UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
_____________ FORM 10-Q  xQUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 or  ̈TRANSITION REPORT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to
__________ Commission File Number 000-31623  SIMPLETECH,
INC.(Exact
name of Registrant as specified in its charter)  CALIFORNIA
  33-0399154(State or other jurisdiction of
  incorporation or organization)
  (I.R.S. EmployerIdentification No.)3001 Daimler StreetSanta Ana, CA
  92705-5812(Address of principal executive offices)
  (Zip Code) (949) 476-1180(Registrants telephone number, including area code)  Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.  Yes  x    No       o The
number of shares outstanding of the Registrants common stock, par value
$0.001, as of March 31, 2001 was 38,191,052.  
 SIMPLETECH,
INC.INDEX TO
FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2001



PART
  I.  FINANCIAL INFORMATIONItem 1.   Financial StatementsConsolidated Balance Sheets as of March 31, 2001
  (unaudited) and December 31, 2000Consolidated Statements of
  Operations for the Three Months Ended March 31, 2001 and March 31,
  2000(unaudited)Consolidated Statements of
  Cash Flows for the Three Months Ended March 31, 2001 and March 31, 2000
  (unaudited)Notes to Consolidated
  Financial Statements (unaudited)Item
  2.   Managements Discussion and
  Analysis of Financial Conditions and Results of OperationsItem
  3.   Quantitative and Qualitative
  Disclosure about Market RiskPART II.  OTHER INFORMATION AND SIGNATURESItem 1.   Legal ProceedingsItem
  2.   Changes in Securities and Use of
  ProceedsItem 3.   Defaults Upon Senior SecuritiesItem
  4.   Submission of Matters to a Vote
  of Security HoldersItem
  5.   Other InformationItem 6.  Exhibits and Reports on Form 8-KSignatures



Except as otherwise noted in this report,
SimpleTech, the Company, we, us and our collectively refer to
SimpleTech, Inc.

PART I.  FINANCIAL
INFORMATION

Item 1.  Financial Statements




SimpleTech, Inc.



Consolidated Balance Sheets



(in thousands, except share amounts)



(unaudited)














March 31 2001
  December 31, 2000ASSETS:Current Assets:Cash and cash
  equivalents
  $39,396
  $33,747Accounts receivable,
  net of allowancesof $1,197 at March 31, 2001 and $972at December 31,
  2000
  21,471
  28,103Inventory, net
  21,823
  31,052Deferred income
  taxes
  2,060
  2,060Other current assets
  933
  1,069Total current
  assets
  85,683
  96,031Furniture, fixtures and equipment, net
  7,652
  6,926Deferred income taxes
  329
  329Total assets
  $93,664
  $103,286LIABILITIES AND SHAREHOLDERS'
  EQUITY:Current Liabilities:Accounts payable
  $10,223
  $25,950Current maturities
  of long-term debt
  778
  761Current maturities
  of capital lease obligations
  666
  801Accrued and other
  liabilities
  5,952
  4,219Total current
  liabilities
  17,619
  31,731Long-term debt
  882
  1,083Capital lease
  obligations
  447
  560Total liabilities
  18,948
  33,374Shareholders' Equity:Preferred stock, par
  value $0.001, 20,000,000 shares authorized,no shares
  outstanding
  ---
  ---Common stock, $0.001
  par value, 100,000,000 shares authorized,38,191,052 shares issued and
  outstanding as of March 31, 2001;37,572,667 shares
  issued and outstanding as of December 31, 2000
  38
  38Additional paid-in
  capital
  64,744
  63,911Unearned stock based
  compensation
  (51)
  (63)Retained earnings
  9,985
  6,026Total
  shareholders' equity
  74,716
  69,912Total
  liabilities and shareholders' equity
  $93,664
  $103,286



See accompanying notes to unaudited
consolidated financial statements.


SimpleTech, Inc.



Consolidated Statements of Operations



(in thousands, except per share
amounts)



(unaudited)














Three
  Month Period 
  Ended March 31,2001
  2000Net revenues
  $     
  58,715
  $     
  57,835Cost of revenues
  43,253

  45,013Gross profit
  15,462
  12,822Sales and marketing
  5,280
  4,347General and administrative
  2,976
  2,786Research and development
  1,057
  518Total operating expenses
  9,313
  7,651Income from operations
  6,149
  5,171Interest and other expense (income),
  net
  (416)
  285Income before provision (benefit) for income taxes
  6,565
  4,886Provision (benefit) for income taxes
  2,606
  (56)Net income
  $       
  3,959
  $       
  4,942Net income per share:Basic
  $         
  0.10Diluted
  $         
  0.10Pro forma data:Income before provision for income taxes
  
  $       
  4,886Provision for income taxes
  
  1,857Net income
  
  $       
  3,029Pro forma net income per share:Basic
  
  $         
  0.10Diluted
  
  $         
  0.09Weighted average shares outstanding:Basic
  38,095

  30,601Diluted
  39,611
  32,856

See
accompanying notes to unaudited consolidated financial statements.

SimpleTech, Inc.



Consolidated
Statements of Cash Flows



(in thousands)



(unaudited)














Three
  Month Period    Ended March 31,2001
  2000Cash flow from operating activities:Net income
  $3,959
  $4,942Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization
  864
  667Loss on sale of furniture, fixtures and equipment
  6
  1Accounts receivable provisions
  552
  1,071Deferred income taxes
  -
  (60)Compensation related to stock options vesting
  11
  11Change in operating assets and liabilities:Accounts receivable
  6,080
  2,222Inventory
  9,230
  (8,896)Other assets
  136
  (18)Accounts payable
  (15,727)
  (662)Accrued and other liabilities
  1,733
  769Net cash provided by operating activities
  6,844
  47Cash flows from investing activities:Purchase of furniture, fixtures and equipment
  (1,755)
  (198)Proceeds from sale of furniture, fixtures andequipment
  159
  147Net cash used in investing activities
  (1,596)
  (51)Cash flows from financing activities:Deferred offering costs
  -
  (155)Borrowings under line of credit, net
  -
  (2,407)Repayment of borrowings from banks
  (184)
  (168)Payment on capital lease obligations
  (248)
  (224)Repayment of loans to related parties, net
  -
  40Distributions to shareholders
  -
  (27)Proceeds from exercise of stock options
  833
  -Net cash provided by (used in) financing activities
  401
  (2,941)Net increase (decrease) in cash
  5,649
  (2,945)Cash and cash equivalents at
  beginning of period
  33,747
  3,779Cash and cash equivalents at end of
  period
  $39,396
  $834



See
accompanying notes to unaudited consolidated financial statements.


SIMPLETECH, INCNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Basis of Presentation

The accompanying interim consolidated
financial statements are unaudited and have been prepared in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X.  In the opinion of management, all
adjustments (consisting of normal and recurring accruals) considered necessary
for a fair presentation of the consolidated financial position of the Company
at March 31, 2001 and the consolidated results of operations and cash flows for
the three month periods ended March 31, 2001 and 2000 have been included.  These interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes contained in the Annual Report on Form 10-K filed
with the SEC.  The December 31, 2000
balances reported herein are derived from the audited consolidated financial
statements included in the Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.  The results for the
interim periods are not necessarily indicative of results to be expected for
the full fiscal year.

The consolidated financial statements of
the Company include the accounts of the Companys subsidiaries.  All significant intercompany accounts and
transactions have been eliminated in consolidation.

Note 2 - Use of Estimates

The preparation of financial statements
in conformity with accounting principles generally accepted in the United
States of America requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities (e.g., bad debt
reserves and inventory reserves), disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Note 3 - Net Income Per Share

Basic earnings per
share is computed by dividing net income by the weighted average number of
shares outstanding. In computing diluted earnings per share, the weighted
average number of shares outstanding is adjusted to additionally reflect the
effect of potentially dilutive securities. For the quarters ending March 31,
2001 and 2000, potentially dilutive securities consisted solely of options and
resulted in potential common shares of 1,516,333 and 2,254,880, respectively.

Pro forma net
income was computed using an effective tax rate of 38% to reflect the estimated
income tax expense of the Company as if it had been subject to C corporation
federal and state income taxes for the period, instead of S corporation income
taxes.

Note 4 -
Supplemental Balance Sheet Information

Inventory consists of the following:

(In thousands)
  March
  31, 2001
  December
  31, 2000Raw
  materials
  $16,552
  $24,768Work-in-progress
  867
  759Finished goods
  7,761
  9,65225,180
  35,179Reserve for excess and
  obsolescence
  (3,357)
  (4,127)Inventory, net
  $21,823
  $31,052



Note 4 -
Supplemental Balance Sheet Information (continued)

Furniture, fixtures and equipment consist
of the following:

(In thousands)
  March
  31, 2001
  December
  31, 2000Furniture and fixtures
  $293
  $294Equipment
  18,315
  16,76918,608
  17,063Accumulated
  depreciation
  (10,956)
  (10,137)Furniture, fixtures
  and equipment, net
  $7,652
  $6,926

Note 5  Dense-Pac
Microsystems, Inc. litigation

On February 7, 2001, the Court ruled on
pending summary judgment motions in the lawsuit the Company filed in September
1998 against Dense-Pac Microsystems, Inc. 
In this lawsuit filed in Federal Court in Santa Ana, the Company alleged
that Dense-Pac infringed the Companys IC Tower stacking patent, U.S. Patent
No. 5,514,907.  Dense-Pac counterclaimed
for infringement of its stacking patent, U.S. Patent No. 4,956,694. The Company
sought damages and an injunction against infringement of its patent by
Dense-Pac.  Dense-Pac denied the
infringement and asserted a defense of patent invalidity and a counterclaim
against the Company alleging infringement of its stacking patent.

In the Court's summary rulings, the Court
found non-infringement by Dense-Pac as to the Companys patent and
non-infringement by the Company as to Dense-Pacs patent.  The Company has filed notice that it will
appeal the adverse summary judgment ruling to the U.S. Court of Appeals for the
Federal Circuit in Washington, D.C.  No
trial date has been set.

On February 21, 2001, the Company filed a
new lawsuit against Dense-Pac in Federal Court in Santa Ana for infringement of
its IC Tower stacking patent, U.S. Patent No. Re. 36,916 (a reissue of U.S.
Patent No. 5,514,907 referenced above). 
The Company is seeking damages, an injunction against further
infringement, and related costs. 
Dense-Pac filed its answer on March 13, 2001, denying infringement,
asserting a defense of patent invalidity, and alleging technology
misappropriation by the Company.  No
hearings have been held on the matter to date and no trial date has been set.

Note 6  Segment Information:

The Company designs, manufactures and
markets a comprehensive line of memory, storage and connectivity products used
in high performance computing, networking and communications, consumer
electronics and industrial applications. 
The Company provides both technology solutions for two reportable
operating segments, Industrial (formerly termed Original Equipment Manufacturer
or OEM) and Commercial (formerly termed Aftermarket), based on dynamic random
access memory, static random access memory and Flash memory technologies.

Beginning in 1999, after completion of
management information system enhancements, the Company used net sales and
gross profit as the basis for evaluating the performance of its operating
segments.  The Company does not allocate
operating expenses, interest or income taxes to operating segments.  Due to the similarity of products
manufactured for customers within each operating segment, the Company does not
maintain separate records to identify assets by operating segment.

Summarized financial information
regarding the Companys reportable segments is shown in the following table:

(in thousands)
  Three Month Period Ended 
  March 31, 2001
  Three Month Period Ended
  March 31, 2000Industrial
  Commercial
  Consolidated
  Industrial
  Commercial
  ConsolidatedNet revenues
  $24,887
  $33,828
  $58,715
  $19,019
  $38,816
  $57,835Cost of revenues
  $15,748
  $27,505
  $43,253
  13,562
  31,451
  45,013Gross profit
  $9,139
  $6,323
  $15,462
  $5,457
  $7,365
  $12,822For the quarters ended March 31, 2001 and
2000, international sales comprised 15.6% and 16.8%, of the Companys revenues,
respectively.  During these periods, no
single foreign country accounted for more than 10.0% of total revenues.  All international sales during these periods
were shipped domestically to the Companys foreign customers.



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

Cautionary
Statement

Certain statements in this report, including statements
regarding the Company's strategy, financial performance and revenue sources,
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
and are subject to the safe harbors created by those sections.  These forward-looking statements are based
on our current expectations, estimates and projections about our industry,
management's beliefs, and certain assumptions made by us. Such statements are
not guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict. Therefore, our
actual results could differ materially and adversely from those expressed in
any forward-looking statements as a result of various factors. The section
entitled "Risk Factors" set forth in this Form 10-Q and similar
discussions in filings with the Securities and Exchange Commission made from
time to time, including other quarterly reports on Form 10-Q, our Annual Report
on Form 10-K, our prospectus on Form S-1 declared effective on September 28,
2000, and in our other SEC filings, discuss some of the important risk factors
that may affect our business, results of operations and financial condition.

The following discussion should be read in conjunction
with the Company's consolidated financial statements and notes thereto.

Results of
Operations - Comparison of the first quarter of 2001 to the first quarter of
2000

Net Revenues.Our revenues
were $58.7 million in the first quarter of 2001 compared to $57.8 million in
the same period in 2000.  Sales of Flash
and IC Tower stacking products accounted for 37.6% of our revenues in the first
quarter of 2001, compared to 30.8% in the same period in 2000.  Although revenues were relatively flat over
this period, unit volume increase 24%, which was partially offset by a 18%
decline in average sales price from $108 in the first quarter of 2000 to $89 in
the first quarter of 2001.  The decrease
in our average sales price resulted from a decline in DRAM and Flash component
prices during the fourth quarter of 2000 and the first quarter of 2001.  Stronger demand for our products by both our
Industrial and Commercial customers resulted in an overall unit volume
increase, comprised of unit volume increases of 16.6% for standard memory
products, 25.8% for Flash products, 35.0% for IC Tower stacking products and
70.4% for non-DRAM, non-Flash products such SRAM, hard drive upgrade kits and
connectivity products. The mix of products sold varies from quarter to quarter and
may vary in the future, affecting our overall average sales prices and gross
margins.

Our Industrial segment revenues grew 31.1% from $19.0
million in the first quarter of 2000 to $24.9 million in the first quarter of
2001. Industrial segment unit volume increased 4.9% for this period, and
Industrial segment average sales price increased from $161 in the first quarter
of 2000 to $200 in the first quarter of 2001. 
This increase in average sales price resulted from a shift in product
mix to a greater concentration of higher capacity DRAM, Flash and IC Tower
stacking products, which typically have relatively higher average sales prices.
Our Commercial segment revenues declined 12.9% from $38.8 million in the first
quarter of 2000 to $33.8 million in the first quarter of 2001. Commercial
revenues decreased due to a decrease in average sales price from $93 in the
first quarter of 2000 to $63 in the first quarter of 2001, offset by an
increase in unit volume of 29.1%. The decrease in average sales price for our
Commercial segment revenues resulted from a decline in DRAM and Flash component
prices during the fourth quarter of 2000 and the first quarter of 2001.

Our combined backlog was $8.0 million as of March 31,
2001, consisting of $7.4 million for the Industrial segment and $0.6 million
for the Commercial segment.  Our
combined backlog was $22.4 million as of December 31, 2000, consisting of $21.4
million for the Industrial segment and $1.0 million for the Commercial segment.  The decrease in Industrial segment backlog
from December 31, 2000 to March 31, 2001 was primarily due to the push out and
cancellation of orders by our Industrial customers in the networking and
communication industries as a result of the global economic slowdown.  Commercial segment backlog is typically
nominal since substantially all commercial customer orders are filled on a same–day
or next–day basis. We include in our backlog only those customer orders
for which we have accepted purchase orders and to which we have assigned
shipment dates within the upcoming six months. Since orders constituting our
backlog are subject to change due to, among other things, customer
cancellations and reschedulings, and our ability to procure necessary
components, backlog is not necessarily an indication of future revenues.

Gross Profit.Our gross profit
was $15.5 million in the first quarter of 2001, compared to $12.8 million in
the same period in 2000. Gross profit as a percentage of revenues was 26.3% in
the first quarter of 2001, compared to 22.2% in the same period in 2000. Gross
profit for our Industrial segment as a percentage of revenues was 36.7% in the
first quarter of 2001, compared to 28.7% in the first quarter of 2000.  This increase in gross profit resulted from
a positive product mix shift.  Gross
profit as a percentage of revenues for our Commercial segment was relatively
flat, decreasing slightly from 19.0% in the first quarter of 2000 to 18.7% in
the first quarter of 2001.

Research and Development.Research and
development expenses are primarily comprised of personnel costs for our
engineering and design staff and the cost of prototype supplies. Research and
development expenses were $1.1 million in the first quarter of 2001, compared
to $518,000 in the same period in 2000. Research and development expenses as a
percentage of revenues were 1.8% in the first quarter of 2001, compared to 0.9%
in the same period in 2000. The increase in research and development expenses
resulted from increased personnel costs related to the expansion of our
engineering staff.

Sales and Marketing.Sales and
marketing expenses are primarily comprised of personnel costs and travel
expenses for our domestic and international sales and marketing employees,
commissions paid to internal salespersons and independent manufacturers'
representatives, shipping costs and marketing programs. Sales and marketing
expenses were $5.3 million in the first quarter of 2001, compared to $4.3
million in the same period in 2000. Sales and marketing expenses increased over
this period primarily due to an increase in sales and marketing personnel.  Sales and marketing expenses as a percentage
of revenues were 9.0% in the first quarter of 2001, compared to 7.5% in the
same period in 2000.

General and Administrative.General and administrative
expenses are primarily comprised of personnel costs for our executive and
administrative employees, professional fees and facilities overhead. General
and administrative expenses were $3.0 million in the first quarter of 2001,
compared to $2.8 million in the same period in 2000. General and administrative
expenses as a percentage of revenues were 5.1% in the first quarter of 2001 and
4.8% in the first quarter of 2000. 
General and administrative expenses were relatively flat during this
period.

Interest and Other Expense (Income), Net.Interest and
other expense (income), net was ($416,000) in the first quarter of 2001 and
$285,000 in the first quarter of 2000. 
Interest expense is comprised of interest related to our line of credit
and equipment financing. Interest expense was $63,000 in the first quarter of
2001, compared to $286,000 in the same period in 2000. The decrease in interest
expense in the first quarter of 2001 resulted from the pay down of our line of
credit to zero in October 2000. 
Interest income was $479,000 in the first quarter of 2001 and $0 in the
first quarter of 2000.  This increase in
interest income resulted from a higher average cash balance due to the receipt
of net proceeds from our initial public offering in October 2000.

Pro Forma Provision (Benefit) for Income Taxes.From formation in March 1990 to September 26, 2000, we
elected for federal and state income tax purposes to be treated as an S
corporation under Subchapter S of the Internal Revenue Code. Under this election,
our shareholders, rather than SimpleTech, were subject to federal income taxes
on their respective share of our taxable income. We also had elected similar
treatment for California franchise tax purposes which, in addition, requires a
state income tax at our level of 1.5%. On September 26, 2000, we terminated our
Subchapter S election. Subsequent to the termination, we are required to pay
federal and state corporate-level income taxes.

Net income was $4.0 million in the first quarter of
2001.  Assuming the termination of our S
corporation status, pro forma net income would have been $3.0 million in the
first quarter of 2000.

Liquidity and Capital Resources

As of March 31, 2001, we had working capital of $68.0
million including $39.4 million of cash and cash equivalents. As of
December 31, 2000, we had working capital of $64.3 million including $33.7
million of cash and cash equivalents. 
In addition, we had unused availability of $27.5 million at March 31,
2001 and December 31, 2000 under our line of credit with Comerica Bank.  The outstanding principal balance under our
line of credit was zero at March 31, 2001 and December 31, 2000.  There is no unused line fee under our line
of credit agreement with Comerica Bank. 
As a result of our initial public offering on September 29, 2000,
Comerica Bank has the option to reduce our available line of credit to a range
between $15.0 million to $20.0 million as determined in their sole and absolute
discretion.

Net cash provided by operating activities was $6.8
million in the first quarter of 2001. Net cash provided by operating activities
in the first quarter of 2001 resulted primarily from net income of $4.0
million, a decrease in accounts receivable of $6.1 million, a decrease in
inventory of $9.5 million and an increase in accrued and other liabilities of
$1.7 million, offset by a decrease in accounts payable of $15.7 million.  Accounts receivable, inventory and accounts
payable levels decreased due to declining sequential revenues.

Net cash used in investing activities was $1.6 million in
the first quarter of 2001, attributable primarily to purchases of furniture,
fixtures and equipment.  We expect to
spend approximately $8.0-10.0 million during the next 24 months, primarily
for the purchase of manufacturing, testing and engineering equipment.

Net cash provided by financing activities totaled
$401,000 in the first quarter of 2001. 
Net cash provided by financing activities in the first quarter of 2001
resulted from the receipt of $802,000 in proceeds from the exercise of stock
options, offset by $432,000 in payments related to equipment loans and capital
lease obligations.

We have several capital leases and
loans to finance manufacturing and testing equipment, including leases and
loans with companies affiliated with our executive officers and directors as
described under "Certain Relationships and Related Transactions-MDC Land
Corporation and MDC Land LLC" in our Annual Report on Form 10-K filed with
the SEC on April 2, 2001. Our obligations under capital leases were $1.1
million on March 31, 2001 and $1.4 million on December 31, 2000, with interest
rates ranging from 8.1% to 9.6% per annum. Our equipment financing loan
balances were $1.7 million on March 31, 2001 and $1.8 million on December 31,
2000, with interest rates ranging from 8.4% to 9.1% per annum.  One of the equipment note payable agreements
contains various nonfinancial covenants that, among other things, limit
distributions and dividends to our shareholders without the prior written
consent of the lender, and requires the equipment to remain unencumbered by
other liens. As of March 31, 2001, we were in compliance with all covenants
under the equipment note payable agreements.

We believe that our existing cash,
cash equivalents, investments on hand, existing assets, anticipated debt and
expected cash flow from operations will be sufficient to fund our operations
for the next 12 months. Thereafter, we may require additional sources of funds
to continue to support our business. Such funds, if needed, may not be
available or may not be available on terms acceptable to us.



Risk
Factors

You should
carefully consider the following risks before you decide to buy shares of our
common stock.  The risks and
uncertainties described below are not the only ones facing us.  Additional risks and uncertainties,
including those risks set forth in Managements Discussion and Analysis of
Financial Condition and Results of Operations above, may also adversely impact
and impair our business.  If any of the
following risks actually occur, our business, results of operations or
financial condition would likely suffer. 
In such case, the trading price of our common stock could decline, and
you may lose all or part of the money you paid to buy our stock.

This Report
contains forward-looking statements based on the current expectations,
assumptions, estimates and projections about us and our industry.  These forward-looking statements involve
risks and uncertainties.  Our actual
results could differ materially from those discussed in these forward-looking
statements as a result of certain factors, as more fully described in this
section and elsewhere in this Report. 
We do not undertake to update publicly any forward-looking statements
for any reason, even if new information becomes available or other events occur
in the future.



Declines in our average sales prices may result in declines
in our revenues and gross margins.

In
the fourth quarter of 2000, overcapacity in the memory product market
negatively impacted our average selling prices.  We expect this overcapacity to negatively impact our revenues and
profitability at a minimum until mid-2001. 
Declines in semiconductor prices could affect the valuation of our
inventory which could harm our business. Our ability to maintain or increase
revenues will depend upon our ability to increase unit sales volumes of
existing products and to introduce and sell new products in quantities
sufficient to offset declines in sales prices. Our efforts to reduce costs and
develop new products to offset the impact of further declines in average sales
prices may not be successful. Declines in average sales prices also would
result in more memory being built into products by Industrial customers, which
would favor our largest competitors and reduce the demand for our commercial
memory products.

Because we depend on a small number of suppliers for IC
devices, any disruption in our supply relationships could harm our ability to
fulfill orders.

We
have no long-term supply contracts and are dependent on a small number of
suppliers to supply integrated circuit, or IC, devices which represent
approximately 95% of our component costs. Our dependence on a small number of
suppliers and our lack of long-term supply contracts expose us to several risks,
including the inability to obtain an adequate supply of components, price
increases, late deliveries and poor component quality. Hitachi Semiconductor
supplies substantially all of the IC devices used in our Flash memory products.
In addition, Hitachi Semiconductor, Hyundai Electronics, NEC Electronics,
Samsung Semiconductor and Toshiba currently supply a majority of the dynamic
random access memory, or DRAM, IC devices used in our DRAM memory products. A
disruption in or termination of our supply relationship with any of these
significant suppliers by natural disaster or otherwise, or our inability to
develop relationships with new suppliers, if required, would cause delays,
disruptions or reductions in product shipments or require product redesigns
which could damage relationships with our customers, and would increase our
costs and/or prices. In particular, if our supply relationship with Hitachi
Semiconductor is disrupted or terminated, our ability to manufacture and sell
our Flash products would be limited and our Flash business would be adversely
affected.

We are subject to the cyclical nature of the semiconductor
industry and changes from the current point in the cycle could adversely affect
our business.

The
semiconductor industry, including the memory markets in which we compete, is
highly cyclical and is characterized by constant and rapid technological
change, rapid product obsolescence and price erosion, evolving standards, short
product life cycles and wide fluctuations in product supply and demand. The
industry has experienced significant downturns, often connected with, or in
anticipation of, maturing product cycles of both semiconductor companies' and
their customers' products and declines in general economic conditions. These
downturns have been characterized by diminished product demand, production
overcapacity, high inventory levels and accelerated erosion of average selling
prices. Any future downturns could have a material adverse effect on our
business and operating results. Furthermore, any upturn in the semiconductor
industry could result in increased demand for, and possible shortages of,
components we use to manufacture and assemble our ICs. Such shortages could
have a material adverse effect on our business and operating results.

We may be unable to maintain a steady supply of components.

The electronics industry has experienced
in the past, and may experience in the future, shortages in IC devices,
including DRAM, static random access memory, or SRAM, and Flash memory. We have
experienced and may continue to experience delays in component deliveries and
quality problems which have caused and could in the future cause delays in
product shipments and have required and could in the future require the
redesign of some of our products. In addition, industry capacity has, from time
to time, become constrained such that some vendors which supply components for
our products have placed their customers, ourselves included, on allocation.
This means that while we may have customer orders, we may not be able to obtain
the materials that we need to fill those orders in a timely manner.

Sales to a small number of customers represent a significant
portion of our revenues and the loss of any key customer would materially
reduce our sales.

Our
dependence on a small number of customers means that the loss of a major
customer or any reduction in orders by a major customer would materially reduce
our sales. Historically, a relatively small number of customers have accounted
for a significant percentage of our revenues. Our ten largest Industrial
segment customers accounted for an aggregate of 80.5% of our Industrial
revenues or 34.1% of our total revenues in the first quarter of 2001.  Our largest Industrial customer, Unisys,
accounted for 33.6% of our Industrial revenues or 14.6% of our total revenues
in the first quarter of 2001.  Our ten
largest Commercial segment customers accounted for an aggregate of 57.9% of our
Commercial revenues or 33.3% of our total revenues in the first quarter of
2001. Our largest Commercial customer, CDW Computer Centers, accounted for
29.7% of our Commercial revenues or 17.1% of our total revenues in the first
quarter of 2001. Consolidation in some of our customers' industries may result
in increased customer concentration and the potential loss of customers as a
result of acquisitions. In addition, the composition of our major customer base
changes from quarter to quarter as the market demand for our customers'
products changes and we expect this variability will continue in the future. We
expect that sales of our products to a small number of customers will continue
to contribute materially to our revenues in the foreseeable future and believe
that our financial results will depend in significant part upon the success of
our customers' products.

Three of our beneficial shareholders have substantial
influence over our operations and can significantly influence matters requiring
shareholder approval.

Manouch
Moshayedi, Mike Moshayedi and Mark Moshayedi, each of whom is an executive
officer and director of SimpleTech, are brothers and beneficially own
approximately 80.2% of our common stock. As a result, they have the ability to
control all matters requiring approval by our shareholders, including the
election and removal of directors, approval of significant corporate
transactions and the ability to control the decision of whether a change in
control will occur.

We are involved from time to time in claims and litigation
over intellectual property rights, which may adversely affect our ability to
manufacture and sell our products.

The
semiconductor industry is characterized by vigorous protection and pursuit of
intellectual property rights. We believe that it may be necessary, from time to
time, to initiate litigation against one or more third parties to preserve our
intellectual property rights. In addition, from time to time, we have received,
and may continue to receive in the future, notices that claim we have infringed
upon, misappropriated or misused other parties' proprietary rights, which
claims could result in litigation. Such litigation would likely result in
significant expense to us and divert the efforts of our technical and
management personnel. In the event of an adverse result in such litigation, we
could be required to pay substantial damages, cease the manufacture, use and
sale of certain products, expend significant resources to develop
non-infringing technology, discontinue the use of certain processes or obtain
licenses to use the infringed technology. Such a license may not be available
on commercially reasonable terms, if at all. Our failure to obtain a license or
our failure to obtain a license on commercially reasonable terms could cause us
to incur substantial costs and suspend manufacturing products using the infringed
technology. If we obtain a license, we would likely be required to make royalty
payments for sales under the license. Such payments would increase our costs of
revenues and reduce our gross profit.

We are currently a party to two lawsuits
regarding intellectual property as further described below under Part II 
Other Information  Item I - Legal Proceedings. The outcome of litigation is
inherently uncertain and we cannot predict the outcome of these lawsuits with
certainty. These lawsuits have diverted, and are expected to continue to
divert, the efforts and attention of our key management and technical
personnel. In addition, we have incurred, and expect to continue to incur,
substantial legal fees and expenses in connection with these lawsuits. As a
result, our defense of these lawsuits, regardless of their eventual outcomes,
has been, and will continue to be, costly and time consuming. In addition, if
our IC Tower stacking patent is found to be invalid, our ability to exclude
competitors from making, using or selling the same or similar products to our
IC Tower stacking products would cease. In addition, if we are found to
infringe valid patents of others, we may be excluded from using the infringed
technology without a license, which may not be available on commercially
reasonable terms, if at all.

If industry sales of products using Flash memory do not grow,
our revenues, gross margins and profitability would be harmed.

The
market for consumer electronics incorporating Flash memory is relatively new
and emerging. The success of our Flash business will depend largely on the
level of consumer interest in consumer electronics utilizing Flash memory, such
as digital cameras, MP3 digital audio players and personal digital assistants,
or PDAs, many of which have only recently been introduced to the market. If
sales of products using Flash memory do not increase, we will be unable to grow
our Flash business. In addition, if we are unable to anticipate and fulfill
customer demand for our products, we may lose sales to our competitors.

Demand for our products would decline if the market for Flash
memory does not develop, or if a competing technology displaces Flash memory.

There
is currently an absence of a single Flash memory standard. It is possible that
Flash memory standards other than those to which our products conform will
emerge as the industry standard. If we are unable to anticipate and adequately
allocate our resources in a timely and efficient manner toward the production
and development of industry-standard Flash memory products, we may experience
significant delays in releasing new and commercially viable products. These
delays would provide a competitor a first-to-market opportunity and allow a
competitor to achieve greater market share. Some of our competitors are in a
better financial and marketing position from which to influence industry
acceptance of a particular Flash memory standard or competing technology than
we are. In particular, a primary source of competition may come from companies
that offer alternative technologies such as ferroelectric random access memory
products. If a competing technology replaces or takes significant market share
from the Flash memory market, we would not be able to sell our Flash products.

The execution of our growth strategy depends on our ability
to retain key personnel, including our executive officers, and to attract
qualified personnel.

Competition
for employees in our industry is intense. We have had and may continue to have
difficulty hiring the necessary engineering, sales and marketing and management
personnel to support our growth. The successful implementation of our business
model and growth strategy depends on the continued contributions of our senior
management and other key research and development, sales and marketing and
operations personnel, including Manouch Moshayedi, our Chief Executive Officer,
Mike Moshayedi, our President, and Mark Moshayedi, our Chief Operating Officer,
Chief Technical Officer and Secretary. The loss of any key employee, the
failure of any key employee to perform in his or her current position, or the
inability of our officers and key employees to expand, train and manage our
employee base would prevent us from executing our growth strategy.

Our proprietary technology and intellectual property may not
be adequately protected, which could harm our competitive position.

Our
proprietary technology and other intellectual property are critical to our
success. We protect our intellectual property rights through patents, trademarks,
copyrights and trade secret laws, confidentiality procedures and employee
disclosure and invention assignment agreements. It is possible that our efforts
to protect our intellectual property rights may not:

prevent
the challenge, invalidation or circumvention of our existing patents;
result
in patents that lead to commercially viable products or provide competitive
advantages for our products;
prevent
our competitors from independently developing similar products, duplicating our
products or designing around the patents owned by us;
prevent
third-party patents from having an adverse effect on our ability to do
business;
result
in patents with claims that are sufficiently broad to preclude competition;
provide
adequate protection for our intellectual property rights;
prevent
disputes with third parties regarding ownership of our intellectual property
rights;
prevent
disclosure of our trade secrets and know-how to third parties or into the
public domain; and
result
in patents from any of our pending applications.As part of our
confidentiality procedures, we enter into non-disclosure and invention
assignment agreements with all of our employees and attempt to control access
to and distribution of our technology, documentation and other proprietary
information. However, if such agreements are found to be unenforceable, we may
be unable to adequately protect our intellectual property rights. In addition,
despite these procedures, third parties could copy or otherwise obtain and make
unauthorized use of our technologies or independently develop similar
technologies.We
have not applied and do not expect to apply for patent protection in foreign
countries. In addition, the laws of foreign countries may not adequately
protect our intellectual property rights. Many U.S. companies have encountered
substantial infringement problems in some foreign countries. Because we sell
some of our products overseas, we have exposure to foreign intellectual
property risks.

Our indemnification obligations for the infringement by our
products of the intellectual property rights of others could require us to pay
substantial damages.

We
currently have in effect a number of agreements in which we have agreed to
defend, indemnify and hold harmless certain of our customers and suppliers from
damages and costs which may arise from the infringement by our products of
third-party patents, trademarks or other proprietary rights. We may
periodically have to respond to claims and litigate these types of indemnification
obligations. Any such indemnification claims could require us to pay
substantial damages. Our insurance does not cover intellectual property
infringement.

Our indemnification obligations to our customers and
suppliers for product defects could require us to pay substantial damages.

A
number of our product sales and product purchase agreements provide that we
will defend, indemnify and hold harmless our customers and suppliers from
damages and costs which may arise from product warranty claims or claims for
injury or damage resulting from defects in our products. We maintain insurance
to protect against certain claims associated with the use of our products, but
our insurance coverage may not be adequate to cover all or any part of the
claims asserted against us. A successful claim brought against us that is in
excess of, or excluded from, our insurance coverage could substantially harm
our business, financial condition and results of operations.

Our limited
experience in acquiring other businesses, product lines and technologies may
make it difficult for us to overcome problems encountered in connection with
any acquisitions we may undertake.

While
we have no agreements or negotiations currently underway, we intend to pursue
selective acquisitions to complement our internal growth. If we make any future
acquisitions, we could issue stock that would dilute our shareholders'
percentage ownership, incur substantial debt or assume contingent liabilities.
We have limited experience in acquiring other businesses, product lines and
technologies. In addition, the attention of our small management team may be
diverted from our core business if we undertake an acquisition. Potential
acquisitions also involve numerous risks, including, among others:

Problems
assimilating the purchased operations, technologies or products;
Costs
associated with the acquisition;
Adverse
effects on existing business relationships with suppliers and customers;
Risks
associated with entering markets in which we have no or limited prior
experience;
Potential
loss of key employees of purchased organizations; and
Potential
litigation arising from the acquired company's operations before the
acquisition.Our inability to
overcome problems encountered in connection with such acquisitions could divert
the attention of management, utilize scarce corporate resources and harm our
business. In addition, we are unable to predict whether or when any prospective
acquisition candidate will become available or the likelihood that any acquisition
will be completed.Product returns, price protection and order cancellations
could reduce our revenues.

To
the extent we manufacture products in anticipation of future demand that does
not materialize, or in the event a customer cancels outstanding orders, we
could experience an unanticipated increase in our inventory. A lack of consumer
demand for our products may also cause increased product returns. A majority of
our sales through Commercial segment channels include limited rights to return
unsold inventory. In addition, while we may not be contractually obligated to
accept returned products, we may determine that it is in our best interest to
accept returns in order to maintain good relations with our customers. Product
returns would increase our inventory and reduce our revenues.  We have had to write-down inventory in the
past for reasons such as obsolescence, excess quantities and declines in market
value below our costs. In addition, we offer some of our Commercial customers
limited price protection rights for inventories of our products held by them.
If we reduce the list price of our products, these customers may receive
credits from us. We incurred price protection charges of approximately $295,000
in the first quarter of 2001.

We
are also subject to repurchase agreements with various financial institutions
in connection with wholesale inventory financing. Under these agreements, we
may be required to repurchase inventory upon customer default with a financing
institution and then resell the inventory through normal distribution channels.
As of March 31, 2001, we have not been required to repurchase inventory in
connection with the customer default agreements noted above. However, it may be
possible that we will be required to repurchase inventory, upon customer
default, in the future. Sales under such agreements were approximately $420,000
in the first quarter of 2001.

We
have no long-term volume commitments from our customers. Sales of our products
are made through individual purchase orders and, in certain cases, are made
under master agreements governing the terms and conditions of the
relationships. Customers may change, cancel or delay orders with limited or no
penalties. We have experienced cancellations of orders and fluctuations in
order levels from period-to-period and we expect to continue to experience
similar cancellations and fluctuations in the future which could result in
fluctuations in our revenues.

We may not be able to maintain or improve our competitive
position because of the intense competition in the memory industry.

We
conduct business in an industry characterized by intense competition, rapid
technological change, evolving industry standards, declining average sales
prices and rapid product obsolescence. Our competitors include many large
domestic and international companies that have substantially greater financial,
technical, marketing, distribution and other resources, broader product lines,
lower cost structures, greater brand recognition and longer-standing relationships
with customers and suppliers. As a result, our competitors may be able to
respond better to new or emerging technologies or standards and to changes in
customer requirements. Our competitors may also be able to devote greater
resources to the development, promotion and sale of products, and may be able
to deliver competitive products at a lower price.

We expect to face competition from
existing competitors and new and emerging companies that may enter our existing
or future markets that have similar or alternative products which may be less
costly or provide additional features. In addition, some of our significant
suppliers are also our competitors, many of whom have the ability to
manufacture competitive products at lower costs as a result of their higher
levels of integration. We also face competition from current and prospective
customers that evaluate our capabilities against the merits of manufacturing
products internally. Competition may arise due to the development of
cooperative relationships among our current and potential competitors or third
parties to increase the ability of their products to address the needs of our
prospective customers. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share.

We
expect our competitors will continue to improve the performance of their
current products, reduce their prices and introduce new products that may offer
greater performance and improved pricing, any of which could cause a decline in
sales or loss of market acceptance of our products. In addition, our
competitors may develop enhancements to or future generations of competitive
products that may render our technology or products obsolete or uncompetitive.

We may lose our competitive position if we fail to develop
new and enhanced products and introduce them in a timely manner.

The
high performance computing, networking and communications, consumer electronics
and industrial markets are subject to rapid technological change, product
obsolescence, frequent new product introductions and enhancements, changes in
end-user requirements and evolving industry standards. Our ability to compete
in these markets will depend in significant part upon our ability to
successfully develop, introduce and sell new and enhanced products on a timely
and cost-effective basis, and to respond to changing customer requirements.

We
have experienced, and may in the future experience, delays in the development
and introduction of new products. Our product development is inherently risky
because it is difficult to foresee developments in technology, coordinate our
technical personnel, and identify and eliminate design flaws. Defects or errors
found in our products after commencement of commercial shipments, could result
in delays in market acceptance of these products. Delays in developing,
manufacturing or marketing new or enhanced products could give our competitors
an advantage, hurt our reputation and harm our business, financial condition
and results of operations. Such products, even if introduced, may not gain
market acceptance. In addition, we may not be able to respond effectively to
new technological changes or new product announcements by others.

We rely on a continuous power supply to
conduct our operations, and Californias current energy crisis could disrupt
our operations and increase our expenses.

All
of our manufacturing operations are located in our facility in Santa Ana,
California.  California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. 
In the event power reserves for the State of California fall to a
critically low level, California has on some occasions implemented, and may in
the future continue to implement, rolling power blackouts throughout
California.   We currently do not have
backup generators or alternate sources of power in the event of a blackout, and
our current insurance does not provide coverage for any damages we may suffer
as a result of any interruption in our power supply.  If blackouts interrupt our power supply, we would be temporarily
unable to continue operations.  Any such
interruption in our ability to continue operations would delay the manufacture
and development of our products, disrupt communications with our customers and
suppliers and delay product shipment. 
Power interruptions could also damage our reputation and could result in
lost revenue.  Any loss of power could
have a material adverse effect on our business, operating results and financial
condition.  Furthermore, shortages in
wholesale electricity supplies have caused power prices to increase.  If electricity prices continue to increase,
our operating expenses will likely increase which will have a negative effect
on our operating results.

Obtaining additional capital to fund our operations and
finance our growth could impair the value of your investment.

If we expand more rapidly than currently
anticipated or if our working capital needs exceed our current expectations, we
may need to raise additional capital through public or private equity offerings
or debt financings. Our future capital requirements depend on many factors
including our research, development, sales and marketing activities. We do not
know whether additional financing will be available when needed, or will be
available on terms favorable to us. If we cannot raise needed funds on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or unanticipated
requirements. To the extent we raise additional capital by issuing equity
securities, our shareholders may experience substantial dilution and the new
equity securities may have greater rights, preferences or privileges than our
existing common stock.

We face risks associated with doing business in foreign
countries, including foreign currency fluctuations and trade barriers, that
could lead to a decrease in demand for our products or an increase in the cost
of the components used in our products.

The
volatility of general economic conditions and fluctuations in currency exchange
rates affect the prices of our products and the prices of the components used
in our products. International sales of our products accounted for 15.6% of our
revenues in the first quarter of 2001. No single foreign country accounted for
more than 10.0% of our revenues in the first quarter of 2001. For the first
quarter of 2001, over 95.0% of our international sales were denominated in U.S.
dollars. However, if there is a significant devaluation of the currency in a
specific country, the prices of our products will increase relative to that
country's currency and our products maybe less competitive in that country. In
addition, we cannot be sure that our international customers will continue to
be willing to place orders denominated in U.S. dollars. If they do not, our
revenues and results of operations will be subject to foreign exchange
fluctuations which could harm our business. We do not hedge against foreign
currency exchange rate risks.

In
addition, we purchase substantially all of the IC devices used in our products
from local distributors of foreign suppliers. Although our purchases of IC
devices are currently denominated in U.S. dollars, devaluation of the U.S.
dollar relative to the currency of a foreign supplier would likely result in an
increase in our cost of IC devices.

Our
international sales also are subject to certain other risks, including
regulatory risks, tariffs and other trade barriers, timing and availability of
export licenses, political and economic instability, difficulties in accounts
receivable collections, difficulties in managing distributors, lack of a local
sales presence, difficulties in obtaining governmental approvals, compliance
with a wide variety of complex foreign laws and treaties and potentially
adverse tax consequences. In addition, the United States or foreign countries
may implement quotas, duties, taxes or other charges or restrictions upon the
importation or exportation of our products, leading to a reduction in sales and
profitability in that country.

Disruption of our operations in our Santa Ana, California
manufacturing facility would substantially harm our business.

All of our manufacturing operations
are located in our facility in Santa Ana, California. Due to this geographic
concentration, a disruption of our manufacturing operations, resulting from
sustained process abnormalities, human error, government intervention or
natural disasters such as earthquakes, fires or floods could cause us to cease
or limit our manufacturing operations and consequently harm our business,
financial condition and results of operations.

Compliance with environmental laws and regulations could harm
operating results.

We are subject to a variety of environmental
laws and regulations governing, among other things, air emissions, waste water
discharge, waste storage, treatment and disposal, and remediation of releases
of hazardous materials. Our failure to comply with present and future
requirements could harm our ability to continue manufacturing our products.
Such requirements could require us to acquire costly equipment or to incur
other significant expenses to comply with environmental regulations. The
imposition of additional or more stringent environmental requirements, the
results of future testing at our facilities, or a determination that we are
potentially responsible for remediation at other sites where problems are not
presently known to us, could result in expenses in excess of amounts currently
estimated to be required for such matters.

ITEM
3.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

We are currently exposed to
interest rate risk on our existing equipment term loans.  Our variable rate debt consists of term loan
borrowing of $1.7 million.  To date we
have not utilized our floating rate debt under the revolving credit facility.

If interest rates were to increase
or decrease 1%, the result would be an annual increase or decrease of interest
expense of approximately $17,000. 
However, due to the uncertainty of the actions that would be taken and
their possible effects, this analysis assumes no such action.  Further, this analysis does not consider the
effect of the change in the level of overall economic activity that could exist
in such an environment.

Sales to foreign customers are
denominated in U.S. dollars and as such we have no foreign currency fluctuation
risk.

PART II
OTHER INFORMATION

Item 1.  Legal Proceedings

Reference
is made to our Annual Report on Form 10-K filed with the SEC on April 2, 2001 under the heading "Legal
Proceedings" for a discussion of litigation involving the Company relating
to (i) patent litigation with Dense-Pac Microsystems, Inc., (ii) technology
misappropriation with Dense-Pac Microsystems, Inc. and (iii) litigation with
Interactive Flight Technologies, Inc. and Avnet, Inc.

Dense-Pac Microsystems, Inc.Patent Litigation

On February 7, 2001, the Court ruled on
pending summary judgment motions in the lawsuit the Company filed in September
1998 against Dense-Pac Microsystems, Inc. 
In this lawsuit filed in Federal Court in Santa Ana, Simple alleged that
Dense-Pac infringed Simples IC Tower stacking patent, U.S. Patent No.
5,514,907.  Dense-Pac counterclaimed for
infringement of its stacking patent, U.S. Patent No. 4,956,694.  Simple sought damages and an injunction
against infringement of its patent by Dense-Pac.  Dense-Pac denied the infringement and asserted a defense of
patent invalidity and a counterclaim against Simple alleging infringement of
its stacking patent.

In the Court's summary rulings, the Court
found non-infringement by Dense-Pac as to Simples patent and non-infringement
by Simple as to Dense-Pacs patent. 
Simple has filed notice that it will appeal the adverse summary judgment
ruling to the U.S. Court of Appeals for the Federal Circuit in Washington,
D.C.  No trial date has been set.

On February 21, 2001, Simple filed a new
lawsuit against Dense-Pac in Federal Court in Santa Ana for infringement of its
IC Tower stacking patent, U.S. Patent No. Re. 36,916 (a reissue of U.S. Patent
No. 5,514,907 referenced above).  Simple
is seeking damages, an injunction against further infringement, and related
costs.  Dense-Pac filed its answer on
March 13, 2001, denying infringement, asserting a defense of patent invalidity,
and alleging technology misappropriation by Simple.  No hearings have been held on the matter to date and no trial
date has been set.

Dense-Pac Microsystems, Inc.  Technology
Misappropriation

On February 14, 2001, Dense-Pac dismissed
their lawsuit brought against us and Mark Moshayedi.

Interactive Flight Technologies, Inc.

On December 22, 2000, all parties entered
into a settlement agreement that settled all claims between them, with the
exception of Avnets counterclaim against us. 
Under the terms of the settlement and Avnets judgment in its favor on
the counterclaim, we made a total lump-sum payment of $1,810,000 to Interactive
Flight and the other parties from the $1,900,000 we had reserved for this
litigation in the third quarter 2000. 
On January 12, 2001, Avnet executed and we recorded a Satisfaction of
Judgment between Avnet and us.  On
January 22, 2001, all parties stipulated to dismiss all claims with
prejudice.  On January 23, 2001, the
court entered its Order of Dismissal dismissing all remaining claims between
the parties.

We
are currently not a party to any other material legal proceedings. However, we
are involved in several other suits and claims in the ordinary course of
business, and we may from time to time become a party to other legal
proceedings arising in the ordinary course of business.

While
we believe that grounds exist for requesting a new trial and appealing the jury
verdict and a final adverse judgment, we intend to reserve our final decision
on appealing until such time as the court renders its decision on pending and
anticipated motions.

We
are currently not a party to any other material legal proceedings. However, we
are involved in several other suits and claims in the ordinary course of business,
and we may from time to time become a party to other legal proceedings arising
in the ordinary course of business.

Item 2.  Changes in Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Submission of Matters to a Vote of Security
Holders

On
April 5, 2001, our Board of Directors and shareholders which own a majority of
our Common Stock approved a resolution by written consent approving an
amendment to our Amended and Restated Articles of Incorporation to change the
Companys name to SimpleTech, Inc. 
Our name change became effective on May 7, 2001.

Item
5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K



ExhibitNumber
  Description3.1
  Certificate of
  Amendment to the Amended and Restated Articles of Incorporation

SIGNATURESPursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

SIMPLETECH,
  INC.,a
  California corporationDate:
  May
  11, 2001
  /s/
  MANOUCH MOSHAYEDIManouch
  MoshayediChief
  Executive Officer and Chairman of 
  the Board of DirectorsDate:
  May
  11, 2001
  /s/
  DAN MOSESDan
  MosesChief
  Financial Officer (Principal
  Financial and Accounting Officer) and
  Director

EXHIBIT INDEX



ExhibitNumber
  Description3.1
  Certificate of
  Amendment to the Amended and Restated Articles of Incorporation