

Additional paid-in capital 39,576,270

Accumulated deficit as of September 30, 2004 (40,114,049)
------------
Shareholders' equity $ 26,751
============

MARKET FOR OUR COMMON STOCK AND RELATED SECONDARY 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
-------- -------
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............................................ .80 .78
Fourth Quarter ......................................... 1.26 1.20

2004
First Quarter ........................................... 1.64 1.56
Second Quarter........................................... .72 .68
Third Quarter............................................ .62 .60
Fourth Quarter (through November 10, 2004)............... .61 .55

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

As of November 16, 2004, we had 460 shareholders of record. As of March 23,
2004, we had approximately 7,700 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 Renaissance Capital Growth and Income Fund III,
Inc., Renaissance US Growth & Investment Trust PLC and BFSUS Special
Opportunities Trust PLC. We received $3,000,000 in funding. The convertible
debentures have 7-year terms at a 7.5% per annum interest rate; each of the
funds 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 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
market price on the closing date. 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. RENN Capital Group is agent for the
three investment funds with respect to the Convertible Loan Agreement and the
debentures issued thereby.

Bulletin Board over the five trading days before closing. In addition to the
shares of common stock, each of the three investment funds received warrants to
acquire 250,000 shares of our common stock. The warrants have a 5-year term with
an exercise price of $1.25 per share for 125,000 shares and $1.50 per share for
125,000 shares.

On October 12, 2004, we closed a $2,500,000 equity financing with SF
Capital Partners Ltd., Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD.
In exchange for the $2,500,000, we issued 4,127,967 shares of our common stock
to SF Capital Partners Ltd., 515,996 shares of our common stock to Bluegrass
Growth Fund LP and 515,996 shares of our common stock to Bluegrass Growth Fund
LTD. The purchase price was based on a 15% discount to the closing price of our
common stock as reported on the Over-the-Counter Bulletin Board on October 11,
2004, resulting in a price of $0.4845 per share. In addition to the shares of
common stock, SF Capital Partners Ltd., Bluegrass Growth Fund LP, and Bluegrass
Growth Fund LTD received warrants to acquire 2,063,984, 257,998, and 257,998
shares of our common stock, respectively. The warrants have a 5-year term with
an exercise price of $0.627 per share. Merriman Curhan Ford & Co., the placement
agent for the $2,500,000 equity financing, received a cash payment of $187,500
and warrants to acquire 386,997 shares of our common stock. The warrants have a
5-year term with an exercise price of $0.627 per share. In addition, Merriman
Curhan Ford & Co. is entitled to receive another cash payment equal to 7.5% of
the capital received by us upon the exercise of the warrants issued to SF
Capital Partners Ltd., Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD
pursuant to the $2,500,000 equity financing (provided such exercise is within an
applicable tail period).

SELECTED FINANCIAL DATA

The statements of operations for the years ended December 31, 2003 and 2002
and the balance sheet data as of December 31, 2003 have been derived from the
financial statements that have been audited by Hein & Associates LLP,
Independent Registered Public Accounting Firm. The balance sheet as of September
30, 2004 and the statements of operations for the nine months ended September
30, 2004 and 2003 are unaudited. In our opinion, these financial statements
include all adjustments necessary for the fair presentation of the financial
position as of September 30, 2004 and statements of operations for the nine
months ended September 30, 2004 and 2003. The balance sheet as of September 30,
2004 and the statements of operations for the nine months ended September 30,
2004 and 2003 were prepared on a consistent basis with our year end financial
information. The balance sheet as of December 31, 2003 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 Years Ended Nine Months Ended
------------------- -----------------
December 31, September 30,
------------ -------------
2003 2002 2004 2003
---- ---- ---- ----
(Unaudited)
Statement of Operations Data:

Net Sales...................................... $14,503,771 $14,326,705 $10,381,210 $10,777,139
Cost of Sales.................................. 9,621,249 8,481,262 7,101,323 7,223,644
----------- ----------- ----------- -----------
Gross Margin................................... 4,882,522 5,845,443 3,279,887 3,553,495
Operating Expenses:
Research and development.................. 4,518,528 4,308,499 4,249,136 3,468,898
General and administrative................ 847,503 754,676 833,428 692,647
Sales and Marketing....................... 1,546,774 1,641,508 1,410,089 1,200,432
----------- ----------- ----------- -----------
Total Operating Expenses.............. 6,912,805 6,704,683 6,492,653 5,361,977
Other income (expense), net.................... (242,358) (103,627) (166,131) (158,048)
----------- ----------- ----------- -----------

Net loss before taxes.......................... (2,272,641) (962,867) (3,378,897) (1,966,530)
Provision for income taxes................ - - - -
----------- ----------- ----------- -----------

Net loss ...................................... $(2,272,641) $ (962,867) $(3,378,897) $(1,966,530)
=========== =========== =========== ============
Net loss per common share:
Basic and diluted EPS..................... $ (.04) $ (.02) $ (.06) $ (.04)
=========== =========== =========== ============
Weighted average common shares outstanding:
Basic and diluted ........................ 54,889,008 54,204,525 57,375,272 54,510,142
=========== =========== =========== ============

December 31, 2003 September 30, 2004
----------------- ------------------
Balance Sheet Data: (Unaudited)
Working capital.......................... $5,104,329 $2,114,099
Total assets............................. 7,997,787 5,551,184
Shareholders' equity..................... $3,049,688 $ 26,751

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

OVERVIEW OF RECENT DEBT AND EQUITY TRANSACTIONS

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 but ceased supporting this product as
of December 31, 2003.

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, Inc. 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.

Beginning in 1991, after initial qualification of our first product,
through 1995, we began expanding the 64 kilobit nonvolatile static random access
memory product family. We achieved qualification of 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. In 1995 through 1997, we developed and qualified our 64 kilobit
and 256 kilobit nonvolatile static random access memory products based on a 0.8
micron process technology. We qualified these products for use in the
commercial, industrial and military markets. Development and qualification
originally occurred in Zentrum Mikroelektronik Dresden's silicon wafer
fabrication facility. In 1997, we transferred the process development of these
products to Chartered's silicon wafer fabrication facility. Qualification of
these products for use in the commercial, industrial and military markets was
completed in 1998. In October 2001, we entered into an agreement with Amkor
Technology, who later sold controlling interest in its wafer fabrication
facility to DongbuAnam Semiconductor. The agreement we entered into includes the
development of a module which incorporates silicon-oxide-nitride-oxide- silicon
technology, that will be used to manufacture both high density silicon oxide
nitride oxide silicon flash and non volatile static random access memories for
stand alone embedded products. The primary development product is our 1 megabit
3.0 volt nonvolatile static random access memory. In September 2003, we began
shipping samples of the 1 megabit 3.0 volt nonvolatile static random access
memory. We are currently shipping 1 megabit products tested to production
requirements on a provisional qualification and plan to have qualification
complete in the fourth quarter of 2004. During the third quarter of 2004, we
began receiving initial production orders.. Sales of our 1 megabit 3 volt
products accounted for approximately 3% of our revenue for the three and nine
months ended September 30, 2004. 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's silicon wafer fabrication facility. During the second
quarter of 2004, we qualified our 256 kilobit 3 volt nonvolatile static random
access memory, produced on wafers received from Chartered's facility #2, for use
in commercial and industrial applications. During the third quarter of 2004, we
began shipping our 3 volt 256 kilobit nonvolatile semiconductor memory product
built on silicon wafers received from Chartered's facility #2. In the third
quarter of 2004, we began shipping our 5 volt 256 kilobit nonvolatile
semiconductor memory products, tested to production requirements on a
provisional qualification, built on silicon wafers received from Chartered's
facility 2. We anticipate that qualification of the 5 volt 64 kilobit and 5 volt
256 kilobit nonvolatile semiconductor memory products from Chartered's facility
#2 will be completed early in the fourth quarter of 2004.

Chartered closed its wafer fabrication facility #1 in March 2004. We have
purchased silicon wafers, the raw materials used to produce our nonvolatile
semiconductor memory products, from fabrication facility #1. We have been
working with Chartered to transfer the manufacturing process of our memory
wafers to Chartered's facility #2. Chartered's facility #2 is newer and more
modern than its facility #1, processing 8 inch wafers rather than the older 6
inch wafers that were processed in facility #1. Our research and development
activities related to the 3 volt 256 kilobit nonvolatile semiconductor memory
product have been redirected to yield improvement. As of September 30, 2004, we
received production wafers for our 64 kilobit nonvolatile semiconductor memory
products from Chartered's facility #2 suitable for customer shipments. We
believe our 64 kilobit and 5 volt 256 kilobit nonvolatile semiconductor memory
products will be qualified early in the fourth quarter of 2004. If production
yields or wafer availability from Chartered's facility #2 do not meet our
production requirements, this may have a material negative impact on our future
revenues, earnings and stock price. If production yields or wafer availability
from Chartered's facility #2 do not meet our production requirements, this may
have a material negative impact on our future revenues, earnings and stock
price.

We entered into a Process Transfer Agreement with X-FAB to install our
Silicon Nitride Oxide Semiconductor technology into its wafer fabrication
facility to provide an additional manufacturing source to material supplied by
Chartered. Through the middle of the third quarter of 2004, we were engaged with
X-FAB to install our nonvolatile semiconductor memory process. Due to a lack of
our and X-FAB's resources required to install our nonvolatile semiconductor
memory process into X-FAB and the marginal anticipated return-on-investment, we
ceased the installation of our nonvolatile semiconductor memory process into
X-FAB's wafer fabrication facility in August 2004.

Our programmed semiconductor logic products were supported with silicon
wafers, built on 0.5 micron process technology, purchased from United
Microelectronics and silicon wafers purchased from Chartered 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 it would be unable to supply us with logic wafers after
August 2003. We supported 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 2003. We do not plan to support sales logic products to
the market in the foreseeable future.

Sales of products built on wafers purchased from Chartered and United
Microelectronics accounted for essentially all of our semiconductor product
sales revenue for 2002 and 2003.

REVIEW OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 -
SEMICONDUCTOR DEVICES

Total product sales of our semiconductor devices for 2003 were
approximately $12,300,000. We have seen an increase in units shipments of our
commercial products in 2003. The majority of this increase was for large
production orders, with competitive bidding, which resulted in a decrease of
average selling prices as compared to 2002. Revenues from our 4/16 kilobit, 64
kilobit and 256 kilobit commercial products saw a total increase of
approximately 7% in 2003 as compared to 2002. The majority of the increase was
for large production orders, with competitive bidding, which resulted in a
decrease of average selling prices. Revenues from our high-end industrial and
military products saw an approximate decrease of approximately 28% in 2003 as
compared to 2002. This decrease was due to a slow-down of production related to
military systems. Sales of our logic products saw a decrease of approximately
13% in 2003 as compared to 2002. This decrease was primarily due to our decision
to phase-out this product line by December 31, 2003.

Due to a decrease in high-end industrial and military product revenues and
decreases average selling prices of our commercial products, we had an
approximate 9% decrease in our gross margins for 2003 as compared to 2002.

REVIEW OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 -
SEMICONDUCTOR DEVICES

We have seen a slight increase in unit shipments for the nine months ended
September 30, 2004 as compared to the nine months ended September 30, 2003. Our
net revenue was $9,000,000 for the nine months ended September 30, 2004 as
compared to $9,200,000 for the comparable period of 2003. The decrease in
revenue was due to the elimination of revenue from our logic products. The loss
of revenue from our logic products was offset by an increase in revenue from our
high end industrial and military products. The loss of revenue from our logic
products was a result of our decision to discontinue this product line at the
end of 2003.

Increased operating expenses had an impact on our profitability for the
nine months ended September 30, 2004 compared to the nine months ended September
30, 2003.

Review of Operations for the Twelve Months Ended December 31, 2003 -
Government Contracts

Total revenue received from our research and development contracts for 2003
was approximately $2,200,000 up from the $1,900,000 in 2002. This was equal to
15% of our total revenue in 2003.

REVIEW OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 -
GOVERNMENT CONTRACTS

Total revenue received from our research and development contracts for the
first nine months of 2004 was approximately $1,300,000 down from the $1,600,000
for the same period in 2003. This was equal to approximately 13% of our total
revenue for the first nine months of 2004. The decrease of revenue from our
research and development contracts was the result of a decrease in billable
labor and a decrease in materials billed against certain government contracts
and an increase in research and development expenditures committed to internal
product developments.

RESULTS OF OPERATIONS - TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 AND
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

REVENUES FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002-
SEMICONDUCTOR DEVICES

The following table sets forth our net revenues for semiconductor devices
by product markets for the twelve months ended December 31, 2003 and 2002 (in
thousands):

2003 2002 Variance
---- ---- --------

Commercial $ 9,548 $ 8,892 $ 656
High-end industrial and
military $ 1,759 $ 2,433 $(674)
Logic products $ 956 $ 1,097 $(141)
------- - ----- ------
Total Semiconductor
Revenue $12,263 $12,422 $(159)

Commercial product revenues increased by $656,000 for the twelve month
period ending December 31, 2003 as compared to the same period in 2002. The
increase was due to an increase in unit demand of our commercial nonvolatile
semiconductor memory products.

High-end industrial and military product revenues accounted for a decrease
of $674,000 for the twelve month period ending December 31, 2003 as compared
with the same period in 2002. The decrease in revenue was due primarily to a
slow- down of production related to military contracts.

Revenues from our logic products decreased by $141,000 for the twelve month
period ending December 31, 2003 as compared to the same period in 2002. The
decrease was due primarily to a reduction in demand for this product and our
decision to eliminate this product line effective December 31, 2003.

One distributor and one direct customer accounted for approximately 30% of
our semiconductor device product sales for the twelve months ended December 31,
2003. 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 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 -
SEMICONDUCTOR DEVICES

The following table sets forth our net revenues by product markets for the
nine months ended September 30, 2004 and 2003 (in thousands):

Nine Months Ended
September 30,
2004 2003 Variance
---- ---- --------

Commercial $7,243 $7,344 $ (101)

igh-end industrial and
military $1,824 $1,240 $ 584
Logic products $ - $ 607 $ (607)
------ ------ -------
Total Semiconductor
Revenue $9,067 $9,191 $ (124)

Commercial revenues decreased by $101,000 for the nine months ended
September 30, 2004 when compared to the same period in 2003. The decrease for
the nine month period was due to a decrease in product availability of our
commercial nonvolatile semiconductor memory products.

High-end industrial and military product revenues increased by $584,000 for
the nine months ended September 30, 2004 when compared to the comparable period
in 2003. The increase was primarily due to completing shipments of our
nonvolatile semiconductor memory products against on-going military contracts.

Revenues from our logic products decreased by $607,000 for the nine months
ended September 30, 2004 as compared to 2003. The decrease was due to a
reduction in demand for this product and our decision to eliminate this product
line effective December 31, 2003.

Three distributors accounted for approximately 36% of our semiconductor
device product sales for the nine months ended September 30, 2004. Products sold
to distributors are re-sold to various end customers.

COST OF SALES AND GROSS MARGINS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
2003 AND 2002 - SEMICONDUCTOR DEVICES

We recorded costs of sales for semiconductor devices of $8,528,000 and
$7,578,000 for the twelve months ended December 31, 2003 and December 31, 2002,
respectively. These costs reflect an approximate 9% decrease in gross margin
percentages for twelve months ended December 31, 2003 as compared to the twelve
months ended December 31, 2002. Actual gross margin percentages were 30% and 39%
for the twelve months ended December 31, 2003 and 2002, respectively. The
decreases were due primarily to a decrease in sales of our high-end industrial
and military products and to lower average selling prices of our commercial
products

Chartered closed its wafer fabrication facility #1 in March 2004. If we
cannot successfully complete the transfer of manufacturing into Chartered's
facility #2 and achieve acceptable manufacturing yields or if we cannot qualify
X-FAB, this will have a material negative impact on our future revenues and
earnings. Please see "Risk Factors--If we cannot achieve acceptable
manufacturing yields and continue production with Chartered of some of our
memory products in its wafer fabrication facility #2, our revenues, earnings and
stock price could suffer."

COST OF SALES AND GROSS MARGINS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2004 AND 2003 - SEMICONDUCTOR DEVICES

We recorded cost of sales for semiconductor devices of $6,441,000 for the
nine months ended September 30, 2004 as compared with $6,391,000 for the nine
months ended September 30, 2003. These costs reflect an approximate 2% decrease
in gross profit margin percentage for the nine months ended September 30, 2004
as compared to the nine months ended September 30, 2003. The actual gross profit
margin percentage for the nine month periods ending September 30, 2004 was 29%.
The decrease in gross margin percentage for the nine month period was due to an
increase in production costs.

We purchased all of our silicon wafers to produce our 0.8 micron
nonvolatile static random access memory products from a single supplier,
Chartered to support sales of our nonvolatile semiconductor memory products.
Sales of products built on these wafers accounted for approximately 97% of our
semiconductor product revenue for the nine month period ending September 30,
2004. We purchased our silicon wafers to produce our 1 megabit nonvolatile
static random access memory products built on 0.25 micron technology from
DongbuAnam Semiconductor. Sales of the 1 megabit semiconductor products built on
these wafers accounted for approximately 3% of our semiconductor product revenue
for the nine month period ended September 30, 2004.

We had an agreement with Chartered to provide wafers through September
1998. Although Chartered continues to provide us with wafers under the terms
defined in this contract we do not have a current signed agreement with
Chartered. In March 2004, Chartered closed its wafer fabrication facility #1

where our memory wafers were manufactured. We received our final shipments from
Chartered's facility #1 at the end of March 2004. We have been working with
Chartered to transfer the process of the manufacturing of our memory wafers to
Chartered's facility #2. We began receiving our memory wafers manufactured in
Facility #2 in late second quarter of 2004 and through the third quarter of
2004. However, with this process being transferred to an alternative
manufacturing facility, we have seen lower than average production yields, which
in turn has lowered our gross margins. We are continuing to work with Chartered
to improve our production yields. If we cannot improve our production yields, it
will have a material negative impact on our future revenues and earnings.

Through the middle of the third quarter of 2004, we were engaged with X-FAB
to install our nonvolatile semiconductor memory process. Due to a lack of our
and X-FAB's resources required to install our nonvolatile semiconductor memory
process into X-FAB and the marginal anticipated return-on-investment, we have
ceased the installation of our nonvolatile semiconductor memory process into
X-FAB's wafer fabrication facility in August 2004.

RESEARCH AND DEVELOPMENT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND
2002 - 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 the installation of our process at Amkor Technology for the
development of a 1 megabit 3 volt nonvolatile static random access memory.
Development of the 1 megabit 3 volt nonvolatile static random access memory is
continuing and we began shipping samples in September 2003. We are currently
shipping 1 megabit products tested to production requirements on a provisional
qualification and plan to have qualification complete in the third quarter of
2004.

Total research and development expenses related to the semiconductor
portion of our business were $3,987,000 and $3,795,000 for the twelve months
ended December 31, 2003 and December 31, 2002, respectively.

The $192,000 increase for the twelve month period was related to increases
in payroll and payroll overhead costs of $390,000, equipment leases, maintenance
agreements for software and depreciation of $195,000 and reductions in contract
engineering and professional services of $226,000, new product development costs
of $147,000 and other expenses of $20,000. 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.

RESEARCH AND DEVELOPMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND
2003 - 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 developing a 3 volt 256 kilobit nonvolatile semiconductor memory
and the installation of our process at DongbuAnam Semiconductor for the
development of a 1 megabit 3 volt nonvolatile semiconductor memory. During the
first nine months of 2004, 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 began shipping
samples of our 1 megabit 3 volt nonvolatile semiconductor during the third
quarter of 2003. During the third quarter of 2004, we began receiving initial
production orders. Sales of our 1 megabit 3 volt products accounted for
approximately 3% of our revenue for the three and nine months ended September
30, 2004.

Research and development expenses for the nine month period ending
September 30, 2004 have been directly related to the development and
qualification of our family of 0.25 micron nonvolatile semiconductor memory
products at DongbuAnam Semiconductor, the transfer of our 3 volt 256 kilobit
nonvolatile semiconductor memory into Chartered's facility #2, and the transfer
of our 5 volt 64 kilobit and 256 kilobit nonvolatile semiconductor memory
products into Chartered's facility #2 and into X-FAB. In August 2004, we stopped
our transfer of our 5 volt 64 kilobit and 5 volt 256 kilobit nonvolatile
semiconductor memory into X-FAB. In the third quarter of 2004, we qualified and
began shipping our 3 volt 256 kilobit nonvolatile semiconductor memory product
built on silicon wafers received from Chartered's facility 2. In the third

quarter 2004, we began shipping our 5 volt 256 kilobit nonvolatile semiconductor
memory products, tested to production requirements on a provisional
qualification, built on silicon wafers received from Chartered's facility 2. Our
research and development activities related to the 3 volt 256 kilobit
nonvolatile semiconductor memory product have been redirected to yield
improvement. We anticipate that qualification of the 0.25 micron nonvolatile
semiconductor memory products from DongbuAnam Semiconductor and the 5 volt 64
kilobit and 5 volt 256 kilobit nonvolatile semiconductor memory products from
Chartered's facility #2 will be completed early in the fourth quarter of 2004.
While the qualification of these products is nearing completion, our research
and development activities have begun focusing more on yield improvements of our
0.25 micron product family and 5 volt 64 kilobit and 5 volt 256 kilobit
nonvolatile semiconductor memory products, enhancements to the 1 megabit 3 volt
product family, and development of our next-generation 0.18 micron nonvolatile
memory process.

Total research and development expenses related to the semiconductor
portion of our business were $3,999,000 for the nine months ended September 30,
2004 compared to $3,037,000 for the nine months ended September 30, 2003.

The increase of $962,000 for the nine month period was related to the net
between increases in payroll and payroll costs of $193,000, product development
costs of $908,000, qualification costs of $19,000 and a decrease in contract
engineering services of $158,000. The primary increase in payroll costs is
related to an increase in employee headcount which is required to meet
production schedules of our new products. The primary increase in product
development costs was due to an increase in silicon wafer purchases, reticles,
assembly and testing of our 1 megabit products from DongbuAnam Semiconductor, 64
kilobit and 256 kilobit products from X-FAB and 64 kilobit and 256 kilobit
products from Chartered's wafer fabrication facility #2 and an increase in costs
related to the commercial development of datacomm products performed by our
Q-DOT subsidiary. The increase in product development costs included a one-time
write off of capital purchases, of approximately $61,000, related to the
development at X-FAB that ended in August 2004.

SALES AND MARKETING FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND
2002 - SEMICONDUCTOR DEVICES

Total marketing expenses related to the semiconductor portion of our
business were $1,213,000 and $1,336,000 for the twelve months ended December 31,
2003 and December 31, 2002, respectively.

The $123,000 decrease for the twelve month period was related to an
increase in advertising of $18,000 and reductions in payroll and payroll related
costs of $101,000, travel costs of $33,000 and sales commissions of $7,000. The
increase in advertising was due to increased advertising for our new 1 megabit
product. The decrease 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. The decrease in sales commissions is a
direct result of decreased revenue.

SALES AND MARKETING FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 -
SEMICONDUCTOR DEVICES

Total marketing expenses related to the semiconductor portion of our
business were $1,161,000 for the nine months ended September 30, 2004 as
compared to $941,000 for the nine months ended September 30, 2003.

The increase of $220,000 for the nine month period ended September 30, 2004
as compared to September 30, 2003 was due to an increase in payroll and payroll
related costs of $172,000, advertising expenses of $40,000 and travel and other
miscellaneous expenses of $26,000, offset by a decrease in sales commissions of
$18,000. The increase in payroll and payroll overhead costs was a result of
increased headcount.

ADMINISTRATION FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 -
SEMICONDUCTOR DEVICES

Total administration expenses related to the semiconductor portion of our
business were $706,000 and $639,000 for the twelve months ended December 31,
2003 and December 31, 2002, respectively.

The $67,000 increase was due primarily to increased professional fees,
payroll and payroll related costs and travel of $62,000, $7,000, and $3,000,
respectively and a reduction in bad debt of $5,000. The increase in professional
fees was due to costs associated with our shareholder meeting, board fees,
increased legal and audit fees. The majority of these increases were implemented
to ensure ongoing compliance with newly enacted regulations resulting from the
Sarbanes-Oxley Act.

ADMINISTRATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 -
SEMICONDUCTOR DEVICES

Total administration expenses related to the semiconductor portion of our
business were $729,000 for the nine months ended September 30, 2004 as compared
to $579,000 for the nine months ended September 30, 2003.

The $150,000 increase for the nine month period was due to increases in
accounting and legal fees of $45,000, professional fees of $57,000, costs
associated with our annual meeting of shareholders of $47,000 and other
miscellaneous expenses including travel of $21,000 and a decrease in payroll and
payroll overhead costs of $20,000. The increase in legal fees was primarily
related to costs incurred in relation to our annual meeting of shareholders and
increased legal fees related to our registration statements on Form SB-2 that we
are contractually obligated to file with the Securities and Exchange Commission.
The increase in professional services was primarily due to an increase in fees
paid to our Board of Directors and fees paid for financial consulting. The
increase in accounting fees was due to increased audit fees related to our
registration statements on Form SB-2.

TOTAL OTHER INCOME (EXPENSE) FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003
AND 2002 - SEMICONDUCTOR DEVICES

The $115,000 increase in total other income (expense) for the twelve month
period ending December 31, 2003 as compared to the twelve month period ending
December 31, 2002 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 RENN Capital Group.

NET LOSS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 -
SEMICONDUCTOR DEVICES

We recorded a net loss of $2,389,000 and $1,028,000 for the twelve months
ended December 31, 2003 and December 31, 2002, respectively. The increase of
$1,361,000 in net loss for the twelve month period was due primarily to a
decrease in gross margins, and an increase in research and development costs and
administration costs.

NET LOSS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 -
SEMICONDUCTOR DEVICES

We recorded a net loss of $3,424,000 for the nine months ended September
30, 2004 as compared to a net loss of $1,913,000 for the nine months ended
September 30, 2003. The increase in net loss for the nine month period was due
primarily to increased operating expenses which were primarily related to
research and development expenses.

REVENUES FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 -
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, 2003
and December 31, 2002 (in thousands):

2003 2002 Variance
---- ---- --------

Government Contracts $2,241 $1,905 $336

The increase of revenue for the twelve months ended December 31, 2003 as
compared to the twelve months ended December 31, 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.

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, December 31, 2002 and December 31, 2003
government audits and subsequent negotiations will have a material effect on the
accompanying financial statements.

REVENUES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 - GOVERNMENT
CONTRACTS

The following table sets forth our net revenues from our government
contracts portion of our business for the nine months ended September 30, 2004
and 2003 (in thousands):

Nine Months Ended
September 30,
2004 2003 Variance
---- ---- --------

Government Contracts $1,314 $1,586 $(272)

The decrease of revenue for the nine month period ending September 30, 2004
as compared to the same period in 2003 was the result of a decrease in billable
labor and a decrease in materials billed against certain government contracts
and an increase in research and development expenditures committed to internal
product developments.

COST OF SALES AND GROSS MARGIN FOR THE TWELVE MONTHS ENDED DECEMBER 31,
2003 AND 2002 - GOVERNMENT CONTRACTS

We recorded cost of sales for government contracts of $1,093,000 and
$903,000 for the twelve months ended December 31, 2003 and December 31, 2002,
respectively. These costs reflect an approximate 2% decrease in gross margin
percentages for the twelve months ended December 31, 2003 as compared to twelve
months ended December 31, 2002. The decrease in gross margin percentages was
primarily due to an increase in non-direct labor which could not be billed as
revenue. Actual gross margin percentages for the twelve months ending December
31, 2003 and December 31, 2002 were 51% and 53%, respectively.

COST OF SALES AND GROSS MARGIN FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
AND 2003 - GOVERNMENT CONTRACTS

The cost of sales for the government contracts portion of our business was
$660,000 for the nine months ended September 30, 2004 as compared to $833,000
for the same period in 2003. This was equivalent to a gross margin percentage of
50% for the nine months ended September 30, 2004 as compared to a gross margin
percentage of 47% for the same period in 2003. The increase in gross margin
percentage for the nine month period was primarily due to a decrease in direct
labor, materials and services.

RESEARCH AND DEVELOPMENT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND
2002 - GOVERNMENT CONTRACTS

Total research and development expenses related to the government contracts
portion of our business were $531,000 and $514,000 for the twelve months ended
December 31, 2003 and December 31, 2002, respectively.

The $17,000 increase for the twelve month period was related to decreases
in payroll and payroll overhead costs of $103,000 and an increase in software
maintenance contacts and equipment leases of $120,000. The primary reason for
the decrease in payroll and payroll overhead costs was due to decreased
recruiting expenses and decreased contract maintenance.

RESEARCH AND DEVELOPMENT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND
2003 - GOVERNMENT CONTRACTS

Total research and development expenses related to the government contracts
portion of our business were $250,000 for the nine months ended September 30,
2004 compared to $432,000 for the nine months ended September 30, 2003.

The $182,000 decrease for the nine month period ending September 30, 2004
as compared to the same period in 2003 was related to decreases of $15,000 in
employment related expenses, $25,000 in software maintenance contracts and
equipment leases, $8,000 in miscellaneous expenses and $134,000 of overhead
costs that were transferred to the semiconductor portion of the business. The
overhead costs that were transferred to the semiconductor portion of the

business were related to the labor associated with the commercial development of
datacomm products.

MARKETING FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 -
GOVERNMENT CONTRACTS

Total marketing expenses related to the government contracts portion of our
business were $334,000 and $306,000 for the twelve months ended December 31,
2003 and December 31, 2002, respectively.

The increase of $28,000 for the twelve months ended December 31, 2003 as
compared to December 31, 2002 was primarily due to an increase in bid and
proposal activities required to complete small business innovative research
proposals requiring engineering and administrative support.

MARKETING FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 -
GOVERNMENT CONTRACTS

Total marketing expenses related to the government contracts portion of our
business were $249,000 for the nine months ended September 30, 2004 as compared
to $259,000 for the nine months ended September 30, 2003.

The $10,000 decrease for the nine months ended September 30, 2004 as
compared to the same period in 2003 was related to increases in bid and proposal
labor of $10,000 and travel expenses of $5,000 which were offset by $25,000 of
overhead costs that were transferred to the semiconductor portion of the
business. The overhead costs that were transferred to the semiconductor portion
of the business were related to the labor associated with the commercial
development of datacomm products.

ADMINISTRATION FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 -
GOVERNMENT CONTRACTS

Total administration expenses related to the government contracts portion
of our business were $142,000 and $116,000 for the twelve month period ended
December 31, 2003 and December 31, 2002, respectively.

The $26,000 increase for the twelve months ended December 31, 2003 as
compared to December 31, 2002 was due to an increase in indirect labor expenses
of $40,000 which was offset by decreased legal fees of $14,000.

ADMINISTRATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 -
GOVERNMENT CONTRACTS

Total administration expenses related to the government contracts portion
of our business were $104,000 for the nine months ended September 30, 2004 as
compared to $114,000 for the nine months ended September 30, 2003.

The $10,000 decrease in administration expenses for the nine month period
was due to an increase in employee related expenses of $10,000 and miscellaneous
expenses of $5,000 which were offset by a decrease of $25,000 in overhead costs
that were transferred to the semiconductor portion of the business. The overhead
costs that were transferred to the semiconductor portion of the business were
related to the labor associated with the commercial development of datacomm
products.

NET INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002 -
GOVERNMENT CONTRACTS

We recorded a net income of $116,000 for the twelve months ended December
31, 2003 as compared to a net income of $65,000 for the twelve months ended
December 31, 2002 for the government contracts portion of our business. The
$51,000 increase in net income for the twelve month period was due primarily to
increased revenue.

NET INCOME/LOSS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 -
GOVERNMENT CONTRACTS

We recorded a net income of $45,000 for the nine months ended September 30,
2004 as compared to a net loss of $54,000 for nine months ended September 30,
2003 for the government contracts portion of our business. The increase in net
income for the nine month period ending September 30, 2004 was primarily due to
a decrease in operating expenses

FUTURE RESULTS OF OPERATIONS

Our ability to be profitable will depend primarily on our ability to
continue reducing manufacturing costs and increasing net product sales by
increasing 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 DongbuAnam Semiconductor
to develop a semiconductor process module that combines our nonvolatile
technology with Anam's advanced 0.25 micron digital CMOS fabrication line. CMOS
is the semiconductor technology used in the transistors that are manufactured
into most of today's computer microchips. The module incorporates silicon oxide
nitride oxide silicon ("SONOS") technology, which will be used to manufacture
both high density SONOS flash and nonvolatile static random access memories, for
stand alone and embedded products. During 2002 and through September 30, 2004,
our research and development team along with the research and development team
of Amkor Technology, the predecessor of Anam, worked aggressively on the
co-development program. Our 1 megabit 3.0 volt nonvolatile static random access
memory was the primary development vehicle. In February 2003, Amkor Technology
sold controlling interest of its wafer fabrication facility to DongbuAnam
Semiconductor. All contractual obligations were transferred to Anam U.S.A., a
wholly owned subsidiary of DongbuAnam 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 received the first complete processed silicon from this development
which yielded working samples of our new 1 megabit 3 volt nonvolatile
semiconductor memory product. We began shipping samples of our new 1 megabit 3
volt nonvolatile semiconductor memory product in September 2003. During the
third quarter of 2004, we began receiving initial production orders. We are
currently shipping 1 megabit products tested to production requirements on a
provisional qualification and plan to have qualification complete early in the
fourth quarter of 2004. 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.

As of September 30, 2004, we had a backlog of unshipped customer orders of
approximately $3,238,000 expected to be filled by March 31, 2005. 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.

Chartered closed its wafer fabrication facility #1 in March 2004. We have
purchased silicon wafers, the raw materials used to produce our nonvolatile
semiconductor memory products, from fabrication facility #1. We have been
working with Chartered to transfer the manufacturing process of our memory
wafers to Chartered's facility #2. Chartered's facility #2 is newer and more
modern than its facility #1, processing 8 inch wafers rather than the older 6
inch wafers that were processed in facility #1. In the third quarter of 2004, we
qualified and began shipping our 3 volt 256 kilobit nonvolatile semiconductor
memory product built on silicon wafers received from Chartered's facility 2. In
the third quarter 2004, we began shipping our 5 volt 256 kilobit nonvolatile
semiconductor memory products, tested to production requirements on a
provisional qualification, built on silicon wafers received from Chartered's
facility 2. Our research and development activities related to the 3 volt 256
kilobit nonvolatile semiconductor memory product have been redirected to yield
improvement. As of September 30, 2004, we received production wafers for our 64
kilobit nonvolatile semiconductor memory products from Chartered's facility #2
suitable for customer shipments. We believe our 64 kilobit and 5 volt 256
kilobit nonvolatile semiconductor memory products will be qualified early in the
fourth quarter of 2004. If production yields or wafer availability from
Chartered's facility #2 do not meet our production requirements, this may have a
material negative impact on our future revenues, earnings and stock price.

We cannot assure you that the growth in demand, or demand for our products,
will increase in the future. Through the first nine months ended September 30,
2004, we were dependent on our 0.8 micron products for revenue, for which
customer demand has remained substantially flat over the past nine months. We
continue to explore alternatives to further reduce our cost to manufacture our
existing products built on 0.8 micron technology. However, with our current
wafer manufacturer transferring our process to its alternate manufacturing
facility we have seen lower average production yields, which in turn has lowered
our gross profit margins. We do anticipate that once the transfer is complete
and our customer demand transitions to the 0.25 micron product family from
DongbuAnam, it will have a positive affect on our gross margins. We are
currently reviewing additional cost reduction measures that may have the
potential to improve our earnings.

In the first nine months of 2004 and the years ended December 31, 2003 and
2002, we purchased all of our silicon wafers to produce our 0.8 micron
nonvolatile static random access memory products from a single supplier,
Chartered. Approximately 97% of our semiconductor product sales for the nine
months ended September 30, 2004 and approximately 92% and 91% of our
semiconductor device sales for 2003 and 2002, respectively, were from finished
units produced from these silicon wafers. We had an agreement with Chartered to
provide wafers through September 1998. Although Chartered continues to provide
us wafers under the terms defined in this contract we do not have a current
signed agreement. DongbuAnam Semiconductor provides silicon wafers for our 0.25
micron process to support our 1 megabit product family. Approximately 3 % of our
semiconductor product sales for the nine months ended September 30, 2004 were
from finished units produced from these silicon wafers.

We entered into a Process Transfer Agreement with X-FAB to install our
Silicon Nitride Oxide Semiconductor technology into its wafer fabrication
facility to provide an additional manufacturing source to material supplied by
Chartered. Due to a lack of our and X-FAB's resources required to install our
nonvolatile semiconductor memory process into X-FAB and the marginal anticipated
return-on-investment, we have ceased the installation of our nonvolatile
semiconductor memory process into X-FAB's wafer fabrication facility in August
2004.

Zentrum Mikroelektronik Dresden has established production and sales of
nonvolatile static random access memory products. We believe that this second
source for nonvolatile static random access memory products, may have a positive
impact on our business 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 also, however, expect
increased competition from Zentrum Mikroelektronik Dresden with respect to
nonvolatile static random access memory products.

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.

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. With the positive feedback we have
received from the customers who we have sampled our new 1 megabit product with,
we expect to ramp production of this product during the fourth quarter of 2004.
In order to achieve these goals, we are dependent on the overall state of the
semiconductor industry and the demand for semiconductor products by equipment
manufacturers. Please see "Risk Factors" for additional risks to which we are
exposed.

LIQUIDITY AND CAPITAL RESOURCES

On October 12, 2004, we closed a $2,500,000 equity financing with three
separate investment funds, SF Capital Partners Ltd., Bluegrass Growth Fund LP
and Bluegrass Growth Fund LTD. In exchange for the $2,500,000, we issued
4,127,967 shares of our common stock to SF Capital Partners Ltd., 515,996 shares
of our common stock to Bluegrass Growth Fund LP and 515,996 shares of our common
stock to Bluegrass Growth Fund LTD. The purchase price was based on a 15%
discount to the closing price of our common stock as reported on the
Over-the-Counter Bulletin Board on October 11, 2004, resulting in a price of
$0.4845 per share. In addition to the shares of common stock, SF Capital
Partners Ltd., Bluegrass Growth Fund LP, and Bluegrass Growth Fund LTD received
warrants to acquire 2,063,984, 257,998, and 257,998 shares of our common stock,
respectively. The warrants have a 5-year term with an exercise price of $0.627

per share. Merriman Curhan Ford & Co., the placement agent for the $2,500,000
equity financing received a cash payment of $187,500 and warrants to acquire
386,997 shares of our common stock. The warrants have a 5-year term with an
exercise price of $0.627 per share. In addition, Merriman Curhan Ford & Co. is
entitled to receive another cash payment equal to 7.5 % of the capital received
by us upon the exercise of the warrants issued to SF Capital Partners Ltd.,
Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD pursuant to the
$2,500,000 equity financing (provided such exercise is within applicable tail
period).

On November 7, 2003, we closed our $1,500,000 equity financing with
Renaissance Capital Growth and Income Fund III, Inc., Renaissance US Growth &
Investment Trust PLC and BFSUS Special Opportunities Trust PLC. On July 1, 2002,
we received $3,000,000 in our financing transaction with Renaissance Capital
Growth and Income Fund III, Inc., Renaissance US Growth & Investment Trust PLC
and BFS US Special Opportunities Trust PLC pursuant to a Convertible Loan
Agreement. As of December 31, 2003, we were not in compliance with two of the
covenants set forth in the loan agreement which covenants relate to the interest
coverage ratio and debt to equity ratio. However, we subsequently received a
waiver for one of the covenants and a modification and a waiver to the loan
agreement with respect to the other covenant, the waiver and modification were
effective through April 1, 2005. During the quarter ended September 30, 2004, we
determined it was highly likely we would not meet the revised covenants as of
September 30, 2005. On October 28, 2004, we received a waiver for the two
covenants through October 1, 2005. However, significant variances in future
actual operations from our current estimates could result in the
reclassification of this note to current liabilities.

The change in cash flows for the nine months ended September 30, 2004 used
in operating activities was primarily a result of a net loss of $3,378,897,
which is offset by $356,344 in depreciation and amortization, decreases in
accounts receivable, prepaid expenses and accrued expenses of $706,115, $21,994
and $40,151, respectively, and increases in allowance accounts, loss on disposal
of assets, inventory and accounts payable of $33,124, $75,110, $103,754 and
$865,271, respectively. The decrease of $706,115 in accounts receivable was
directly related to the decrease in revenue for the third quarter of 2004. The
$865,271 increase in accounts payable was due to the receipt of raw materials at
the end of September 2004 that we are not obligated to pay until October 2004.
The increase in inventory of $103,754 was primarily due to the timing of
receiving raw materials at the end of September 2004 that will be used to
support product shipments in the fourth quarter of 2004. The $75,100 loss on
disposal of assets, was primarily related to writing off the capital
expenditures purchased for the installation of our process at X-FAB. The change
in cash flows used in investing activities of $370,831 was primarily due to the
purchase of equipment required to test our nonvolatile semiconductor memory
products and reticles required to produce our wafers. The change in cash flows
provided by financing activities of $96,936 was primarily due to the net effect
of payments on a line of credit and capital leases offset by funds received from
the exercise of stock options by employees of ours.

The change in cash flows for the year ended December 31, 2003 used in
operating activities was primarily a result of a net loss of $2,272,641, which
is offset by $497,701 in depreciation and amortization, decreases in allowance
accounts, accounts receivable, inventory, prepaid expenses, accounts payable and
deferred revenue of $16,376, $402,361, $411,358, $114,542, $49,314 and $40,500,
respectively and increases in accrued expenses of $64,626. The decrease of
$402,361 in accounts receivable was directly related to certain customers paying
invoices within our payment terms. The decrease in inventory was primarily due
to an increase in finished goods shipments at the end of 2003. The decrease in
prepaid expenses of $114,542 was due primarily to the renegotiation of certain
software licenses. The decrease in accounts payable of $49,314 was primarily due
to the timing of payments for standard operating expenses. The increase in
accrued expenses was due primarily to increased vacation payable. The increase
in vacation payable has occurred due to certain employees not using as much
vacation time. The change in cash flows used in investing activities of $501,244
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 provided by financing activities of $1,640,296 was
due to $1,475,515 (after expenses) received from the November 2003 equity
financing transaction we did with Renaissance Capital Growth and Income Fund
III, Inc., Renaissance US Growth & Investment Trust PLC and BFSUS Special
Opportunities Trust PLC, net borrowings on a line of credit of $150,000,
proceeds of $183,131 for the exercise of stock options by certain employees less
payments on a capital lease obligation of $168,350.

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, a decrease in allowance
accounts, inventory, accounts payable and accrued expenses of $71,150, $261,442,
$328,848 and $122,594, respectively. These decreases were offset by increase in
accounts receivable, prepaid and other and deferred revenue of $618,653,

$123,972 and $25,500, respectively. 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 of 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 a 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. 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 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 Growth and Income Fund III, Inc.,
Renaissance US Growth & Investment Trust PLC and BFSUS Special Opportunities
Trust PLC, borrowings and payments on notes payable and a capital lease
obligation and the exercise of stock options by our employees.

Short-term liquidity.

Our cash balance at September 30, 2004 was $1,705,387.

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 twelve months, we expect to spend approximately
$9,000,000 for operating expenses assuming revenue growth and no significant
change in marketing or product development strategies. 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 continue to evaluate our long-term liquidity. Our growth plans may
require additional funding from outside sources. We are in ongoing discussions
with investment banking organizations and potential lenders to ensure access to
funds as required.

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 December 31, 2002 and
December 31, 2003 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.

INFLATION

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

OFF BALANCE-SHEET ARRANGEMENTS

We are party to a lease agreement with Baja Properties, LLC as landlord
pursuant to which we lease approximately 16,000 square feet of space in Colorado
Springs, Colorado. The lease is scheduled to expire on February 28, 2013. Our
monthly rental payment obligation is approximately $16,000.

DESCRIPTION OF PROPERTY

We do not own any real estate. We do not have a policy:

1. limiting the percentage of assets which may be invested in any one
investment or type of investment

2. regarding whether we acquire assets primarily for possible capital
gain or primarily for income, or

3. with respect to investments in real estate, interests in real estate,
real estate mortgages, or securities of or interests in persons
primarily engaged in real estate activities.

BUSINESS

GENERAL

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 as a Colorado Corporation. We have concentrated
on the design and development of the 4, 16, 64 and 256 kilobit and 1 megabit
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. Megabits are also a measure of the amount of
data that can be stored; there are 1,000 kilobits in a megabit. During 2000, we
added the capability to design, develop and produce programmed semiconductor
logic products. During 2003, due to adverse market conditions, we determined to
no longer offer our programmed semiconductor logic products after December 31,
2003.

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 September 30, 2004, our backlog for released purchase orders was
approximately $3,238,000, all of which is expected to ship by March 31, 2005.
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 are in production of our family of memory products. 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.
During the second quarter of 2004, we qualified our 256 kilobit 3 volt
nonvolatile static random access memory, produced on wafers received from
Chartered's facility #2, for use in commercial and industrial applications. 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 memory products have been qualified for
sales into commercial and industrial markets. During 2003, we designed and began
sampling of our 1 megabit nonvolatile static random access memory product for
sale into commercial and industrial markets. We are currently shipping
production-tested 1 megabit products under a provisional qualification. We
anticipate that this qualification will be complete in the fourth quarter of
2004. Our nonvolatile static random access memory products 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. 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 the majority of the
manufacturing process. Chartered 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. Chartered closed its wafer
fabrication facility #1 in March 2004. We entered into a Process Transfer
Agreement with X-FAB to install our Silicon Nitride Oxide Semiconductor
technology into its wafer fabrication facility to provide an additional
manufacturing source to material supplied by Chartered. Due to a lack of our and
X-FAB's resources required to install our nonvolatile semiconductor memory
process into X-FAB and the marginal anticipated return-on-investment, we have
ceased the installation of our nonvolatile semiconductor memory process into X-
FAB's wafer fabrication facility in August 2004. We began receiving our memory
wafers manufactured in Chartered's Facility #2 in late second quarter of 2004
and through the third quarter of 2004. However, with this process being
transferred to an alternative manufacturing facility, we have seen lower than
average production yields, which in turn has lowered our gross margins. We are
continuing to work with Chartered to improve our production yields. If we cannot
improve our production yields, it will have a material negative impact on our

future revenues and earnings. Please see "Risk Factors--If we cannot achieve
acceptable manufacturing yields and continue production with Chartered of some
of our memory products in its wafer fabrication facility #2, our revenues,
earnings and stock price could suffer".

DongbuAnam Semiconductor provides silicon wafers for our 0.25 micron
process to support our 1 megabit product family.

United Microelectronics and Chartered provided 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 it will be unable to supply us with logic
wafers after August 2003. We supported 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 at the end of 2003. We do not plan to support further sales of logic
products to the market in the foreseeable future.

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. Advanced Semiconductor
Engineering Inc. provided assembly services for our programmed semiconductor
logic products. Testing of our programmed semiconductor logic products was done
either internally or by Advanced Interconnect Technologies.

During 2003, all of the wafers used to produce our 0.8 micron nonvolatile
static random access memories were purchased from Chartered. Sales of these
products accounted for approximately 78% of our revenue for 2003. Wafers were
purchased from both Chartered and United Microelectronics in 2003 to support our
programmed semiconductor logic products. Sales of these products accounted for
approximately 7% of our revenue for 2003. The remaining 15% of our revenue was
from research and development contracts.

We currently have four sales and marketing offices, located in Colorado and
Georgia for the western and eastern North American markets, respectively, in
Windsor, England for the European market and in Hong Kong for the Far East. 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 product 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 it currently is 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 Electrically Erasable Nonvolatile Static Random
Memories Programmable Read Only Memory Access Memory

Dynamic Random Access Flash Memory Nonvolatile Random Access
Memory Memory

Erasable Programmable Read Static Random Access Memory
Only 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.

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. Our latest 0.25
micron technology adds an additional oxide layer, forming a
silicon-oxide-nitride-oxide- semiconductor ("SONOS") stack, to support finer
geometry electrical performance.

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

Nonvolatile Static Random Access Memories. Our nonvolatile static random
access memory product family consists of nonvolatile memories that combine fast
static random access memory and nonvolatile elements 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 nonvolatile
elements can be programmed, depending upon device type, by user control or
automatically by transferring the static random access memory contents into the
nonvolatile element memory. The data stored in the nonvolatile elements 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 15, 25, 35 and 45 nanoseconds. These data access speeds correspond to those
of fast static random access memory and, we believe, 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.

Our newest nonvolatile static random access memory architecture, currently
implemented in our 0.25 micron product family, adds an eight-bit
micro-controller, approximately 20,000 gates of metal-programmable logic and
programmable input- output devices. We refer to this architecture as
Value-Added-Memory (VAM). It is designed to allow variations of the base- line 1
megabit nonvolatile static random access memory design to be quickly developed
for emerging market applications.

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. During 2003, we
designed and began sampling of our 1 megabit nonvolatile static random access
memory product for sale into commercial and industrial markets. We are currently
shipping production-tested 1 megabit products under a provisional qualification.
We anticipate this qualification to be complete in the third quarter of 2004.
During the second quarter of 2004, we qualified our 256 kilobit 3 volt

nonvolatile static random access memory, produced on wafers received from
Chartered's facility #2, 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

Before we discontinued our programmed semiconductor logic products on
December 31, 2003, such products were built to order based on customer designs
that were electronically transferred to our design workstations. Our engineers
verified the design and implemented it in the appropriate technology to provide
a cost effective solution for the customer.

Our customers often asked 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
translated 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 also developed a
testability feature that allowed us to test our programmed semiconductor logic
products without dedicating a portion of the chip area to such testing.

We subcontracted the production of our semiconductor logic products to
various fabrication facilities. We provided the fabrication facilities with the
design of our programmed semiconductor logic products and these facilities
installed our designs on the chips through standard wafer processing. Through
August 2003, we contracted with United Microelectronics for 0.5 micron
technology and with Chartered 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 would be unable to supply us
with logic wafers after August 2003. We supported 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 that were scheduled by the end of 2003. We do not plan
to support sales of logic products to the market in the future.

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. 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. 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 in developing 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 and 2003, our research and development team along with
Amkor's research and development team worked aggressively on the co-development
program. Our 1 megabit 3.0 volt nonvolatile static random access memory was the
primary development vehicle. In February 2003, when Amkor Technology sold a
controlling interest of its wafer fabrication facility to DongbuAnam
Semiconductor, all contractual obligations were transferred to Anam U.S.A., a
wholly-owned subsidiary of DongbuAnam 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 received the first complete processed silicon from this development
which yielded working samples of our new 1 megabit 3 volt nonvolatile
semiconductor memory product. We began shipping samples of our new 1 megabit 3
volt nonvolatile semiconductor memory product in September 2003. As of July 15,
2004, we had shipped samples to 201 different customers. We are currently
shipping 1 megabit products tested to production requirements on a provisional
qualification and plan to have qualification complete in the third quarter of
2004. 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.

During the second quarter of 2004, we qualified our 256 kilobit 3 volt
nonvolatile static random access memory, produced on wafers received from
Chartered's facility #2, for use in commercial and industrial applications. In
the third quarter of 2004, we began shipping our 5 volt 256 kilobit nonvolatile
semiconductor memory products, tested to production requirements on a
provisional qualification, built on silicon wafers received from Chartered's
facility 2. As of September 30, 2004, we received production wafers for our 64
kilobit nonvolatile semiconductor memory products from Chartered's facility #2
suitable for customer shipments. We believe our 64 kilobit and 5 volt 256
kilobit nonvolatile semiconductor memory products will be qualified early in the
fourth quarter of 2004. If production yields or wafer availability from
Chartered's facility #2 do not meet our production requirements, this may have a
material negative impact on our future revenues, earnings and stock price.

We entered into a Process Transfer Agreement with X-FAB to install our
Silicon Nitride Oxide Semiconductor technology into its wafer fabrication
facility to provide an additional manufacturing source to material supplied by
Chartered. Due to a lack of our and X-FAB's resources required to install our
nonvolatile semiconductor memory process into X-FAB and the marginal anticipated
return-on-investment, we have ceased the installation of our nonvolatile
semiconductor memory process into X-FAB's wafer fabrication facility in August
2004.

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 2003 and 2002, we spent
approximately $47,000 and $107,000, respectively, 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 $400,000 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,
2003 and 2002 were $4,518,528 and $4,308,499, 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 our manufacturing agreement with Chartered 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.

DongbuAnam Semiconductor provides silicon wafers for our 0.25 micron
process to support our 1 megabit product family. Our agreement with Amkor
Technology, providing for such supply of wafers, was assigned to DongbuAnam
Semiconductor in 2003.

Through August 2003, we contracted with United Microelectronics for 0.5
micron technology and with Chartered 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 they would be unable to supply us
with logic wafers after August 2003. We supported 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 2003.

Device packaging of our nonvolatile static random access memory products
continued at the Amkor facilities in the Philippines and South Korea. Final test
for our nonvolatile static random access memory products continued with Amkor
Test Services, in Wichita, Kansas. Device packaging of our programmed
semiconductor logic products continued at Advanced Semiconductor Eng., Inc. in
Taiwan. Final test of our programmed semiconductor logic products was 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 2003 as part of routine supplier
certification procedures. All such audits were completed satisfactorily. We were
certified under the Sony Corporation "Green Partner Program" based on our
internal materials control program which meets most major international
requirements for control and elimination of heavy metals and PBB, PBDE and
related organic compounds in our products and packaging materials. Our wafer
foundry and assembly subcontract facilities are all certified to the ISO14001
Environmental Control Standard.

We secured certification to the ISO9001:2000 Quality Management System,
which in addition to similar certifications held by our major manufacturing
subcontractors meets the quality system requirements of the vast majority of our
customers. We continue to support our Mil-Prf-38535 Appendix A quality system in
support of our SMD and military grade products.

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.

Our 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 our 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 our markets have been limited by the density at which we 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 that we expect will be introduced in 2004 will greatly increase the
market segments we serve.

TARGET APPLICATIONS FOR SIMTEK PRODUCTS

Customer applications that are in production using our nonvolatile static
random access memory products include:

Airborne Computers Lighting Control Systems
Automotive Control & Monitoring Medical Instruments
Control Systems Automated Teller Machines Currency Changers
Data Monitoring Equipment Printers
Process Control Equipment Facsimile Machines

Down Hole Drilling Systems Radar and Sonar Systems
Gaming Machines Telecommunications Systems
GPS Navigational Systems Terminals
Guidance and Targeting Systems Test Equipment
High Performance Workstations Utility Meters
Laser Printers Routers
Weapon Control Systems Security Systems
Copiers Broadcast Equipment
Cable TV and Satellite Set Top Converter Boxes Studio Recording Equipment
Multi- Function Printers Servers
RAID Controllers Factory Automation Systems
Robotics Mass Storage Systems

Our new 1 megabit and Value Added Memory products have opened new
applications into which our products are being designed. These include
electronic vending machines, automotive data logging and a variety of data
communications applications.

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, automotive applications and metering.

SALES AND DISTRIBUTION

Our strategy is to generate sales through the use of independent sales
representative agencies and distributors. We believe this strategy provides the
fastest and most cost effective way 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 generally
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 37% of our net product sales during 2003 were to
customers in the United States, approximately 46% were to customers in the
Pacific Rim, and approximately 12% were to customers in Europe.

As of September 30, 2004, we had a backlog of unshipped customer orders of
approximately $3,238,000, which is expected to be filled by March 31, 2005.
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. 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 random 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. 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 4 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 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 its 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 2002 and 2003, 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 that 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.

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, 2003. 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 and in 2003, 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 57 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 was scheduled to expire on February 28, 2008. On
January 27, 2004, we renegotiated the terms of the lease and it is now scheduled
to expire on February 28, 2013. Through May 31, 2004, we leased approximately
17,000 square feet of space in Colorado Springs which is occupied by Q-DOT
Group, our wholly-owned subsidiary. On June 1, 2004, we renegotiated the terms
of the lease to approximately 13,000 square feet of rental space and extended
the expiration date from April 30, 2005 to April 30, 2007. This space includes a
research and development laboratory facility of approximately 2,500 square feet.
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 a party to any legal proceeding (including where our property is
the subject of the proceeding), and we are not aware of any proceeding that a
government authority is contemplating as of the date of this prospectus.

MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS

On May 24, 2004, we held an annual meeting of our shareholders to vote on
the following proposals:

1) Amendment to our Articles of Incorporation to increase the number of
authorized shares of common stock: The proposal was approved by the
vote of our shareholders with holders representing 44,893,157 shares
voting for the proposal, holders representing 1,691,723 shares voting
against the proposal and holders representing 82,790 shares
abstaining.

2) Election of Directors: Mr. Douglas Mitchell was re-elected by the vote
of our shareholders with holders representing 46,466,729 shares voting
for Mr. Mitchell and holders representing 200,941 shares withheld from
voting. Dr. Robert Keeley was re-elected by the vote of our
shareholders with holders representing 46,444,194 shares voting for
Dr. Keeley and holders representing 223,476 shares withheld from
voting.

3) Ratification of selection of Hein & Associates as our auditors for
2004: The proposal was approved by the vote of our shareholders with
holders representing 45,807,138 shares voting for the proposal,
holders representing 118,852 shares voting against the proposal and
holders representing 741,680 shares abstaining.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Our directors and executive officers are as follows:

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

Douglas M. Mitchell.............. 55 Director, Chief Executive Officer, President and Chief
Financial Officer (acting) and Chairman of the Board of
Q-DOT Group, Inc.

Thomas Linnenbrink............... 61 Director, President, Chief Executive Officer, and
Technical Director of Q-DOT Subsidiary

Donald G. Carrigan............... 57 Vice President Sales and Marketing, Corporate Secretary

David W. Still ............... 48 Vice President of Engineering

Alfred Stein ............... 71 Director

Robert H. Keeley................. 63 Director

Harold Blomquist................. 52 Chairman of the Board

Ronald Sartore ............... 55 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's current term of office as a director expires in
2007. Mr. Mitchell is also the Chairman of the Board of our subsidiary, Q-DOT
Group. 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. Previously, Mr.
Mitchell was Vice President of Marketing and Sales for Array Microsystems, a
digital signal processing integrated circuit company specializing in video image
processing. 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 Simtek acquired it 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 25 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.

ALFRED J. STEIN has served as a director since March 2004, which term
expires in 2006. He is currently a Consultant and Advisor to startup companies
in the high technology industry. He previously served at VLSI Technology, Inc.
as Chairman of the Board and Chief Executive Officer from 1982 until its
acquisition by Philips Electronics in 1999. During his tenure, VLSI grew from a
venture capital funded start-up to a publicly traded company with revenues in
excess of $600 million and over 2,200 employees in more than 25 locations around
the world. For more that 40 years, Mr. Stein has played a significant role in
the high tech industry, including senior management assignments at both Texas
Instruments and Motorola. Mr. Stein was with Texas Instruments for 18 years from
1958 through 1976; his last position was Vice President and General Manager for
the Electronics Devices Division. Mr. Stein was with Motorola for 5 years where
he was Vice President and Assistant General Manager of Motorola's Semiconductor
Sector. He joined VLSI Technology from Arrow Electronics where he had been that
company's Chief Executive Officer. Mr. Stein is on the Board of Directors of
three publicly traded companies: Advanced Power Technology, ESS Technology,
Electronics Boutique and several private startup companies. He also has served
on the board of directors at Applied Materials, Radio Shack Corporation and was
Chairman of the Board for the Semiconductor Industry Association (SIA). He
served on the Board of Trustees for St. Mary's University of Texas.

ROBERT H. KEELEY has served as a director since May 1993. Dr. Keeley's
current term of office as a director expires in 2007. He retired in August 2004
from the University of Colorado - Colorado Springs where he was the El Pomar
Professor of Business Finance. He currently is Professor Emeritus at the
University. 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 three private companies and is the president of one
of them.

HAROLD A. BLOMQUIST was originally appointed as a director in May 1998,
resigned from the Board in July 2001 to avoid a potential conflict of interest
with his employer and was re-appointed in January 2002. Mr. Blomquist's current
term of office as a director expires in 2005. In October 2003, Mr. Blomquist was
elected to the position of Chairman of the Board of Directors. Mr. Blomquist is
currently employed as President and Chief Executive Officer of Morpho
Technologies, Inc., a three-year-old fabless semiconductor company located in
Irvine, CA. 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 in the semiconductor and electronic components areas. In
the past, he was employed as Chief Executive Officer of Tower Semiconductor,
USA, Inc., and President and Chief Executive Officer of ZMD America, Inc. Before
ZMD America, Inc., Mr. Blomquist served as a member of the Board of Directors of
AMIS Holding Co., Sr. Vice President of AMI Semiconductor and General Manager
and Chief Executive of two of AMIS' foreign subsidiaries, AMI GmbH in Dresden,
Germany, and AMI Japan Co. Ltd., in Tokyo, Japan. Prior to 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 with a double major in Business Administration from
the University of Utah and also attended the University of Houston, where he
pursued a joint Juris Doctor/MBA course of study.

RONALD SARTORE has served as a director since March 2004, which term
expires in 2006. Mr. Sartore has over 30 years experience in the computer and
semiconductor fields and is currently the Vice President of High speed Serial
Interfaces (HSSI) Business Unit for Cypress Semiconductor's Personal
Communication Division, a position he attained shortly after Cypress's May 1999
accretive acquisition of Anchor Chips, where he was its CEO, and President. Mr.
Sartore founded Anchor chips in 1995 and secured $9.5 million in funding from
its majority owner; South Korea's LG Semicon. Prior to that, Mr. Sartore worked
as a systems architect for San Diego based AMCC. Previous to AMCC, Mr. Sartore
was a technical consultant for Array Microsystems, and an employee of Maximum
Storage, both in Colorado Springs. In 1985, Mr. Sartore co-founded Cheetah
International, a manufacturer of personal computers and peripherals until its
acquisition by Northgate Computers in 1990. Cheetah's products, designed in part
by Sartore, have received acclaim for their high performance and were the
subject of articles in numerous trade magazines. Prior to Cheetah, Mr. Sartore
has held technical design positions in the following companies: Inmos, in
Colorado Springs, Colorado; Synercom Technology, in Sugarland, Texas; Texas
Instruments, in Stafford, Texas; NCR, in Millsboro, Delaware; and Sperry Univac,
in Blue Bell, Pennsylvania. Mr. Sartore currently holds 11 US patents and
obtained a BS degree in Electrical Engineering from Purdue University.

ROBERT C. PEARSON has served as a director since July 2002. Mr. Pearson's
current term of office as a director expires in 2005. He joined RENN Capital
Group 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 RENN Capital Group. 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.

Our amended and restated articles of incorporation and bylaws provide that
if the Board consists of six or more persons, then the members of the Board
shall be divided into three classes, each class to be as nearly equal in number
as possible. The Board is currently divided into three classes, each class
consisting of two directors, with each class having a three-year term. Vacancies
on the Board may be filled only by persons elected by a majority of the
remaining directors. A director elected by the Board to fill a vacancy
(including a vacancy created by an increase in the Board) will serve for the
remainder of the full term of the class of directors in which the vacancy
occurred and until the director's successor is elected and qualified. There are
two Class 1 Directors, Messrs. Douglas Mitchell and Robert Keeley, whose terms
of office will expire at the 2007 annual meeting, two Class 2 Directors, Messrs.
Blomquist and Pearson, whose terms of office will expire at the 2005 annual
meeting, and two Class 3 Directors, Messrs. Sartore and Stein, whose terms of
office will expire at the 2006 annual meeting.

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 OUR AMENDED AND RESTATED ARTICLES OF INCORPORATION AND
BYLAWS

Our amended and restated 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 amended and restated 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 amended and restated articles of incorporation also contain a provision
that requires us to indemnify, to the fullest extent permitted under law,
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 Securities Act of
1933, as amended, and is, therefore, unenforceable.

Our amended and restated articles of incorporation and bylaws provide for a
classified board of directors when we have six or more directors. This may have
the effect of delaying or preventing changes in control of our management, which
could adversely affect the market price of our common stock by discouraging or
preventing takeover attempts that might result in the payment of a premium price
to our shareholders.

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, 2003 and each other executive officer of the Company who served
during any part of 2003 whose annual salary and bonus for the fiscal year ended
December 31, 2003 exceeded $100,000.

Summary Compensation Table

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

Name Other
and Annual Securities
Principal Compen- Underlying
Position Year Salary($) Bonus($) sation($) Options
--------- ---- --------- -------- --------- ----------

Douglas M. Mitchell(1) 2003 $175,000 -- -- 200,000
Chief Executive Officer 2002 $175,000 -- -- --
Chief Financial Officer 2001 $167,708 $34,375 -- 300,000
(acting) and President

Thomas Linnenbrink(2) 2003 $141,200 -- -- 30,000
Chief Executive Officer 2002 $135,408 -- -- 30,000
President and Technical 2001 $111,447 $13,520(3) $5,700(4) 150,000
Director of Q-DOT
Subsidiary

Donald G. Carrigan(5) 2003 $132,500 $29,268(6) -- 30,000
Vice President of Sales 2002 $130,000 $42,228(6) -- --
and Marketing 2001 $40,625 -- -- 250,000

David W. Still(7) 2003 $134,000 -- -- 50,000
Vice President of 2002 $130,000 -- -- --
Engineering 2001 $ 20,417 -- -- 250,000

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

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

(3) Mr. Linnenbrink personally secured bank loans used in the operations of
Q-DOT Group. 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 Group 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, 2003 to the individuals
named in the summary compensation table above.

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

Douglas Mitchell 200,000(1) 26.16% $0.14 $0.14 3/3/2010 $11,399 $26,564
Thomas Linnenbrink 30,000(2) 3.92% $0.16 $0.16 2/3/2010 $1,954 $4,554
Donald Carrigan 30,000(3) 3.92% $0.17 $0.17 1/22/2010 $2,076 $4,838
David Still 50,000(4) 6.54% $0.17 $0.17 1/22/2010 $3,460 $8,064

(1) 200,000 options were granted to Mr. Mitchell in his capacity as Chief
Executive Officer, President and acting Chief Financial Officer, these
options vest at 1/36th per month over 3 years.

(2) 30,000 options were granted to Mr. Linnenbrink in his capacity as Chief
Executive Officer, President and Technical Director of our Q-DOT Group
subsidiary; these options vest at 1/36th per month over 3 years.

(3) 30,000 options were granted to Mr. Carrigan in his capacity as Vice
President of Sales and Marketing, these options vest at 1/36th per month
over 3 years.

(4) 50,000 options were granted to Mr. Still in his capacity as Vice President
of Engineering, these options vest at 1/36th per month over 3 years.

YEAR-END OPTION TABLE

The following table sets forth, as of December 31, 2003, the number of
shares subject to unexercised options held by the individuals named in the
summary compensation table above. 1,505,279 exercisable options had an exercise
price less 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, 2003.

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 at Fiscal Options
Year-End at Fiscal Year-End
Shares Value
Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Name Exercise (#) ($) (#) (#) ($) ($)
------------------ ------------- -------- ----------- ------------- ----------- -------------

Douglas Mitchell - - 961,667 158,333 $801,884 $165,616
Thomas Linnenbrink - - 165,000 45,000 $106,308 $ 38,592
Donald G. Carrigan - - 196,667 83,333 $185,692 $ 80,208
David W. Still - - 181,945 118,055 $165,737 $110,763

EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2003

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

Equity compensation plans (a) (b) (c)
approved by security
holders 275,000 $0.45 --
Equity compensation plans
not approved by security
holders 5,519,081 $0.45 792,965
Total 5,794,081 $0.45 792,965

Please see Note 6, "Stock Option Plans," to our Financial Statements
included herewith.

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

During 2003 and prior to March 2004, each director who was not also an
employee received $1,000 for each meeting of the Board, attended in person, and
$500 for each meeting of a committee of the Board. The Chairman of the Board
received $4,000 per calendar quarter, $1,000 for each meeting of the Board,
attended in person, and $500 for each meeting of a committee of the Board.
Directors were also reimbursed for their reasonable out-of-pocket expenses
incurred in connection with their duties to us. During the fiscal year ended
December 31, 2003, 15,000 stock options were granted, at the market price on
date of grant, to Mr. Harold Blomquist, Dr. Klaus Wiemer (a former director),
Dr. Robert Keeley, Mr. John Heightley (a former director) and Mr. Robert
Pearson, which market price was $0.165 per share. During 2003, Mr. Harold
Blomquist was granted an additional 75,000 stock options which he received for
his appointment as Chairman of the Board. The options were granted at the market
price on date of grant, which market price was $0.83 per share.

In March 2004, the board of directors approved a new compensation plan for
its directors. Each director who is not also an employee receives $1,500 for
attending each meeting of the board of directors, attended in person, and $500
for each meeting of a committee of the board of directors. Each director shall
receive a $10,000 annual stipend which will start January 1, 2005; the stipend
will be paid quarterly. Until the time as we have two consecutive quarters of
net profit, the stipend will be paid in restricted common stock. The cost per
common share will be calculated based on the average closing price of our common
stock during the 20 trading days prior to issuance. Commencing the first quarter
after we have shown two consecutive quarters of audited net profit, the stipend
will be paid in cash. Upon initial appointment or election to the board of
directors, each newly appointed or elected member shall receive options to
purchase 100,000 shares of our common stock. Each member of the board of
directors shall receive, within the first month of each calendar year, while
serving as a member of the board of directors, a grant of options to purchase
35,000 shares of our common stock. Along with the above compensation, the
Chairman of the Board also receives $4,000 per calendar quarter. Directors are
also reimbursed for their reasonable out-of-pocket expenses incurred in
connection with their duties to us.

We have adopted a code of business conduct and ethics that applies to our
Chief Executive Officer, the Chief Financial Officer, and the Controller, as
well as to our directors and employees. The code of business conduct and ethics
can be found at our Internet website at www.simtek.com.

SECURITY OWNERSHIP

The first table below sets forth information regarding ownership of our
common stock as of October 31, 2004, 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 October 31, 2004 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
---------------- ---------------- ----------

Douglas M. Mitchell 930,053 (1) 1.46%
205 Ridge Dr.
Woodland Park, CO 80863

Robert H. Keeley 111,250 (2) *
P. O. Box 240
Hillside, CO 81232

Thomas E. Linnenbrink 1,100,795 (3) 1.75%
1457 Smoochers Circle
Colorado Springs, CO 80904

Harold A. Blomquist 101,250 (4) *
13625 Antelope Station
Poway, CA 92064

Donald G. Carrigan 278,833 (5) *
425 Scrub Oak Circle
Monument, CO 80132

David W. Still 297,222 (6) *
4250 Buckingham Dr. Suite 100
Colorado Springs, CO 80907

Mr. Robert Pearson 41,250 (7) *
8080 N. Central Expressway,
Suite 210-LB59
Dallas, TX 75203

RENN Capital Group (8) 14,017,367 (9) 19.14%
8080 N. Central Expressway,
Suite 210-LB59
Dallas, TX 75203

Ronald Sartore 129,167 (10) *
14445 Cypress Point
Poway, CA 92064

Alfred Stein 130,167 (11) *
410 Old Oak Court
Los Altos, CA 94022

SF Capital Partners Ltd. 6,191,951 (12) 9.54%
3600 South Lake Drive
St. Francis, WI 53235

All officers and directors as
a group (9 persons) 3,056,099 (13) 4.81%

-----------------
* Less than one percent.
48

(1) Represents 44,386 shares of our common stock that Mr. Mitchell acquired
through our acquisition of Q- DOT Group, 20,000 shares of our common stock
that Mr. Mitchell personally owns, 104,000 shares of our common stock Mr.
Mitchell acquired upon the exercise of 104,000 options and includes 761,667
shares issuable upon exercise of options.

(2) Includes 86,250 shares issuable upon exercise of options. Includes 15,000
shares of our common stock that Mr. Keeley acquired upon the exercise of
15, 000 options and 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.

(3) Represents 894,128 shares of our common stock that Mr. Linnenbrink acquired
through our acquisition of Q-DOT Group and includes 206,667 shares issuable
upon exercise of options.

(4) Includes 101,250 shares issuable upon exercise of options.

(5) Represents 500 shares of our common stock that Mr. Carrigan personally owns
and includes 278,333 shares issuable upon exercise of options.

(6) Includes 297,222 shares issuable upon exercise of options.

(7) Includes 41,250 shares issuable upon exercise of options.

(8) Pursuant to the Convertible Loan Agreement, dated as of June 28, 2002, by
and among Simtek and Renaissance Capital Growth and Income Fund III, Inc.,
Renaissance US Growth & Investment Trust PLC and BFSUS Special
Opportunities Trust PLC, which are managed by RENN Capital Group, RENN
Capital Group 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.

(9) Assumes conversion, at a conversion price of $0.312 per share, of all
debentures issued to affiliates of RENN Capital Group. Assumes exercise of
warrants held by affiliates of RENN Capital Group for 750,000 shares of our
common stock. Also represents 1,651,982 shares of our common stock that the
affiliates of RENN Capital Group acquired pursuant to the $1,500,000 equity
investment on November 7, 2003.

(10) Includes 129,167 shares issuable upon exercise of options.

(11) Represents 1,000 shares of our common stock that Mr. Stein owns and
includes 129,167 shares issuable upon exercise of options.

(12) Represents 4,127,967 shares of our common stock that SF Capital Partners
Ltd. acquired pursuant to its equity investment in us on October 12, 2004.
Assumes exercise of warrants held by SF Capital Partners Ltd. for 2,063,984
shares of our common stock.

(13) Includes 2,030,973 shares issuable upon exercise of options. Does not
include the 14,017,367 shares beneficially owned by RENN Capital Group. Mr.
Robert Pearson is a Senior Vice President of RENN Capital Group. Mr.
Pearson also holds the position of a director on Simtek's board of
directors.

SELLING SECURITY HOLDERS

The following table sets forth information about the selling security
holders.

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

SF Capital Partners Ltd. 6,191,951 6,191,951 0 *
3600 South Lake Drive
St. Francis, WI 53235

Bluegrass Growth Fund LP 773,994 773,994 0 *
122 East 42nd St., Suite 2606
New York, NY 10168

Bluegrass Growth Fund LTD 773,994 773,994 0 *
Walker House
George Town
Grand Cayman
Cayman Islands

Merriman Curhan and Ford 386,997 386,997 0 *
601 Montgomery Street, 18th Floor
San Francisco, CA 94111

* Less than 1%

On October 12, 2004, we closed a $2,500,000 equity financing with SF
Capital Partners Ltd., Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD.
In exchange for the $2,500,000, we issued 4,127,967 shares of our common stock
to SF Capital Partners Ltd., 515,996 shares of our common stock to Bluegrass
Growth Fund LP and 515,996 shares of our common stock to Bluegrass Growth Fund
LTD. The purchase price was based on a 15% discount to the closing price of our
common stock as reported on the Over-the-Counter Bulletin Board on October 11,
2004, resulting in a price of $0.4845 per share. In addition to the shares of
common stock, SF Capital Partners Ltd., Bluegrass Growth Fund LP and Bluegrass
Growth Fund LTD received warrants to acquire 2,063,984, 257,998, and 257,998
shares of our common stock, respectively. The warrants have a 5-year term with
an exercise price of $0.627 per share. Merriman Curhan Ford & Co., the placement
agent for the $2,500,000 equity financing, received a cash payment of $187,500
and warrants to acquire 386,997 shares of our common stock. The warrants have a
5-year term with an exercise price of $0.627 per share. In addition, Merriman
Curhan Ford & Co. is entitled to receive another cash payment equal to 7.5% of
the capital received by us upon the exercise of the warrants issued to SF
Capital Partners Ltd., Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD
pursuant to the $2,500,000 equity financing (provided such exercise is within an
applicable tail period).

SPECIFIC RELATIONSHIPS AND RELATED TRANSACTIONS

On November 7, 2003, we closed our $1,500,000 equity financing with
Renaissance Capital Growth and Income Fund III, Inc., Renaissance US Growth &
Investment Trust PLC and BFSUS Special Opportunities Trust PLC., which are
managed by RENN Capital Group. RENN Capital Group is the agent for these three
investment funds. One of our directors holds the position of Senior Vice
President of RENN Capital Group.

DESCRIPTION OF SECURITIES

COMMON STOCK

We are authorized to issue 300,000,000 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 amended and restated 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

The selling security holders and any of their pledgees, donees,
transferees, assignees and successors-in-interest may, from time to time, sell
any or all of their shares of common stock on any stock exchange, market or
trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. The selling security holders
may use any one or more of the following methods when selling shares:

o ordinary brokerage transactions and transactions in which the broker-dealer
solicits investors;

o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;

o an exchange distribution in accordance with the rules of the applicable
exchange;

o privately negotiated transactions;

o to cover short sales made after the date that this registration statement
is declared effective by the Securities and Exchange Commission;

o broker-dealers may agree with the selling security holders to sell a
specified number of such shares at a stipulated price per share;

o a combination of any such methods of sale; and

o any other method permitted pursuant to applicable law.

The selling security holders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the selling security holders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The selling security holders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.

The selling security holders may from time to time pledge or grant a
security interest in some or all of the shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell shares of common stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling security holders to include the pledgee, transferee or other successors
in interest as selling security holders under this prospectus.

Upon us being notified in writing by a selling security holder that any
material arrangement has been entered into with a broker-dealer for the sale of
common stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling security holder and
of the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such the shares of common stock were sold, (iv)the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction. In addition,
upon us being notified in writing by a selling security holder that a donee or
pledgee intends to sell more than 500 shares of common stock, a supplement to
this prospectus will be filed if then required in accordance with applicable
securities law.

The selling security holders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

The selling security holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, that can be attributed to the
sale of securities will be paid by the selling security holders and/or the
purchasers. Each selling security holder has represented and warranted to us
that it acquired the securities subject to this registration statement in the
ordinary course of such selling security holder's business and, at the time of
its purchase of such securities such selling security holder had no agreements
or understandings, directly or indirectly, with any person to distribute any
such securities.

We have advised each selling security holder that it may not use shares
registered on this registration statement to cover short sales of common stock
made prior to the date on which this registration statement shall have been
declared effective by the Securities and Exchange Commission. If a selling
security holder uses this prospectus for any sale of the common stock, it will
be subject to the prospectus delivery requirements of the Securities Act. The
selling security holders will be responsible to comply with the applicable
provisions of the Securities Act of 1933 and the Securities Exchange Act of
1934, and the rules and regulations thereunder promulgated, including, without
limitation, Regulation M, as applicable to such selling security holders in
connection with resales of their respective shares under this registration
statement.

We are required to pay all fees and expenses incident to the registration
of the shares, but we will not receive any proceeds from the sale of the common
stock. We have agreed to indemnify the selling security holders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act. If the selling security holders use this prospectus for any sale
of the common stock, they will be subject to the prospectus delivery
requirements of the Securities Act.

LEGAL MATTERS

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

EXPERTS

The financial statements of Simtek Corporation as of December 31, 2003 and
for the years ended December 31, 2003 and December 31, 2002 included within this
prospectus have been so included in reliance on the report of Hein & Associates
LLP, Independent Registered Public Accounting Firm, 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, 2003.............................F-3

Consolidated Statements of Operations - For the Years Ended
December 31, 2003 and 2002...............................................F-4

Consolidated Statements of Changes in Shareholders' Equity -
For the Years Ended December 31, 2003 and 2002...........................F-5

Consolidated Statements of Cash Flows - For the Years Ended
December 31, 2003 and 2002...............................................F-6

Notes to Consolidated Financial Statements - For the Years
Ended December 31, 2003 and 2002.......................................F-7-F19

Condensed Consolidated Balance Sheet (Unaudited) -
September 30, 2004......................................................F-20

Condensed Consolidated State of Operations (Unaudited) -
For the nine months ended September 30, 2004 and 2003...................F-21

Condensed Consolidated Statement of Cash Flows (Unaudited) -
for the nine months ended September 30, 2004 and 2003...................F-22

Notes to Unaudited Condensed Consolidated Financial Statements -
For the nine months ended September 30, 2004 and 2003................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, 2003 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, 2003. 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, 2003, and the results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Hein & Associates LLP
HEIN & ASSOCIATES LLP

Denver, Colorado
January 28, 2004

F-2

SIMTEK CORPORATION

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003

ASSETS
------

CURRENT ASSETS:
Cash and cash equivalents $ 3,431,679
Certificate of deposit, restricted 300,000
Acounts receivable - trade, net of allowance for
doubtful accounts and return allowances of
approximately $130,000 1,923,542
Inventory, net 1,201,432
Prepaid expenses and other current assets 129,554
------------
Total current assets 6,986,207
EQUIPMENT AND FURNITURE, net 862,009
DEFERRED FINANCING COSTS 91,280
OTHER ASSETS 58,291
------------
TOTAL ASSETS $ 7,997,787
============

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

CURRENT LIABILITIES:
Accounts payable $ 1,038,634
Accrued expenses 390,079
Accrued vacation payable 179,580
Line of credit 150,000
Obligation under capital leases 123,585
------------
Total current liabilities 1,881,878
NOTES PAYABLE 5,000
DEBENTURES 3,000,000
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT PORTION 61,221
------------
Total liabilities 4,948,099

COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)

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,
56,723,352 shares issued and 56,713,352 shares
outstanding 567,134
Additional paid-in capital 39,230,210
Treasury stock, at cost; 10,000 shares (12,504)
Accumulated deficit (36,735,152)
------------
Total shareholders' equity 3,049,688
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,997,787
============

See accompanying notes to these consolidated financial statements.

F-3

SIMTEK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

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

2003 2002
------------- -------------

NET SALES $ 14,503,771 $ 14,326,705

Cost of sales 9,621,249 8,481,262
------------ ------------
GROSS MARGIN 4,882,522 5,845,443

OPERATING EXPENSES:
Research and development costs 4,518,528 4,308,499
Sales and marketing 1,546,774 1,641,508
General and administrative 847,503 754,676
------------ ------------
Total operating expenses 6,912,805 6,704,683
------------ ------------

LOSS FROM OPERATIONS (2,030,283) (859,240)

OTHER INCOME (EXPENSE):
Interest income 30,116 42,447
Interest expense (254,144) (147,921)
Other income (expense) (18,330) 1,847
------------ ------------
Total other income (expense) (242,358) (103,627)
------------ ------------

LOSS BEFORE PROVISION FOR INCOME TAXES $ (2,272,641) $ (962,867)

Provision for income taxes -- --
------------ ------------
NET LOSS $ (2,272,641) $ (962,867)
============ ============

NET LOSS PER COMMON SHARE:
Basic and diluted EPS $ (.04) $ (.02)
============ ============
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING:
Basic and diluted EPS 54,889,008 54,204,525
============ ============

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, 2003 AND 2002

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

BALANCES, January 1, 2002 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
---------- --------- ----------- -------- ------------ -----------

Exercise of stock options 679,097 6,791 176,340 - - 183,131
Equity financing November 7, 2003, net
of $24,485 in costs 1,651,982 16,520 1,458,995 - - 1,475,515
Net loss - - - - (2,272,641) (2,272,641)
---------- --------- ----------- -------- ------------ -----------
BALANCES, December 31, 2003 56,713,352 $ 567,134 $39,230,210 $(12,504) $(36,735,152) $ 3,049,688
========== ========= =========== ======== ============ ===========

See accompanying notes to these consolidated financial statements.

F-5

SIMTEK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

2003 2002
------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,272,641) $ (962,867)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 497,701 443,146
Loss on disposal of assets 36,542 5,705
Net change in allowance accounts (16,376) (71,150)
Deferred financing fees 16,596 8,298
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 402,361 (618,653)
Inventory 411,358 261,442
Prepaid expenses and other 114,542 (123,972)
Increase (Decrease) in:
Accounts payable (49,314) (328,848)
Accrued expenses 64,626 (122,594)
Deferred revenue (40,500) 25,500
----------- -----------
Net cash used in operating activities (835,105) (1,483,993)
---------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture (501,244) (163,657)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from line-of-credit and the issuance of a note 250,000 --
Payments on notes payable and line of credit (100,000) (109,976)
Payments on capital lease obligation (168,350) (125,017)
Equity financing November 2003, net 1,475,515 --
Convertible debentures, net of deferred financing fees -- 2,883,825
Exercise of stock options 183,131 50,846
----------- -----------
Net cash provided by financing activities 1,640,296 2,699,678
----------- -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS 303,947 1,052,028
3,127,732 2,075,704
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of year
CASH AND CASH EQUIVALENTS, end of year $ 3,431,679 $ 3,127,732
=========== ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
Purchase of equipment through payables and capital leases $ 144,160 $ 88,457
=========== ===========
Cash paid for interest $ 253,219 $ 146,804
=========== ===========

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 1 megabit, 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.

CONSOLIDATION POLICY - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary Q-DOT.

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
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,
December 31, 2002 and December 31, 2003 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.

F-7

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2003, substantially all of the Company's
cash and cash equivalents were held by a single bank, of which
approximately $3,561,647 was in excess of Federally insured amounts.

Receivables and Credit Policies - Trade receivables consist of
uncollateralized customer obligations due under normal trade terms
requiring payment within 30 days of the invoice date. In most cases, trade
receivables are applied to a specific identified invoice. Management
reviews trade receivables periodically and reduces the carrying amount by a
valuation allowance that reflects management's best estimate of the amount
that may not be collectible.

Inventory - The Company records inventory using the lower of cost
(first-in, first-out) or market. Inventory at December 31, 2003 included:

Raw materials $ 54,257
Work in process 814,454
Finished goods 484,757
-----------
1,353,468
Less reserves for excess inventory (152,036)
-----------
$ 1,201,432
===========

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. The Company has patents and
trademarks valued at $125,000 which were 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.

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 $39,660 and $15,162 in 2003 and 2002,
respectively.

LOSS 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 2002 and 2003, all common stock equivalents would be
considered anti-dilutive. For purposes of calculating diluted EPS,
5,794,081 and 5,539,386 options for 2003 and 2002, respectively, were
excluded from diluted EPS as they had an anti-dilutive effect.

F-8

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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.

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 loss and EPS disclosures for employee stock option grants are
included below 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. Had
compensation cost been determined based on the fair value at the grant
dates for awards under those plans consistent with the fair value method,
the Company's net loss and EPS would have been increased to the pro forma
amounts indicated below.

F-9

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31,
-------------------------------
2003 2002
-------------- --------------

Net loss as reported $ (2,272,641) $ (962,867)
Add: Stock based compensation included in reported net loss -- --
Deduct: Fair value of stock based compensation (520,073) (621,701)
------------- -------------
Pro forma net loss $ (2,792,714) $ (1,584,568)
============= =============

Net loss as reported - basic and diluted $ (.04) $ (.02)
Deduct: Fair value of loss per share (.01) (.01)
------------- -------------
Pro forma net loss - basic and diluted $ (.05) $ (.03)
============= =============

F-10

The fair value of each option granted in 2003 and 2002 was estimated on the
date of grant, using the Black- Scholes option-pricing model with the
following:

Options Granted During
----------------------
2003 2002
-------- ---------

Expected volatility 122.2% 132.9%
Risk-free interest rate 2.0% 3.2%

Expected dividends -- --

Expected terms (in years) 4.0 4.0

INCOME TAXES - The Company accounts for income taxes under the liability
method, 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 May 2003, the Financial Accounting
Standards Board ("FASB") issued Statements of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". SFAS No. 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 No. 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 No. 150
had no impact on its financial position or results of operations.

2. EQUIPMENT AND FURNITURE:
-----------------------

Equipment and furniture at December 31, 2003 consisted of the following:

Leased software under capital leases $ 589,210
Research and development equipment 1,729,907
Computer equipment and software 1,421,038
Office furniture 235,135
Other equipment 270,899
-----------
4,246,189
Less accumulated depreciation and amortization (3,384,180)
-----------
$ 862,009
===========

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.

F-11

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Depreciation and amortization expense of $497,701 and $443,146 was charged
to operations for the years ended December 31, 2003 and 2002 respectively.
Included in the amortization expense for 2003 and 2002 was $112,921 and
$83,886, respectively, of amortization of software and research and
development equipment under capital leases. At December 31, 2003,
accumulated amortization for software under capital leases was $320,952.

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

As of December 31, 2003, the Company had a $250,000 revolving line of
credit (LOC). The LOC bears interest at prime plus .75% (4.75% at December
31, 2003), matures in April 2004, and is collateralized by the assets of
the Company. $150,000 was outstanding as of December 31, 2003.

When the Company acquired Integrated Logic Systems, it 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 statute
of limitations for the State of Colorado, the Company began writing off
$5,000 per year in 2001. At December 31, 2003, the note payable was $5,000.

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.

4. CONVERTIBLE DEBENTURES:
----------------------

On July 1, 2002, the Company received funding of $3,000,000 in a financing
transaction with RENN Capital Group, Inc. (formerly Renaissance Capital
Group, Inc.). RENN Capital Group, Inc. 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. One
of the Company's directors holds the position of Senior Vice President of
RENN Capital Group. 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. During
the first nine months of 2003, the Company was not in compliance with two
of the covenants set forth in the loan agreement. On February 27, 2004, the
Company received a waiver for one of the covenants and a modification and a
waiver to the loan agreement with respect to the other. The waiver and
modification are effective through April 1, 2005. The Company is currently
in compliance with the modified covenant and estimates they will remain in
compliance in the forthcoming year. However, significant variances in
future actual operations from the Company's current estimates could result
in the reclassification of this note to current liabilities.

5. COMMITMENTS:
-----------

OFFICES LEASES - The Company leases office space under a lease, which
expires on February 28, 2013. Monthly lease payments are approximately
$16,000.

F-12

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 2006.

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 as follows:

Years Ending
December 31,
----------------
2004 $ 861,405
2005 685,549
2006 228,122
2007 208,616
2008 & After 1,267,849
----------
$3,251,541
==========

Office rent and equipment lease expense totaled $769,870 and $603,344 for
the years ended December 31, 2003 and 2002, respectively.

In addition, the Company leases research and development software under
four capital leases, which will expire over the next three years. At
December 31, 2003, future minimum lease payments under the lease described
above is as follows:

Years Ending
December 31,
----------------
2004 $150,663
2005 52,620
2006 8,770
--------

Total net minimum lease payments 212,053

Less interest and taxes (27,247)
---------
Present value of net minimum lease payments 184,806
Less current portion of capital leases (123,585)
---------
$ 61,221
=========

EMPLOYMENT AGREEMENTS - Mr. Mitchell is employed as President and Chief
Executive Officer pursuant to an employment agreement with the Company.
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 the Company or Mr. Mitchell elects not to renew. If the
Company terminates 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.

F-13

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. SHAREHOLDERS' EQUITY:
--------------------

On November 7, 2003, the Company closed a $1,500,000 equity financing with
RENN Capital Group, Inc.. In exchange for the $1,500,000, the Company
issued 1,651,982 shares of its common stock to RENN Capital Group, Inc. One
of the Company's directors holds the position of Senior Vice President of
RENN Capital Group. The purchase price was based on the average closing
price of the Company's common stock as reported on the Over-the-Counter
Bulletin Board over the five trading days before closing, which average
closing price was $0.908 per share. In addition to the shares of common
stock, each fund received warrants to acquire 250,000 shares of the
Company's common stock. The warrants have a 5-year term with 125,000 shares
being exercisable at $1.25 per share and 125,000 shares being exercisable
at $1.50 per share.

WARRANTS - A summary of the warrants outstanding as of December 31, 2003,
is as follows:

Per
# of Warrant Extended
Warrants Expiration Exercise Value of
Warrant Holder Description Issue Date Outstanding Date Price Warrants
-------------- ----------- ---------- ----------- ---------- --------- ----------

BFSUS Special Oportunities Trust Plc. Warrants 11/7/2003 125,000 11/7/2008 $1.25 $ 156,250

BFSUS Special Oportunities Trust Plc Warrants 11/7/2003 125,000 11/7/2008 $1.50 $ 187,500

Renaissance US Growth & Investment
Trust Plc. Warrants 11/7/2003 125,000 11/7/2008 $1.25 $ 156,250

Renaissance US Growth & Investment
Trust Plc. Warrants 11/7/2003 125,000 11/7/2008 $1.50 $ 187,500

Renaissance Capital Growth & Income
Fund III Warrants 11/7/2003 125,000 11/7/2008 $1.25 $ 156,250

Renaissance Capital Growth & Income
Fund III Warrants 11/7/2003 125,000 11/7/2008 $1.50 $ 187,500
------- ----------
Total Warrants 750,000 $1,031,250
======= ==========

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, 2003 and 2002:

F-14

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2003 2002
------------------------------ ----------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
----------- ------------ ----------- -----------

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

Granted 1,224,500 .21 912,500 .35
Expired (45,000) (.13) (153,986) .14
Exercised (679,097) (.27) (356,000) (.14)
Canceled (245,708) (.39) (150,000) (.31)
---------- ---------

Outstanding, end of year 5,794,081 $ .45 5,539,386 $ .47
========= =========

All options granted during 2003 and 2002, were at the current market price
and the weighted average fair value was $0.17 and $0.29, respectively. At
December 31, 2003, options for 4,349,935 shares were exercisable and of the
remaining options of 1,444,146; 971,965, 418,827 and 53,354 shares will
become exercisable in 2004, 2005, and 2006, respectively.

The following information summarizes stock options outstanding at December
31, 2003:

Outstanding Exercisable
------------------------------------------------------------------------------------ -----------------------------------
Weighted Average
---------------------------------------------------------

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

$0.13 - 0.19 1,420,391 59 $0.17 624,870 $0.17
$0.25 - 0.32 1,029,419 52 $0.27 756,641 $0.27
$0.32 - 0.50 1,923,576 45 $0.40 1,673,007 $0.36
$0.60 - 0.83 820,695 57 $0.65 695,417 $0.62
$1.13 - 1.50 600,000 41 $1.28 600,000 $1.25
--------- ---------
5,794,081 4,349,935
========= =========

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. As of December 31, 2003 there were 90,185 options to
purchase Simtek Common Stock outstanding.

F-15

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Sales by location for the years ended December 31, 2003 and 2002 were as
follows (as a percentage of sales):

2003 2002
---- ----

United States 46% 61%
Europe 11% 9%
Far East 38% 24%
All Others 5% 6%
---- ----
Total 100% 100%

Sales from government contracts accounted for approximately 15% and 13% of
total sales for the years ended December 31, 2003 and 2002, respectively.
Sales from the Company's military products accounted for approximately 12%
and 17% of total sales for the years ended December 31, 2003 and 2002,
respectively.

Sales to unaffiliated customers which represent 10% or more of the
Company's sales for the years ended December 31, 2003 and 2002 were as
follows (as a percentage of sales) :

Customer 2003 2002
-------- ---- ----

A 16% 12%
B 7% 16%

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

At December 31, 2003, the Company had gross trade receivables totaling
$311,767 due from the above two customers.

In 2003 and 2002, the Company purchased all of its memory wafers, based on
0.8 micron technology from a single supplier Chartered Semiconductor
Manufacturing. Approximately 78% and 80% of the Company's net revenue for
2003 and 2002, 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, the Company received
notification from Chartered Semiconductor Manufacturing that they will
close their wafer fabrication facility #1, where the Company's memory
wafers are manufactured, by March 2004. The Company and Chartered are in
the process of transferring the manufacturing of the Company's memory
wafers to Chartered's manufacturing 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 the Company's specifications, the Company
anticipates the transfer to be completed in time to provide an
uninterrupted supply of the Company's current 0.8 micron family of
nonvolatile Static Random Access memory products. This would avoid any
material impact on its ability to support customers. If the Company and
Chartered cannot complete the transfer of manufacturing into facility

F-16

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

#2 or if the Company cannot contract with another supplier, this will have
a material negative impact on the Company's future revenues and earnings.
The Company has not had a manufacturing contract with Chartered
Semiconductor Manufacturing since 1998. However, the Company has maintained
a good relationship with Chartered for the pricing and delivery of the
Company's wafers. Due to not having a contract with Chartered Semiconductor
Manufacturing and the volatility of the semiconductor market, the Company
may not have control over the pricing and availability of the wafers the
Company requires in order to build the Company's products. The risk of the
Company not receiving the products and pricing the Company needs from
Chartered Semiconductor Manufacturing has escalated, but the Company is
evaluating alternative sources of supply. If the Company is unable to
obtain the products and pricing it needs, the Company's business could
suffer.

In addition, the Company purchased all of its logic wafers from two
suppliers located in Singapore and Taiwan. Approximately 7% of its net
revenue for 2003 and 2002 were from finished units produced from these
wafers. In February 2003, the Company received notification from United
Microelectronics that it will be unable to supply us with logic wafers
after August 2003. The Company supported 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. As of December
31, 2003, the Company does not plan to support sales of logic products to
the market.

8. TAXES:
-----

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:

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

Current:
Allowance for doubtful accounts $ 3,000
Reserves 142,000
Accrued expenses 79,000
------------
Net current deferred tax before
valuation allowance 224,000
Valuation allowance (224,000)
------------
Total current deferred tax $ --
============
Non-Current:
Net operating losses $ 11,791,000
Property and equipment (19,000)
Intangibles 1,172,000
AMT credit 8,000
------------
Net non-current deferred tax asset before
valuation allowance 12,952,000
Valuation allowance (12,952,000)
------------
Total non-current deferred tax asset $ --
============

F-17

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 2003 decreased
$525,000 and increased $526,000 in 2002.

At December 31, 2003, the Company has approximately $32,000,000 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 $3,603,000 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 2003 and 2002 differed from the amounts
computed by applying the U.S. Federal statutory tax rates to pre-tax income
as follows:

2003 2002
------ -------

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%
----- -----
$ - $ -
===== =====

9. 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 Years Semiconductor Government Total
Devices Contracts

Net sales 2003 $ 12,262,820 $ 2,240,951 $ 14,503,771
2002 12,422,087 1,904,618 14,326,705

Net income (loss) 2003 $ (2,388,730) $ 116,089 $ (2,272,641)
2002 (1,027,908) 65,041 (962,867)

Interest income 2003 $ 30,116 $ -- $ 30,116
2002 42,447 -- 42,447

F-18

SIMTEK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Interest expense 2003 $ (254,144) $ -- $ (254,144)
2002 (146,176) (1,745) (147,921)

Depreciation and 2003 $ 469,498 $ 28,203 $ 497,701
amortization 2002 407,193 35,953 443,146

Total Assets 2003 $ 7,302,829 $ 694,958 $ 7,997,787
2002 7,931,832 575,218 8,507,050

F-19

SIMTEK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
------
September 30, 2004
------------------
(unaudited)

CURRENT ASSETS:
Cash and cash equivalents............................................... $ 1,705,387
Certificate of deposit, restricted...................................... 300,000
Accounts receivable - trade, net........................................ 1,204,716
Inventory, net ....................................................... 1,295,013
Prepaid expenses and other.............................................. 107,560
-----------
Total current assets................................................ 4,612,676

EQUIPMENT AND FURNITURE, net............................................... 819,955
DEFERRED FINANCING COSTS................................................... 78,833
OTHER ASSETS............................................................... 39,720
-----------

TOTAL ASSETS............................................................... $ 5,551,184
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES:
Accounts payable ..................................................... $ 1,903,905
Accrued expenses........................................................ 313,832
Accrued wages........................................................... 19,011
Line of credit ....................................................... -
Accrued vacation payable................................................ 211,902
Obligation under capital leases......................................... 49,927
-----------
Total current liabilities........................................... 2,498,577

NOTES PAYABLE.............................................................. -
DEBENTURES............................................................... 3,000,000
OBLIGATION UNDER CAPITAL LEASES............................................ 25,856
-----------
Total liabilities................................................... 5,524,433

SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 2,000,000 shares
authorized and none issued and outstanding ....................... -
Common stock, $.01 par value, 300,000,000 shares authorized,
57,703,387 and 56,713,352 shares issued and outstanding
at September 30, 2004............................................... 577,034
Additional paid-in capital.............................................. 39,576,270
Treasury Stock.......................................................... (12,504)
Accumulated deficit..................................................... (40,114,049)
-----------
Shareholders' equity.................................................... 26,751
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................ $ 5,551,184
===========

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

F-20

SIMTEK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2004 2003 2004 2003
---- ---- ---- ----

NET SALES............................................ $ 2,877,575 $ 3,422,039 $10,381,210 $10,777,139

Cost of sales.................................. 2,123,753 2,303,117 7,101,323 7,223,644
----------- ----------- ----------- -----------

GROSS MARGIN......................................... 753,822 1,118,922 3,279,887 3,553,495

OPERATING EXPENSES:
Design, research and development................ 1,448,876 985,755 4,249,136 3,468,898
Administrative.................................. 226,768 216,749 833,428 692,647
Marketing....................................... 435,568 380,105 1,410,089 1,200,432
----------- ----------- ----------- -----------

Total Operating Expenses.................... 2,111,212 1,582,609 6,492,653 5,361,977

NET LOSS FROM OPERATIONS............................. (1,357,390) (463,687) (3,212,766) (1,808,482)
----------- ----------- ----------- -----------

OTHER INCOME (EXPENSE):
Interest income................................. 5,655 5,177 19,178 22,613
Interest expense................................ (58,889) (64,724) (179,357) (189,360)
Other income (expense), net..................... (887) 10,092 (5,952) 8,699
----------- ----------- ----------- -----------

Total other income (expense)................ (54,121) (49,455) (166,131) (158,048)
----------- ----------- ----------- -----------

LOSS BEFORE TAXES.................................... (1,411,511) (513,142) (3,378,897) (1,966,530)

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

NET LOSS............................................. $(1,411,511) $ (513,142) $(3,378,897) $(1,966,530)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE:
Basic and diluted EPS.......................... $ (.02) $ (.01) $ (.06) $ (.04)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic and diluted.............................. 57,703,387 54,648,069 57,375,272 54,510,142

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

F-21

SIMTEK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Nine Months Ended September 30,
-------------------------------
2004 2003
---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................... $(3,378,897) $(1,966,530)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................. 356,344 361,271
Net change in allowance and reserve accounts.................. 33,124 988
Deferred financing fees....................................... 12,447 12,447
Loss on disposal of assets.................................... 75,110 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable....................................... 706,115 692,510
Inventory................................................. (103,754) (166,239)
Prepaid expenses and other .............................. 21,994 113,320
Increase (decrease) in:
Accounts payable.......................................... 865,271 (390,351)
Accrued expenses.......................................... (40,151) 137,878
Deferred revenue.......................................... - (40,500)
----------- -----------
Net cash used in operating activities............................ (1,452,397) (1,245,206)
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and furniture ............................... (370,831) (402,795)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable and lines of credit..................... - 250,000
Payments on notes payable and lines of credit....................... (150,000) (47)
Payments on capital lease obligation................................ (109,024) (111,187)
Exercise of stock options........................................... 355,960 150,703
----------- -----------
Net cash provided by financing activities........................... 96,936 289,469
----------- -----------

NET DECREASE IN CASH AND CASH
EQUIVALENTS........................................................ (1,726,292) (1,358,532)
----------- -----------

CASH AND CASH EQUIVALENTS, beginning of period........................... 3,431,679 3,127,732
----------- -----------

CASH AND CASH EQUIVALENTS, end of period................................. $ 1,705,387 $ 1,769,200
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Purchase of equipment through payables and capital leases........... $ - $ 144,160
=========== ===========
Cash paid for interest.............................................. $ 179,357 $ 188,447
=========== ===========

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

F-22

SIMTEK CORPORATION
NOTES TO CONDENSED 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 consolidated
financial statements and notes thereto included the Annual Report and Form
10-KSB for Simtek Corporation ("Simtek" or the "Company") filed on March 4, 2004
for fiscal year 2003.

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 accounting principles generally
accepted in the United States of America. Results of operations for the interim
periods are not necessarily indicative of the results of operations for the full
fiscal year.

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 the fair value approach, the Company's net loss
and Earnings Per Share ("EPS") would have been adjusted to the pro forma amounts
indicated below.

Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----

Net loss as reported $(1,411,511) $ (513,142) $(3,378,897) $(1,966,530)
Add: stock based compensation
included in reported net loss - - - -
Deduct: Stock-based compensation
cost under the fair value approach (208,621) (130,018) (625,864) (390,055)
----------- ----------- ----------- -----------

Pro Forma net loss $(1,620,132) $ (643,160) $(4,004,761) $(2,356,585)
=========== =========== =========== ===========

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 57,703,387 54,648,069 57,375,272 54,510,142

Reported net loss per common
share basic and diluted $ (.02) $ (.01) $ (.06) $ (.04)
Pro forma net loss per common
share basic and diluted $ (.03) $ (.01) $ (.07) $ (.04)

F-23

SIMTEK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. LINE OF CREDIT:

In April 2004, Simtek renewed its revolving line of credit in the amount of
$250,000 on the existing terms of such line of credit. In September, 2004,
Simtek's revolving line of credit was canceled.

3. CONVERTIBLE DEBENTURES:

On July 1, 2002, the Company received $3,000,000 in a financing transaction
with BFSUS Special Opportunities Trust Plc, Renaissance US Growth & Investment
Trust Plc and Renaissance Capital Growth & Income Fund III, Inc (collectively,
"RENN Capital") pursuant to a Convertible Loan Agreement. RENN Capital is the
agent for the three investment funds. One of the Company's directors, Mr. Robert
Pearson, holds the position of Senior Vice President of RENN Capital. The
$3,000,000 funding consists of convertible debentures with a 7-year term at a
7.5% per annum interest rate; each of the three investment funds 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 fully paid and
nonassessable shares of the Company's common stock. The debentures are
convertible into the Company's 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 investment fund to 3,205,128
shares of the Company's outstanding common stock. Through September 30, 2004,
the Company was not in compliance with two of the covenants set forth in the
loan agreement which covenants relate to the interest coverage ratio and debt to
equity ratio. On October 28, 2004, the Company received a waiver for the two
covenants through October 1, 2005. However, significant variances in future
actual operations from the Company's current estimates could result in the
reclassification of this note to current liabilities.

4. GEOGRAPHIC CONCENTRATION:

Sales of the Company's semiconductor products by location for the three
months and nine months ended September 30, 2004 and 2003 were as follows (as a
percentage of semiconductor product sales only):

Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----

United States 34% 34% 33% 37%
Europe 9% 11% 10% 12%
Far East 51% 50% 46% 45%
All others 6% 5% 11% 6%
---- ---- ---- ----
100% 100% 100% 100%

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.

F-24

SIMTEK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----

Description

Net Sales:
Semiconductor Devices $ 2,445,916 $2,858,818 $ 9,067,197 $ 9,191,114
Government Contracts 431,659 563,221 1,314,013 1,586,025
----------- ---------- ----------- ----------
Total $ 2,877,575 $3,422,039 $10,381,210 $10,777,139

Net Profit (loss):
Semiconductor Devices $ (1,512,991) $ (530,570) $(3,424,480) $(1,912,800)
Government Contracts 101,480 17,428 45,583 (53,730)
------------ ---------- ----------- ----------
Total $ (1,411,511) $ (513,142) $(3,378,897) $(1,966,530)

September 30, 2004 December 31, 2003
------------------ -----------------
Total Assets:
Semiconductor Devices $4,916,265 $7,302,828
Government Contracts 634,919 694,959
---------- ----------
Total $5,551,184 7,997,787

6. SUBSEQUENT EVENTS:

On October 12, 2004, the Company closed a $2,500,000 equity financing with
three separate investment funds, SF Capital Partners, Ltd., Bluegrass Growth
Fund LP and Bluegrass Growth Fund LTD. In exchange for the $2,500,000, the
Company issued 4,127,967 shares of its common stock to SF Capital Partners, Ltd,
515,996 shares of its common stock to Bluegrass Growth Fund LP and 515,996
shares of its common stock to Bluegrass Growth Fund LTD. The purchase price was
based on a 15% discount to the closing price of the Company's common stock as
reported on the Over-the-Counter Bulletin Board on October 11, 2004, resulting
in a price of $0.4845 per share. In addition to the shares of common stock, SF
Capital Partners Ltd., Bluegrass Growth Fund LP, and Bluegrass Growth Fund LTD
received warrants to acquire 2,063,984, 257,998, and 257,998 shares of the
Company's common stock, respectively. The warrants have a 5-year term with an
exercise price of $0.627 per share. Merriman Curhan Ford & Co., the placement
agent for the $2,500,000 equity financing received a cash payment of $187,500
and warrants to acquire 386,997 shares of the Company's common stock.

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 amended and restated articles of incorporation contain a provision that
requires us to indemnify, to the fullest extent permitted under law, 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 (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............ $ 400
Legal fees and expenses........................................ 12,000
Accounting fees................................................ 5,000
Miscellaneous.................................................. 4,600
-----

Total.......................................................... $22,000
=======

The above expenses will be borne by us.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

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 & Investment Trust PLC and BFSUS 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.

II-1

On November 7, 2003, we closed a $1,500,000 equity financing with
Renaissance Capital Growth and Income Fund III, Inc., Renaissance US Growth &
Investment Trust PLC and BFSUS Special Opportunities Trust Plc. In exchange for
the $1,500,000, we issued 550,661 shares of our common stock to each of the
three investment funds. The purchase price of $0.908 per share was based on the
average closing price of our common stock as reported on the Over- the-Counter
Bulletin Board over the five trading days before closing. In addition to the
shares of common stock, each of the three investment funds received warrants to
acquire 250,000 shares of our common stock. The warrants have a 5-year term with
an exercise price of $1.25 per share for 125,000 shares and $1.50 per share for
125,000 shares.

On October 12, 2004, we closed a $2,500,000 equity financing with SF
Capital Partners Ltd., Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD.
In exchange for the $2,500,000, we issued 4,127,967 shares of our common stock
to SF Capital Partners Ltd., 515,996 shares of our common stock to Bluegrass
Growth Fund LP and 515,996 shares of our common stock to Bluegrass Growth Fund
LTD. The purchase price was based on a 15% discount to the closing price of our
common stock as reported on the Over-the-Counter Bulletin Board on October 11,
2004, resulting in a price of $0.4845 per share. In addition to the shares of
common stock, SF Capital Partners Ltd., Bluegrass Growth Fund LP, and Bluegrass
Growth Fund LTD received warrants to acquire 2,063,984, 257,998, and 257,998
shares of our common stock, respectively. The warrants have a 5-year term with
an exercise price of $0.627 per share. Merriman Curhan Ford & Co., the placement
agent for the $2,500,000 equity financing, received a cash payment of $187,500
and warrants to acquire 386,997 shares of our common stock. The warrants have a
5-year term with an exercise price of $0.627 per share. In addition, Merriman
Curhan Ford & Co. is entitled to receive another cash payment equal to 7.5 % of
the capital received by us upon the exercise of the warrants issued to SF
Capital Partners Ltd., Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD
pursuant to the $2,500,000 equity financing (provided such exercise is within
applicable tail period).

With respect to our October 12, 2004 and November 7, 2003 transactions with
SF Capital Partners Ltd. and affiliates of RENN Capital Group, respectively, 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.

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)

10.24 Securities Purchase Agreement between Simtek Corporation and
Renaissance Capital Growth & Income Fund III, Inc. and
Renaissance US Growth and Investment Trust, PLC and BFSUS Special
Opportunities Trust, PLC(20)

10.25 Form of $1.25 Stock Purchase Warrant(20)

10.26 Form of $1.50 Stock Purchase Warrant(20)

10.27 Amendment dated January 27, 2004 between Simtek Corporation and
Baja Properties, LLC (Landlord) (together with amendment dated
June 7, 2000 and underlying lease dated July 26, 2000) (21)

10.28 Securities Purchase Agreement, dated October 12, 2004, by and
among the Company, SF Capital Partners Ltd., Bluegrass Growth
Fund LP and Bluegrass Growth Fund LTD (22)

10.29 Form of Warrant (attached as Exhibit A to Securities Purchase
Agreement, dated October 12, 2004, by and among the Company, SF
Capital Partners Ltd., Bluegrass Growth Fund LP and Bluegrass
Growth Fund LTD) (22)

10.30 Form of Registration Rights Agreement (attached as
Exhibit B to Securities Purchase Agreement, dated October 12,
2004, by and among the Company, SF Capital Partners Ltd.,
Bluegrass Growth Fund LP and Bluegrass Growth Fund LTD)(22)

23.1 Consent of Independent Registered Public Accounting Firm

23.2 Consent of Holme Roberts & Owen LLP is included in Exhibit 5.1

----------------------------
(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

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(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
(20) Incorporated by reference from the Current Report on Form 8-K filed by the
Company with the SEC on November 12, 2003
(21) Incorporated by reference to the Company's Annual Report on Form 10-KSB
filed with the Commission on March 4, 2004

(22) Incorporated by reference from the Current Report on Form 8-K filed by the
Company with the Commission on October 12, 2004

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 November 16,
2004.
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)
November 16, 2004

* /s/ Harold Blomquist
-------------------------------------------------------
Harold Blomquist, Chairman of the Board
November 16, 2004

* /s/ Robert Keeley
-------------------------------------------------------
Robert Keeley, Director
November 16, 2004

* /s/ Ronald Sartore
-------------------------------------------------------
Ronald Sartore, Director
November 16, 2004

* /s/ Alfred Stein
-------------------------------------------------------
Alfred Stein, Director
November 16, 2004

/s/ Kimberley Carothers
-------------------------------------------------------
Kimberley Carothers
Controller (Principal Accounting Officer)
November 16, 2004

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

II-6