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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from  to
 Commission File Number: 000-11284
 
 SILICON MOUNTAIN HOLDINGS, INC.
  Colorado
    
    84-0910490(State or Other Jurisdiction of incorporation or 
Organization)
    
    (I.R.S. Employer Identification No.)4755 Walnut Street
    
    80301Boulder, Colorado
    
    (Zip Code)(Address of Principal Executive Offices)
        Yes o No þ
 Yes o No þ
 Yes þ No o
 Yes þ No o
 Yes o No þ
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company þ
 Yes o No þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    21Item 2. Properties
    
    
    21Item 3. Legal Proceedings
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22PART IIItem 5. Market for Registrants Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    22Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 8. Financial Statements and Supplementary Data
    
    
    34Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    58Item 9A(T). Controls and Procedures
    
    
    58Item 9B. Other Information
    
    
    61PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    62Item 11. Executive Compensation
    
    
    63Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    68Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    69Item 14. Principal Accountant Fees and Services
    
    
    71PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    69SIGNATURES
    
    
    72Exhibit 14.1Exhibit 21.1Exhibit 31.1Exhibit 31.2Exhibit 32.1




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PART I
 FORWARD LOOKING STATEMENTS
  
    
    financial position;
    
    business strategy;
    
    budgets;
    
    amount, nature and timing of capital expenditures;
    
    acquisition risks;
    
    results of operations;
    
    operating costs and other expenses;
    
    cash flow and anticipated liquidity;
    
    sufficiency of capital resources to fund our operation requirements; or
    
    any other statements which are other than statements of historical fact.
  
    
    our ability to generate sufficient cash flows to operate;
    
    availability of capital;
    
    general economic conditions;
    
    currency exchange volatility;
    
    the risks associated with acquiring and integrating new businesses;
    
    demand for our products;
    
    labor and other costs of producing and selling our products;
    
    the strength and financial resources of our competitors;
    
    regulatory risks and developments;
    
    our ability to find and retain skilled personnel;
    
    the lack of liquidity of our common stock; and
    
    the risk factors set forth below under caption Item 1A. Risk Factors.
   3




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Item 1. Business
 Overview
    Formation of the Company
     4




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Acquisitions
 SMM Acquisition
      Name Change To Silicon Mountain Holdings, Inc.
  Industry Background
  Products
   5




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Computer Memory Products
 Flash Memory Products
  CompactFlash memory cards.
 Secure Digital and MultiMediaCard Flash memory cards. ,
 USB Flash drives.
 ATA Flash PC cards.
 DRAM Products
  Computer System Products
  Servers
  
    
    Rackmounts (1u,2u,3u,4u)
    
    Towers (Mid & Full Size)
  6




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Workstations
  
    
    Mainly Tower Systems
    
    Designed for heavy task desktop applications
 HDTV Pcs
  Parts & Peripherals
  
    
    RAID controllers and Storage  We provide a portfolio of storage solutions for growth,
backup and compliance, as well as direct attached storage, network attached storage, and
storage area networks
    
    Optical drives, Video Cards, Graphic Cards and other Peripherals
 Product Warranty and Service
   Silicon Mountain Holdings Competition
       7




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Silicon Mountain Holdings Sales, Marketing and Strategic Alliances
 ® ® ® ® ®
 E-commerce/Websites
  Customer Service and Support
  Major Customers
 http://www.visionman.com.
 Suppliers
  Research and Development
   8




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Employees
  Available Information
  
  
 Item 1A. Risk Factors
 In evaluating our business, you should carefully consider the risks and uncertainties discussed in
this section, in addition to the other information presented in our Annual Report on Form 10-K .
The risks and uncertainties described below may not be the only risks we face. If any of these
risks and uncertainties actually occurs, our business, operating results or financial condition
could be materially adversely affected and the market price of our common stock may decline.
 Risks Related to the Economy and Our Industry
 Economic conditions have affected and could continue to adversely affect our revenues and profits.
    9




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Unstable market and economic conditions may have serious adverse consequences on our business.
  Competitive pressures could harm our revenue and gross margin.
     We are subject to the cyclical nature of the semiconductor industry and any future downturn could
continue to adversely affect our business.
   10




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State and local sales tax collection may affect demand for our products.
  Changes in financial accounting standards may affect our results of operations.
  Risks Related to Our Company
 We Have a History of Losses and May Not Achieve or Sustain Profitability.
   The Company may not be able to access sufficient capital to survive if the current down markets
continue for many of its products.
   11




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Business disruptions could adversely impact our revenue and financial condition.
   We are substantially dependent on a concentrated number of customers. If we are unable to maintain
or replace our relationships with these customers and/or diversify our customer base, our revenues
may fluctuate and our growth may be limited.
  Our dependence on a small number of suppliers for computer components, systems and peripherals and
inability to obtain a sufficient supply of these components on a timely basis could harm our
ability to fulfill orders.
  Shortages in supplies of computer components and peripherals and insufficient cash flow to procure
those supplies could cause us to lose sales, experience lower margins and affect our reputation, as
a result of which our operating results may suffer and our market share may decline.
   12




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Advances in technologies can lead to obsolescence of computer components and peripherals in our
inventory, which may cause us to take inventory write-downs and reduce selling prices, which would
negatively impact our operating results and financial condition.
  If we do not manage our inventories effectively and in a manner that results in our timely meeting
our customers needs, we could lose sales, experience order cancellations, incur excess shipping
charges or end up with excess inventory, any of which could cause our operating results to suffer.
     13




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Declines in our average sales prices of memory or computer components may result in declines in our
revenues and gross profit.
   If we fail to maintain and strengthen our Visionman and Silicon Mountain Memory brands in existing
branded computer and peripherals markets or to establish these brands in other markets we enter,
sales of our branded personal desktop computers, rackmount servers and other peripherals may
decrease.
 ® ®
 We may be less competitive if we fail to develop or obtain rights to market new and enhanced
products and introduce them in a timely manner.
     14




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An adverse result in our litigation matters could materially adversely affect our business, results
of operations or financial condition.
  Our net operating loss and tax credit carryforwards may be limited.
  We may be liable for misuse, loss or theft of our customers personal information.
  Sales to individual consumers expose us to credit card fraud, which could adversely affect our
business.
  We will be exposed to risks relating to the evaluations of internal control over financial
reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 and our failure to maintain
effective internal control over financial reporting could result in a negative market reaction.
     15




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Regulation may increase thereby increasing compliance costs and decreasing business profits and
opportunities.
  According to a recent letter from our independent auditors, there is a reasonable possibility that
a material misstatement of the companys annual or interim financial statements will not be
prevented or detected on a timely basis because of material weaknesses in our internal control
over financial reporting.
  On April 15, 2009, the Board of Directors received a letter from our independent registered public accounting firm
identifying the following significant deficiencies to be material weaknesses: (1)Based on our observations and
discussions with Company personnel, it does not appear that there is an adequate level of accounting staffing to allow
sufficient time for the accounting department to (i) perform a review (ii) to adequately prepare for our annual audit,
(iii) and research all applicable accounting pronouncements as it relates to the Companys financial statements and the
underlying disclosures. (2) Management identified its culture surrounding internal controls to be of low priority (3)
The Company no longer has independent members of its Board nor does it have an audit committee (4) Management has
concluded that there was insufficient documentation of policies, procedures and controls, as well as tesing surrounding
these controls and (5) The Company lacks formal controls over equity reporting and disclosure. As a result of being a public company, we will incur increased costs that may place a strain on our
resources or divert our managements attention.
  We may make acquisitions that are dilutive to existing shareholders, resulting in unanticipated
accounting charges or otherwise adversely affect our results of operations.
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We may face involuntary liquidation.
  We may make divestitures, contribute to joint ventures, or spin off subsidiaries that decrease our
ability to compete in the marketplace, result in unanticipated accounting charges or otherwise
adversely affect our results of operations.
   We may require significant capital to pursue our business strategy, but we may not be able to
obtain additional financing.
  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, joint
ventures or strategic partnerships we may undertake.
  
    
    problems and delays in successfully assimilating and integrating the purchased
operations, personnel, technologies, products and information systems;
 
    
    unanticipated costs and expenditures associated with the acquisition, including any need
to infuse significant capital into the acquired operations;
 
    
    adverse effects on existing business relationships with suppliers, customers and
strategic partners;
 
    
    risks associated with entering markets and foreign countries in which we have no or
limited prior experience;
  17




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
    
    contractual, intellectual property or employment issues;
    
    potential loss of key employees of purchased organizations; and
 
    
    potential litigation arising from the acquired companys operations before the
acquisition.
  The terms of our existing debt financing impose significant operational and financial restrictions
on us, which may prevent us from capitalizing on business opportunities and pursuing other
financing options.
  
    
    make investments and other restricted payments, including the payment of dividends;
    
    incur additional indebtedness;
    
    issue shares of preferred stock;
    
    create liens;
    
    create new subsidiaries;
 
    
    make strategic acquisitions, introduce new products or services or undertake certain
business opportunities;
    
    sell our assets or consolidate or merge with or into or acquire other companies;
    
    engage in transactions with affiliates;
    
    make certain capital expenditures;
    
    divest ourselves of product lines or brands; and
 
    
    utilize cash inflow up to the limit established by the terms of the revolving line of
credit.
  Our debt amortization obligations, including the payment of interest on our debt, reduce the amount
of cash we have available to fund our working capital needs and capital expenditures.
   18




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We have no available or committed source of funds to pay our indebtedness, and failure to pay our
indebtedness in a timely manner could substantially reduce the value of your investment in the
Company.
  We are subject to macro-economic conditions.
  Our intellectual property may not be adequately protected, which could harm our competitive
position.
  
    
    provide adequate protection for our intellectual property rights;
 
    
    prevent disputes with third parties regarding ownership of our intellectual property
rights; or
 
    
    prevent disclosure of our trade secrets and know-how to third parties or into the public
domain.
  If we are found to have violated the intellectual property rights of others, we could be required
to indemnify our customers, resellers or suppliers, redesign our products, pay significant
royalties and enter into license agreements with third parties.
  The execution of our business and growth strategy depends on our ability to retain key personnel,
including our executive officers, and to attract qualified personnel.
   19




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Risks Related to Our Stock
 Our common stock is currently subject to the SECs penny stock rules, which may cause
broker-dealers executing trades in our stock to experience difficulty in completing customer
transactions and which may adversely affect the trading of our common stock.
  
    
    make a special written suitability determination for the purchaser;
    
    receive the purchasers written agreement to a transaction prior to sale;
 
    
    provide the purchaser with risk disclosure documents identifying certain risks of
investing in penny stocks, a purchasers legal remedies, and information about the market
for penny stocks; and
 
    
    obtain a signed and dated acknowledgment from the purchaser that he, she or it actually
received the required risk disclosure documents before a transaction in a penny stock is
completed.
  Our common stock is quoted on the OTC Bulletin Board, which limits the liquidity and price of our
common stock more than if it was quoted or listed on The Nasdaq Stock Market or other national
exchange.
  Our stock may not continue to be traded in public markets significantly limiting your ability to
find a buyer.
  Prevailing valuation methods of stock may change, or changes may be made by governmental entities
that will affect our valuation.
  Our stock price is highly volatile, and you may not be able to resell your shares at or above
recent public sale prices.
  
    
    actual or anticipated fluctuations in operating results;
    
    the inability to obtain research coverage;
    
    changes in market valuations of other companies in the computer memory industry;
 
    
    announcements by us or our competitors of significant customer contracts, acquisitions,
strategic partnerships, joint ventures or capital infusions;
  20




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
    
    introduction of technologies or product enhancements that reduce demand for computer
memory upgrades or related value-added services;
    
    the loss of one or more key customers; and
    
    departures of key personnel.
  Our Officers and Directors Have Significant Control Over Us and Their Interests May Differ From
Those of Our Stockholders.
  Because Our Stock Price May Be Volatile, Our Stock Price Could Experience Substantial Declines.
 Because We Do Not Intend to Pay Dividends, Stockholders Will Benefit From An Investment In Our
Common Stock Only If It Appreciates In Value.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
  
 Item 3. Legal Proceedings
   21




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Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
 Market for Common Equity and Related Stockholder Matters
  High
    
    
    Low2008Fourth Quarter
    
    
    2.00
    
    
    
    1.01Third Quarter
    
    
    5.50
    
    
    
    1.01Second Quarter
    
    
    10.01
    
    
    
    .35First Quarter
    
    
    2.00
    
    
    
    1.052007Fourth Quarter
    
    
    2.30
    
    
    
    1.17Third Quarter
    
    
    1.40
    
    
    
    1.26Second Quarter
    
    
    1.26
    
    
    
    1.08First Quarter
    
    
    1.44
    
    
    
    1.17
 Holders
  Dividends
  Recent Sales of Unregistered Securities
     22




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Issuer Purchases of Equity Securities
  
 Item 6. Selected Financial Data
  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Critical Accounting Policies and Estimates
   23




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Revenue
  Share-Based Compensation
  Reserves for inventory excess, obsolescence and lower of market values over costs
  Allowances for doubtful accounts and price protection
  Warranty Reserve
  Income taxes
   24




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Litigation and other contingencies
  Valuation of long-lived assets
  New Accounting Pronouncements Affecting Silicon Mountain
  In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities:
(SFAS No. 159) which permits entities to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS No. 159 will be effective for us on January 1,
2008. The adoption of SFAS No. 159 did not have a material effect on our financial position, cash flows and results of
operations.
   In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan
amendment of FASB Statement No. 133 (FAS 161). FAS 161 changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an
entitys financial position, financial performance, and cash flows. The guidance in FAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application
encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial
adoption. The Company is currently assessing the impact of FAS 161.
 Results of Operations
 In April 2008, the FASB issued EITF 07-05, Determining whether an Instrument (or Embedded Feature) Is Indexed to an
Entitys Own Stock, (EITF 07-05). EITF 07-05 provides guidance on determining what types of instruments or embedded
features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of
evaluating the first criteria of the scope exception in paragraph 11(a) of FAS 133. EITF 07-05 is effective for
financial statements issued for fiscal years beginning after December 15, 2008 and early application is not permitted.
We are currently assessing the impact of the adoption of EITF
07-05.
  2008(1)
    
    
    2007(1)% of RevenueSales
    
    
    100.0
    %
    
    
    100.0
    %Cost of Goods Sold
    
    
    85.3
    
    
    
    79.6Gross Margin
    
    
    14.7
    
    
    
    20.4Operating Costs:Selling Expenses
    
    
    12.8
    
    
    
    9.5General & Administrative
    
    
    21.8
    
    
    
    13.8Restructuring Charge
    
    
    9.0
    
    
    
    13.8Intangible Impairment
    
    
    16.3Depreciation & Amortization
    
    
    3.6
    
    
    
    2.1Income (Loss) from Operations
    
    
    (48.7
    )
    
    
    (5.0
    )Other Expense, Net
    
    
    (18.0
    )
    
    
    (4.7
    )Pre-Tax Income (Loss)
    
    
    (66.7
    )
    
    
    (9.7
    )Income Tax (Expense) Benefit
    
    
    0.3
    
    
    
    (0.9
    )Net Income (Loss)
    
    
    (66.5
    )%
    
    
    (10.6
    )%
 
 (1)
    
    Columns may not add due to
rounding.  25




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Twelve Months Ended December 31, 2008 compared with Twelve Months Ended December 31, 2007
      Liquidity and Capital Resources
  Going Concern
    26




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Debt Financing
    Revolving Note
 The
Wall Street Journal
   27




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Convertible Note
 The
Wall Street Journal
  ,
      28




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Term Note
 The Wall
Street Journal
  ,
  General Terms of the Loan
      29




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
    
    Under the Loan Documents, we (and SMM and VCI Systems in some cases) agreed to:
 
    
    List the shares underlying the Convertible Note and warrants issued to the Holders
following the SMM Acquisition on the principal trading exchange or market for Silicon
Mountains common stock;
    
    Consummate the SMM Acquisition within 180 days of the closing of the Loan (which
subsequently was extended to August 31, 2007); and
    
    Obtain the approval of the Lender of certain corporate actions including, but not
limited to, incurring and canceling certain debt, assuming certain contingent liabilities,
declaring and paying dividends, acquiring any stock of another entity, making certain loans
to certain persons, prepaying certain indebtedness, entering into a merger, consolidation,
acquisition or other reorganization with another company, materially changing the nature of
the Companies businesses, changing the Companies fiscal years, selling or disposing of
any of its assets with certain exceptions, and during the period prior to the closing of
the SMM Acquisition, issue or sell shares of common stock (other than shares issued under a
stock option plan or certain plans approved by the board), change the jurisdiction of
incorporation of SMM, change SMMs fiscal year or amend our articles of incorporation or
bylaws in a manner that adversely affects the Lender.
 
    
    In addition to certain customary events of default, the Security and Purchase Agreement
contains the following events of`default:
 
    
    The occurrence of any default on other indebtedness or obligations of the Companies
which exceeds $50,000 in the aggregate, relating to any indebtedness or contingent
obligation of the Companies beyond the grace period (if any) that results in the
acceleration of the indebtedness or obligation;
    
    Attachments or levies or judgments against any of the Companies in excess of $200,000;
    
    Any person or group becomes a beneficial owner, directly or indirectly, of 40% of more
of the voting equity interest of SMM on a fully diluted basis; and
    
    The board of directors of SMM ceases to consist of a majority of the board in office on
the closing of the Loan (or directors appointed by a majority of the board in effect
immediately prior to such appointment).
   Issuance of Securities as Part of Debt Facility
   30




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
    
    of any sale or transfer of SMMs common stock or the common stock of the Company, or any
merger, consolidation, share exchange, or combination of SMM or the Company with or into
another entity, which in each case results in the holders of the voting securities of SMM or
of the Company outstanding immediately prior thereto owning immediately thereafter less than
a majority of the voting securities of SMM, the Company or the surviving entity, as the case
may be, outstanding immediately after such sale, transfer, merger, consolidation, share
exchange, or combination;
 
    
    of a sale of all or substantially all of the assets of SMM or the Company, including,
without limitation, equity in subsidiaries held by SMM and/or the Company; or
  31




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
    
    of either of the following, which respectively constitute an Event of Default arising
under Section 19(a) and 19(i) of the Security and Purchase Agreement dated as of
September 25, 2006 by and among the Companies and Laurus, a copy of which was included as
Exhibit 10.5 to the Companys Current Report on Form 8-K filed on September 4, 2007:
 
    
    any of the Companies fails to make payment of any obligation owed to Laurus (or any
corporation that directly or indirectly controls or is controlled by or is under common
control with Laurus), and the failure continues for a period of five (5) business days
following the date upon which any such payment is due; or
 
    
    any of the Companies (i) applies for, consents to or suffers to exist the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its property, (ii) makes a general assignment for the benefit
of creditors, (iii) commences a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) is adjudicated a bankrupt or insolvent, (v) files a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesces to, without challenge within ten (10) days of the filing thereof, or fails
to have dismissed, within ninety (90) days, any petition filed against it in any involuntary
case under such bankruptcy laws, or (vii) takes any action for the purpose of effecting any
of the foregoing.
   Agreements with MemoryTen, Inc.
   Cash Flows
 Cash Flows from Operating Activities.
 Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
  32




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Capital Expenditures
   
    
    our relationships with suppliers and customers;
    
    the levels of promotion and advertising that will be required to sell new products and
achieve and maintain a competitive position in the marketplace;
    
    expansion of our business, including the opening of offices and facilities in other
locations;
    
    price discounts on products to our customers;
    
    our pursuit of strategic transactions, including acquisitions, joint ventures and capital
investments;
    
    the levels of inventory and accounts receivable that we maintain; and
    
    our entrance into new markets.
 Assessment of Future Liquidity
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
   33




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Item 8. Financial Statements and Supplementary Data
 Report of Independent Registered Public Accounting Firm
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      HEIN & ASSOCIATES LLP
 
  34




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SILICON MOUNTAIN HOLDINGS, INC.
 CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,699
    
    
    $
    21,993Accounts receivable, net
    
    
    1,080,618
    
    
    
    1,898,324Inventory, net
    
    
    374,631
    
    
    
    837,086Prepaids and other current assets
    
    
    96,141
    
    
    
    161,623Total current assets
    
    
    1,565,089
    
    
    
    2,919,026Property and equipment, net
    
    
    153,192
    
    
    
    429,900Note receivable
    
    
    152,291
    
    
    
    155,050Deferred financing costs, net
    
    
    3,858,825
    
    
    
    370,816Other intangible assets, net
    
    
    87,065
    
    
    
    2,867,137Goodwill
    
    
    
    
    
    
    191,775Other assets
    
    
    51,358
    
    
    
    35,486Total assets
    
    $
    5,867,820
    
    
    $
    6,969,190LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    1,579,507
    
    
    $
    1,927,538Operating lease liability
    
    
    1,418,381
    
    
    
    Accrued expenses and other current liabilities
    
    
    567,458
    
    
    
    961,767Note payable and accrued interest to related parties
    
    
    199,762
    
    
    
    181,557Current portion of capital leases liability
    
    
    8,666
    
    
    
    11,390Revolving credit facility
    
    
    2,382,475
    
    
    
    Current maturities of notes payable
    
    
    4,121,070
    
    
    
    1,073,529Total current liabilities
    
    
    10,277,319
    
    
    
    4,155,781Capital lease liability, net of current portion
    
    
    17,540
    
    
    
    26,290Revolving credit facility
    
    
    
    
    
    
    1,309,995Long-term debt, net of current maturities
    
    
    
    
    
    
    3,460,486Total liabilities
    
    
    10,294,859
    
    
    
    8,952,552Commitments and Contingencies (Notes 1 and 11)Stockholders Equity (Deficit):Preferred stock, $.001 par value, 3,000,000 shares authorized; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; 30,000,000 authorized and 14,532,938 and 10,922,526 shares issued and
outstanding, respectively
    
    
    14,533
    
    
    
    10,922Additional paid-in capital
    
    
    9,965,195
    
    
    
    1,685,109Accumulated deficit
    
    
    (14,406,767
    )
    
    
    (3,679,393
    )Total Stockholders Equity (Deficit)
    
    
    (4,427,039
    )
    
    
    (1,983,362
    )Total liabilities and Stockholders Equity (Deficit)
    
    $
    5,867,820
    
    
    $
    6,969,190
   35




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##### Table of Contents



SILICON MOUNTAIN HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Years Ended December 31,2008
    
    
    2007Net sales
    
    $
    16,140,379
    
    
    $
    27,431,600Cost of goods sold
    
    
    13,761,197
    
    
    
    21,829,662Gross margin
    
    
    2,379,182
    
    
    
    5,601,938Operating costs:Selling expenses
    
    
    2,068,408
    
    
    
    2,615,089General & administrative
    
    
    3,518,842
    
    
    
    3,786,947Restructuring charge
    
    
    1,451,000
    
    
    
    Intangible impairment
    
    
    2,624,421
    
    
    
    Depreciation & amortization
    
    
    580,581
    
    
    
    571,649Total operating costs
    
    
    10,243,252
    
    
    
    6,973,685Loss from operations
    
    
    (7,864,070
    )
    
    
    (1,371,747
    )Other expenseInterest expense, net
    
    
    (2,998,403
    )
    
    
    (1,219,571
    )Gain on forgiveness of debt
    
    
    147,599
    
    
    
    Miscellaneous income
    
    
    
    
    
    
    (57,174
    )Gain (loss) on disposal of fixed assets
    
    
    (58,696
    )
    
    
    (17,071
    )Total other expense
    
    
    (2,909,500
    )
    
    
    (1,293,816
    )Pre-tax loss
    
    
    (10,773,570
    )
    
    
    (2,665,563
    )Income Tax (expense) Benefit
    
    
    46,196
    
    
    
    (243,911
    )Net Loss
    
    $
    (10,727,374
    )
    
    $
    (2,909,474
    )Net loss per common share  basic
    
    $
    (0.80
    )
    
    $
    (0.28
    )Shares used in computing net loss per share  basic
    
    
    13,339,737
    
    
    
    10,383,988Net loss per common share  diluted
    
    $
    (0.80
    )
    
    $
    (0.28
    )Shares used in computing net loss per share  diluted
    
    
    13,339,737
    
    
    
    10,383,988
   36




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##### Table of Contents



SILICON MOUNTAIN HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 AdditionalCommon Stock
    
    
    Paid-in
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalance at January 1, 2007
    
    
    10,074,248
    
    
    $
    10,074
    
    
    $
    1,460,963
    
    
    $
    (769,919
    )
    
    $
    701,118Stock options issued
    
    
    
    
    
    
    
    
    
    
    115,925
    
    
    
    
    
    
    
    115,925Warrants issued
    
    
    
    
    
    
    
    
    
    
    70,955
    
    
    
    
    
    
    
    70,955Restricted shares issued
    
    
    115,706
    
    
    
    116
    
    
    
    69,280
    
    
    
    
    
    
    
    69,396Z-axis transaction
    
    
    784,000
    
    
    
    784
    
    
    
    (784
    )
    
    
    
    
    
    
    Stock received on repayment of note receivable
    
    
    (51,428
    )
    
    
    (52
    )
    
    
    (31,230
    )
    
    
    
    
    
    
    (31,282
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,909,474
    )
    
    
    (2,909,474
    )Balance at December 31, 2007
    
    
    10,922,526
    
    
    $
    10,922
    
    
    $
    1,685,109
    
    
    $
    (3,679,393
    )
    
    $
    (1,983,362
    )Stock options issued
    
    
    
    
    
    
    
    
    
    
    80,668
    
    
    
    
    
    
    
    80,668Warrants issued
    
    
    
    
    
    
    
    
    
    
    6,104,862
    
    
    
    
    
    
    
    6,104,862Stock issued for warrant exercise
    
    
    178,568
    
    
    
    179
    
    
    
    714
    
    
    
    
    
    
    
    893Restricted shares issued
    
    
    268,648
    
    
    
    268
    
    
    
    253,413
    
    
    
    
    
    
    
    253,681Stock issued for cash
    
    
    600,000
    
    
    
    600
    
    
    
    299,400
    
    
    
    
    
    
    
    300,000Stock issued for conversion of principal and interest
    
    
    758,612
    
    
    
    760
    
    
    
    453,550
    
    
    
    
    
    
    
    454,310Stock issued for conversion of accounts payable
    
    
    1,804,584
    
    
    
    1,804
    
    
    
    1,087,479
    
    
    
    
    
    
    
    1,089,283Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,727,374
    )
    
    
    (10,727,374
    )Balance at December 31, 2008
    
    
    14,532,938
    
    
    $
    14,533
    
    
    $
    9,965,195
    
    
    $
    (14,406,767
    )
    
    $
    (4,427,039
    )
   37




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##### Table of Contents



SILICON MOUNTAIN HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2008
    
    
    2007Cash Flows from Operating Activities:Net Loss
    
    $
    (10,727,374
    )
    
    $
    (2,909,474
    )Adjustments to reconcile loss to net cash used in operating activities:Depreciation
    
    
    233,134
    
    
    
    305,995Amortization of loan origination
    
    
    2,050,780
    
    
    
    237,144Amortization of debt discount
    
    
    237,652
    
    
    
    259,249Bad debt expense
    
    
    8,180
    
    
    
    181,928Loss on disposal of fixed assets
    
    
    72,585
    
    
    
    17,070Gain on forgiveness of debt
    
    
    (147,599
    )
    
    
    Charge for intangible impairments
    
    
    2,624,421
    
    
    
    Intangibles amortization
    
    
    347,447
    
    
    
    265,652Inventory Obsolescence
    
    
    124,000
    
    
    
    82,000Stock Based
Compensation Expense Restricted Stock
    
    
    197,824
    
    
    
    69,396Stock Based Compensation Expense Warrants
    
    
    535,885
    
    
    
    70,955Stock Based Compensation Expense Options
    
    
    80,666
    
    
    
    115,925Increase or decrease in assets and liabilities:Accounts receivable
    
    
    809,527
    
    
    
    (163,812
    )Inventory
    
    
    338,455
    
    
    
    34,616Prepaid Expenses and other current assets
    
    
    125,615
    
    
    
    485,105Accounts payable
    
    
    904,209
    
    
    
    769,529Accrued expenses and other liabilities
    
    
    1,092,017
    
    
    
    124,311Net cash used in operating activities
    
    
    (1,092,634
    )
    
    
    (54,411
    )Cash Flows from Investing Activities:Purchase of property and equipment
    
    
    (29,011
    )
    
    
    (180,556
    )Capitalized software development costs
    
    
    
    
    
    
    (22,344
    )Asset acquisition of WidowPC
    
    
    
    
    
    
    (165,000
    )Cash acquired in the acquisition of Z-Axis LLC
    
    
    
    
    
    
    (150,000
    )Net cash used in investing activities
    
    
    (29,011
    )
    
    
    (517,900
    )Cash Flows from Financing Activities:Principal payments on notes payable
    
    
    (150,000
    )
    
    
    (250,000
    )Proceeds from line of credit
    
    
    17,888,549
    
    
    
    27,800,112Repayments of lines of credit
    
    
    (16,913,724
    )
    
    
    (27,285,169
    )Proceeds from issuance of common stock
    
    
    300,000
    
    
    
    Repayments of capital leases
    
    
    (11,474
    )
    
    
    (26,950
    )Net cash provided by financing activities
    
    
    1,113,351
    
    
    
    237,993Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (8,294
    )
    
    
    (334,318
    )Cash and Cash Equivalents  Beginning of Year
    
    
    21,993
    
    
    
    356,311Cash and Cash Equivalents  End of Year
    
    $
    13,699
    
    
    $
    21,993Supplemental Disclosure of Cash Flow Information:Cash paid for interest
    
    $
    20,575
    
    
    $
    10,235Cash paid (refunded) for income taxes
    
    $
    (46,196
    )
    
    $
    850Supplemental Schedule of Non-Cash Financing Activities:Stock issued for conversion of principal and interest
    
    $
    454,310
    
    
    $
    Stock issued for conversion of accounts payable
    
    $
    1,089,283
    
    
    $
    Stock issued for services
    
    $
    253,681
    
    
    $
    Stock received for note receivable
    
    $
    
    
    
    $
    31,297Warrants issued in connection with loan agreement
    
    $
    5,538,789
    
    
    $
    
   38




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##### Table of Contents



SILICON MOUNTAIN HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For the years ended December 31, 2008 and 2007
 Basis of Presentation:
   Liquidity
 Summary of Significant
Accounting Policies:
 Principles of Consolidation 
 Reclassifications
 Cash and Cash Equivalents
  39




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##### Table of Contents



Inventory
 Property and Equipment
 Intangible Assets
 Goodwill
 Impairment of Long-Lived Assets 
 Share-Based Payments
 Revenue Recognition
     40




---



##### Table of Contents



Use of Estimates
 Credit Risk and Concentrations
   Research and Development Costs
 Shipping and Handling Costs
 Credit Card Discount Fees
 Rent Expense
 Software Development Costs
 Advertising Costs
 Warranty Reserve
 Income Taxes
  41




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##### Table of Contents



Recent Accounting Pronouncements
      42




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##### Table of Contents



Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133
 In April 2008, the FASB issued EITF 07-05, Determining whether an Instrument (or Embedded Feature) Is Indexed to an
Entitys Own Stock, (EITF 07-05). EITF 07-05 provides guidance on determining what types of instruments or embedded
features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of
evaluating the first criteria of the scope exception in paragraph 11(a) of FAS 133. EITF 07-05 is effective for
financial statements issued for fiscal years beginning after December 15, 2008 and early application is not permitted.
We do not believe that the adoption of EITF 07-05 will have a significant impact on our consolidated financial
statements, as the fair value of any financial instruments and related conversion features are not significant.
 Z-axis Acquisition of
Silicon Mountain Memory, Inc.:
 The Stock Exchange
      The LLC Sale
    43




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##### Table of Contents



Accounting Treatment
  Acquisitions :
  Property and Equipment :
  2008
    
    
    2007Furniture and fixtures
    
    $
    135,485
    
    
    $
    92,979Computer equipment and software
    
    
    472,915
    
    
    
    706,314Equipment
    
    
    142,551
    
    
    
    206,533Leasehold improvements
    
    
    
    
    
    
    45,539750,951
    
    
    
    1,051,365Less accumulated depreciation
    
    
    (597,759
    )
    
    
    (621,465
    )Total
    
    $
    153,192
    
    
    $
    429,900
   2008
    
    
    2007Equipment and computer equipment
    
    $
    97,167
    
    
    $
    150,837Less accumulated amortization
    
    
    (75,252
    )
    
    
    (106,693
    )Total
    
    $
    21,915
    
    
    $
    44,144
 Goodwill and Intangible Assets :
   Beginning balance as of December 31, 2006
    
    $
    858,834Reconciliation of opening balances
    
    
    44,000Adjustment of intangible purchase price allocation
    
    
    (711,059
    )Ending balance as of December 31, 2007
    
    
    191,775Impairment charge
    
    
    (191,775
    )Ending balance as of December 31, 2008
    
    $
    -0-
  44




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##### Table of Contents



Purchase PriceUseful
    
    
    
    
    
    
    AllocationLife
    
    
    
    
    
    
    Adjustments
    
    
    Accumulated(Years)
    
    
    Gross
    
    
    [1]
    
    
    Amortization
    
    
    NetAs of December 31, 2008:WidowPC tradename
    
    
    3
    
    
    $
    165,000
    
    
    
    
    
    
    $
    (77,935
    )
    
    $
    87,065Deferred financing costs and other miscellaneous
    
    
    1-3
    
    
    
    6,206,099
    
    
    
    
    
    
    
    (2,347,274
    )
    
    
    3,858,825Total
    
    
    
    
    
    $
    6,371,099
    
    
    $
    
    
    
    $
    (2,425,209
    )
    
    $
    3,945,890As of December 31, 2007:Super PC acquisition:Customer list
    
    
    15
    
    
    $
    1,067,616
    
    
    $
    
    
    
    $
    (278,714
    )
    
    $
    788,902WidowPC tradename
    
    
    3
    
    
    
    165,000
    
    
    
    
    
    
    
    (22,915
    )
    
    
    142,085VCI acquisition:Trademarks
    
    
    10
    
    
    
    94,808
    
    
    
    1,470,192
    
    
    
    (195,630
    )
    
    
    1,369,370Customer lists
    
    
    3
    
    
    
    190,306
    
    
    
    457,444
    
    
    
    (80,970
    )
    
    
    566,780Domain names
    
    
    
    
    
    
    60,803
    
    
    
    (60,803
    )
    
    
    
    
    
    
    Business processes
    
    
    
    
    
    
    778,662
    
    
    
    (778,662
    )
    
    
    
    
    
    
    Vision computer brand
    
    
    
    
    
    
    377,112
    
    
    
    (377,112
    )
    
    
    
    
    
    
    Total acquisitions
    
    
    
    
    
    
    2,734,307
    
    
    
    711,059
    
    
    
    (578,229
    )
    
    
    2,867,137Deferred financing costs and other miscellaneous
    
    
    3
    
    
    
    667,310
    
    
    
    
    
    
    
    (296,494
    )
    
    
    370,816Total
    
    
    
    
    
    $
    3,401,617
    
    
    $
    711,059
    
    
    $
    (874,723
    )
    
    $
    3,237,953
  Year
    
    Amount2009
    
    $
    3,913,797Thereafter
    
    
    32,093$
    3,945,890
  45




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##### Table of Contents



Reduction ForBeginning
    
    
    
    
    
    
    Impairment
    
    
    EndingBalance
    
    
    Additions
    
    
    Charges
    
    
    BalanceTradenames and trademarks
    
    $
    1,730,000
    
    
    
    
    
    
    $
    (1,565,000
    )
    
    $
    165,000Customer lists
    
    
    1,715,366
    
    
    
    
    
    
    
    (1,715,366
    )
    
    
    Deferred financing costs and other miscellaneous
    
    
    667,310
    
    
    $
    5,538,789
    
    
    
    
    
    
    
    6,206,099Total
    
    $
    4,112,676
    
    
    $
    5,538,789
    
    
    $
    (3,280,366
    )
    
    $
    6,371,099
 Accrued Expenses :
  2008
    
    
    2007Payroll and related expenses
    
    $
    25,787
    
    
    $
    6,054Compensated absences
    
    
    44,268
    
    
    
    111,005Legal and professional
    
    
    10,000
    
    
    
    231,980Interest on debt
    
    
    63,883
    
    
    
    66,800Customer Deposits
    
    
    172,817
    
    
    
    296,467Reserve for warranty and sales return
    
    
    179,000
    
    
    
    147,000Other
    
    
    71,703
    
    
    
    102,461Total
    
    $
    567,458
    
    
    $
    961,767
 Long-term Debt and Short-term Borrowings
    Revolving Note
 The
Wall Street Journal
  46




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##### Table of Contents



Convertible Note
 The
Wall Street Journal
  ,
     47




---



##### Table of Contents



Term Note
 The Wall
Street Journal
  ,
  General Terms of the Loan
      48




---



##### Table of Contents




    
    Under the Loan Documents, we (and SMM and VCI Systems in some cases) agreed to:
 
    
    List the shares underlying the Convertible Note and warrants issued to the Holders
following the SMM Acquisition on the principal trading exchange or market for Silicon
Mountains common stock;
    
    Consummate the SMM Acquisition within 180 days of the closing of the Loan (which
subsequently was extended to August 31, 2007); and
    
    Obtain the approval of the Lender of certain corporate actions including, but not
limited to, incurring and canceling certain debt, assuming certain contingent liabilities,
declaring and paying dividends, acquiring any stock of another entity, making certain loans
to certain persons, prepaying certain indebtedness, entering into a merger, consolidation,
acquisition or other reorganization with another company, materially changing the nature
the Companies businesses, changing the Companies fiscal years, selling or disposing of
any of its assets with certain exceptions, and during the period prior to the closing of
the SMM Acquisition, issue or sell shares of common stock (other than shares issued under a
stock option plan or certain plans approved by the board), change the jurisdiction of
incorporation of SMM, change SMMs fiscal year or amend our articles of incorporation or
bylaws in a manner that adversely affects the Lender.
 
    
    In addition to certain customary events of default, the Security and Purchase Agreement
contains the following events of`default:
 
    
    The occurrence of any default on other indebtedness or obligations of the Companies
which exceeds $50,000 in the aggregate, relating to any indebtedness or contingent
obligation of the Companies beyond the grace period (if any) that results in the
acceleration of the indebtedness or obligation;
    
    Attachments or levies or judgments against any of the Companies in excess of $200,000;
    
    Any person or group becomes a beneficial owner, directly or indirectly, of 40% of more
of the voting equity interest of SMM on a fully diluted basis; and
    
    The board of directors of SMM ceases to consist of a majority of the board in office on
the closing of the Loan (or directors appointed by a majority of the board in effect
immediately prior to such appointment).
 At December 31, 2008, we were not in compliance with the loan covenant requiring us to list the shares underlying the
convertible note and warrants on a trading exchange. On April 14, 2009, we obtained a waiver giving us until August
15, 2009, to register the shares. The waiver also waived all penalties retroactive to the date of the registration
rights agreement.
 At December 31, 2008, we were not in compliance with the loan covenant requiring us to timely file all tax related
filings. The Company has not filed tax returns for the 2007 or 2008 tax years. We believe we have no income tax
liability for those years due to taxable losses incurred. Lender has the right to hold us in violation of the covenant
and require immediate repayment of all debt outstanding. All debt is reflected as a current liability on the balance
sheet at December 31, 2008.
    49




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##### Table of Contents



Issuance of Securities as Part of Debt Facility
      
    
    of any sale or transfer of SMMs common stock or the common stock of the Company, or any
merger, consolidation, share exchange, or combination of SMM or the Company with or into
another entity, which in each case results in the holders of the voting securities of SMM or
of the Company outstanding immediately prior thereto owning immediately thereafter less
than a majority of the voting securities of SMM, the Company or the surviving entity, as the
case may be, outstanding immediately after such sale, transfer, merger, consolidation, share
exchange, or combination;
 
    
    of a sale of all or substantially all of the assets of SMM or the Company, including,
without limitation, equity in subsidiaries held by SMM and/or the Company; or
  50




---



##### Table of Contents




    
    of either of the following, which respectively constitute an Event of Default arising
under Section 19(a) and 19(i) of the Security and Purchase Agreement dated as of
September 25, 2006 by and among the Companies and Laurus, a copy of which was included as
Exhibit 10.5 to the Companys Current Report on Form 8-K filed on September 4, 2007:
 
    
    any of the Companies fails to make payment of any obligation owed to Laurus (or any
corporation that directly or indirectly controls or is controlled by or is under common
control with Laurus), and the failure continues for a period of five (5) business days
following the date upon which any such payment is due; or
 
    
    any of the Companies (i) applies for, consents to or suffers to exist the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its property, (ii) makes a general assignment for the benefit
of creditors, (iii) commences a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) is adjudicated a bankrupt or insolvent, (v) files a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesces to, without challenge within ten (10) days of the filing thereof, or fails
to have dismissed, within ninety (90) days, any petition filed against it in any involuntary
case under such bankruptcy laws, or (vii) takes any action for the purpose of effecting any
of the foregoing.
   Lines of Credit
 2008
    
    
    2007Revolving line of credit with Laurus Master
Fund, Ltd., dated September 26, 2006. Maximum
loan amount of $3,500,000. This line of credit
has a maturity date of September 25, 2009.Balance on line at December 31, 2008 and 2007
is shown net of unamortized debt discount of
$73,232 and $170,888 respectively. This line
of credit is collateralized by substantially
all the assets of the Company  Total lines of
credit
    
    $
    2,382,475
    
    
    $
    1,309,995
 Note Payable to Related Party
 2008
    
    
    2007Note payable to Shareholder. Interest accrued at
10% with principal and accrued interest due on
demand. Accrued interest payable was $99,762 and
$81,557 at December 31, 2008 and 2007,
respectively. The note payable is guaranteed by
certain officers of the Company and is
collateralized by those officers stock, in
addition to the general assets of the Company
    
    $
    100,000
    
    
    $
    100,000
  Notes Payable 
 2008
    
    
    2007Convertible note payable to Laurus Master
Fund, Ltd. maturing on September 25,
2009, with an interest rate of prime plus
5% subject to a minimum of 11%, net of
unamortized discount of $37,994 and
$107,992 at December 31, 2008 and 2007,
respectively
    
    $
    1,960,535
    
    
    $
    2,267,008Non-convertible note payable to Laurus
Master Fund, Ltd. maturing on September
25, 2009, with an interest rate of prime
plus 5% subject to a minimum of 11%, net
of unamortized discount of $37,994 and
$107,992 at December 31, 2008 and 2007,
respectively
    
    
    2,160,535
    
    
    
    2,267,007Sub-total
    
    
    4,121,070
    
    
    
    4,534,015Less current maturities
    
    
    (4,121,070
    )
    
    
    (1,073,529
    )Total long-term debt
    
    $
    -0-
    
    
    $
    3,460,486
  51




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##### Table of Contents



Year
    
    Line of Credit
    
    
    Notes Payable
    
    
    Total2009
    
    $
    2,455,707
    
    
    $
    4,197,058
    
    
    $
    6,652,765Less debt discount
    
    
    (73,232
    )
    
    
    (75,988
    )
    
    $
    (149,220
    )Total
    
    $
    2,382,475
    
    
    $
    4,121,070
    
    
    $
    6,503,545
 Related Party Transactions :
 Note receivable from Officer
 Note payable to board member 
 Fees paid to Board Members
 Sale
of Z-Axis LLC
 Restructuring:
 Accounting for
Costs Associated with Exit or Disposal Activities
 Balance at December 31, 2007
    
    $
    -0-Additions-future lease payments
    
    
    1,451,000Reductions-payments on lease
    
    
    (32,619
    )Balance at December 31, 2008
    
    $
    1,418,381
   52




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##### Table of Contents



Commitments and Contingencies :
 Officer and Director Indemnification
 Capital Lease Commitments
 Years EndingDecember 31,2009
    
    $
    8,6662010
    
    
    10,0022011
    
    
    7,538$
    26,206
 Operating Lease Commitments
    Years EndingDecember 31,2009 [1]
    
    $
    217,7052010
    
    
    136,3892011
    
    
    140,4802012
    
    
    144,6942013 and thereafter
    
    
    595,692$
    1,334,960
 [1]
    
    The payments due in 2009 include $53,940 of payments due in 2008 that are past due and
therefore required in 2009. The lease for our facility in Arizona is in default at December 31,
2008. We have recorded all payments relating to this lease as a current liability on the balance
sheet at December 31, 2008.  53




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##### Table of Contents



Share Based Compensation:
  Compensation Plans  Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation Transition and Disclosure.
  2008[1]
    
    
    2007Weighted-average volatility
    
    
    
    
    
    
    81
    %Expected dividends
    
    
    
    
    
    
    0
    %Risk-free interest rate
    
    
    
    
    
    
    4.96
    %Average expected term (in years)
    
    
    
    
    
    
    5.88
 [1]
    
    We did not issue any options under the 2003 Equity Incentive Plan during the year ending
December 31, 2008.    Outstanding OptionsWeightedAverageRemainingWeighted
    
    
    Contractual
    
    
    AggregateNumber of
    
    
    Average
    
    
    Term
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    (in years)
    
    
    ValueOptions
outstanding at January 1, 2007 (1)
    
    
    4,439,755
    
    
    $
    0.25Granted (1)
    
    
    896,442
    
    
    
    .69Exercised (1)Canceled or forfeited
    
    
    (1,261,848
    )
    
    
    .44Options outstanding at December 31, 2007
    
    
    4,074,349
    
    
    
    .24
    
    
    
    3.13
    
    
    $
    3,780,645GrantedCanceled or forfeited
    
    
    (932,550
    )
    
    
    0.33Options outstanding at December 31, 2008
    
    
    3,141,799
    
    
    $
    0.24
    
    
    
    1.54
    
    
    $
    2,421,835Options exercisable at December 31, 2008
    
    
    2,784,974
    
    
    $
    0.18
    
    
    
    1.34
    
    
    $
    2,309,411
 
 (1)
    
    A conversion factor of 1.109798602 was applied to all SMM stock options in order to arrive at
the outstanding and exercisable options for December 31, 2007. This conversion factor is due
to the Z-Axis transaction (see Note 3).  54




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    Number of
    
    
    Number
    
    
    AverageExercise
    
    Contractual
    
    
    Exercise
    
    
    Shares
    
    
    of Shares
    
    
    ExercisePrice Range
    
    Life
    
    
    Price
    
    
    Outstanding
    
    
    Exercisable
    
    
    Price$0.0  $.50
    
    
    1.02
    
    
    $
    0.17
    
    
    
    2,723,006
    
    
    
    2,696,368
    
    
    $
    0.16$0.51  $1.00
    
    
    3.32
    
    
    $
    0.71
    
    
    
    418,792
    
    
    
    88,606
    
    
    $
    0.72$0.00  $1.00
    
    
    1.54
    
    
    $
    0.24
    
    
    
    3,141,798
    
    
    
    2,784,974
    
    
    $
    0.18
    Stockholders Equity:
      55




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##### Table of Contents



Earnings Per Share
  Employee Benefit Plans:
 Defined Contribution Plan
 Income Taxes:
  2008
    
    
    2007Current expense (benefit)
    
    $
    (46,196
    )
    
    $
    911Deferred expense (benefit)
    
    
    
    
    
    
    243,000Total expense (benefit)
    
    $
    (46,196
    )
    
    $
    243,911
 2008
    
    
    2007Current deferred tax assets:Inventory related
    
    $
    102,000
    
    
    $
    53,000Accrued vacation and other compensation
    
    
    12,000
    
    
    
    43,000Accrued warranty
    
    
    67,000
    
    
    
    57,000Lease commitments
    
    
    54,000
    
    
    
    57,000Other
    
    
    13,000
    
    
    
    34,000Total current deferred tax assets before allowance
    
    $
    248,000
    
    
    $
    187,000Valuation allowance
    
    
    (248,000
    )
    
    
    (187,000
    )Net current deferred tax asset after allowance
    
    $
    
    
    
    $
    Long-term deferred tax assets:Net operating loss carryforwards
    
    $
    2,704,000
    
    
    $
    600,000Intangible assets
    
    
    1,010,000
    
    
    
    47,000Lease commitements
    
    
    463,000
    
    
    
    Other
    
    
    37,000
    
    
    
    33,000Total long-term deferred tax assets
    
    
    4,214,000
    
    
    
    680,000Long-term deferred tax liabilities:Property, equipment and intangible assets
    
    
    
    
    
    
    (3,000
    )Total long-term deferred tax liabilities
    
    
    
    
    
    
    (3,000
    )Net long-term deferred tax asset (liability) before allowance
    
    
    4,214,000
    
    
    
    677,000Valuation allowance
    
    
    (4,214,000
    )
    
    
    (677,000
    )Net long-term tax asset after allowance
    
    $
    
    
    
    $
    
  56




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##### Table of Contents



2008
    
    
    2007Tax (benefit) expense computed at the statutory rate
    
    $
    3,667,000
    
    
    $
    933,000State income tax
    
    
    287,000
    
    
    
    106,000Valuation allowance
    
    
    (3,598,000
    )
    
    
    (864,000
    )Effect of permanent differences
    
    
    (255,000
    )
    
    
    (329,000
    )Other
    
    
    (54,804
    )
    
    
    (89,911
    )Provision for income taxes (expense) benefit
    
    $
    46,196
    
    
    $
    (243,911
    )
  Subsequent Events :
       57




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##### Table of Contents



Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    (D)
  
 Item 9A(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   58




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##### Table of Contents



Changes in Disclosure Controls and Procedures
           59




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
    Internal Control-Integrated
Framework
  1.
    
    Board oversight and Audit Committee  We do not have independent members of our Board
and an Audit Committee of independent directors including a financial expert member.2.
    
    Insufficient documentation of policies, procedures and controls  We employ policies
and procedures in reconciliation of the financial statements and the financial information
based on which the financial statements are prepared, however, the controls policies and
procedures we employ are not sufficiently documented. In addition we lack documentation on
our testing of internal controls and adherence to policy and procedures.3.
    
    Segregation of duties  We do not have adequate accounting personnel to maintain proper
segregation of duties, to adequately perform all necessary review, to prepare for an audit,
to research all applicable accounting issues for disclosure or to always carry out all
required procedures.4.
    
    Culture of internal control  We often prioritize other objectives as being more
important than following internal controls and procedures. As a result we may choose to
ignore internal controls because we see another priority as providing more short term
benefit.5.
    
    Equity Reporting  We have weak controls over equity reporting and disclosure due to a
lack of specific procedures in place.
  60




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##### Table of Contents



Managements Remediation Initiatives
           
 Item 9B. Other Information
   61




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
 Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 Name
    
    Age
    
    
    Year of Election as Director
    
    
    Position with the CompanyRudolph A. (Tré) Cates III
    

    38
    
    
    
    2007
    
    
    Director, President, Chief Executive Officer and SecretaryP. Shaun Hanner
    

    40
    
    
    
    
    
    
    Chief Operating OfficerDennis W. Clark
    

    39
    
    
    
    
    
    
    Chief Financial Officer and Treasurer
 Rudolph A. (Tr ) Cates III, Director, President, Chief Executive Officer and Secretary
  P. Shaun Hanner, Chief Operating Officer
  Dennis Clark, Chief Financial Officer and Treasurer
  Section 16(a) Beneficial Ownership Reporting Compliance
  Corporate Governance, Code of Ethics
   62




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##### Table of Contents



Board Committees
  Audit Committee.
  Compensation Committee.
 
 Item 11. Executive Compensation
 Summary Compensation Table
  Summary Compensation Table
 HG
    
    
    NonqualifiedF
    
    
    Non-Equity
    
    
    Deferred
    
    
    IA
    
    
    
    
    
    C
    
    
    D
    
    
    E
    
    
    Option
    
    
    Incentive Plan
    
    
    Compensation
    
    
    All Other
    
    
    JName and Principal
    
    B
    
    
    Salary
    
    
    Bonus
    
    
    Stock
    
    
    Awards
    
    
    Compensation
    
    
    Earnings
    
    
    Compensation
    
    
    TotalPosition
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    Awards
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Rudolph
(Tré) A. Cates III,
    
    
    2008
    
    
    $
    152,953
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    152,943Chief Executive Officer(1)
    
    
    2007
    
    
    
    141,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,250Patrick Hanner,
    
    
    2008
    
    
    $
    157,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    157,754Chief Operating
Officer(2)
    
    
    2007
    
    
    
    133,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133,750
 (1)
    
    Mr. Cates was appointed Chief Executive Officer of the Company in August 2007 in conjunction
with the closing of the SMM Acquisition. The information set forth in the table regarding Mr.
Cates reflects compensation Mr. Cates earned as Chief Executive Officer of SMM, our
wholly-owned subsidiary, and SMH during the fiscal years ended December 31, 2008 and 2007.  63




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##### Table of Contents



(2)
    
    Mr. Hanner was appointed Chief Operating Officer of the Company in August 2007 in conjunction
with the closing of the SMM Acquisition. The information set forth in the table regarding Mr.
Hanner reflects compensation he earned as Chief Operating Officer of SMM, our wholly-owned
subsidiary, and SMH during the fiscal years ended December 31, 2008 and 2007.  Salary (Column C)
  Bonus (Column D)
  Option Awards (Column F)
  Accounting for Stock-Based Compensation Accounting for
Stock-Based
Compensation Transition and Disclosure.
   64




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##### Table of Contents



OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
  Option Awards
    
    
    Stock AwardsJI
    
    
    EquityEquity
    
    
    IncentiveIncentive
    
    
    PlanPlan
    
    
    Awards:Awards:
    
    
    MarketD
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    or PayoutEquity
    
    
    
    
    
    
    
    
    
    
    G
    
    
    H
    
    
    of
    
    
    Value ofIncentive
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    Market
    
    

    Unearned
    
    
    UnearnedPlan
    
    
    
    
    
    
    
    
    
    
    of
    
    
    Value of
    
    

    Shares,
    
    
    Shares,Awards:
    
    
    
    
    
    
    
    
    
    
    Shares
    
    
    Shares
    
    

    Units or
    
    
    Units orNumber of
    
    
    
    
    
    
    
    
    
    
    or Units
    
    
    or Units
    
    

    Other
    
    
    OtherNumber of Securities
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    of Stock
    
    
    of Stock
    
    

    Rights
    
    
    RightsUnderlying Unexercised
    
    
    Underlying
    
    
    E
    
    
    
    
    
    
    That
    
    
    That
    
    

    That
    
    
    ThatOptions
    
    
    Unexercised
    
    
    Option
    
    
    F
    
    
    Have
    
    
    Have
    
    

    Have
    
    
    Have(#)
    
    
    Unearned
    
    
    Exercise
    
    
    Option
    
    
    Not
    
    
    Not
    
    
    Not
    
    
    NotA
    
    B
    
    
    C
    
    
    Options
    
    
    Price
    
    
    Expiration
    
    
    Vested
    
    
    Vested
    
    
    Vested
    
    
    VestedName
    
    Exercisable
    
    
    Unexercisable
    
    
    (#)
    
    
    ($)
    
    
    Date
    
    
    (#)
    
    
    ($)
    
    
    (#)
    
    
    ($)Rudolph
(Tré) A. Cates III,
    
    
    1,109,798
    
    
    
    
    
    
    
    
    
    
    $
    0.13
    
    
    
    01/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Executive Officer(1)
    
    
    88,785
    
    
    
    
    
    
    
    
    
    
    $
    0.37
    
    
    
    02/28/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Patrick Hanner,
    
    
    799,054
    
    
    
    
    
    
    
    
    
    
    $
    0.13
    
    
    
    01/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief
Operating Officer (2)
    
    
    55,490
    
    
    
    
    
    
    
    
    
    
    $
    0.34
    
    
    
    10/27/2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Mr. Cates was appointed Chief Executive Officer of the Company in August 2007 in conjunction
with the closing of the SMM Acquisition. The information set forth in the table regarding Mr.
Cates reflects outstanding equity awards Mr. Cates earned as Chief Executive Officer of SMM,
our wholly-owned subsidiary, during its fiscal year ended December 31, 2004 and 2005. On
January 30, 2009, Mr. Cates tendered 138,614 shares of his common stock to the Company at a
price of $1.01 per share. The proceeds were used to exercise 1,109,798 options at $0.13 per
option. This transaction was accounted for as a cashless exercise.(2)
    
    Mr. Hanner was appointed Chief Operating Officer of the Company in August 2007 in conjunction
with the closing of the SMM Acquisition. The information set forth in the table regarding Mr.
Hanner reflects outstanding equity awards he earned as Chief Operating Officer of SMM, our
wholly-owned subsidiary, during its fiscal year ended December 31, 2004 and 2005. On January
22, 2009, Mr. Hanner tendered 129,231 shares of his common stock to the Company at a price of
$0.78 per share. The proceeds were used to exercise 799,054 options at $0.13 per option.
This transaction was accounted for as a cashless exercise. Employment Contracts and Termination of Employment and Change-In-Control Arrangements
      65




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##### Table of Contents



DIRECTOR COMPENSATION
 NonqualifiedNon-Equity
    
    
    DeferredFees Earned or
    
    
    
    
    
    
    Warrant and
    
    
    Incentive Plan
    
    
    Compensation
    
    
    All OtherPaid in Cash
    
    
    Stock Awards
    
    
    Option Awards
    
    
    Compensation
    
    
    Earnings
    
    
    Compensation
    
    
    TotalName+
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Rudolph (Tré) A.
Cates III,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director, Chief
Executive Officer
and PresidentSteven King,
    
    
    11,712
    
    
    
    
    
    
    
    95,250
    
    
    
    
    
    
    
    
    
    
    
    103,500
    
    
    
    210,462Director and
Chairman of the
Board(2)(3)John Blackman,
    
    
    
    
    
    
    
    
    
    
    18,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,150Director(1)Mark Crossen,
    
    
    1,011
    
    
    
    
    
    
    
    42,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,146Director(2)Mickey Fain,
    
    
    2,652
    
    
    
    
    
    
    
    34,485
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,137Director(1)Chong Man Lee,
    
    
    5,014
    
    
    
    
    
    
    
    109,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,514Director(2)Eric A. Wittenberg,
    
    
    1,492
    
    
    
    
    
    
    
    29,040
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,532Director(1)Camillo Martino
    
    
    3,201
    
    
    
    
    
    
    
    58,740
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,941Director(2)
 
 Messrs. Cates, Blackman, Crossen, Fain, King, Lee and Wittenberg were appointed directors of the
Company in August 2007 in conjunction with the closing of the SMM Acquisition. Prior to the
closing of the SMM Acquisition, each individual was, and Mr. Cates continues to be, a director of
SMM, our wholly-owned subsidiary. The information set forth in the table reflects compensation
received by these individuals for SMMs fiscal year ended December 31, 2008 for his role as
director of SMM.(1)
    
    On May 9, 2008, Messrs. Blackman, Fain and Wittenberg resigned from the Board of Directors of
the Company and any of its subsidiaries for which they were a director.(2)
    
    On August 28, 2008, Messrs. King, Crossen, Lee and Martino resigned from the Board of
Directors of the Company and any of its subsidiaries for which they were a director.(3)
    
    During the year ended December 31, 2008, we paid $103,500 to AtlanticXing, LLC of which Mr.
King is the operating manager. The fees were paid for consulting services provided by
Mr. King. We terminated our agreement with AtlanticXing, LLC effective February 28, 2009.  66




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##### Table of Contents



Warrants toPurchase sharesof the CompanysCommonStockName
    
    GrantedRudolph (Tré) A. Cates III, Director, Chief Executive Officer and President
    
    
    John Blackman, Director(1)
    
    
    16,576Mark Crossen, Director(2)
    
    
    38,480Mickey Fain, Director(1)
    
    
    31,494Steven King, Director and Chairman of the Board(2)
    
    
    86,986Chong Man Lee, Director(2)
    
    
    100,000Eric A. Wittenberg, Director(1)
    
    
    26,520Camillo Martino, Director(2)
    
    
    53,644
 
 (1)
    
    On May 9, 2008, Messrs. Blackman, Fain and Wittenberg resigned from the Board of
Directors of the Company and any of its subsidiaries for which they were a director.(2)
    
    On August 28, 2008, Messrs. King, Crossen, Lee and Martino resigned from the Board of
Directors of the Company and any of its subsidiaries for which they were a director.  67




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##### Table of Contents



Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  Number of Shares
    
    
    Percentage ofBeneficially
    
    
    Common StockBeneficial Owner(1)
    
    Owned
    
    
    OutstandingPrincipal stockholdersRudolph (Tre) Cates III (2)
    
    
    2,796,249
    
    
    
    17.19
    %Patrick Hanner (3)
    
    
    1,216,851
    
    
    
    7.50
    %Roger Haston
    
    
    887,838
    
    
    
    5.49
    %Kenneth Paul Olsen (4)
    
    
    2,283,152
    
    
    
    13.86
    %Laurus Funds (6)(7)
    
    
    1,698,611
    
    
    
    9.99
    %Mark Crossen (5)
    
    
    5,616,560
    
    
    
    33.38
    %Directors and OfficersRudolph (Tre) Cates III (2)
    
    
    2,796,249
    
    
    
    17.19
    %Patrick Hanner (3)
    
    
    1,216,851
    
    
    
    7.50
    %All directors and executive officers as a group (three persons)(8)
    
    
    4,233,694
    
    
    
    20.75
    %
 
 
    
    Named executive officer.(1)
    
    Beneficial ownership is defined in the regulations promulgated by the SEC as (A) having or
sharing, directly or indirectly (i) voting power, which includes the power to vote or to
direct the voting, or (ii) investment power, which includes the power to dispose or to direct
the disposition, of shares of the common stock of an issuer; or (B) directly or indirectly
creating or using a trust, proxy, power of attorney, pooling arrangement or any other
contract, arrangement or device with the purpose or effect of divesting such person of
beneficial ownership of a security or preventing the vesting of such beneficial ownership.
Unless otherwise indicated, the beneficial owner has sole voting and investment power.(2)
    
    Mr. Cates shares of common stock include currently exercisable stock options to purchase
88,785 shares at an exercise price of $0.37 until 2011.(3)
    
    Mr. Hanners shares of common stock include currently exercisable stock options to purchase
55,490 shares at an exercise price of $0.34 until 2013.(4)
    
    Mr. Olsens shares of common stock include currently exercisable stock options to purchase
300,000 shares at an exercise price of $0.50 until December 31, 2013. Mr. Olsen is the
President and CEO of MemoryTen, Inc.(5)
    
    Mr. Crossens shares of common stock include (a) 1,265,408 shares of common stock held by
RayneMark Investments LLC, of which Mr. Crossen is the executive director and majority owner,
(b) 300,000 shares of common stock held by Progeny Capital Management, (c) currently
exercisable stock options to purchase 2,660 shares at at an exercise price of $0.34 until
April 20, 2011 and (d) currently exercisable warrants to purchase 649,460 shares at exercise
prices ranging from $0.01 to $0.50 until various dates in 2012 and 2013.  68




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##### Table of Contents



(6)
    
    Laurus Funds shares of common stock include (a) 495,510 shares of common stock held by The
Valens Offshore SPV1 Fund Ltd which is under common management control, (b) 136,867 shares of
common stock held by Psource Structured Debt Fund Ltd which is under common management
control, (c) 121,130 shares of common stock held by The Valens US Fund Ltd which is
under common management control, and (d) currently exercisable warrants to purchase 940,000
shares at an exercise price of $0.01 with no expiration date.(7)
    
    Per the terms of our various loan documents with Laurus, they are unable to own more than
9.99% of our outstanding common stock. The beneficial ownership of shares and percentages
disclosed above exclude warrants to purchase 5,782,369 shares of our common stock at various
exercise prices between $0.001 and $0.01. In addition, we have a convertible note payable to
Laurus with a principal balance of $1,998,529 which is convertible into our common stock at a
conversion price of $1.85 per share, these share have also been excluded from the disclosure
above.(8)
    
    Includes 2,053,127 shares of common stock subject to options and warrants exercisable within
the next 60 days. 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
 Debt Financing
   Director Independence
  
 Item 15. Exhibits and Financial Statement Schedules
 Exhibit Number
    
    Description2.1
    
    
    LLC Interest Sale Agreement, dated as of June 30, 2006, between Z-Axis Corporation and HTK, LLC (1)2.2
    
    

Stock Exchange Agreement, dated as of May 7, 2006 (1)2.3
    
    

Amendment No. 1 to Stock Exchange Agreement dated June 30, 2006 (1)2.4
    
    

Amendment No. 2 to Stock Exchange Agreement dated December 31, 2006 (1)
  69




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##### Table of Contents



Exhibit Number
    
    Description3.1
    
    
    Amended and Restated Articles of Incorporation (2)3.2
    
    
    Amended and Restated Bylaws (3)10.1
    
    
    Master Security Agreement, dated August 28, 2007 (2)10.2
    
    
    Joinder Agreement, dated August 28, 2007 (2)10.3
    
    
    Registration Rights Agreement, dated August 28, 2007 (2)10.4
    
    
    Guaranty, dated August 28, 2007 (2)10.5
    
    
    Security and Purchase Agreement, dated September 25, 2006 (2)10.6
    
    
    Stock Pledge Agreement, dated September 25, 2006 (2)10.7
    
    
    Amended and Restated Secured Convertible Term Note, dated August 28, 2007 (2)10.8
    
    
    Secured Term Note, dated September 25, 2006 (2)10.9
    
    
    Secured Revolving Note, dated September 25, 2006 (2)10.10
    
    
    Common Stock Purchase Warrant, dated August 30, 2007 (2)10.11
    
    
    Silicon Mountain Memory, Incorporated 2003 Equity Incentive Plan (2)10.12
    
    

Form of Stock Option Agreement of Silicon Mountain Memory, Incorporated 2003 Equity Incentive Plan (2)10.13
    
    
    Side Letter Agreement, dated August 30, 2007 (2)10.14
    
    
    Amendment to Amended and Restated Secured Convertible Term Note and Secured Term Note dated as of
November 5, 2007 (4)10.15
    
    

Omnibus Amendment dated as of March 18, 2008 (5)10.16
    
    

Form of Common Stock Purchase Warrant (5)10.17
    
    

Overadvance Side Letter Agreement dated as of March 14, 2008 (5)10.18
    
    

Form of Common Stock Purchase Warrant (5)10.19
    
    

Form of Subscription Agreement (5)10.20
    
    

Settlement and Release Agreement dated as of April 25, 2008 (6)10.21
    
    

Form of Common Stock Purchase Warrant (6)10.22
    
    

Amended and Restated Overadvance Side Letter Agreement effective as of April 15, 2008 (6)10.23
    
    

Form of Common Stock Purchase Warrant (6)10.24
    
    

Tag-Along Rights Side Letter Agreement dated April 24, 2008 (6)10.25
    
    
    Subscription Agreement with MemoryTen, Inc., dated August 12, 2008 (7)10.26
    
    
    Second Amended and Restated Overadvance Side Letter Dated October 14, 2008 (8)
  70




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##### Table of Contents



Exhibit Number
    
    Description14.1
    
    
    Code of Business Ethics (9)21.1
    
    
    Subsidiaries of the Registrant (9)31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (9)31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (9)32.1
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (9)
 
 (1)
    
    Incorporated by reference from our Definitive Joint Proxy Statement on Schedule 14A filed on
July 24, 2007 (File No. 000-11284).(2)
    
    Incorporated by reference from our Current Report on Form 8-K filed on September 4, 2007
(File No. 000-11284).(3)
    
    Incorporated by reference from our Current Report on Form 8-K filed on October 3, 2007 (File
No. 000-11284). (4)
    
    Incorporated by reference from our Current Report on Form 8-K filed on November 30, 2007
(File No. 000-11284).(5)
    
    Incorporated by reference from our Current Report on Form 8-K filed on March 20, 2008 (File
No. 000-11284).(6)
    
    Incorporated by reference from our Amendment No. 1 to our Annual Report on Form 10-KSB filed
on May 19, 2008 (File No. 000-11284).(7)
    
    Incorporated by reference from our Current Report on Form 8-K filed on August 15, 2008 (File
No. 000-11284).(8)
    
    Incorporated by reference from our Current Report on Form 8-K filed on November 14, 2008
(File No. 000-11284).(9)
    
    Filed herewith. 
 Item 14. Principal Accountant Fees and Services
 Independent Registered Public Accounting Firm:
 Audit Fees:
 Audit Related Fees:
 Tax Fees:
 All Other Fees:
  71




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##### Table of Contents



SIGNATURES
  SILICON MOUNTAIN HOLDINGS, INC.By:
    
    /s/ Rudolph (Tré) A. Cates IIIRudolph (Tré) A. Cates III,President, Chief Executive Officer, Secretary and Director
  By:
    
    /s/ Rudolph (Tre) A. Cates IIIRudolph (Tre) A. Cates IIIPresident, Chief Executive Officer, Secretary and DirectorDate: May 19, 2009By:
    
    /s/ Dennis W. ClarkDennis W. ClarkChief Financial Officer and TreasurerDate: April 15, 2009
  72




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description2.1
    
    
    LLC Interest Sale Agreement, dated as of June 30, 2006, between Z-Axis Corporation and HTK, LLC (1)2.2
    
    

Stock Exchange Agreement, dated as of May 7, 2006 (1)2.3
    
    

Amendment No. 1 to Stock Exchange Agreement dated June 30, 2006 (1)2.4
    
    

Amendment No. 2 to Stock Exchange Agreement dated December 31, 2006 (1)3.1
    
    
    Amended and Restated Articles of Incorporation (2)3.2
    
    
    Amended and Restated Bylaws (3)10.1
    
    
    Master Security Agreement, dated August 28, 2007 (2)10.2
    
    
    Joinder Agreement, dated August 28, 2007 (2)10.3
    
    
    Registration Rights Agreement, dated August 28, 2007 (2)10.4
    
    
    Guaranty, dated August 28, 2007 (2)10.5
    
    
    Security and Purchase Agreement, dated September 25, 2006 (2)10.6
    
    
    Stock Pledge Agreement, dated September 25, 2006 (2)10.7
    
    
    Amended and Restated Secured Convertible Term Note, dated August 28, 2007 (2)10.8
    
    
    Secured Term Note, dated September 25, 2006 (2)10.9
    
    
    Secured Revolving Note, dated September 25, 2006 (2)10.10
    
    
    Common Stock Purchase Warrant, dated August 30, 2007 (2)10.11
    
    
    Silicon Mountain Memory, Incorporated 2003 Equity Incentive Plan (2)10.12
    
    
    Form of Stock Option Agreement of Silicon Mountain Memory, Incorporated 2003 Equity Incentive Plan (2)10.13
    
    
    Side Letter Agreement, dated August 30, 2007 (2)10.14
    
    
    Amendment to Amended and Restated Secured Convertible Term Note and Secured Term Note dated as of
November 5, 2007 (4)10.15
    
    

Omnibus Amendment dated as of March 18, 2008 (5)10.16
    
    

Form of Common Stock Purchase Warrant (5)10.17
    
    

Overadvance Side Letter Agreement dated as of March 14, 2008 (5)10.18
    
    

Form of Common Stock Purchase Warrant (5)10.19
    
    

Form of Subscription Agreement (5)10.20
    
    

Settlement and Release Agreement dated as of April 25, 2008 (6)10.21
    
    

Form
of Common Stock Purchase Warrant (6)10.22
    
    

Amended and Restated Overadvance Side Letter Agreement effective as of April 15, 2008 (6)10.23
    
    

Form of Common Stock Purchase Warrant (6)10.24
    
    

Tag-Along Rights Side Letter Agreement dated April 24, 2008 (6)
  73




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Exhibit Number
    
    Description10.25
    
    
    Subscription Agreement with MemoryTen, Inc., dated August 12, 2008 (7)10.26
    
    
    Second Amended and Restated Overadvance Side Letter Dated October 14, 2008 (8)14.1
    
    
    Code of Business Ethics (9)21.1
    
    
    Subsidiaries of the Registrant (9)31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (9)31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (9)32.1
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (9)
 
 (1)
    
    Incorporated by reference from our Definitive Joint Proxy Statement on Schedule 14A filed on
July 24, 2007 (File No. 000-11284).(2)
    
    Incorporated by reference from our Current Report on Form 8-K filed on September 4, 2007
(File No. 000-11284).(3)
    
    Incorporated by reference from our Current Report on Form 8-K filed on October 3, 2007 (File
No. 000-11284).(4)
    
    Incorporated by reference from our Current Report on Form 8-K filed on November 30, 2007
(File No. 000-11284).(5)
    
    Incorporated by reference from our Current Report on Form 8-K filed on March 20, 2008 (File
No. 000-11284).(6)
    
    Incorporated by reference from our Amendment No. 1 to our Annual Report on Form 10-KSB filed
on May 19, 2008 (File No. 000-11284).(7)
    
    Incorporated by reference from our Current Report on Form 8-K filed on August 15, 2008 (File
No. 000-11284).(8)
    
    Incorporated by reference from our Current Report on Form 8-K filed on November 14, 2008
(File No. 000-11284).(9)
    
    Filed herewith.  74