UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





WASHINGTON,
D.C. 20549





FORM
10-QSB





x QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2008








o TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________





COMMISSION
FILE NUMBER 000-21785





RIM
SEMICONDUCTOR COMPANY


(Exact
name of small business issuer as specified in its charter)








UTAH
            
            95-4545704(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              identification
      no.)











305
      NE 102ND AVENUE, SUITE 350
              PORTLAND,
      OREGON 97220
            
            (503)
      257-6700(Address
      of principal executive offices)
            
            (Issuer’s
      telephone number,
              including
      area code)











Check
      whether the issuer (1) has filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
      such 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 oIndicate
      by check mark whether the registrant is a shell company (as defined by
      Rule 12b-2 of the Exchange Act)
            Yes o  No xThe
      number of shares of the issuer’s Common Stock, par value $.001 per share,
      outstanding as of June 20, 2008, was 891,745,161.Transitional
      Small Business Disclosure Format (Check one)
            Yes o  No x








FORM
10-QSB





RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY COMMENCING NOVEMBER 1, 2007)





APRIL
30, 2008





TABLE
OF CONTENTS








PAGEPART
      I - FINANCIAL INFORMATION
            1ITEM
      1.  FINANCIAL STATEMENTS
            1CONDENSED
      CONSOLIDATED BALANCE SHEET (Unaudited) At April 30,
    2008
            1CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Six and Three
      Months Ended April 30, 2008 and 2007 and for the Period From November 1,
      2007 (Date of Commencement as a Development Stage Company) to April 30,
      2008
            2CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY (Unaudited) For
      the Six Months Ended April 30, 2008
            4CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months
      Ended April 30, 2008 and 2007 and for the Period From November 1, 2007
      (Date of Commencement as a Development Stage Company) to April 30,
      2008
            10NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            13ITEM
      2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION
            35ITEM
      3.  CONTROLS AND PROCEDURES
            45PART
      II - OTHER INFORMATION
            46ITEM
      2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
            46ITEM
      5.  OTHER INFORMATION
            47ITEM
      6.  EXHIBITS
            49SIGNATURES
            50








PART
I - FINANCIAL INFORMATION





ITEM
1.  FINANCIAL STATEMENTS





RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A Development Stage Company Commencing November 1,
2007)





CONDENSED
CONSOLIDATED BALANCE SHEET


(Unaudited)


April
      30,
              2008ASSETSCurrent
      Assets:Cash
            
            $
            1,621Other
      current assets
            
            
            43,104Assets
      of discontinued operations
            
            
            120TOTAL
      CURRENT ASSETS
            
            
            44,845Property
      and equipment - net
            
            
            172,512Note
      receivable
            
            
            50,000Deferred
      financing costs - net
            
            
            674,054Other
      assets
            
            
            20,738TOTAL
      ASSETS
            
            $
            962,149LIABILITIES AND
      STOCKHOLDERS’ DEFICIENCYCurrent
      Liabilities:Convertible
      notes payable
            
            $
            478,000Notes
      payable
            
            
            200,000Convertible
      debentures (net of debt discount of $2,823,307)
            
            
            1,358,751Derivative
      liabilities – warrants, options and embedded conversion
      options
            
            
            3,311,446Accounts
      payable and accrued expenses
            
            
            1,615,728Advance
      from officer
            
            
            49,000Liabilities
      of discontinued operations
            
            
            838TOTAL
      CURRENT LIABILITIES
            
            
            7,013,763TOTAL
      LIABILITIES
            
            
            7,013,763Commitments,
      Contingencies and Other mattersStockholders’
      Deficiency:Preferred
      stock - $0.01 par value; Authorized - 15,000,000 shares; Issued - 0
      shares;
              Outstanding - 0
      shares
            
            
            -Common
      stock - $0.001 par value; Authorized - 900,000,000 shares; Issued –
      731,406,911 shares;
              Outstanding – 730,907,057
      shares
            
            
            731,407Treasury
      stock, at cost - 499,854 shares
            
            
            (7,498
            )Additional
      paid-in capital
            
            
            89,765,774Unearned
      compensation
            
            
            (382,827
            )Accumulated
      deficit at October 31, 2007
            
            
            (90,689,341
            )Deficit
      accumulated during the development stage
            
            
            (5,469,129
            )TOTAL
      STOCKHOLDERS’ DEFICIENCY
            
            
            (6,051,614
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
            
            $
            962,149





See notes
to condensed consolidated financial statements.




1


RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





For
      the Six Months Ended
              April
      30,
            
            
            Period
      from
              November
      1, 2007
              (Date
      of
              Commence-ment
      as a
              Development
              Stage
      Company) to2008
            
            
            2007
            
            
            April
      30, 2008OPERATING
      EXPENSES:Acquired
      in-process research and development
            
            $
            3,015,000
            
            
            $
            -
            
            
            $
            3,015,000Amortization
      of technology licenses and capitalized software
              development costs
            
            
            -
            
            
            
            530,666
            
            
            
            -Research
      and development expenses (including stock based
              compensation of $23,932 and
      $443,432, respectively)
            
            
            550,257
            
            
            
            809,620
            
            
            
            550,257Selling,
      general and administrative expenses (including stock
              based compensation of $1,173,025
      and $1,058,791,
              respectively)
            
            
            3,059,996
            
            
            
            2,847,234
            
            
            
            3,059,996TOTAL
      OPERATING EXPENSES
            
            
            6,625,253
            
            
            
            4,187,520
            
            
            
            6,625,253OPERATING
      LOSS
            
            
            (6,625,253
            )
            
            
            (4,187,520
            )
            
            
            (6,625,253
            )OTHER
      EXPENSES (INCOME):Interest
      income
            
            
            (1,345
            )
            
            
            -
            
            
            
            (1,345
            )Interest
      expense
            
            
            1,719,335
            
            
            
            2,940,517
            
            
            
            1,719,335Change
      in fair value of derivative liabilities
            
            
            (3,123,293
            )
            
            
            (361,747
            )
            
            
            (3,123,293
            )Amortization
      of deferred financing costs
            
            
            253,947
            
            
            
            1,165,847
            
            
            
            253,947Other
            
            
            -
            
            
            
            (27,895
            )
            
            
            -TOTAL
      OTHER EXPENSES (INCOME)
            
            
            (1,151,356
            )
            
            
            3,716,722
            
            
            
            (1,151,356
            )LOSS
      FROM CONTINUING OPERATIONS
            
            
            (5,473,897
            )
            
            
            (7,904,242
            )
            
            
            (5,473,897
            )INCOME
      (LOSS) FROM DISCONTINUED OPERATIONS
            
            
            4,768
            
            
            
            (8,061
            )
            
            
            4,768NET
      LOSS
            
            $
            (5,469,129
            )
            
            $
            (7,912,303
            )
            
            $
            (5,469,129
            )BASIC
      AND DILUTED NET LOSS PER COMMON SHARE
            
            $
            (0.01
            )
            
            $
            (0.02
            )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES
              OUTSTANDING
            
            
            545,462,176
            
            
            
            410,318,226





See notes
to condensed consolidated financial statements.




2


RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)







For
      the Three Months Ended
              April
      30,2008
            
            
            2007OPERATING
      EXPENSES:Acquired
      in-process research and development
            
            $
            1,675,000
            
            
            $
            -Amortization
      of technology licenses and capitalized software
              development costs
            
            
            -
            
            
            
            270,363Research
      and development expenses (including stock based
              compensation of $13,582 and
      $23,022, respectively)
            
            
            130,845
            
            
            
            161,946Selling,
      general and administrative expenses (including stock based
              compensation of $460,805 and
      $589,382, respectively)
            
            
            1,490,912
            
            
            
            1,407,759TOTAL
      OPERATING EXPENSES
            
            
            3,296,757
            
            
            
            1,840,068OPERATING
      LOSS
            
            
            (3,296,757
            )
            
            
            (1,840,068
            )OTHER
      EXPENSES (INCOME):Interest
      income
            
            
            (93
            )
            
            
            -Interest
      expense
            
            
            604,197
            
            
            
            154,016Change
      in fair value of derivative liabilities
            
            
            (2,846,664
            )
            
            
            (1,900,394
            )Amortization
      of deferred financing costs
            
            
            116,858
            
            
            
            41,161Other
            
            
            -
            
            
            
            (13,352
            )TOTAL
      OTHER EXPENSES (INCOME)
            
            
            (2,125,702
            )
            
            
            (1,718,569
            )LOSS
      FROM CONTINUING OPERATIONS
            
            
            (1,171,055
            )
            
            
            (121,499
            )INCOME
      (LOSS) FROM DISCONTINUED OPERATIONS
            
            
            (1,987
            )
            
            
            (320
            )NET
      LOSS
            
            $
            (1,173,042
            )
            
            $
            (121,819
            )BASIC
      AND DILUTED NET LOSS PER COMMON SHARE
            
            $
            (0.00
            )
            
            $
            (0.00
            )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES
              OUTSTANDING
            
            
            618,379,072
            
            
            
            425,197,451






See notes
to condensed consolidated financial statements.




3


RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)





CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY


For
The Six Months Ended April 30, 2008


(Unaudited)









Common
      Stock
            
            Treasury
      StockShares
            
            
            Amount
            
            Shares
            
            
            Amount
            
            
            Additional
              Paid-in
              Capital
            
            Unearned
      Compensation
            
            
            Accumulated
              Deficit
            
            
            Total
              Stockholders’
              DeficiencyBalance
      at November 1, 2007
            468,986,043
            
            $
            468,986
            
            (499,854
            )
            $
            (7,498
            )
            $
            85,276,802
            $
            (907,656
            )
            $
            (90,689,341
            )
            $
            (5,858,707
            )Issuance
      of common stock under service and consulting agreement on December 19,
      2007 ($0.021 per share)
            5,000,000
            
            
            5,000
            
            -
            
            
            -
            
            
            100,000
            
            (105,000
            )
            
            -
            
            
            -Issuance
      of common stock under service and consulting agreements on December 20,
      2007 ($0.021 per share)
            1,000,000
            
            
            1,000
            
            -
            
            
            -
            
            
            20,000
            
            (21,000
            )
            
            -
            
            
            -Issuance
      of common stock under service and consulting agreements on February 29,
      2008 ($0.023 per share)
            15,000,000
            
            
            15,000
            
            -
            
            
            -
            
            
            330,000
            
            (345,000
            )
            
            -
            
            
            -Issuance
      of common stock for conversion of accrued interest  on December
      31, 2007 ($0.0179 per share)
            1,295,944
            
            
            1,296
            
            -
            
            
            -
            
            
            21,837
            
            -
            
            
            -
            
            
            23,133Issuance
      of common stock for cash on November 6, 2007 ($0.05 per
    share)
            400,000
            
            
            400
            
            -
            
            
            -
            
            
            19,600
            
            -
            
            
            -
            
            
            20,000Issuance
      of common stock for cash on February 1, 2008 ($0.04 per
    share)
            950,000
            
            
            950
            
            -
            
            
            -
            
            
            37,050
            
            -
            
            
            -
            
            
            38,000





See notes
to condensed consolidated financial statements.




4




RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)





CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY


For
The Six Months Ended April 30, 2008


(Unaudited)







Common
      Stock
            
            Treasury
      StockShares
            
            Amount
            
            Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Unearned
      Compensation
            
            Accumulated
              Deficit
            
            Total
              Stockholders’
              DeficiencyIssuance
      of common stock for cash on February 15, 2008 ($0.04 per
      share)
            500,000
            
            
            500
            
            -
            
            
            -
            
            
            19,500
            
            
            -
            
            
            -
            
            
            20,000Issuance
      of common stock for cash on February 21, 2008 ($0.04 per
      share)
            500,000
            
            
            500
            
            -
            
            
            -
            
            
            19,500
            
            
            -
            
            
            -
            
            
            20,000Issuance
      of common stock for cash on March 19, 2008  ($0.04 per
      share)
            500,000
            
            
            500
            
            -
            
            
            -
            
            
            19,500
            
            
            -
            
            
            -
            
            
            20,000Issuance
      of common stock for cash on April 4, 2008  ($0.01 per
      share)
            2,500,000
            
            
            2,500
            
            -
            
            
            -
            
            
            22,500
            
            
            -
            
            
            -
            
            
            25,000Issuance
      of common stock for cash on April 9, 2008  ($0.01 per
      share)
            1,000,000
            
            
            1,000
            
            -
            
            
            -
            
            
            9,000
            
            
            -
            
            
            -
            
            
            10,000Issuance
      of common stock for cash on April 11, 2008  ($0.01 per
      share)
            3,500,000
            
            
            3,500
            
            -
            
            
            -
            
            
            31,500
            
            
            -
            
            
            -
            
            
            35,000Issuance
      of common stock for cash on April 15, 2008  ($0.01 per
      share)
            2,500,000
            
            
            2,500
            
            -
            
            
            -
            
            
            22,500
            
            
            -
            
            
            -
            
            
            25,000Issuance
      of common stock for cash on April 28, 2008  ($0.01 per
      share)
            6,000,000
            
            
            6,000
            
            -
            
            
            -
            
            
            54,000
            
            
            -
            
            
            -
            
            
            60,000





See notes
to condensed consolidated financial statements.




5




RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)





CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY


For
The Six Months Ended April 30, 2008


(Unaudited)







Common
      Stock
            
            Treasury
      StockShares
            
            Amount
            
            Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Unearned
      Compensation
            
            Accumulated
              Deficit
            
            Total
              Stockholders’
              DeficiencyIssuance
      of common stock for conversion of convertible debentures and accrued
      interest on February 29, 2008 ($0.0155 per share)
            2,098,709
            
            
            2,099
            
            -
            
            
            -
            
            
            30,431
            
            
            -
            
            
            -
            
            
            32,530Issuance
      of common stock for conversion of convertible debentures and accrued
      interest on March 14, 2008 ($0.01617 per share)
            673,698
            
            
            674
            
            -
            
            
            -
            
            
            10,220
            
            
            -
            
            
            -
            
            
            10,894Issuance
      of common stock for conversion of convertible debentures and accrued
      interest on March  18, 2008 ($0.01449 per share)
            1,279,424
            
            
            1,279
            
            -
            
            
            -
            
            
            17,260
            
            
            -
            
            
            -
            
            
            18,539Issuance
      of common stock for conversion of convertible debentures and accrued
      interest on April 4, 2008 ($0.01022 per share)
            996,113
            
            
            996
            
            -
            
            
            -
            
            
            9,184
            
            
            -
            
            
            -
            
            
            10,180Issuance
      of common stock for conversion of accrued interest on April 4, 2008
      ($0.008925 per share)
            465,574
            
            
            466
            
            -
            
            
            -
            
            
            3,689
            
            
            -
            
            
            -
            
            
            4,155Issuance
      of common stock for conversion of accrued interest on April 8, 2008
      ($0.008925 per share)
            138,138
            
            
            138
            
            -
            
            
            -
            
            
            1,095
            
            
            -
            
            
            -
            
            
            1,233





See notes
to condensed consolidated financial statements.




6




RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)





CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY


For
The Six Months Ended April 30, 2008


(Unaudited)







Common
      Stock
            
            Treasury
      StockShares
            
            Amount
            
            Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Unearned
      Compensation
            
            Accumulated
              Deficit
            
            Total
              Stockholders’
              DeficiencyIssuance
      of common stock for conversion of convertible debentures and accrued
      interest on April 8, 2008 ($0.00945 per share)
            1,062,551
            
            
            1,062
            
            -
            
            
            -
            
            
            8,978
            
            
            -
            
            
            -
            
            
            10,040Issuance
      of common stock for conversion of convertible debentures and accrued
      interest on April 9, 2008 ($0.00945 per share)
            15,944
            
            
            16
            
            -
            
            
            -
            
            
            135
            
            
            -
            
            
            -
            
            
            151Issuance
      of common stock for conversion of convertible debentures and accrued
      interest on April 11, 2008 ($0.00917 per share)
            1,111,845
            
            
            1,112
            
            -
            
            
            -
            
            
            9,084
            
            
            -
            
            
            -
            
            
            10,196Issuance
      of common stock for conversion of convertible debentures and accrued
      interest on April 14, 2008 ($0.0091 per share)
            2,242,059
            
            
            2,242
            
            -
            
            
            -
            
            
            18,161
            
            
            -
            
            
            -
            
            
            20,403Issuance
      of common stock for conversion of convertible debentures and accrued
      interest on April 15, 2008 ($0.00903 per share)
            1,129,932
            
            
            1,130
            
            -
            
            
            -
            
            
            9,073
            
            
            -
            
            
            -
            
            
            10,203Issuance
      of common stock for conversion of convertible debentures and accrued
      interest on April 21, 2008 ($0.0091 per share)
            560,937
            
            
            561
            
            -
            
            
            -
            
            
            4,544
            
            
            -
            
            
            -
            
            
            5,105





See notes
to condensed consolidated financial statements.




7




RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)





CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY


For
The Six Months Ended April 30, 2008


(Unaudited)







Common
      Stock
            
            Treasury
      StockShares
            
            Amount
            
            Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Unearned
      Compensation
            
            Accumulated
              Deficit
            
            Total
              Stockholders’
              DeficiencyIssuance
      of common stock upon acquisition of BDSI on January 29, 2008 ($0.029 per
      share)
            60,000,000
            
            
            60,000
            
            -
            
            
            -
            
            
            1,680,000
            
            
            -
            
            
            -
            
            
            1,740,000Issuance
      of common stock upon acquisition of MCCI on March 24, 2008 ($0.013167 per
      share)
            150,000,000
            
            
            150,000
            
            -
            
            
            -
            
            
            1,825,000
            
            
            -
            
            
            -
            
            
            1,975,000Stock
      based compensation expense recognized for the granting and vesting of
      options to employees and advisory board members
            -
            
            
            -
            
            -
            
            
            -
            
            
            201,128
            
            
            -
            
            
            -
            
            
            201,128Reclassification
      of warrants issued in connection with restricted common stock to
      derivative liability
            -
            
            
            -
            
            -
            
            
            -
            
            
            (142,563
            )
            
            -
            
            
            -
            
            
            (142,563
            )Reclassification
      of conversion option liability
            -
            
            
            -
            
            -
            
            
            -
            
            
            39,429
            
            
            -
            
            
            -
            
            
            39,429Stock-based
      compensation expense related to reset of conversion terms
            -
            
            
            -
            
            -
            
            
            -
            
            
            37,637
            
            
            -
            
            
            -
            
            
            37,637





See notes
to condensed consolidated financial statements.




8




RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)




CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY


For
The Six Months Ended April 30, 2008


(Unaudited)







Common
      Stock
            
            Treasury
      StockShares
            
            Amount
            
            Shares
            
            Amount
            
            Additional
              Paid-in
              Capital
            
            Unearned
      Compensation
            
            Accumulated
              Deficit
            
            Total
              Stockholders’
              DeficiencyAmortization
      of unearned compensation expense
            -
            
            
            -
            
            -
            
            
            -
            
            
            -
            
            
            995,829
            
            
            -
            
            
            995,829Net
      Loss
            -
            
            
            -
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,469,129
            )
            
            (5,469,129
            )Balance
      at April 30, 2008
            731,406,911
            
            $
            731,407
            
            (499,854
            )
            $
            (7,498
            )
            $
            89,765,774
            
            $
            (382,827
            )
            $
            (96,158,470
            )
            $
            (6,051,614
            )












Accumulated
      deficit as of October 31, 2007
            
            $
            (90,689,341
            )Deficit
      accumulated during the development stage
            
            
            (5,469,129
            )Total
      accumulated deficit as of April 30, 2008
            
            $
            (96,158,470
            )





See notes
to condensed consolidated financial statements.


9


RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




For
      the Six Months Ended
              April
      30,
            
            
            Period
      from
              November
      1, 2007
              (Date
      of Commencement as a Development
              Stage
      Company) to2008
            
            
            2007
            
            
            April
      30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss from continuing operations
            
            $
            (5,473,897
            )
            
            $
            (7,904,242
            )
            
            $
            (5,473,897
            )Adjustments
      to reconcile net loss from continuing operations
              to net cash used in operating
      activities:Consulting
      fees and other compensatory elements of stock
              issuances
            
            
            1,196,957
            
            
            
            1,502,223
            
            
            
            1,196,957Change
      in fair value of derivative liabilities
            
            
            (3,123,293
            )
            
            
            (361,747
            )
            
            
            (3,123,293
            )Acquired
      in-process research and development
            
            
            3,015,000
            
            
            
            -
            
            
            
            3,015,000Fair
      value of warrants in excess of debt discount
            
            
            369,721
            
            
            
            -
            
            
            
            369,721Interest
      expense related to reset of conversion rate on
              convertible
      debentures
            
            
            37,637
            
            
            
            -
            
            
            
            37,637Increase
      in principal of convertible debentures in exchange for
              extension of maturity
      date
            
            
            40,000
            
            
            
            -
            
            
            
            40,000Amortization
      of deferred financing costs
            
            
            253,947
            
            
            
            1,165,847
            
            
            
            253,947Amortization
      of debt discount on notes
            
            
            1,115,471
            
            
            
            2,893,510
            
            
            
            1,115,471Amortization
      of technology license and capitalized software
              development fees
            
            
            -
            
            
            
            530,666
            
            
            
            -Depreciation
            
            
            17,370
            
            
            
            9,438
            
            
            
            17,370Other
      non-cash expense
            
            
            -
            
            
            
            614
            
            
            
            -Change
      in assets:Other
      current assets
            
            
            50,256
            
            
            
            (52,779
            )
            
            
            50,256Other
      assets
            
            
            (2,256
            )
            
            
            -
            
            
            
            (2,256
            )Change
      in liabilities:Accounts
      payable and accrued expenses
            
            
            (78,896
            )
            
            
            294,890
            
            
            
            (78,896
            )NET
      CASH USED IN OPERATING ACTIVITIES
            
            
            (2,581,983
            )
            
            
            (1,921,580
            )
            
            
            (2,581,983
            )CASH
      FLOWS FROM INVESTING ACTIVITIESProceeds
      from sale of trademark rights
            
            
            -
            
            
            
            200,000
            
            
            
            -Proceeds
      from maturity of short-term investments
            
            
            -
            
            
            
            1,000,000
            
            
            
            -Cash
      acquired in connection with common stock issued upon
              acquisition of
    BDSI
            
            
            400,000
            
            
            
            -
            
            
            
            400,000Cash
      acquired in connection with common stock issued upon
              acquisition of
    MCCI
            
            
            300,000
            
            
            
            -
            
            
            
            300,000Acquisition
      and costs of capitalized software and development
              fees
            
            
            -
            
            
            
            (526,787
            )
            
            
            -Acquisition
      of property and equipment
            
            
            (9,250
            )
            
            
            (112,419
            )
            
            
            (9,250
            )NET
      CASH PROVIDED BY INVESTING ACTIVITIES
            
            
            690,750
            
            
            
            560,794
            
            
            
            690,750





See notes
to condensed consolidated financial statements.




10




RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)









For
      the Six Months Ended
              April
      30,
            
            
            
            Period
      from
              November
      1, 2007
              (Date
      of Commencement as a Development
              Stage
      Company) to2008
            
            
            
            2007
            
            
            
            April
      30, 2008CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from issuance of common stock
            
            
            273,000
            
            
            
            300,000
            
            
            
            273,000Proceeds
      from convertible debentures
            
            
            3,175,000
            
            
            
            -
            
            
            
            3,175,000Proceeds
      from notes payable
            
            
            -
            
            
            
            300,000
            
            
            
            -Advance
      from officer
            
            
            49,000
            
            
            
            -
            
            
            
            49,000Capitalized
      financing costs
            
            
            (345,000
            )
            
            
            (34,000
            )
            
            
            (345,000
            )Repayments
      of notes payable
            
            
            (1,300,000
            )
            
            
            -
            
            
            
            (1,300,000
            )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            1,852,000
            
            
            
            566,000
            
            
            
            1,852,000DECREASE
      IN CASH AND CASH EQUIVALENTS
              FROM CONTINUING
      OPERATIONS
            
            
            (39,233
            )
            
            
            (794,786
            )
            
            
            (39,233
            )CASH
      FLOWS FROM DISCONTINUED OPERATIONS
              – OPERATING CASH
      FLOWS
            
            
            5,486
            
            
            
            (8,061
            )
            
            
            5,486DECREASE
      IN CASH
            
            
            (33,747
            )
            
            
            (802,847
            )
            
            
            (33,747
            )CASH
      – BEGINNING OF PERIOD
            
            
            35,368
            
            
            
            1,090,119
            
            
            
            35,368CASH
      – END OF PERIOD
            
            $
            1,621
            
            
            $
            287,272
            
            
            $
            1,621








See notes
to condensed consolidated financial statements.


11


RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES


(A
Development Stage Company Commencing November 1, 2007)





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





For
      the Six Months Ended
              April
      30,
            
            
            Period
      from
              November
      1, 2007 (Date of Commencement as
              Development
              Stage
              Company)
      to2008
            
            
            2007
            
            
            April
      30, 2008Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period for:Interest
            
            $
            31,833
            
            
            $
            50,000
            
            
            $
            31,833Non-Cash
      Investing and Financing Activities:Value
      recorded as debt discount relating to warrants issued to
      purchasers
              of convertible
      debentures
            
            $
            2,116,667
            
            
            $
            -
            
            
            $
            2,116,667Value
      assigned to conversion option liability in connection with
      issuance
              of convertible
      debentures
            
            $
            1,058,333
            
            
            $
            -
            
            
            $
            1,058,333Value
      assigned to warrants issued in connection with notes
    payable
            
            $
            -
            
            
            $
            226,567
            
            
            $
            -Value
      assigned on issuance date to warrants issued to finder
            
            $
            497,277
            
            
            $
            -
            
            
            $
            497,277Common
      stock issued for conversion of convertible debentures, notes
              payable and accrued
      interest
            
            $
            156,762
            
            
            $
            4,069,232
            
            
            $
            156,762Issuance
      of common stock upon exercise of stock options for the
              settlement of vendor
      payables
            
            $
            -
            
            
            $
            19,140
            
            
            $
            -Common
      stock issued for accrued liquidated damages
            
            $
            -
            
            
            $
            68,547
            
            
            $
            -Reclassification
      of derivative liability to equity upon exercise of options
            
            $
            -
            
            
            $
            71,521
            
            
            $
            -Reclassification
      of conversion option liability to equity
            
            $
            39,429
            
            
            $
            1,685,266
            
            
            $
            39,429Issuance
      of common stock upon acquisition of BDSI:Cash acquired
            
            $
            400,000
            
            
            $
            -
            
            
            $
            400,000Acquired license to patented
      technology (research and development)
            
            
            1,340,000
            
            
            
            -
            
            
            
            1,340,000Fair value of common stock issued
      upon acquisition of BDSI
            
            $
            1,740,000
            
            
            $
            -
            
            
            $
            1,740,000Issuance
      of common stock upon acquisition of MCCI:Cash acquired
            
            $
            300,000
            
            
            $
            -
            
            
            $
            300,000Acquired license to patented
      technology (research and development)
            
            
            1,675,000
            
            
            
            -
            
            
            
            1,675,000Fair value of common stock issued
      upon acquisition of MCCI
            
            $
            1,975,000
            
            
            $
            -
            
            
            $
            1,975,000





See notes
to condensed consolidated financial statements.


12
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
1 - PRINCIPLES OF CONSOLIDATION AND BUSINESS OPERATIONS





The
consolidated financial statements include the accounts of Rim Semiconductor
Company and its wholly-owned operating subsidiaries, NV Entertainment, Inc. (“NV
Entertainment”), Broadband Distance Systems, Inc. (“BDSI”), and Multi-Carrier
Communications, Inc. (“MCCI”) (see Note 3) (collectively, the “Company”). Top
Secret Productions, LLC is a 50% owned subsidiary of NV Entertainment. All
significant intercompany balances and transactions have been eliminated. The
Company consolidates its 50% owned subsidiary Top Secret Productions, LLC due to
the Company’s control of management and financial matters of such entity,
including all of the risk of loss.





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”). In the opinion of management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments, consisting only of those of a normal recurring nature, necessary
for a fair presentation of the Company’s financial position, results of
operations and cash flows at the dates and for the periods indicated. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes related thereto included in the Annual Report
on Form 10-KSB/A for the fiscal year ended October 31, 2007, filed with the
Securities and Exchange Commission on February 13, 2008.





These
results for the six months ended April 30, 2008 are not necessarily indicative
of the results to be expected for the full fiscal year. The preparation of the
consolidated financial statements in conformity with US GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.





Rim
Semiconductor Company was incorporated under the laws of the State of Utah on
December 5, 1985. In November 1999, the Company began to focus its business
activities on the development of new semiconductor technologies. Pursuant to
such plan, in February 2000, the Company acquired NV Technology, Inc. and
commenced its technology business. The Company’s technology business has
developed advanced transmission technology products that enable data to be
transmitted across copper telephone wire at speeds and over distances that
exceed those offered by leading DSL technology providers. The Company’s
technology business has generated no revenues to date.





The
Company operated in two business segments until December 2007 when the Company
discontinued the operations of its Entertainment Segment and accordingly
re-entered the development stage as defined in Statement of Financial Accounting
Standards (“SFAS”) No. 7, “Accounting and Reporting for Development Stage
Companies” (“SFAS No. 7”). The remaining segment (Semiconductor Segment) will
have no operating revenues until successful commercialization of its developed
technology and will continue to incur substantial operating expenses,
capitalized costs and operating losses. As a result of the discontinuation of
the Entertainment Segment, the Semiconductor Segment is the Company’s only
reporting segment.





The
income (loss) from discontinued operations was $(1,987) and $(320) for the three
months ended April 30, 2008 and 2007, respectively, and $4,768 and $(8,061) for
the six months ended April 30, 2008 and 2007, respectively.  There
were no film distribution royalties from the Entertainment Segment for the three
months ended April 30, 2008 and 2007, respectively, and $8,379 and $0 for the
six months ended April 30, 2008 and 2007, respectively, and were recorded within
the income (loss) from discontinued operations.  The income (loss) on
discontinued operations did not impact basic and diluted net loss per common
share for the three and six months ended April 30, 2008 and 2007.





Assets of
the Entertainment Segment consist entirely of cash as of April 30, 2008 and have
been recorded as a current asset under the caption “Assets of discontinued
operations” in the accompanying balance sheets.  Liabilities of the
Entertainment Segment consist entirely of accounts payable and accrued expenses
as of April 30, 2008 and have been recorded as a current liability under the
caption “Liabilities of discontinued operations” in the accompanying balance
sheet.


13
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
1 - PRINCIPLES OF CONSOLIDATION AND BUSINESS OPERATIONS (CONTINUED)





Liquidity
Discussion





The
accompanying condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern and
the realization of assets and the satisfaction of liabilities in the normal
course of business.





The
carrying amounts of assets and liabilities presented in the financial statements
do not purport to represent realizable or settlement values. The Company has
suffered significant recurring operating losses, used substantial funds in its
operations, and needs to raise additional funds to accomplish its business
plan.  For the three months ended April 30, 2008 and 2007 the Company
incurred net losses of approximately $1.2 million and $122,000, respectively,
and approximately $5.5 million and $7.9 million for the six months ended April
30, 2008 and 2007, respectively.  As of April 30, 2008, the Company
had a working capital deficiency of approximately $7.0 million and a
stockholders’ deficiency of approximately $6.1 million.  In addition,
management believes that the Company will continue to incur net losses and cash
flow deficiencies from operating activities through at least April 30,
2009.  These conditions raise substantial doubt about the Company’s
ability to continue as a going concern.





The
Company’s ability to continue to operate as a going concern is dependent on its
ability to generate sufficient cash flows to meet its obligations on a timely
basis, to obtain additional financing and to ultimately attain
profitability.





Interest
payments of approximately $193,000 are due June 30, 2008 on the Company’s 10%
Secured Convertible Notes (the “2007 Debentures”).  The Company does
not presently have sufficient funds to make these interest
payments.  If it cannot raise sufficient funds to make the interest
payments by July 8, 2008, or reach an agreement with its lenders to extend the
interest payment date, the Company would be in default on the 2007 Debentures,
which are secured by substantially all of the Company’s assets, including its
intellectual property.  The Company also has unsecured debt that is
either past due or will be due between June 2008 and September
2008.  It requires additional financing or accommodations from its
lenders to satisfy these obligations or avoid or waive a default.





In
December 2007, the Company received net proceeds of approximately $1.7 million
from the sale of its 2007 Debentures (see Note 5).  On January 29,
2008, the Company acquired all of the issued and outstanding stock of
BDSI.  Upon closing of the acquisition transaction, BDSI had $400,000
in cash and a worldwide exclusive license to patented technology developed by
researchers at the University of Illinois.  On March 24, 2008, the
Company acquired all of the issued and outstanding stock of MCCI (see Note
3).  Upon closing of the acquisition transaction, MCCI had $300,000 in
cash and a worldwide exclusive license to certain technology owned by The
University of Queensland & The University of Sydney and UNIQUEST Pty Limited
(“Uniquest”).





During
the six months ended April 30, 2008, the Company received cash proceeds of
$273,000 from the sale of 18,350,000 shares of restricted common stock and
warrants to purchase 17,503,759 shares of common stock.





Management
of the Company is continuing its efforts to secure funds through equity and/or
debt instruments for its operations.  The Company will require
additional funds for its operations and to pay down its liabilities, exploit the
patent licenses held by BDSI or MCCI, and finance its expansion plans consistent
with its business plan.  However, there can be no assurance that the
Company will be able to secure additional funds and that if such funds are
available, whether the terms or conditions would be acceptable to the Company
and whether the Company will be able to turn into a profitable position and
generate positive operating cash flow.  The condensed consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty and these adjustments may be material.





14
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Accounting
Estimates





The
preparation of the condensed consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and
liabilities in the condensed consolidated financial statements and the
accompanying notes.  Significant estimates include impairment analysis
for long-lived assets, income taxes, litigation and valuation of derivative
instruments. Actual results could differ from those estimates.





Research and
Development





Research
and development costs are charged to expense as incurred. Amounts allocated to
acquired-in-process research and development costs, from business combinations,
are charged to operations at the consummation of the acquisition.





Research
and development expenses relate to the design and development of advanced
transmission technology products.  In the past, the Company has
outsourced its design and development activities to independent third parties,
although it is not currently doing so. Internal development costs and payments
made to independent software developers under development agreements are
capitalized to software development costs once technological feasibility is
established or if the development costs have an alternative future
use.  Prior to establishing technological feasibility, development
costs and payments made are expensed to research and development costs.
Technological feasibility is evaluated on a product-by-product
basis.





Research
and development expenses generally consist of salaries, related expenses for
engineering personnel and third-party development costs incurred.





Derivative Financial
Instruments





In
connection with the issuance of certain convertible debentures (see Note 5), the
terms of the debentures included an embedded conversion feature which provided
for a conversion of the debentures into shares of the Company’s common stock at
a rate which was determined to be variable.  The Company determined
that the conversion feature was an embedded derivative instrument and that the
conversion option was an embedded put option pursuant to SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as amended, and
Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (“No. 00-19”).





The
accounting treatment of derivative financial instruments requires that the
Company record the conversion option and related warrants at their fair values
as of the inception date of the convertible debenture agreements and at fair
value as of each subsequent balance sheet date. In addition, under the
provisions of EITF Issue No. 00-19, as a result of entering into the convertible
debenture agreements, the Company was required to classify all other
non-employee warrants and options as derivative liabilities and record them at
their fair values at each balance sheet date. Any change in fair value was
recorded as non-operating, non-cash income or expense at each balance sheet
date.  If the fair value of the derivatives was higher at the
subsequent balance sheet date, the Company recorded a non-operating, non-cash
charge.  If the fair value of the derivatives was lower at the
subsequent balance sheet date, the Company recorded non-operating, non-cash
income.  The Company reassesses the classification at each balance
sheet date. If the classification required under EITF Issue No. 00-19 changes as
a result of events during the period, the contract should be reclassified as of
the date of the event that caused the reclassification.





15
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Derivative Financial
Instruments (Continued)





The
Company accounts for embedded conversion options that no longer meet the
conditions of EITF Issue No. 00-19 to be classified as a liability under EITF
Issue No. 06-7, “Issuer’s Accounting for a Previously Bifurcated Conversion
Option in a Convertible Debt Instrument When the Conversion Option No Longer
Meets the Bifurcation Criteria in FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities” (“EITF Issue No.
06-7”).  Under EITF Issue No. 06-7, when an embedded conversion option
previously accounted for as a derivative under SFAS No. 133 no longer meets the
bifurcation criteria, the Company reclassifies the amount of the embedded
conversion option to stockholders’ deficiency.





The fair
value of derivative financial instruments was estimated during the three and six
months ended April 30, 2008 and 2007 using the Black-Scholes model and the
following range of assumptions:





Three
      Months Ended
              April
      30,
            Six
      Months Ended
              April
      30,2008
            2007
            2008
            2007Expected
      dividends
            None
            
            None
            None
            NoneExpected
      volatility
            96.0
      – 146.3%
            
            47.9
      - 134.1%
            96.0
      – 146.3%
            47.9
      - 136.9%Risk-free
      interest rate
            1.4
      – 3.3%
            
            4.6
      - 5.0%
            1.4
      – 3.7%
            4.6
      - 5.2%Contractual
      term (years)
            0.2
      - 8.3
            
            0.4
      - 9.3
            0.2
      - 8.5
            0.4
      - 9.5







The
expected volatility is based on a blend of the Company’s industry peer group and
the Company’s historical volatility.  The risk-free interest rate
assumption is based upon observed interest rates appropriate for the term of the
related stock options and warrants.  The dividend yield assumption is
based on the Company’s history and expectation of dividend
payouts.  The expected life of stock options and warrants represents
the Company’s historical experience with regards to the exercise behavior of its
option and warrant holders and the contractual term of the options and
warrants.





Registration Payment
Arrangements





The
Company accounts for registration payment arrangements in accordance with FASB
Staff Position (“FSP”) No. EITF 00-19-2, “Accounting for Registration Payment
Arrangements” (“FSP EITF 00-19-2”), which specifies that contingent obligations
to make future payments or otherwise transfer consideration under a registration
payment arrangement, should be separately recognized and measured in accordance
with SFAS No. 5, “Accounting for Contingencies”.  SFAS No. 5 requires
loss contingencies to be accrued and expensed if they are probable and
reasonably estimable.  As of April 30, 2008, the Company has accrued
$181,003 within accounts payable and accrued expenses for liquidated damages in
connection with registration payment arrangements.





Loss Per Common
Share





Basic
loss per common share is computed based on weighted average shares outstanding
and excludes any potential dilution.  Diluted loss per share reflects
the potential dilution from the exercise or conversion of all dilutive
securities into common stock based on the average market price of common shares
outstanding during the period.  The income (loss) from discontinued
operations had no significant impact on the basic and diluted net loss per
common share for the three and six months ended April 30, 2008 and
2007.


16
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Loss Per Common Share
(Continued)





For the
three and six months ended April 30, 2008 and 2007, no effect has been given to
outstanding options, warrants, convertible notes payable, or convertible
debentures in the diluted computation, as their effect would be anti-dilutive
(see Note 7).





Stock-Based
Compensation





The
Company reports stock based compensation under accounting guidance provided by
SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”), which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors, including stock
options, based on estimated fair values.




SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model.  The value
of the portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company’s consolidated
statement of operations.  The Company has continued to attribute the
value of stock-based compensation to expense on the straight-line single option
method.  Stock-based compensation expense recognized under SFAS 123(R)
related to employee stock options granted during the three months ended April
30, 2008 and 2007 was $101,514 and $117,183 respectively, and $201,128 and
$227,948 for the six months ended April 30, 2008 and 2007,
respectively.





As
stock-based compensation expense recognized in the consolidated statement of
operations for the three and six months ended April 30, 2008 is based on awards
ultimately expected to vest, it has been reduced for estimated
forfeitures.  SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.





Reclassifications





Certain
prior period amounts have been reclassified to conform to the current period
presentation.  The reclassification did not have any effect on
reported losses for any periods presented.





Impact of Recently Issued
Accounting Standards





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with accounting
principles generally accepted in the U.S., and expands disclosures about fair
value measurements. SFAS 157 is effective for the Company as of the beginning of
fiscal 2009, with earlier application encouraged.  Any cumulative
effect will be recorded as an adjustment to the opening accumulated deficit
balance, or other appropriate component of equity.  The adoption of
this pronouncement is not expected to have an impact on the Company’s
consolidated financial position, results of operations, or cash
flows.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides
companies with an option to report selected financial assets and liabilities at
fair value.  The objective of SFAS 159 is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently.  Generally
accepted accounting principles have required different measurement attributes
for different assets and liabilities that can create artificial volatility in
earnings. SFAS 159 also establishes presentation and disclosure requirements
designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. SFAS 159
does not eliminate disclosure requirements included in other accounting
standards, including requirements for disclosures about fair value measurements
included in SFAS 157 and SFAS No. 107, “Disclosures about Fair Value of
Financial Instruments.” SFAS 159 is effective for the Company as of
the


17
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Impact of Recently Issued
Accounting Standards (Continued)





beginning
of fiscal year 2009.  The Company has not yet determined the impact
SFAS 159 may have on its consolidated financial position, results of operations,
or cash flows.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”). SFAS 141 (R) replaces SFAS No. 141, “Business
Combinations”, and is effective for the Company for business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. SFAS 141(R) requires
the new acquiring entity to recognize all assets acquired and liabilities
assumed in the transactions; establishes an acquisition-date fair value for
acquired assets and liabilities; and fully discloses to investors the financial
effect the acquisition will have.  SFAS 141(R) would have an impact on
accounting for any businesses acquired after the effective date of this
pronouncement.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”).  SFAS 160 requires
all entities to report minority interests in subsidiaries as equity in the
consolidated financial statements, and requires that transactions between
entities and noncontrolling interests be treated as equity. SFAS 160 is
effective for the Company as of the beginning of fiscal 2010.  The
Company is evaluating the impact of this pronouncement on the Company’s
consolidated financial position, results of operations and cash
flows.





In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161
“Disclosure about Derivative Instruments and Hedging Activities – an amendment
of FASB Statement No. 133” (“SFAS 161”).  SFAS 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 SFAS No. 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 SFAS 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 evaluating the impact of this
pronouncement on the Company’s consolidated financial position, results of
operations and cash flows.





NOTE
3 – ACQUISITIONS





Acquisition of
BDSI





On
January 29, 2008, the Company completed its acquisition of all of the issued and
outstanding capital stock of BDSI, a subsidiary of UTEK Corporation (“UTEK”) in
exchange for 60,000,000 shares of unregistered common stock of the Company,
valued at $1,740,000, which are subject to certain anti-dilution
adjustments.  As a result of the transaction, BDSI became a
wholly-owned subsidiary of the Company.  BDSI was incorporated on
December 13, 2007 and its historical operations prior to acquisition were not
significant.  The Company has accounted for this acquisition under the
purchase method of accounting.  Upon closing of the acquisition
transaction, BDSI had $400,000 of cash and a worldwide exclusive license to
patented technology developed by researchers at the University of
Illinois.  The remaining purchase price of $1,340,000 was allocated to
the license.  As the Company recorded an impairment of its existing
technology licenses and capitalized software development costs during the year
ended October 31, 2007 and is currently in the development stage, management
determined it was unable to currently demonstrate alternative future uses for
the license and support the carrying amount of the license based upon estimated
future cash flows.  Accordingly, the $1,340,000 was charged to
operations, under the caption “Acquired in-process research and development”
during the three months ended January 31, 2008.





18
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
3 – ACQUISITIONS (CONTINUED)





Acquisition of BDSI
(Continued)





The
patent relates to an algorithm designed to enhance power allocation in
telecommunications systems that use multicarrier modulation protocol. IPSL,
ADSL, VDSL and DSL systems are all examples of multicarrier modulation
protocols. The algorithm serves to improve the achievable data rate or the
signal-to-noise ratio, reducing errors in the transmission. Under the exclusive
license agreement relating to such technology, BDSI is obligated to pay the
University of Illinois royalties based on achievement of certain sales levels
for products utilizing the technology. Unless earlier terminated by a party
pursuant to the terms of the license agreement, the license expires upon the
expiration or termination of all of the University of Illinois patent rights
underlying the technology. The license agreement also permits BDSI to sublicense
the technology and obligates BDSI to make royalty payments to the University of
Illinois based on a percentage of payments received by BDSI from sublicensees.
The Company requires additional funds in order to exploit the patent license
held by BDSI.





The
results of operations of BDSI have been included in the accompanying condensed
consolidated financial statements from the date of acquisition.





Based on
our evaluation, the allocation of the purchase price for BDSI is as follows as
of January 29, 2008, the date of acquisition:





Assets
      and technology acquired:Cash
      acquired
            
            $
            400,000Acquired
      license to patented technology (research and development)
            
            
            1,340,000Total assets and technology acquired
            
            $
            1,740,000





Acquisition of
MCCI





On March
24, 2008, the Company completed its acquisition of all of the issued and
outstanding capital stock of Multi-Carrier Communications, Inc., (“MCCI”), a
subsidiary of UTEK Corporation (“UTEK”) in exchange for 150,000,000 shares of
unregistered common stock of the Company, valued at $1,975,000, which are
subject to certain anti-dilution adjustments.  As a result of the
transaction, MCCI became a wholly-owned subsidiary of the Company. MCCI was
incorporated on March 12, 2008 and its historical operations prior to
acquisition were not significant.  The Company has accounted for this
acquisition under the purchase method of accounting.  Upon closing of the
acquisition transaction, the assets of MCCI included $300,000 in cash, and a
worldwide exclusive license to certain technology owned by The University of
Queensland & The University of Sydney and UNIQUEST Pty Limited
(“Uniquest”).  The remaining purchase price of $1,675,000 was
allocated to the license.  As the Company recorded an impairment of
its existing technology licenses and capitalized software development costs
during the year ended October 31, 2007 and is currently in the development
stage, management determined it was unable to currently demonstrate alternative
future uses for the license and support the carrying amount of the license based
upon estimated future cash flows.  Accordingly, the $1,675,000 was
charged to operations, under the caption “Acquired in-process research and
development” during the three and six months ended April 30, 2008.





The
technology relates to multiple advanced algorithms for the transmission of
digital data across metallic media, such as copper wires.  Under the
License Agreement (the “Uniquest License Agreement”) relating to such
technology, MCCI is obligated to pay Uniquest an up-front fee and a patent
reimbursement fee to cover patents costs relating to the technology. MCCI made
those payments to Uniquest before the Company acquired MCCI.  The
Uniquest License Agreement also provides that MCCI shall pay royalties based on
achievement of certain sales levels for products utilizing the technology.
Royalty obligations of MCCI are subject to certain minimum amounts. Unless
earlier terminated by a party pursuant to the terms of the Uniquest License
Agreement, the license expires upon the day before the date of expiration of all
of the patent rights underlying the technology or 20 years from the date of the
Uniquest License Agreement for unpatented technology.  The Uniquest
License Agreement also permits


19
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
3 – ACQUISITIONS (CONTINUED)





Acquisition of MCCI
(Continued)





MCCI to
sublicense the technology with the consent of Uniquest and obligates MCCI to
make royalty payments to Uniquest based on a percentage of payments received by
MCCI from sublicensees.  MCCI and Uniquest have also entered into a
Research Agreement pursuant to which MCCI shall fund and obtain certain rights
relating to the licensed technology developed through a research program to be
implemented by Uniquest.  MCCI funded this research before the Company
acquired MCCI.  The Company requires additional funds in order to
exploit the patent license held by MCCI.





The
results of operations of MCCI have been included in the accompanying condensed
consolidated financial statements from the date of acquisition.





Based on
our evaluation, the allocation of the purchase price for MCCI is as follows as
of March 24, 2008, the date of acquisition:





Assets
and technology acquired:





Cash
      acquired
            
            $
            300,000Acquired
      license to patented technology (research and development)
            
            
            1,675,000Total
      assets and technology acquired
            
            $
            1,975,000





NOTE
4 - DEFERRED FINANCING COSTS





As of
April 30, 2008, the deferred financing costs consist of costs incurred in
connection with the issuance of the Company’s outstanding debt:





Deferred
      financing costs
            
            $
            842,277Less:
      accumulated amortization
            
            
            (168,223
            )Deferred
      financing costs, net
            
            $
            674,054





Costs
incurred in connection with debt financings are capitalized as deferred
financing costs and amortized over the term of the related debt.  If
any or all of the related debt is converted or repaid prior to its maturity
date, a pro-rata share of the related deferred financing costs are written off
and recorded as amortization expense in the period of the conversion or
repayment in the consolidated statement of operations.  During the six
months ended April 30, 2008, the Company capitalized $842,277 of deferred
financing costs related to the 2007 Debentures (see Note 5).





Amortization
of deferred financing costs was $116,858 and $253,947, for the three and six
months ended April 30, 2008, respectively, and $41,161 and $1,165,847 for the
three and six months ended April, 30, 2007, respectively.





NOTE
5 - CONVERTIBLE DEBENTURES





2007
Debentures





On
December 5, 2007, the Company entered into a subscription agreement with certain
institutional and individual investors pursuant to which the Company sold the
2007 Debentures and warrants to purchase shares of the Company’s common
stock.  The 2007 Debentures were issued on December 5, 2007, have a
term of two years and are secured by substantially all of the Company’s assets,
including all of the Company’s intellectual property.  The Company has
raised gross proceeds of $3,175,000 from the private placement of secured
convertible notes with an aggregate principal amount of $3,527,778 (which amount
reflects an original issue discount of 10%, or $352,778).


20
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
5 - CONVERTIBLE DEBENTURES (CONTINUED)





2007 Debentures
(Continued)





In
connection with the issuance of the 2007 Debentures, the Company issued to the
investors warrants to purchase an aggregate of 146,532,832 shares of common
stock at an initial exercise price of $0.10 per share, valued at $2,486,388 on
the issuance date.  The warrants are immediately exercisable at a per
share exercise price of $0.10 (which is subject to adjustment) through the fifth
anniversary of the date of issuance.  The warrants include a cashless
exercise provision as well as antidilution provisions with respect to certain
securities issuances.





The
Company received net cash proceeds of approximately $2,830,000, after the
payment of offering related fees and expenses of $345,000.  Out of
these proceeds, the Company repaid in full $1,100,000 of bridge loans issued in
July 2007.  Pursuant to the terms of the 2007 Debentures, each holder
has the right at any time until his note is fully paid to convert any
outstanding and unpaid principal and accrued interest into shares of common
stock at the conversion price per share equal to 75% of the average of the
closing bid prices of the Company’s common stock for the 10 trading days
preceding the conversion date, however, the conversion price shall not exceed
$0.05 per share.  The conversion price and number and kind of shares
or other securities to be issued upon conversion are subject to
adjustment.





The
subscription agreement entered into in connection with the issuance of the
Company’s 2007 Debentures provides that in the event the Company issues any
common stock at a price per share less than the stated conversion price in the
2007 Debentures (a “Lower Conversion Price”), without the consent of each of the
2007 Debenture holders, then the Company shall (i) in the event the holder has
converted debentures or exercised warrants, issue additional shares to the
holder so that the average price per share still held by the holder following
conversion or exercise is equal to the Lower Conversion Price, and (ii) reset
the conversion price of the outstanding 2007 Debentures and the exercise price
of the outstanding warrants issued in connection with the 2007 Debentures to the
Lower Conversion Price.  In addition, the terms of the 2007 Debentures
provide that in the event the Company issues common stock for consideration less
than the maximum conversion price at the time of issuance, the maximum
conversion price will be reduced to the Lower Conversion Price.





In
February 2008, the Company entered into a transaction in which shares were
issued at $0.0155 per share, which resulted in the maximum conversion price for
the 2007 Debentures and the exercise price of the warrants issued to the
investors and the Finder resetting to $0.0155 per share.  The
reduction of the warrant exercise price resulted in revaluing these warrants to
$1,743,384 as of April 30, 2008.Subsequent to
the period ended April 30, 2008, the Company issued shares at prices below
$0.0155 per share in settlement of litigation.  The Company believes
the issuance of these shares will also lower the conversion price of the 2007
Debentures and the exercise price of the related warrants; however, the entire
impact of these transactions is unclear as of the date of this report (see Note
11).





Interest
payable on the 2007 Debentures accrues at an annual rate of 10% and is payable
on March 31, 2008 and quarterly thereafter, and on the maturity date,
accelerated or otherwise, when the principal and remaining accrued but unpaid
interest is due and payable, unless previously converted into common
stock.  The Company has not paid the March 31, 2008 interest with
respect to any of the 2007 Debentures.  However, nine of the funds (or
75.59% of the outstanding 2007 Debenture principal) deferred their March 31,
2008 interest payment to June 30, 2008 in exchange for a 10% increase in said
interest payment.  One of the nine funds also agreed to convert its
interest payment into common stock.  Based upon management’s estimate
of the Company’s cash balance, it is probable that the Company will not be able
to pay the June 30, 2008 interest payment which would result in an event of
default under the subscription agreement. As a result, in accordance with EITF
Issue No. 86-30, Classification of Obligations When a Violation Is Waived by the
Creditor, all amounts outstanding under 2007 Debentures, net of debt discount,
have been classified as current liabilities in the condensed consolidated
balance sheet as of April 30, 2008.





The
Company has the option of prepaying the outstanding principal on the 2007
Debentures, in whole or in part, by paying the holder(s) 130% of the principal
amount to be redeemed, together with accrued but unpaid
interest.


21
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
5 - CONVERTIBLE DEBENTURES (CONTINUED)





2007 Debentures
(Continued)





The
Company paid Blumfield Investments (the “Finder”) a cash finder’s fee equal to
$317,500 (10% of the aggregate purchase price for the 2007 Debentures
issued).  An additional fee equal to 10% of any cash proceeds received
by the Company from exercise of the warrants will be payable to the Finder upon
exercise of the warrants.  The Company also agreed to issue to the
Finder a warrant, in substantially the same form as the warrants issued to the
holders of the 2007 Debentures, pursuant to which the Finder may purchase 10
shares of common stock for each 100 shares issuable upon conversion of the 2007
Debentures and warrants as of the closing date.  As a result, the
Company has issued a warrant to the Finder pursuant to which the Finder may
purchase up to 29,306,567 shares of common stock at an initial exercise price of
$0.10 per share, valued at $497,277 on the issuance date.  The fair
value of these warrants of $497,277 and the offering related fees and expenses
of $345,000 were recorded as deferred financing costs and are being charged to
interest expense over the term of the 2007 Debentures.  The exercise
price of the Finder’s warrants are subject to adjustments similar to those
applicable to the warrants issued to the investors in the 2007 Debentures, which
are discussed above.  In February 2008, the Company entered into a
transaction in which shares were issued at $0.0155 per share, which resulted in
the exercise price for the Finder’s warrants resetting to $0.0155 per
share.  Subsequent to the period ended April 30, 2008, the Company
issued shares at prices below $0.0155 per share in settlement of
litigation.  The Company believes the issuance of these shares will
also lower the exercise price of the Finder’s warrants; however, the entire
impact of these transactions is unclear as of the date of this report (see Note
11).





To secure
the Company’s obligations under the 2007 Debentures, the Company has granted a
security interest in substantially all of its assets, including without
limitation, its intellectual property, in favor of the investors.  The
security interest terminates upon payment or satisfaction of all of the
Company’s obligations under the 2007 Debentures.





In
connection with the sale of the 2007 Debentures, the Company agreed to prepare
and file with the SEC, within 45 days following the closing date, a registration
statement for the purpose of registering for resale a number of shares of common
stock equal to 125% of the shares issuable upon conversion of the 2007
Debentures.  The registration rights agreed to in the 2007 Debenture
transaction provided that should the Company fail to file such registration
statement within such time, or if the registration statement was not declared
effective within 150 days from the closing date, the Company would pay
liquidated damages equal to 2% of the principal amount of the 2007 Debentures
and purchase price of the related warrants for each 30 day
period.  Such liquidated damages are payable in cash or registered
shares of stock valued at 75% of the average closing bid prices over the
preceding 5 day period.





The
Company has not filed a registration statement and is not in compliance with the
terms of the registration rights granted to holders of the 2007
Debentures.  However, during January 2008, the Company obtained
waivers from 9 of the 12 holders of the 2007 Debentures (representing 75.59% of
the outstanding 2007 Debenture principal) waiving such registration
rights.





The
Company accounts for the registration rights under FSP EITF 00-19-2, which
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with
SFAS No. 5, “Accounting for Contingencies”. FSP EITF 00-19-2 also requires
additional disclosure regarding the nature of any registration payment
arrangements, alternative settlement methods, the maximum potential amount of
consideration and the current carrying amount of the liability, if
any.





22
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
5 - CONVERTIBLE DEBENTURES (CONTINUED)





2007 Debentures
(Continued)





The
aggregate principal amount of $3,527,778 was recorded as a liability net of a
debt discount of $352,778, which reflects the original issue discount of 10%,
and a debt discount of $3,175,000 consisting of an allocation of the fair values
attributed to the warrants issued to investors and to the embedded conversion
feature in accordance with EITF Issue No. 00-19.  The debt discount of
$3,175,000 consisted of a $2,116,667 value related to the warrants issued to
investors and a value attributed to the embedded conversion feature of
$1,058,333.  The debt discount was first allocated to the embedded
conversion feature based on its fair value. After reducing the gross proceeds by
the value attributed to the embedded conversion feature, the remaining
unallocated debt discount of $2,116,667 was allocated to the warrants issued to
investors.  The excess of the fair value of the warrants issued to
investors above the debt discount allocated to these warrants was $369,721 and
was recorded as interest expense.





The
Company evaluates and accounts for conversion options embedded in its
convertible instruments in accordance with SFAS No. 133 and EITF Issue No.
00-19. SFAS 133 generally provides three criteria that, if met, require
companies to bifurcate conversion options from their host instruments and
account for them as free standing derivative financial instruments in accordance
with EITF Issue No. 00-19.  These three criteria include circumstances
in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics
and risks of the host contract, (b) the hybrid instrument that embodies both the
embedded derivative instrument and the host contract is not remeasured at fair
value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be
considered a derivative instrument subject to the requirements of SFAS 133. SFAS
133 and EITF Issue No. 00-19 also provide an exception to this rule when the
host instrument is deemed to be conventional (as that term is described in the
implementation guidance to SFAS 133 and further clarified in EITF Issue No. 05-2
“The Meaning of “Conventional Convertible Debt Instrument” in EITF Issue No.
00-19”.





The
Company determined that the embedded conversion option and the warrants issued
to the investors and the Finder are derivative liabilities.





During
the three months ended April 30, 2008, accrued interest on the 2007 Debentures
of $5,388 was converted into 603,712 shares of common stock.





Included
in interest expense for the three and six months ended April 30, 2008 is
$429,510 and $704,590, respectively, related to the amortization of the debt
discount on these debentures.





The 2007
Debentures are summarized below as of April 30, 2008:





Outstanding
              Principal
              Amount
            
            
            Unamortized
              Debt
              Discount
            
            
            Net
      Carrying
              ValueCurrent
            
            $
            3,527,778
            
            
            $
            2,823,188
            
            
            $
            704,590





2006
Debentures





On March
10, 2006, the Company raised gross proceeds of $6.0 million from a private
placement to 17 institutional and individual investors (the “Investors”) of its
two-year 7% Senior Secured Convertible Debentures (the “2006
Debentures”).  The 2006 Debentures originally were due and payable on
March 10, 2008, but the maturity date was extended pursuant to agreements with
the four remaining Investors.





23
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
5 - CONVERTIBLE DEBENTURES (CONTINUED)





2006 Debentures
(Continued)





Effective
March 17, 2008, the Company entered into amendment agreements with two Investors
holding 2006 Debentures with an aggregate principal amount of $200,000 (the
“March 17 Amendments”). The March 17 Amendments amend the terms of the two
subject 2006 Debentures to:  (1) extend the maturity date until
September 17, 2008, (2) obligate the Company to pay all interest accrued on such
debentures as of June 30, 2008 in cash; (3) extend the payment date for interest
that will have accrued on such debentures as of June 30, 2008 until
September 17, 2008; and (4) increase the outstanding amount of unconverted
principal on such debentures by 20%, or $40,000, however, the 20% principal
premium and interest accruing thereon must be paid in cash and may not be
converted by such Investors into Company common stock.  The 20%
principal premium was recorded in the consolidated statement of operations
within operating expenses as an extension fee.  The March 17
Amendments also included waivers of any event of default that may have occurred
under the terms of such 2006 Debentures prior to the date thereof.





Effective
March 19, 2008, the Company entered into amendment agreements with two Investors
holding unconverted 2006 Debentures with an aggregate principal amount of
$425,000 (the “March 19 Amendments”).  In exchange for aggregate cash
consideration of $23,181, the March 19 Amendments amend the terms of the two
subject 2006 Debentures to extend the maturity date on such debentures until
April 10, 2008.  The cash consideration of $23,181was recorded in the
consolidated statement of operations within operating expenses as an extension
fee.  The March 19 Amendments also included waivers of any event of
default relating to failure to pay amounts due that may have occurred under the
terms of such 2006 Debentures prior to the date thereof.





Effective
April 17, 2008, the Company entered into amendment agreements with the two
Investors that were parties to the March 19 Amendments (the “April 17
Amendments”).  In exchange for aggregate cash consideration of
$23,181, the April 17 Amendments amend the terms of the two subject 2006
Debentures to extend the maturity date on such debentures until May 10,
2008.  The cash consideration of $23,181was recorded in the
consolidated statement of operations within operating expenses as an extension
fee.  The April 17 Amendments also included waivers of any event of
default relating to failure to pay amounts due that may have occurred under the
terms of such 2006 Debentures prior to the date thereof.





Effective
May 29, 2008, the Company entered into amendment agreements with the two
Investors that were parties to the March 19 Amendments (the “May 29
Amendments”).  In exchange for aggregate cash consideration of
$23,181, the May 29 Amendments amend the terms of the two subject 2006
Debentures to extend the maturity date on such debentures until June 10,
2008.  The May 29 Amendments also included waivers of any event of
default relating to failure to pay amounts due that may have occurred under the
terms of such 2006 Debentures prior to the date thereof.





In June
2008, the Company reached an agreement with one Investor holding unconverted
2006 Debentures with an aggregate principal amount of $275,000 to extend the
maturity date one month (the “June Extension”).  In exchange for
aggregate cash consideration of $15,000, the June Extension amends the
terms of the subject 2006 Debenture to extend the maturity date on such
debenture until July 10, 2008.  The June Extension also included
waivers of any event of default relating to failure to pay amounts due that may
have occurred under the terms of such 2006 Debenture prior to the date
thereof.





In June
2008, the Company reached an agreement with an Investor holding unconverted 2006
Debentures with an aggregate principal amount of approximately $150,000 (the
“June Amendment”).  In the June Amendment, the maturity date of the
subject 2006 Debenture was extended to June 30, 2009 and the variable conversion
price of the subject 2006 Debenture was changed.  Such 2006 Debenture
is convertible into shares of common stock at a conversion price for any such
conversion equal to the lower of (x) 75% of the closing bid price of the common
stock on the trading day immediately preceding the conversion date or (y) if the
Company enters into certain financing transactions, the lowest purchase price or
conversion price applicable to that transaction.  The conversion price
is subject to adjustment.


24
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
5 - CONVERTIBLE DEBENTURES (CONTINUED)





2006 Debentures
(Continued)





In
connection with the issuance of the 2006 Debentures, the Company issued to the
Investors warrants to purchase 70,955,548 shares of the Company’s common stock
at an exercise price of $0.15 per share valued at $9,036,727 on the issuance
date (subject to adjustments for stock splits, stock dividends,
recapitalizations, mergers, spin-offs, and certain other
transactions).  The warrants are exercisable until the last day of the
month in which the third anniversary of the effective date of the registration
statement registering the shares underlying the warrants occurs (August 31,
2009).





The
Company received net proceeds of approximately $5.31 million from the 2006
Debentures after the payment of offering related fees and expenses of
approximately $690,000.  At the same time, from these proceeds, the
Company repaid in full certain bridge loans made in December 2005 and January
2006, in the aggregate amount of $810,000.





Except
for the 2006 Debenture that is subject to the June Amendment, the 2006
Debentures are convertible into shares of common stock at a conversion price for
any such conversion equal to the lower of (x) 70% of the volume weighted average
price (“VWAP”) of the common stock for the 20 days ending on the trading day
immediately preceding the conversion date or (y) if the Company enters into
certain financing transactions, the lowest purchase price or conversion price
applicable to that transaction.  The conversion price is subject to
adjustment.





Interest
on the 2006 Debentures accrues at the rate of 7% per annum, payable upon
conversion, or semi-annually (June 30 and December 31 of each year) or upon
maturity, whichever occurs first, and will continue to accrue until the 2006
Debentures are fully converted and/or paid in full. Interest is payable, at the
option of the Company, either (i) in cash, or (ii) in shares of common stock at
the then applicable conversion price.





The
Company agreed to include the shares of common stock issuable upon conversion of
the 2006 Debentures and exercise of the related warrants issued to investors and
the placement agent in a registration statement filed by the Company with the
Securities and Exchange Commission (the “SEC”).  Since the
registration statement was not declared effective by the SEC by June 23, 2006,
the Company was obligated to pay liquidated damages to the holders of the 2006
Debentures.  A registration statement covering the common stock
issuable upon conversion of the 2006 Debentures and the related warrants issued
to investors and the placement agent was declared effective by the SEC on August
16, 2006.  These liquidated damages aggregated $212,000.  At
their option, the holders of the 2006 Debentures are entitled to be paid such
amount in cash or shares of restricted common stock at a per share rate equal to
the effective conversion price of the 2006 Debentures at the time the liquidated
damages became due.  During the six months ended April 30, 2007,
464,535 shares of common stock valued at $68,547 were issued as payment for
liquidated damages.  Accrued liquidated damages as of April 30, 2008
was $143,453.





In
connection with the placement of the 2006 Debentures, a placement agent received
a placement agent fee equal to (i) 10% of the aggregate purchase price (i.e.,
$600,000), (ii) 10% of the proceeds realized in the future from exercise of
warrants issued to the Investors, (iii) warrants to purchase an aggregate of
7,095,556 shares of common stock having an initial exercise price equal to
$0.1693 per share valued at $888,779 on the issuance date, and (iv) warrants to
purchase an aggregate of 7,095,556 shares of common stock having an initial
exercise price equal to $0.15 per share valued at $903,673 on the issuance
date.  The exercise price of the placement agent warrants is subject
to adjustments for stock splits, stock dividends, recapitalizations, mergers,
spin-offs, and certain other transactions.  The aggregate fair value
of the placement agent’s warrants of $1,792,452 on the issuance date was
recorded as a deferred financing cost and is being charged to interest expense
over the term of the 2006 Debentures.





The gross
proceeds of $6,000,000 are recorded as a liability net of a debt discount of
$6,000,000 consisting of an allocation of the fair values attributed to the
Investors’ warrants and to the embedded conversion feature in accordance with
EITF Issue No. 00-19.  The debt discount consisted of a $3,428,571
value related to the Investors’ warrants and a value attributed to the embedded
conversion feature of $2,571,429.  The debt discount was first
allocated to the embedded conversion feature based on its fair
value.  After reducing the gross proceeds by the value allocated
to the embedded conversion feature, the remaining unallocated debt discount of
$3,428,571 was allocated to the Investors’ warrants.


25
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
5 - CONVERTIBLE DEBENTURES (CONTINUED)





2006 Debentures
(Continued)





In
accordance with SFAS No. 133 and EITF Issue No. 00-19, due to the possibility
that an indeterminate number of shares could be issued upon conversion of the
2006 Debentures, the Company separately values and accounts for the embedded
conversion feature related to the 2006 Debentures, the Investors’ warrants and
the placement agent’s warrants as derivative liabilities.





During
the six months ended April 30, 2008, $92,000 of principal amount of 2006
Debentures plus accrued interest of $26,844 were converted into 10,368,447
shares of common stock.  During the six months ended April 30, 2007,
$3,931,000 of principal amount of 2006 Debentures plus accrued interest of
$136,911 were converted into 56,376,123 shares of common stock.





As of
April 30, 2008, the conversion option liability of $2,571,429 had been reduced
to $240,000 as a result of conversions of the 2006 Debentures.  During
the six months ended April 30, 2008, $39,429 was recorded as a reclassification
to stockholders’ equity.  Since the issuance of the 2006 Debentures,
an aggregate of $2,331,429 has been recorded as a reclassification to
stockholders’ equity.





Included
in interest expense for the three and six months ended April 30, 2008 is $34,786
and $116,843, respectively, related to the amortization of the debt discount on
these debentures.  Included in interest expense for the three and six
months ended April 30, 2007 is $80,599 and $2,831,187, respectively, related to
the amortization of the debt discount on these debentures.





The 2006
Debentures are summarized below as of April 30, 2008:





Outstanding
              Principal
              Amount
            
            
            Unamortized
              Debt
              Discount
            
            
            Net
      Carrying
              ValueCurrent
            
            $
            600,000
            
            
            $
            --
            
            
            $
            600,000





2005
Debentures





On May
26, 2005, the Company completed a private placement to certain individual and
institutional investors of $3,500,000 in principal amount of its three-year 7%
Senior Secured Convertible Debentures (the “2005 Debentures”).  All
principal is due and payable on May 26, 2008. The 2005 Debentures are
convertible into shares of common stock at a conversion price equal to the lower
of (x) 70% of the 5 day volume weighted average price of the Company’s common
stock immediately prior to conversion or (y) if the Company entered into certain
financing transactions subsequent to the closing date, the lowest purchase price
or conversion price applicable to that transaction.  As of the date of
this Report, the Company has not repaid the $4,280 principal amount outstanding
on the 2005 Debentures, which are currently in default.





Interest
on the 2005 Debentures accrues at the rate of 7% per annum and is payable on a
bi-annual basis, commencing December 31, 2005, or on conversion and may be paid,
at the option of the Company, either in cash or in shares of common
stock.  The Company may prepay the amounts outstanding on the 2005
Debentures by giving advance notice and paying an amount equal to 120% of the
sum of (x) the principal being prepaid plus (y) the accrued interest
thereon.


26
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
5 - CONVERTIBLE DEBENTURES (CONTINUED)





2005 Debentures
(Continued)





In
connection with the issuance of the 2005 Debentures, the Company issued to the
purchasers thereof warrants (the “Investor Warrants”) to purchase 33,936,650
shares of common stock valued at $2,000,000 on the issuance date, with warrants
for 11,312,220 shares being exercisable through the last day of the month in
which the first anniversary of the effective date of the Registration Statement
occurs (August 31, 2006) at a per share exercise price of $0.1547 and warrants
for 22,624,430 shares being exercisable through the last day of the month in
which the third anniversary of the effective date of the Registration Statement
occurs (August 31, 2008) at a per share exercise price of $0.3094.





In
connection with the issuance of the 2005 Debentures, the Company also issued to
a placement agent warrants to purchase up to 5,656,108 shares of Common Stock
(the “Compensation Warrants”) valued at $319,066 on the issuance
date.  This amount was recorded as a deferred financing cost and is
being charged to interest expense over the term of the 2005 Debentures. All of
the Compensation Warrants were exercised in February 2006.





Holders
of the Investor Warrants are entitled to exercise those warrants on a cashless
basis following the first anniversary of issuance if the Registration Statement
is not in effect at the time of exercise.





The gross
proceeds of $3,500,000 were recorded net of a debt discount of
$3,500,000.  The debt discount consisted of a $2,000,000 value related
to the Investor Warrants and a $1,500,000 value related to the embedded
conversion feature in accordance with SFAS No. 133 and EITF Issue No.
00-19.  Due to the possibility that an indeterminate number of shares
could be issued upon conversion of the 2005 Debentures, the Company separately
values and accounts for the embedded conversion feature related to the 2005
Debentures and the Investor Warrants as derivative liabilities.





During
the six months ended April 30, 2007, $1,284 of principal amount of 2005
Debentures plus accrued interest of $37 were converted into 18,321 shares of
common stock.





As of
April 30, 2008, the conversion option liability of $1,500,000 had been reduced
to $1,834 as a result of conversions of the 2005 Debentures.  Since
the issuance of the 2005 Debentures, an aggregate of $1,498,166 has been
recorded as a reclassification to stockholders’ equity.





Included
in interest expense for the three and six months ended April 30, 2008 is $349
and $705, respectively, related to the amortization of the debt discount on
these debentures.  Included in interest expense for the three and six
months ended April 30, 2007 is $345 and $1,375, respectively, related to the
amortization of the debt discount on these debentures.





The 2005
Debentures are summarized below as of April 30, 2008:





Outstanding
              Principal
              Amount
            
            
            Unamortized
              Debt
      Discount
            
            
            Net
      Carrying
              ValueCurrent
            
            $
            4,280
            
            
            $
            119
            
            
            $
            4,161





7%
Debentures





In
December 2003, April 2004 and May 2004, the Company completed a private
placement to certain private and institutional investors of $1,350,000 in
principal amount of its three-year 7% Convertible Debentures (the “7%
Debentures”).





27
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
5 - CONVERTIBLE DEBENTURES (CONTINUED)





7% Debentures
(Continued)





Under the
agreements with the purchasers of the 7% Debentures issued in December 2003, the
Company is obligated to pay to the Debenture holders liquidated damages
associated with the late filing of the Registration Statement and the missed
Registration Statement required effective date of March 30,
2004.  Liquidated damages are equal to (x) 2% of the principal amount
of all the Debentures during the first 30-day period following late filing or
effectiveness and (y) 3% of the principal amount of all Debentures for each
subsequent 30-day period (or part thereof). These liquidated damages aggregated
to $160,000.  At the Company’s option, the Debenture holders are
entitled to be paid such amount in cash or shares of Common Stock at a per share
rate equal to the effective conversion price of the Debentures, which is
currently $0.15.  Accrued liquidated damages as of April 30, 2008 was
$37,550.





During
the six months ended April 30, 2008, $25,000 of principal amount of 7%
Debentures plus accrued interest of $7,530 were converted into 2,098,709 shares
of common stock.  As an inducement to convert, the Company agreed to
reduce the conversion price to $0.0155 which resulted in the issuance of
1,881,842 additional shares of common stock.  Accordingly, the Company
recorded additional interest expense of $37,637 during the three and six months
ended April 30, 2008.





There was
no amortization of debt discount on these debentures for the three and six
months ended April 30, 2008.  Included in interest expense for the
three and six months ended April 30, 2007 is $733 and $1,491, respectively,
related to the amortization of the debt discount on these
debentures.





The 7%
Debentures are summarized below as of April 30, 2008:





Outstanding
              Principal
              Amount
            
            
            Unamortized
              Debt
      Discount
            
            
            Net
      Carrying
              ValueCurrent
            
            $
            50,000
            
            
            $
            --
            
            
            $
            50,000





The
remaining 7% Debentures outstanding at April 30, 2008, originally issued in May
2004, were due and payable in May 2007 and are currently in
default.





NOTE
6 - NOTES PAYABLE





In May
2007, the Company entered into a promissory note resulting in gross proceeds of
$400,000.  The promissory note was originally due and payable on
August 22, 2007 and bears interest at the rate of 10% per annum.  The
maturity date of this promissory note was initially extended to October 31,
2007.  On March 20, 2008, the Company entered into an agreement with
the note holder pursuant to which the maturity date of the note was extended to
July 31, 2008 and the note holder waived any default that may have
existed.  In addition the Company agreed to use its best efforts to
make minimum monthly principal and interest payments of $50,000 no later than
the last calendar day of each month prior to the extended maturity date of July
31, 2008.  During the six months ended April 30, 2008, the Company
repaid principal of $200,000 and accrued interest of $30,466.





NOTE
7 - STOCKHOLDERS’ DEFICIENCY





Common
Stock





During
the six months ended April 30, 2008, the Company:





·
            issued
      21,000,000 shares of restricted common stock in exchange for services
      valued at $471,000;





28
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
7 - STOCKHOLDERS’ DEFICIENCY (CONTINUED)





Common Stock
(Continued)





·
            issued
      13,070,868 shares of common stock upon conversion of convertible
      debentures with a principal amount of $117,000 and accrued interest of
      $39,762;





·
            issued
      18,350,000 shares of restricted common stock in exchange for cash proceeds
      of $273,000;





·
            issued
      60,000,000 shares of common stock valued at $1,740,000 upon acquisition of
      BDSI; and





·
            issued
      150,000,000 shares of common stock valued at $1,975,000 upon acquisition
      of MCCI.





Options
Granted





During
the three months ended January 31, 2008, the following options were
granted:





·
            Options
      to purchase 500,000 shares of common stock were granted to three employees
      under the 2006 Plan. These options were valued at $12,581 and have a ten
      year term, an exercise price of $0.027 per share, and vest over a period
      of approximately three years through January
  2011;





·
            Options
      to purchase 250,000 shares of common stock were granted to an employee
      under the 2006 Plan. These options were valued at $5,628 and have a ten
      year term, an exercise price of $0.021 per share, and vest over a period
      of approximately three years through December 2010;
  and





·
            Options
      to purchase 2,000,000 shares of common stock were granted to a director
      under the 2006 Plan.  These options were valued at $57,827 and
      have a ten year term, an exercise price of $0.031 per share, and vest over
      a period of approximately three years through January
  2011.





During
the three months ended April 30, 2008, no options were granted.





The
weighted-average estimated fair value of stock options granted during the six
months ended April 30, 2008 and 2007 was $0.03 and $0.09 per share,
respectively, using the Black-Scholes model with the following
assumptions:





April
      30,
              2008
            
            April
      30,
              2007Expected
      dividends
            None
            
            
            NoneExpected
      volatility
            110%
            
            
            116%Risk-free
      interest rate
            3.88%
            
            
            4.65%Expected
      life
            10
      years
            
            
            10
      years





Options
Forfeited





During
the six months ended April 30, 2008, 3,096,505 options to employees were
forfeited under the terms of their respective plans.





29
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
7 - STOCKHOLDERS’ DEFICIENCY (CONTINUED)





Warrants





In
November 2007, the Company granted warrants to purchase 400,000 shares of common
stock at an exercise price of $0.15 per share to an investor in connection with
the issuance of restricted common stock.  The fair value of the stock
warrants estimated on the date of grant using the Black-Scholes model is $0.025
per share or $9,947.





In
December 2007, the Company granted warrants to purchase 175,839,399 shares of
common stock at an exercise price of $0.10 per share to investors and the Finder
in connection with the issuance of the 2007 Debentures (see Note
5).  The fair value of the stock warrants estimated on the date of
grant using the Black-Scholes model is $0.017 per share or
$2,983,665.





During
the three months ended April 30, 2008, the Company granted warrants to purchase
17,503,759 shares of common stock at an exercise price of $0.15 per share to
investors in connection with the issuance of restricted common
stock.  The fair value of the stock warrants estimated on the date of
grant using the Black-Scholes model is $0.008 per share or
$132,616.





April 2007 Bridge Loan
Warrants





In
February 2008, the Company entered into a transaction in which shares were
issued at $0.0155 per share.  As a result, the terms of the Company’s
outstanding warrants issued in connection with its April 2007 Bridge Loan (the
“April 2007 Bridge Loan Warrants”) repriced in accordance with a provision
similar to the warrants issued in connection with the 2007 Debentures (see Note
5), which gives the holder of such warrants the benefit of the lowest price
issued in a new transaction.  Therefore, the exercise price of the April
2007 Bridge Loan Warrants has been reset to $0.0155 and will reset again
upon resolution of the Outboard Lawsuits valuation described in Note
11.  The reduction of the warrant exercise price resulted in revaluing
the April 2007 Bridge Loan Warrants to $32,100 as of April 30,
2008.





Net Loss Per
Share





Securities
that could potentially dilute basic earnings per share (EPS), in the future,
that were not included in the computation of diluted EPS because to do so would
have been anti-dilutive for the periods presented, consist of the
following:





As
      ofApril
      30,
              2008
            
            April
      30,
              2007Warrants
      to purchase common stock
            320,356,095
            
            117,870,9372007
      Debentures and accrued interest (1)
            406,782,739
            
            --2006
      Debentures and accrued interest (2)
            64,608,285
            
            9,822,118Options
      to purchase common stock
            39,269,480
            
            38,893,750Convertible
      notes payable and accrued interest
            1,447,940
            
            1,508,9277%
      Debentures and accrued interest
            439,087
            
            621,5482005
      Debentures and accrued interest (3)
            979,298
            
            120,685Total
            833,882,924
            
            168,837,965





(1)
            Based
      on a ten day average closing bid price for the common stock discounted by
      25% as of April 30, 2008 of
$0.0090.





30
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
7 - STOCKHOLDERS’ DEFICIENCY (CONTINUED)





Net Loss Per Share
(Continued)





(2)
            Based
      on a twenty day volume weighted average common stock price discounted by
      30% as of April 30, 2008 and 2007 of $0.0089 and $0.06895,
      respectively.





(3)
            Based
      on a five day volume weighted average common stock price discounted by 30%
      as of April 30, 2008 and 2007 of $0.0085 and $0.06678,
      respectively.





Substantial
issuances after April 30, 2008 through June 20, 2008:





Common
      stock issued in settlement of litigation
            
            
            125,000,000Common
      stock issued in exchange for cash proceeds
            
            
            9,500,000Common
      stock issued upon conversion ofconvertible
      debentures
            
            
            26,338,104Warrants
      granted to purchase common stock
            
            
            4,000,000





NOTE
8 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS





Concentration of Credit
Risk





The
Company maintains cash balances in one financial institution.  The
balance is insured by the Federal Deposit Insurance Corporation up to $100,000
per institution.  From time to time, the Company’s balances may exceed
these limits.  As of April 30, 2008, there were no uninsured
balances.  The Company believes it is not exposed to any significant
credit risk for cash.





NOTE
9 - ACCOUNTING FOR THE UNCERTAINTY IN INCOME TAXES





In July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB
Statement No. 109” (“FIN 48”), which clarifies the accounting and disclosure for
uncertainty in tax positions, as defined.  FIN 48 seeks to reduce the
diversity in practice associated with certain aspects of the recognition and
measurement related to accounting for income taxes.  This interpretation is
effective for fiscal years beginning after December 15, 2006 and prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken, or expected to be taken, in
a tax return, and provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosures and transition. 
As a result of the implementation of FIN 48, the Company recorded no adjustment
for unrecognized income tax benefits.  At the adoption date of November 1,
2007 and also at April 30, 2008, the Company had no unrecognized tax
benefits.  The Company classifies any interest and penalties related to
income taxes as components of income tax expense.





The tax
years 2003 to 2006 remain open to examination by the major taxing jurisdictions
to which we are subject.  Preceding years also remain open to examination
by U.S. federal and state revenue authorities to the extent of future
utilization of net operating losses (NOLs) generated in each preceding
year.





Utilization
of the NOL may be subject to a substantial annual limitation due to ownership
change limitations that have occurred previously or that could occur in the
future as provided by Section 382 of the Internal Revenue Code of 1986 and
similar state provisions.  These ownership changes may limit the amount of
NOL that can be utilized annually to offset future taxable income and tax. 
In general, an ownership change, as defined in Section 382, results from
transactions which increase the ownership of certain 5% or greater shareholders
or public groups in the stock of a corporation by more than 50 percentage points
over a three-year period.  Since the Company’s formation,
the


31
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
9 - ACCOUNTING FOR THE UNCERTAINTY IN INCOME TAXES (CONTINUED)





Company
has raised capital through the issuance of capital stock and convertible
debenture on several occasions which, combined with the purchasing shareholders’
subsequent disposition of those shares, may have resulted in a change of
control, as defined in Section 382, or could result in a change of control in
the future upon subsequent disposition.  The Company’s income tax return
reflects the entire NOL without any limitation per Section 382.





The
Company has completed a preliminary evaluation of its income tax return position
in conjunction with its adoption of FIN 48.  Based upon this analysis, the
Company believes that it is more likely than not that a change of control under
Section 382 has occurred.  As a result, effective November 1,
2007, the Company reduced the carrying amount of its Deferred Tax Asset and
related valuation allowance from approximately $23 million to $8 million for the
tax effect of reducing its NOL from approximately $57.5 million to $20.7 million
for financial reporting purposes.





During
the six months ended April 30, 2008, the Company issued 210,000,000 shares of
its common stock to UTEK Corp. as discussed in Note 3.  Under guidance
provided by Section 382, the Company determined that the issuance of those
shares, along with the issuance of additional shares of stock in connection with
other transactions, more likely than not resulted in a change of
control.  Accordingly, the Company further reduced the carrying amount
of its Deferred Tax Asset and related valuation allowance from approximately $8
million to $3.2 million for the tax effect of reducing its NOL from
approximately $20.7 million to $8 million.





The
Company has not completed its formal evaluation of its Section 382
matters.  The effect of this change did not have any effect on the carrying
value of the deferred tax asset which is fully offset by a valuation
allowance.





NOTE
10 – RELATED PARTY TRANSACTIONS





From time
to time during the six months ended April 30, 2008, the Company was advanced
funds by an officer of the Company.  These advances are non-interest
bearing.  At April 30, 2008, amounts due to the officer were $49,000
and are reflected on the accompanying condensed consolidated balance sheet as
“advance from officer.”





NOTE
11 – SUBSEQUENT EVENTS





Equity
Transactions





In May
2008, the Company issued:




(i)
            4,500,000
      shares of common stock to three investors for total cash proceeds of
      $45,000;


(ii)
            1,185,712
      shares of common stock to one investor upon conversion of 2006 Debentures
      with a principal amount of $10,000 and interest of
  $250;


(iii)
            65,000,000
      shares of common stock in settlement of two lawsuits with an investor
      holding 2006 Debentures with an aggregate principal amount of $50,000;
      and


(iv)
            Warrants
      to purchase 4,000,000 shares of common stock at an exercise price of $0.15
      per share were granted to investors in connection with the issuance of
      restricted common stock.  The fair value of the stock warrants
      estimated on the date of grant using the Black-Scholes model is $0.007 per
      share or $28,008.





In June
2008, the Company issued:




(i)
            24,017,875
      shares of common stock upon conversion of 2007 Debentures with a principal
      amount of $62,791 and interest of
$14,795;


(ii)
            1,134,517
      shares of common stock upon conversion of 2006 Debentures with a principal
      amount of $5,000 and interest of
$162;


32
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
11 – SUBSEQUENT EVENTS (CONTINUED)





Equity Transactions
(Continued)





(iii)
            5,000,000
      shares of restricted common stock in exchange for cash proceeds of
      $75,000; and


(iv)
            60,000,000
      shares of restricted common stock in settlement of one lawsuit with an
      investor holding 2006 Debentures with a principal amount of $25,000 and
      interest of $786.





Issuance of Promissory
Notes





In June
2008, the Company entered into promissory notes resulting in gross proceeds of
$112,000.  The promissory notes are due and payable one year from the
date of the notes and bear interest at the rate of 10% per annum.





Reduction of Principal
Amount of 2006 Debentures; Settlement of Litigation





In May
and June 2008, the Company was a party to three separate lawsuits filed by
Outboard Investments, Ltd. (“Outboard”), an assignee of a portion of $500,000 in
2006 Debentures originally held by Double U Master Fund,
L.P.  Outboard filed the lawsuits in the Circuit Court for the Twelfth
Judicial Circuit in and for Sarasota County, Florida (the “Outboard Lawsuits”)
on May 8, 2008 (the “First Outboard Lawsuit”), May 29, 2008 (the “Second
Outboard Lawsuit”) and June 12, 2008 (the “Third Outboard
Lawsuit”).  In each of the Outboard Lawsuits, the plaintiff alleged
that it was damaged by the Company’s failure to perform according to the terms
of the 2006 Debentures.  Due to a lack of sufficient cash to satisfy
the claims made and to defend such lawsuits, and without admitting any
wrongdoing, the Company agreed to settle each of the Outboard Lawsuits by the
payment of common stock.  These shares were issued without
registration in reliance upon Section 3(a)(10) of the Securities
Act.  On May 8, 2008, May 29, 2008 and June 12, 2008, respectively,
the Florida court approved the settlements of the First Outboard Lawsuit, Second
Outboard Lawsuit and Third Outboard Lawsuit, respectively, and the fairness of
each settlement to Outboard.  In settlement of the First Outboard
Lawsuit, the Company issued 25 million shares of common stock.  This
resulted in the cancellation of $25,000 in principal plus interest of the 2006
Debentures.  In settlement of the Second Outboard Lawsuit, the Company
issued 40 million shares of common stock.  This resulted in the
cancellation of $25,000 of principal and interest owed under the 2006
Debentures.  In settlement of the Third Outboard Lawsuit, the Company
issued 60 million shares of common stock.  This resulted in the
cancellation of $25,786 in principal and interest owed under the 2006
Debentures.  The settlement of the Outboard Lawsuits resulted in a
reduction of $75,000 in principal amount owed on the 2006 Debentures by the
Company.





Change in Conversion
Price





The
subscription agreement entered into in connection with the issuance of the
Company’s 2007 Debentures provides that in the event the Company issues any
common stock to a person or entity at a price per share less than the stated
conversion price in the 2007 Debentures (a “Lower Conversion Price”), without
the consent of each of the 2007 Debenture holders, then the Company shall (i) in
the event the holder has converted debentures or exercised warrants, issue
additional shares to the holder so that the average price per share still held
by the holder following conversion or exercise is equal to the Lower Conversion
Price, and (ii) reset the conversion price of the outstanding 2007 Debentures
and the exercise price of the outstanding warrants issued in connection with the
2007 Debentures to the Lower Conversion Price.  In addition, the terms
of the 2007 Debentures provide that in the event the Company issues common stock
for consideration less than the maximum conversion price at the time of
issuance, the maximum conversion price will be reduced to the Lower Conversion
Price.  In February 2008, the Company issued shares at a price of
$0.0155 per share, which resulted in the resetting of the conversion price to no
higher than $0.0155.  The Company believes that the issuance of shares
in connection with the settlement of the Outboard Lawsuits also results in the
lowering of the conversion price and maximum conversion price for the 2007
Debentures and the exercise price of the warrants issued in connection
therewith.  However, due to ambiguities in the subscription agreement
and the circumstances surrounding the issuances of shares in connection with the
Outboard Lawsuits, it is unclear as to how the shares issued in the Outboard
Lawsuits will be valued.


33
 RIM
SEMICONDUCTOR COMPANY AND SUBSIDIARIES
 (A
Development Stage Company Commencing November 1, 2007)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


NOTE
11 – SUBSEQUENT EVENTS (CONTINUED)





Change in Conversion
Price (Continued)





Therefore,
it is unclear what price the conversion price, the maximum conversion price and
warrant exercise price will reset to with respect to the 2007
Debentures.  The Company intends to engage in discussions with the
holders of the 2007 Debentures to clarify and resolve this issue.





In
addition, the terms of the Company’s outstanding warrants issued in connection
with its April 2007 Bridge Loan (the “April 2007 Bridge Loan Warrants”) have
repriced in accordance with a similar provision, which gives the holder of such
warrants the benefit of the lowest price issued in a new
transaction.  Therefore, the exercise price of the April 2007 Bridge
Loan Warrants has been reset to $0.0155 and will reset again upon resolution of
the Outboard Lawsuits valuation described above.





The
Company does not believe the shares issued in settlement of the Outboard
Lawsuits should be valued based solely upon the value of the 2006 Debenture
principal and interest that was cancelled as part of each settlement.  If
the valuation was made on that basis, however, the lowest price at which shares
could be deemed issued by the Company would be $0.00043 per share, and the
conversion price and maximum conversion price for the 2007 Debentures, the
exercise price of the warrants issued in connection therewith, and the exercise
price of the April 2007 Bridge Loan Warrants would reset to that price.  If
the exercise price of all such warrants were reduced to $0.00043 per share, the
Company would recognize a gain based on the change in fair value of the
warrants.  At June 20, 2008, the amount of such gain would have been
approximately $1,591,000.





Increase in Authorized
Shares





On June
3, 2008 shareholders approved an amendment to the Company’s Articles of
Incorporation to increase the number of authorized shares from 900,000,000 to
4,000,000,000.





There is
an inverse relationship between the Company’s stock price and the number of
shares issuable upon conversion of the Company’s debentures.  That is,
the higher the market price of the common stock at the time a debenture is
converted, the fewer shares the Company would be required to issue, and the
lower the market price of the common stock at the time a debenture is converted,
the more shares the Company would be required to issue.  If the
maximum conversion price of the 2007 Debentures is reduced as a result of the
issuance of stock in the Outboard Lawsuit settlements, or the Company’s stock
price does not improve, the Company would need to further increase the number of
shares of common stock authorized in order to honor its obligations to issue
shares to the debenture holders and other holders of options, warrants,
convertible promissory notes and other derivative securities.





Resignation of David R.
Wojcik





Effective
June 2, 2008, David R. Wojcik resigned as Senior Vice President Sales, Marketing
and Business Development in order to pursue other business
opportunities.  Mr. Wojcik’s Employment Agreement dated September 1,
2006 has also been terminated and the Company is under no obligation to make
severance payments to him.  Options held by Mr. Wojcik to purchase up
to 4,000,000 shares of common stock are forfeited unless exercised by August 31,
2008.  As of June 2, 2008, Mr. Wojcik was due from the Company $48,125
for accrued compensation and expenses.


34


ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION





We urge
you to read the following discussion in conjunction with our condensed
consolidated financial statements and the notes thereto included elsewhere
herein.





CAUTION
REGARDING FORWARD-LOOKING STATEMENTS





Our
prospects are subject to uncertainties and risks. In this Quarterly Report on
Form 10-QSB, we make forward-looking statements in this Item 2 and elsewhere
that also involve substantial uncertainties and risks. These forward-looking
statements are based upon our current expectations, estimates and projections
about our business and our industry, and reflect our beliefs and assumptions
based upon information available to us at the date of this report. In some
cases, you can identify these statements by words such as “if,” “may,” “might,”
“will, “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” “continue,” and other similar terms. These
forward-looking statements include, among other things, projections of our
future financial performance and our anticipated growth, descriptions of our
strategies, our product and market development plans, the trends we anticipate
in our business and the markets in which we operate, and the competitive nature
and anticipated growth of those markets.





We
caution readers that forward-looking statements are predictions based on our
current expectations about future events. These forward-looking statements are
not guarantees of future performance and are subject to risks, uncertainties and
assumptions that are difficult to predict. Our actual results, performance or
achievements could differ materially from those expressed or implied by the
forward-looking statements as a result of a number of factors, including but not
limited to the risks and uncertainties discussed in our other filings with the
SEC. We undertake no obligation to revise or update any forward-looking
statement for any reason.





OVERVIEW





Rim
Semiconductor Company (the “Company,” “we,” “our,” or “us”), a development stage
company, has developed advanced transmission technology products to enable data
to be transmitted across copper telephone wire at speeds and over distances that
exceed those offered by leading DSL technology providers.  In
September 2005, the Company changed its name from New Visual Corporation to Rim
Semiconductor Company. Our common stock trades on the OTC Bulletin Board
under the symbol RSMI. Our corporate headquarters are located at 305 NE
102nd Avenue, Portland, Oregon 97220 and our telephone number is
(503) 257-6700.





Our first
chipset in a planned family of transport processors, the Cu5001 digital signal
processor, is commercially available in FPGA form.  We are presently
working on the ASSP version of the semiconductor. We market this technology to
leading equipment makers in the telecommunications industry. Our products are
designed to substantially increase the capacity of existing copper telephone
networks, allowing telephone companies, office building managers, and enterprise
network operators to provide enhanced and secure video, data and voice services
over the existing copper telecommunications infrastructure.





We expect
that system-level products that use our technology will have a significant
advantage over existing system-level products that use existing broadband
technologies, such as digital subscriber line (DSL), because such products will
transmit data faster, over longer distances and at a higher quality. We expect
products using our technology will offer numerous advantages to the network
operators that deploy them, including the ability to support new services, the
ability to offer existing and new services to previously unreachable locations
in their network, reduction in total cost of ownership, security and
reliability.





In
December 2007, we discontinued the operations of our entertainment
segment.  As we have not generated revenues from our semiconductor
segment, we re-entered the development stage as defined in Statement of
Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting for
Development Stage Companies” (“SFAS No. 7”).  As a result of the
discontinuation of the entertainment segment, the semiconductor segment is our
only reporting segment.


35


On
January 29, 2008, we completed the acquisition of all of the issued and
outstanding capital stock of BDSI, a subsidiary of UTEK Corporation (“UTEK”) in
exchange for 60,000,000 shares of unregistered common stock of the Company,
valued at $1,740,000, which are subject to certain anti-dilution
adjustments.  As a result of the transaction, BDSI became a
wholly-owned subsidiary of the Company.  Upon closing of the
acquisition transaction, BDSI had $400,000 of cash and a worldwide exclusive
license to patented technology developed by researchers at the University of
Illinois.  The remaining purchase price of $1,340,000 was allocated to
the license.  As we recorded an impairment of our existing technology
licenses and capitalized software development costs during the year ended
October 31, 2007 and are currently in the development stage, management
determined it was unable to currently demonstrate alternative future uses for
the license and support the carrying amount of the license based upon estimated
future cash flows.  Accordingly, the $1,340,000 was charged to
operations, under the caption “Acquired in-process research and development”
during the three months ended January 31, 2008.





The
patent relates to an algorithm designed to enhance power allocation in
telecommunications systems that use multicarrier modulation protocol. IPSL,
ADSL, VDSL and DSL systems are all examples of multicarrier modulation
protocols. The algorithm serves to improve the achievable data rate or the
signal-to-noise ratio, reducing errors in the transmission. Under the exclusive
license agreement relating to such technology, BDSI is obligated to pay the
University of Illinois royalties based on achievement of certain sales levels
for products utilizing the technology. Unless earlier terminated by a party
pursuant to the terms of the license agreement, the license expires upon the
expiration or termination of all of the University of Illinois patent rights
underlying the technology. The license agreement also permits BDSI to sublicense
the technology and obligates BDSI to make royalty payments to the University of
Illinois based on a percentage of payments received by BDSI from
sublicensees.





On March
24, 2008, we completed the acquisition of all of the issued and outstanding
capital stock of Multi-Carrier Communications, Inc., (“MCCI”), a subsidiary of
UTEK Corporation (“UTEK”) in exchange for 150,000,000 shares of unregistered
common stock of the Company, which are subject to certain anti-dilution
adjustments.  As a result of the transaction, MCCI became a
wholly-owned subsidiary of the Company. MCCI was incorporated on March 12,
2008 and its historical operations prior to acquisition were not
significant.  We have accounted for this acquisition under the
purchase method of accounting.  Upon closing of the acquisition
transaction, the assets of MCCI included $300,000 in cash and a worldwide
exclusive license to certain technology owned by The University of Queensland
& The University of Sydney and UNIQUEST Pty Limited (“Uniquest”). The
remaining purchase price of $1,675,000 was allocated to the
license.  As we recorded an impairment of our existing technology
licenses and capitalized software development costs during the year ended
October 31, 2007 and are currently in the development stage, management
determined it was unable to currently demonstrate alternative future uses for
the license and support the carrying amount of the license based upon estimated
future cash flows.  Accordingly, the $1,675,000 was charged to
operations, under the caption “Acquired in-process research and development”
during the three and six months ended April 30, 2008.





The
technology relates to multiple advanced algorithms for the transmission of
digital data across metallic media, such as copper wires. Under the License
Agreement (the “Uniquest License Agreement”) relating to such technology, MCCI
is obligated to pay Uniquest an up-front fee and a patent reimbursement fee to
cover patents costs relating to the technology. MCCI made those payments to
Uniquest before we acquired MCCI. The Uniquest License Agreement also provides
that MCCI shall pay royalties based on achievement of certain sales levels for
products utilizing the technology. Royalty obligations of MCCI are subject to
certain minimum amounts. Unless earlier terminated by a party pursuant to the
terms of the Uniquest License Agreement, the license expires upon the day before
the date of expiration of all of the patent rights underlying the technology or
20 years from the date of the Uniquest License Agreement for unpatented
technology. The Uniquest License Agreement also permits MCCI to sublicense the
technology with the consent of Uniquest and obligates MCCI to make royalty
payments to Uniquest based on a percentage of payments received by MCCI from
sublicensees. MCCI and Uniquest have also entered into a Research Agreement
pursuant to which MCCI shall fund and obtain certain rights relating to the
licensed technology developed through a research program to be implemented by
Uniquest. MCCI funded this research before we acquired MCCI.





In May
2008 we announced that Teleconnect GmbH of Dresden, Germany, had chosen our
CupriaTM transport processor for its new product line of high-speed data
equipment. This new family of gigabit Ethernet transport equipment is being
developed by Teleconnect at the request of a large European customer, which has
not yet been formally announced by Teleconnect.


36


In June
2008 we announced that we received a purchase order for $1,050,000. The customer
is a manufacturer of equipment that is used in the telecom and data
industry.  We cannot fulfill this order at the present
time.  Our ability to satisfy this order is dependent on our receipt
of additional financing.  We will not recognize revenues from this
order until we obtain such financing and build and ship the ordered
products.





CRITICAL
ACCOUNTING POLICIES





The
preparation of our condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. Our estimates are based on historical experience, other
information that is currently available to us and various other assumptions that
we believe to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions and the variances
could be material.





Our
critical accounting policies are those that affect our condensed consolidated
financial statements materially and involve difficult, subjective or complex
judgments by management. We have identified the following critical accounting
policies that affect the more significant judgments and estimates used in the
preparation of our condensed consolidated financial statements.





Derivative
Financial Instruments





In
connection with the issuance of certain convertible debentures, the terms of the
debentures included an embedded conversion feature that provided for a
conversion of the debentures into shares of our common stock at a rate that was
determined to be variable. We determined that the conversion feature was an
embedded derivative instrument and that the conversion option was an embedded
put option pursuant to Statement of Financial Accounting Standards (“SFAS”) No.
133, “Accounting for Derivative Instruments and Hedging Activities,” as amended,
and Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for
Derivative Financial Instruments Indexed To, and Potentially Settled In, a
Company’s Own Stock.”





The
accounting treatment of derivative financial instruments requires that we record
the debentures and related warrants at their fair values as of the inception
date of the convertible debenture agreements and at fair value as of each
subsequent balance sheet date.  In addition, under the provisions of EITF
Issue No. 00-19, as a result of entering into the convertible debenture
agreements, we were required to classify all other non-employee warrants and
options as derivative liabilities and record them at their fair values at each
balance sheet date. Any change in fair value was recorded as non-operating,
non-cash income or expense at each balance sheet date. If the fair value of the
derivatives was higher at the subsequent balance sheet date, we recorded a
non-operating, non-cash charge.  If the fair value of the derivatives was
lower at the subsequent balance sheet date, we recorded non-operating, non-cash
income. We reassess the classification at each balance sheet date. If the
classification required under EITF Issue No. 00-19 changes as a result of events
during the period, the contract should be reclassified as of the date of the
event that caused the reclassification.





We
account for embedded conversion options that no longer meets the conditions of
EITF Issue No. 00-19 to be classified as a liability under EITF Issue No. 06-7,
“Issuer’s Accounting for a Previously Bifurcated Conversion Option in a
Convertible Debt Instrument When the Conversion Option No Longer Meets the
Bifurcation Criteria in FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities” (“EITF Issue No. 06-7”). Under EITF Issue
No. 06-7, when an embedded conversion option previously accounted for as a
derivative under SFAS 133 no longer meets the bifurcation criteria, we
reclassify the amount of the embedded conversion option to stockholders’
deficiency.





Registration
Payment Arrangements





We
account for registration payment arrangements in accordance with FASB Staff
Position (FSP) No. EITF 00-19-2, “Accounting for Registration Payment
Arrangements” (“FSP EITF 00-19-2”), which specifies that contingent obligations
to make future payments or otherwise transfer consideration under a registration
payment arrangement, should be separately recognized and measured in accordance
with SFAS No. 5, “Accounting for Contingencies”.  SFAS No. 5 requires
loss contingencies to be accrued and expensed if they are probable and
reasonably estimable.  As of April 30, 2008, we have accrued $181,003
within accounts payable and accrued expenses for liquidated damages in
connection with registration payment arrangements.


37


Stock-Based
Compensation





We report
stock based compensation under accounting guidance provided by Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123(R)”), which requires the measurement and recognition of compensation
expense for all share-based payment awards made to employees and directors,
including stock options, based on estimated fair values.





SFAS
123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in our consolidated statement of
operations. We have continued to attribute the value of stock-based compensation
to expense on the straight-line single option method.  Stock-based
compensation expense recognized under SFAS 123(R) related to employee stock
options granted during the three months ended April 30, 2008 and 2007 was
$101,514 and $117,183 respectively, and $201,128 and $227,948 for the six months
ended April 30, 2008 and 2007, respectively.





As
stock-based compensation expense recognized in the consolidated statement of
operations for the six months ended April 30, 2008 is based on awards ultimately
expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R)
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.





Research
and Development





Research
and development expenses relate to the design and development of advanced
transmission technology products. Prior to establishing technological
feasibility, software development costs are expensed to research and development
costs and to cost of sales subsequent to confirmation of technological
feasibility. Internal development costs are capitalized to software development
costs once technological feasibility is established. Technological feasibility
is evaluated on a product-by-product basis. Research and development expenses
generally consist of salaries, related expenses for engineering personnel and
third-party development costs incurred. Amounts allocated to acquired in-process
research and development costs, from business combinations, are charged to
operations at the consummation of the acquisition.





Together,
our outsourced and employed engineer head count on April 30, 2008 totaled six
full-time equivalent personnel.  From time to time we outsource some
of the development activities with respect to our products to independent third
party developers.  During the three months ended April 30, 2008 and
2007, we expended $130,845 and $161,946, respectively, for research and
development of our semiconductor technology.  During the six months
ended April 30, 2008 and 2007, we expended $550,257 and $809,620, respectively,
for research and development of our semiconductor technology.





Technology
Licenses





We have
entered into four technology license agreements that may impact our future
results of operations. Royalty payments, if any, under each license would be
reflected in our consolidated statements of operations as a component of cost of
sales.





In April
2002, we entered into a development and license agreement with Adaptive
Networks, Inc. (“Adaptive”), to acquire a worldwide, perpetual license to
Adaptive’s technology, intellectual property and patent portfolio. We also
jointly developed technology with Adaptive that enhanced the licensed
technology.  From April 2002 until August 2007, the licensed
technology and enhancements provided the core technology for our semiconductor
products.  Our CupriaTM
semiconductor platform no longer utilizes the technology licensed from Adaptive.
The board of directors believes that the Adaptive licenses and intellectual
property may be used in future products that we are planning.





In
consideration of the development services provided and the licenses granted to
us by Adaptive, we paid Adaptive an aggregate of $5,751,000 between 2002 and
2004 consisting of cash and our assumption of certain Adaptive liabilities. In
addition to the above payments, Adaptive is entitled to a percentage of any net
sales of products sold by us and any license revenue we receive from the
licensed and co-owned technologies less the first $5,000,000 that would
otherwise be payable to them under this royalty arrangement.


38


In
February 2006, we obtained a license to include HelloSoft, Inc.’s (“HelloSoft”)
integrated VoIP software suite in the CupriaTM family
of transport processors. We believe the inclusion of VoIP features in our
products will eliminate VoIP dedicated components currently needed in modems and
thereby lower their production costs by more than 20%. In consideration of this
license, we have paid HelloSoft a license fee and will pay certain royalties
based on our sale of products that include the licensed technology.





In
January 2008 we obtained a license to include BDSI’s technology in the CupriaTM
family of transport processors.  The technology relates to an
algorithm designed to enhance power allocation in telecommunications systems
that use multicarrier modulation protocol. IPSL, ADSL, VDSL and DSL systems are
all examples of multicarrier modulation protocols. The algorithm serves to
improve the achievable data rate or the signal-to-noise ratio, reducing errors
in the transmission. Under the exclusive license agreement relating to such
technology, BDSI is obligated to pay the University of Illinois royalties based
on achievement of certain sales levels for products utilizing the technology.
Unless earlier terminated by a party pursuant to the terms of the license
agreement, the license expires upon the expiration or termination of all of the
University of Illinois patent rights underlying the technology. The license
agreement also permits BDSI to sublicense the technology and obligates BDSI to
make royalty payments to the University of Illinois based on a percentage of
payments received by BDSI from sublicensees.





In March
2008 we obtained a license to include MCCI’s technology in the CupriaTM family of
transport processors.  The technology relates to multiple advanced
algorithms for the transmission of digital data across metallic media, such as
copper wires. Under the License Agreement (the “Uniquest License Agreement”)
relating to such technology, MCCI is obligated to pay royalties based on
achievement of certain sales levels for products utilizing the
technology.  Royalty obligations of MCCI are subject to certain
minimum amounts. Unless earlier terminated by a party pursuant to the terms of
the Uniquest License Agreement, the license expires upon the day before the date
of expiration of all of the patent rights underlying the technology or 20 years
from the date of the Uniquest License Agreement for unpatented technology. The
Uniquest License Agreement also permits MCCI to sublicense the technology with
the consent of Uniquest and obligates MCCI to make royalty payments to Uniquest
based on a percentage of payments received by MCCI from
sublicensees.





RESULTS
OF OPERATIONS





COMPARISON
OF THE SIX AND THREE MONTHS ENDED APRIL 30, 2008 AND THE SIX AND THREE MONTHS
ENDED APRIL 30, 2007





REVENUES.  
No revenues were recorded in connection with our semiconductor business during
the six months ended April 30, 2008 and 2007.





OPERATING
EXPENSES.  Operating expenses primarily include acquired in-process
research and development, the amortization of technology license and capitalized
software development fees, research and development expenses in connection with
the semiconductor business, and selling, general and administrative
expenses.





Total
operating expenses increased 79% or $1,456,689 to $3,296,757 for the three
months ended April 30, 2008 from $1,840,068 for the three months ended April 30,
2007.  This increase in total operating expenses for the three months
ended April 30, 2008 was due primarily to the acquired in-process research and
development in connection with the acquisition of MCCI and an increase in
selling, general and administrative expenses, offset by decreases in the
amortization of technology licenses and capitalized software development fees
and research and development expenses.





Total
operating expenses increased 58% or $2,437,733 to $6,625,253 for the six months
ended April 30, 2008 from $4,187,520 for the six months ended April 30,
2007.  This increase in total operating expenses for the six months
ended April 30, 2008 was due primarily to the acquired in-process research and
development in connection with the acquisitions of BDSI and MCCI and an increase
in selling, general and administrative expenses, offset by decreases in the
amortization of technology licenses and capitalized software development fees
and research and development expenses.





There was
no amortization of technology licenses and capitalized software development fees
for the three and six months ended April 30, 2008 as compared to $270,363 and
$530,666 for the three and six months ended April 30, 2007,
respectively.  The decrease was due to the Company recognizing a loss
on the impairment of technology licenses and capitalized software development
costs during the year ended October 31, 2007 that reduced the carrying value to
$0.


39


Research
and development expenses decreased 19% or $31,101 to $130,845 for the three
months ended April 30, 2008 from $161,946 for the three months ended April 30,
2007 due to a reduction in supplies, facilities, and legal expenses, offset by
an increase in consulting expenses.  Research and development expenses
decreased 32% or $259,363 to $550,257 for the six months ended April 30, 2008
from $809,620 for the six months ended April 30, 2007.  This decrease
is primarily due to the decrease in stock based compensation offset primarily by
increases in salaries and wages.  Stock based compensation recognized
for research and development for the six months ended April 30, 2007 was
$443,432, the majority of which was accounted for by a share-based payment
valued at $395,000 to eSilicon, the initial payment required to commence
pre-production work for Release 2.0 of the Cupria product line.  For
the six months ended April 30, 2008, stock based compensation recognized for
research and development was only $23,932.  Salaries and wages related
to research and development increased during the six months April 30, 2008 due
primarily to the costs being expensed during the period, whereas during the six
months ended April 30, 2008 these costs were being capitalized as capitalized
software based on the technology’s stage of development.





Total
selling, general and administrative expenses increased 6% or $83,153 to
$1,490,912 for the three months ended April 30, 2008 from $1,407,759 for the
three months ended April 30, 2007.  This increase is primarily due to
an increase in salaries and wages, legal and accounting fees, and fees related
to the extension of maturity dates on convertible debentures, offset by a
decrease in stock based compensation from $589,382 to $460,805 and a reduction
in travel, meals, lodging and consulting fees.





Total
selling, general and administrative expenses increased 7% or $212,762 to
$3,059,996 for the six months ended April 30, 2008 from $2,847,234 for the six
months ended April 30, 2007. This increase is primarily due to the increase in
stock based compensation recognized for selling, general and administrative
expenses from $1,058,791 to $1,173,025 and increases in salaries and wages,
accounting fees, and fees related to the extension of maturity dates on
convertible debentures, offset by decreases in legal and consulting
fees.





OTHER (INCOME)
EXPENSES.  Other expenses-net included interest income, interest
expense, the change in fair value of derivative liabilities, and amortization of
deferred financing costs.  In total, other income – net increased by
24% or $407,133 to $2,125,702 for the three months ended April 30, 2008 from
$1,718,569 for the three months ended April 30, 2007. In total, for the six
months ended April 30, 2008, there was income of $1,151,356 as compared with a
loss of $3,716,722 for the six months ended April 30, 2007.  Changes
in individual line items changed for the reasons below.





Interest
expense increased 292% or $450,181 to $604,197 for the three months ended April
30, 2008 from $154,016 for the three months ended April 2007.  This
increase is due primarily to additional interest expense and amortization of
debt discount related to the 2007 Debentures.  Interest expense
decreased 42% or $1,221,182 to $1,719,335 for the six months ended April 30,
2008 from $2,940,517 for the six months ended April 2007.  The
decrease is primarily due to the amortization and write-off of debt discount due
to increased conversions of the 2006 Debentures during the six months ended
April 30, 2007 as compared to the six months ended April 30, 2008, offset by
increases in interest expense and amortization of debt discount related to the
2007 Debentures.





We
recognized a gain of $2,846,664 on the change in fair value of derivative
liabilities for the three months ended April 30, 2008, an increase of $946,270
from a gain of $1,900,394 for the three months ended April 30,
2007.  In addition, we recognized a gain of $3,123,293 on the change
in fair value of derivative liabilities for the six months ended April 30, 2008,
an increase of $2,761,546 from a gain of $361,747 for the six months ended April
30, 2007.  The increased gains were primarily due to a larger number
of derivative instruments, primarily warrants, outstanding as of April 30, 2008
and a larger decrease in the market price of our common stock during the three
and six months ended April 30, 2008 as compared to the change during the three
and six months ended April 30, 2007.  In general, increases in the
market price of our common stock as compared to the exercise price of our
warrants or options results in increases in the fair value of the warrant or
option as estimated using the Black-Scholes model.





The
amortization of deferred financing costs increased 184% or $75,697 to $116,858
for the three months ended April 30, 2008 from $41,161 for the three months
ended April 30, 2007. This increase is due primarily to the amortization of
deferred financing costs related to the 2007 Debentures that did not occur
during the six months ended April 30, 2007.  The amortization of
deferred financing costs decreased 78% or $911,900 to $253,947 for the six
months ended April 30, 2008 from $1,165,847 for the six months ended April 30,
2007. The decrease for the six months ended April 30, 2008 is primarily a result
of the conversions of the 2006 Debentures during the three months ended January
31, 2007. Upon conversion or repayment of debt prior to its maturity date, a
pro-rata share of debt discount and deferred financing costs are written off and
recorded as expense.


40


NET LOSS.   For
the three months ended April 30, 2008 our net loss increased 863% or $1,051,223
to $1,173,042 from $121,819 for the three months ended April 30, 2007, primarily
as the result of increases in interest expense, amortization of deferred
financing costs, acquired in-process research and development, and selling,
general and administrative expenses, offset by decreases in amortization of
technology licenses and capitalized software development fees, research and
development expenses, and an increase in the gain on the change in fair value of
derivative liabilities.





For the
six months ended April 30, 2008 our net loss decreased 31% or $2,443,174 to
$5,469,129 from $7,912,303 for the six months ended April 30, 2007, primarily as
the result of increases in the gain on the change in fair value of derivative
liabilities, decreases in interest expense, amortization of deferred financing
costs, amortization of technology licenses and capitalized software development
fees, and research and development expenses, offset by the acquired in-process
research and development and an increase in selling, general and administrative
expenses.





The
impact of discontinued operations was not significant for the three and six
months ended April 30, 2008 or 2007.





LIQUIDITY
AND CAPITAL RESOURCES





Overview





During
the three months ended April 30, 2008, and during the period from May 1, 2008 to
June 20, 2008, we have experienced a worsening financial position, a significant
decline in the market price of our common stock (from closing prices of $0.012
at May 1, 2008 to $0.0011 at June 20, 2008), and increased difficulty in
securing additional financing.  Although we were successful in raising
$302,000 over the three months ended April 30, 2008 and $277,000 from May 1,
2008 through June 20, 2008, through private placements of common stock and
loans, and obtained $300,000 in cash when we acquired MCCI on March 24, 2008,
our need for additional financing remains acute.





Cash and
cash equivalents balances totaled approximately $50,082 as of June 20,
2008, $1,621 as of April 30, 2008, and $35,368 as of October 31,
2007.  We need to raise additional funds on an immediate basis in
order to comply with the terms of certain outstanding agreements, keep current
essential suppliers and vendors, and to maintain our operations as presently
conducted.  If we are unable to raise these funds, we will not be able
to maintain operations as presently conducted and may cease operating as a going
concern.  Management’s plans in this regard are to obtain other debt
and equity financing until profitable operation and positive cash flow are
achieved and maintained.  Even if we are able to raise additional
funds through the issuance of debt or other means, our cash needs could be
heavier than anticipated in which case we could be forced to raise additional
capital.  Even after we receive orders for our products, we will
require additional financing before we can fulfill such orders, and do not yet
know what payment terms will be required by our customers or if our products
will be successful.





At the
present time, we have no commitments for any additional financing, and there can
be no assurance that, if needed, additional capital will be available to us on
commercially acceptable terms or at all.  We may have difficulty
obtaining additional funds as and if needed, and we may have to accept terms
that would adversely affect our stockholders.  Additional equity
financings are likely to be extremely dilutive to holders of our common stock
and debt financing may involve significant payment obligations and covenants
that restrict how we operate our business.  Covenants in our
agreements with certain holders of our debentures issued in March 2006 and
December 2007 may impede our ability to obtain additional
financing.





Interest
payments of approximately $193,000 are due June 30, 2008 on our 2007
Debentures.  We do not presently have sufficient funds to make these
interest payments.  If we cannot raise sufficient funds to make these
interest payments by July 8, 2008, or reach an agreement with our lenders to
extend the interest payment date, we would be in default on the 2007
Debentures.  To secure our obligations under the 2007 Debentures, we
granted a security interest in substantially all of our assets, including our
intellectual property, in favor of the investors under the terms and conditions
of a Security Agreement dated as of December 5, 2007.  If we are
unable to perform our obligations under the 2007 Debentures, the investors could
seek to foreclose and obtain possession or force the sale of substantially all
of our assets, including our products under development.  If this were
to occur, we could not continue in our current line of
business.


41


We also
have unsecured debt that is either past due or will be due in the next several
months.  We require additional financing or accommodations from our
lenders to satisfy these obligations or avoid or waive a
default.  Interest payments of approximately $16,400 are due June 30,
2008 on our Senior Secured 7% convertible debentures issued in March 2006 (“2006
Debentures”).  As described below, $50,000 principal amount of our
three year 7% convertible debentures (“7% Debentures”) matured in May 2007 and
have not yet been repaid.  In addition, $4,280 principal amount of our
Senior Secured 7% convertible debentures issued in May 2005 (“2005 Debentures”)
matured in May 2008 and have not yet been repaid.  We have a note
payable with an outstanding principal balance of $200,000 that will mature on
July 31, 2008, and $275,000 and $85,000 principal amount of our 2006 Debentures
that will mature on July 10, 2008 and September 17, 2008,
respectively.




An
additional $150,000 principal amount of 2006 Debentures will mature June 30,
2009.  Our 10% Secured Convertible Notes issued in December 2007 (the
“2007 Debentures”) will mature in December 2009.  As of June 20, 2008,
approximately $3,465,450 principal amount of such debentures was
outstanding.





Review
of Certain Outstanding Debt Securities





Since
inception, we have funded our operations primarily through the issuance of our
common stock and debt securities.  As a result of our issuances of
debt securities, we have significant repayment obligations in 2008 and 2009 that
will affect our liquidity position.





In
December 2003, April 2004 and May 2004, we sold $1,350,000 in aggregate
principal amount and received net proceeds of approximately $1,024,000 from the
private placement to certain private and institutional investors of our 7%
Debentures. As of April 30, 2008, there was $50,000 of principal amount of the
7% Debentures outstanding.  The 7% Debentures matured in May 2007,
however, they have not yet been repaid.





In March
2006, we sold $6,000,000 in aggregate principal amount of our 2006 Debentures,
receiving net proceeds of approximately $4.5 million after the payment of
offering related costs.  As of April 30, 2008, there was $600,000 of
principal amount of the 2006 Debentures outstanding. The 2006 Debentures
originally were due and payable on March 10, 2008, but the maturity date was
extended pursuant to agreements with the four remaining debenture
holders.





Effective
March 17, 2008, we entered into amendment agreements with two investors holding
2006 Debentures with an aggregate principal amount of $200,000 (the “March 17
Amendments”).  The March 17 Amendments amend the terms of the two
subject 2006 Debentures to:  (1) extend the maturity date until
September 17, 2008, (2) obligate us to pay all interest accrued on such
debentures as of June 30, 2008 in cash; (3) extend the payment date for interest
that will have accrued on such debentures as of June 30, 2008 until September
17, 2008; and (4) increase the outstanding amount of unconverted principal on
such debentures by 20%, however, the 20% principal premium and interest accruing
thereon must be paid in cash and may not be converted by such investors into
Company common stock.  The March 17 Amendments also included waivers
of any event of default that may have occurred under the terms of such 2006
Debentures prior to the date thereof.





Effective
March 19, 2008, we entered into amendment agreements with the other two
investors holding unconverted 2006 Debentures with an aggregate principal amount
of $425,000 (the “March 19 Amendments”).  In exchange for aggregate
cash consideration of $23,181, the March 19 Amendments amend the terms of the
two subject 2006 Debentures to extend the maturity date on such debentures until
April 10, 2008.  The March 19 Amendments also included waivers of any
event of default relating to failure to pay amounts due that may have occurred
under the terms of such 2006 Debentures prior to the date thereof.





Effective
April 17, 2008, we entered into amendment agreements with the two investors that
were parties to the March 19 Amendments (the “April 17
Amendments”).  In exchange for aggregate cash consideration of
$23,181, the April 17 Amendments amend the terms of the two subject 2006
Debentures to extend the maturity date on such debentures until May 10,
2008.  The April 17 Amendments also included waivers of any event of
default relating to failure to pay amounts due that may have occurred under the
terms of such 2006 Debentures prior to the date thereof.


42


Effective
May 29, 2008, we entered into amendment agreements with the two investors that
were parties to the March 19 Amendments (the “May 29
Amendments”).  In exchange for aggregate cash consideration of
$23,181, the May 29 Amendments amend the terms of the two subject 2006
Debentures to extend the maturity date on such debentures until June 10,
2008.  The May 29 Amendments also included waivers of any event of
default relating to failure to pay amounts due that may have occurred under the
terms of such 2006 Debentures prior to the date thereof.





In June
2008, we reached an agreement with one investor holding unconverted 2006
Debentures with an aggregate principal amount of $275,000 to extend the maturity
date one month (the “June Extension”).  In exchange for aggregate cash
consideration of $15,000, the June Extension amends the terms of the
subject 2006 Debenture to extend the maturity date on such debenture until July
10, 2008.  The June Extension also included waivers of any event of
default relating to failure to pay amounts due that may have occurred under the
terms of such 2006 Debenture prior to the date thereof.





In June
2008, we reached an agreement with an investor holding unconverted 2006
Debentures with an aggregate principal amount of $100,551 (the “June
Amendment”).  In the June Amendment, the maturity date of the subject
2006 Debenture was extended to June 30, 2009 and the variable conversion price
of the subject 2006 Debenture was changed.  Such 2006 Debenture is
convertible into shares of common stock at a conversion price for any such
conversion equal to the lower of (x) 75% of the closing bid price of the common
stock on the trading day immediately preceding the conversion date or (y) if we
enter into certain financing transactions, the lowest purchase price or
conversion price applicable to that transaction.  The conversion price
is subject to adjustment.





In May
2005, we sold $3.5 million in aggregate principal amount of our 2005 Debentures
in a private placement to certain private and institutional investors. As of
April 30, 2008, there was $4,280 of principal amount of the 2005 Debentures
outstanding.  The 2005 Debentures matured in May 2008, however, they
have not yet been repaid.





In May
2007, we received $400,000 in proceeds from the issuance of a note payable which
originally matured on August 22, 2007. The maturity date on this note payable
was originally extended to October 31, 2007. As of April 30, 2008, the unpaid
balance of the note was $200,000. The lender has agreed to waive any existing
default on the promissory note and to extend the maturity date to July 31,
2008.  In addition, the Company has agreed to use its best efforts to
make monthly principal payments of at least $50,000, plus any accrued interest
on such prepayments.





In
December 2007, we sold $3,527,778 in aggregate principal amount of our 10%
Secured Convertible Notes and warrants, receiving net proceeds of approximately
$1.7 million (the “2007 Debentures”), after the payment of offering related fees
and expenses of $345,000 and after the repayment in full of $1,100,000 principal
and accrued interest on bridge loans issued in July 2007.  The 2007
Debentures mature in December 2009.





Review
of Condensed Consolidated Statements of Cash Flows





Net cash
used in operating activities was $2,581,983 for the six months ended April 30,
2008, compared to $1,921,580 for the six months ended April 30, 2007. The
increase in cash used in operations was principally the result of the following
items:





·
            a
      decrease in the net loss from continuing operations, which was $5,473,897
      for the six months ended April 30, 2008, as compared to $7,904,242 for the
      six months ended April 30, 2007;
and





·
            a
      net decrease for the six months ended April 30, 2008 in other current
      assets, other assets, due to related party and accounts payable and
      accrued liabilities of $30,896 representing decreased cash inflows,
      compared to a net increase of $241,111 for the six months ended April
      30, 2007;





impacted
primarily by the following non-cash items:





·
            decreased
      consulting fees and other compensatory elements of stock issuances, which
      were $1,196,957 for the six months ended April 30, 2008, compared to
      $1,502,223 for the six months ended April 30, 2007, principally due to the
      issuance of common stock during the six months ended April 30, 2007 with a
      value of $395,000 in exchange for
services;





43





·
            a
      gain on the change in fair value of derivative liabilities of $3,123,293
      for the six months ended April 30, 2008, compared to a gain of $361,747
      for the six months ended April 30, 2007, due to the reasons noted
      above;





·
            the
      acquired in-process research and development of $3,015,000 in the six
      months ended April 30, 2008 which did not occur during the six months
      ended April 30, 2007;





·
            interest
      expense related to the fair value of warrants issued in connection with
      the 2007 debentures in excess of debt discount of $369,721 for the six
      months ended April 30, 2008 which did not occur during the six months
      ended April 30, 2007;





·
            decreased
      amortization of deferred financing costs, which were $253,947 for the six
      months ended April 30, 2008, compared to $1,165,847 for the six months
      ended April 30, 2007, principally due to significant conversions of the
      2006 Debentures during the six months ended April 30, 2007 and the
      amortization of the related deferred financing
  costs;





·
            decreased
      amortization of debt discount on notes, which was $1,115,471 for the six
      months ended April 30, 2008, compared to $2,893,510 for the six months
      ended April 30, 2007, principally due to significant conversions of the
      2006 Debentures during the six months ended April 30, 2007 and the
      amortization of the related debt discount;
and





·
            amortization
      of technology licenses and capitalized software development fees of
      $530,666 for the six months ended April 30, 2007, compared to $0 for the
      six months ended April 30, 2008, due to the Company recognizing a loss on
      the impairment of technology licenses and capitalized software development
      costs during the year ended October 31, 2007 that reduced the carrying
      value to $0.





Net cash
provided by investing activities was $690,750 for the six months ended April 30,
2008 compared to $560,794 for the six months ended April 30,
2007.  The net increase was due primarily to cash acquired in
connection with the acquisitions of BDSI and MCCI of $700,000 and reduced
capital expenditures during the six months ended April 30, 2008, as compared to
proceeds from the maturity of short-term investments and from the sale of
certain trademark rights, offset by capitalization of research and development
costs and software development fees, as well as the purchase of equipment and
leasehold improvements related to the buildout of our headquarters office
facility during the six months ended April 30, 2007.





Net cash
provided by financing activities of $1,852,000 for the six months ended April
30, 2008 was the result of proceeds from convertible debentures of $3,175,000,
advances from an officer of $49,000, and the issuance of common stock of
$273,000, offset by capitalized financing costs of $345,000 and the repayment of
notes payable in the amount of $1,300,000.  This represents an
increase of $1,237,000 from net cash provided by financing activities for the
six months ended April 30, 2007 of $566,000 which was the result of proceeds
from a $300,000 note payable and from the issuance of common stock of $300,000,
offset by capitalized financing costs of $34,000.





Going
Concern Qualification





We have
incurred significant net losses since inception, negative cash flows and
liquidity problems.  These conditions raise substantial doubt about
our ability to continue as a going concern. Due to the fact that there is
substantial doubt about our ability to continue as a going concern, our
independent registered public accounting firm’s audit report accompanying our
2007 financial statements includes an explanatory paragraph to the uncertainty
of our ability to continue as a going concern. The financial statements do not
include any adjustment that might result from the outcome of such
uncertainty. This uncertainty may make it more difficult for us to
raise additional capital than if such uncertainty did not exist.





Impact
of Recently Issued Accounting Standards





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value in accordance with accounting principles generally accepted in the U.S.,
and expands disclosures about fair value measurements. SFAS 157 is effective for
us as of the beginning of fiscal 2009, with earlier application encouraged. Any
cumulative effect will be recorded as an adjustment to the opening accumulated
deficit balance, or other appropriate component of equity. The adoption of this
pronouncement is not expected to have an impact on our consolidated financial
position, results of operations, or cash flows.


44


In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides
companies with an option to report selected financial assets and liabilities at
fair value. The objective of SFAS 159 is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. Generally accepted accounting
principles have required different measurement attributes for different assets
and liabilities that can create artificial volatility in
earnings.  SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities.  SFAS 159 does not eliminate disclosure requirements
included in other accounting standards, including requirements for disclosures
about fair value measurements included in SFAS 157 and SFAS No. 107,
“Disclosures about Fair Value of Financial Instruments.” SFAS 159 is effective
for us as of the beginning of fiscal year 2009. We have not yet determined the
impact SFAS 159 may have on our consolidated financial position, results of
operations, or cash flows.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”). SFAS 141 (R) replaces SFAS No. 141, “Business
Combinations”, and is effective for us for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. SFAS 141(R) requires the new
acquiring entity to recognize all assets acquired and liabilities assumed in the
transactions; establishes an acquisition-date fair value for acquired assets and
liabilities; and fully discloses to investors the financial effect the
acquisition will have.  SFAS 141(R) would have an impact on accounting for
any business acquired after the effective date of this
pronouncement.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“SFAS 160”). SFAS 160 requires all entities
to report minority interests in subsidiaries as equity in the consolidated
financial statements, and requires that transactions between entities and
noncontrolling interests be treated as equity. SFAS 160 is effective for us as
of the beginning of fiscal 2010. We are evaluating the impact of this
pronouncement on our consolidated financial position, results of operations and
cash flows.





In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161
“Disclosure about Derivative Instruments and Hedging Activities – an amendment
of FASB Statement No. 133” (“SFAS 161”).  SFAS 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 SFAS No. 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 SFAS 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.  We are evaluating the impact of this pronouncement
on our consolidated financial position, results of operations and cash
flows.





ITEM
3.  CONTROLS AND PROCEDURES





EVALUATION OF DISCLOSURE CONTROLS AND
PROCEDURES. The Company, under the supervision and with the participation
of the Company’s management, including the Company’s Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the design and
operation of the Company’s “disclosure controls and procedures,” as such term is
defined in Rule 13a-15(e) promulgated under the Exchange Act as of this report.
The Company’s Chief Executive Officer and Chief Financial Officer has concluded
based upon his evaluation that the Company’s disclosure controls and procedures
were effective as of the end of the period covered by this report to provide
reasonable assurance that material information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms.





A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues, if any, within
a company have been detected. Such limitations include the fact that human
judgment in decision-making can be faulty and that breakdowns in internal
control can occur because of human failures, such as simple errors or mistakes
or intentional circumvention of the established process.





CHANGES IN INTERNAL CONTROLS OVER
FINANCIAL REPORTING. There have been no changes in our internal controls
over financial reporting that have materially affected, or are reasonably likely
to affect these controls during the three months ended April 30,
2008.


45


PART
II - OTHER INFORMATION





ITEM
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





During
the three months ended April 30, 2008, we issued:





(i)
            17,950,000
      shares of common stock to ten investors for total cash proceeds of
      $253,000;


(ii)
            2,098,709
      shares of common stock to one institutional investor upon conversion of
      our 7% Debentures with a principal amount of $25,000 and interest of
      $7,530;


(iii)
            603,712
      shares of common stock to one institutional investor in payment of $5,388
      in interest due on the 2007
Debentures;


(iv)
            9,072,503
      shares of common stock to three institutional investors upon conversion of
      our 2006 Debentures with a principal amount of $92,000 and interest of
      $3,711;


(v)
            15,000,000
      shares of common stock to one company in payment of services valued at
      $345,000;


(vi)
            150,000,000
      shares of common stock to UTEK Corporation in connection with our
      acquisition of MCCI valued at $1,975,000;
and


(vii)
            Warrants
      to purchase 17,503,759 shares of common stock at an exercise price of
      $0.15 per share to investors in connection with the issuance of restricted
      common stock.  The fair value of the stock warrants estimated on
      the date of grant using the Black-Scholes model is $0.008 per share or
      $132,616.





In May
2008, subsequent to the three months ended April 30, 2008, we
issued:





(i)
            4,500,000
      shares of common stock to three investors for total cash proceeds of
      $45,000;


(ii)
            1,185,712
      shares of common stock to one investor upon conversion of our 2006
      Debentures with a principal amount of $10,000 and interest of
      $250;


(iii)
            65,000,000
      shares of common stock in settlement of two lawsuits with an investor
      holding 2006 Debentures with an aggregate principal amount of $50,000;
      and


(iv)
            Warrants
      to purchase 4,000,000 shares of common stock at an exercise price of $0.15
      per share were granted to investors in connection with the issuance of
      restricted common stock.  The fair value of the stock warrants
      estimated on the date of grant using the Black-Scholes model is $0.007 per
      share or $28,008.





In June
2008, subsequent to the three months ended April 30, 2008, we
issued:





(i)
            24,017,875
      shares of common stock upon conversion of 2007 Debentures with a principal
      amount of $62,791 and interest of
$14,795;


(ii)
            1,134,517
      shares of common stock upon conversion of 2006 Debentures with a principal
      amount of $5,000 and interest of $162;(iii)
            5,000,000
      shares of restricted common stock in exchange for cash proceeds of
      $75,000; and


(iv)
            60,000,000
      shares of restricted stock in settlement of one lawsuit with an investor
      holding 2006 Debentures with a principal amount of $25,000 and interest of
      $786.





These
securities were issued without registration under the Securities Act in reliance
upon the exemptions provided in Section 4(2) or Section 3(a)(10) of the
Securities Act. Appropriate legends were affixed to the share certificates
issued in all of the above transactions effected in reliance upon Section
4(2).  The Company believes that each of the recipients was an
“accredited investor” within the meaning of Rule 501(a) of Regulation D under
the Securities Act, or had such knowledge and experience in financial and
business matters as to be able to evaluate the merits and risks of an investment
in our common stock. All recipients had adequate access, through their
relationships with the Company and its officers and directors, to information
about the Company. None of the transactions described above involved general
solicitation or advertising.


46


ITEM
5.  Other Events





Reduction of Principal
Amount of 2006 Debentures; Settlement of Litigation





In May
and June 2008, Outboard Investments, Ltd. (“Outboard”), an assignee of a portion
of $500,000 in 2006 Debentures originally held by Double U Master Fund, L.P.
filed three separate lawsuits against the Company in the Circuit Court for the
Twelfth Judicial Circuit in and for Sarasota County, Florida (the “Outboard
Lawsuits”).  The Outboard Lawsuits were filed on May 8, 2008 (the
“First Outboard Lawsuit”), May 29, 2008 (the “Second Outboard Lawsuit”) and June
12, 2008 (the “Third Outboard Lawsuit”).  In each of the Outboard
Lawsuits, the plaintiff alleged that it was damaged by our failure to perform
according to the terms of the 2006 Debentures.  Due to a lack of
sufficient cash to satisfy the claims made and to defend such lawsuits, and
without admitting any wrongdoing, we agreed to settle each of the Outboard
Lawsuits by the payment of common stock.  These shares were issued
without registration in reliance upon Section 3(a)(10) of the Securities
Act.  On May 8, 2008, May 29, 2008 and June 12, 2008, respectively,
the Florida court approved the settlements of the First Outboard Lawsuit, Second
Outboard Lawsuit and Third Outboard Lawsuit, respectively, and the fairness of
each settlement to Outboard.  In settlement of the First Outboard
Lawsuit, we issued 25 million shares of common stock.  This resulted
in the cancellation of $25,000 in principal plus interest of the 2006
Debentures.  In settlement of the Second Outboard Lawsuit, we issued
40 million shares of common stock.  This resulted in the cancellation
of $25,000 of principal and interest owed under the 2006
Debentures.  In settlement of the Third Outboard Lawsuit, we issued 60
million shares of common stock.  This resulted in the cancellation of
$25,786 in principal and interest owed under the 2006 Debentures.  The
settlement of the Outboard Lawsuits resulted in a reduction of $75,000 in
principal amount we owe on the 2006 Debentures.





Amendment to Promissory
Note





On March
20, 2008, we entered into a written letter agreement extending to July 31, 2008
the maturity date of a promissory note originally due August 22, 2007, and
subsequently extended to October 31, 2007 (see Note 6 to the accompanying
condensed consolidated financial statements).  Prior to this time the
Company had a verbal agreement with the Lender to extend the maturity
date.





Change in
Conversion Price





The
subscription agreement entered into in connection with the issuance of our 2007
Debentures provides that in the event we issue any common stock to a person or
entity at a price per share less than the stated conversion price in the 2007
Debentures (a “Lower Conversion Price”), without the consent of each of the 2007
Debenture holders, then we shall (i) in the event the holder has converted
debentures or exercised warrants, issue additional shares to the holder so that
the average price per share still held by the holder following conversion or
exercise is equal to the Lower Conversion Price, and (ii) reset the conversion
price of the outstanding 2007 Debentures and the exercise price of the
outstanding warrants issued in connection with the 2007 Debentures to the Lower
Conversion Price.  In addition, the terms of the 2007 Debentures
provide that in the event we issue common stock for consideration less than the
maximum conversion price at the time of issuance, the conversion price will be
reduced to the Lower Conversion Price.  In February 2008, we issued
shares at a price of $0.0155 per share, which resulted in the resetting of the
conversion price to no higher than $0.0155.  We also believe that the
issuance of shares in connection with the settlement of the Outboard Lawsuits
results in the lowering of the conversion price and maximum conversion price for
the 2007 Debentures and the exercise price of the warrants issued in connection
therewith.  However, due to ambiguities in the subscription agreement
and the circumstances surrounding the issuances of shares in connection with the
Outboard Lawsuits, it is unclear as to how the shares issued in the Outboard
Lawsuits will be valued.  Therefore, it is unclear what price the
conversion price, the maximum conversion price and warrant exercise price will
reset to with respect to the 2007 Debentures.  We intend to engage in
discussions with the holders of the 2007 Debentures to clarify and resolve
this issue.





In
addition, the terms of our outstanding warrants issued in connection with our
April 2007 Bridge Loan (the “April 2007 Bridge Loan Warrants”) have repriced in
accordance with a similar provision, which gives the holder of such warrants the
benefit of the lowest price issued in a new transaction.  Therefore,
the exercise price of the April 2007 Bridge Loan Warrants has been reset to
$0.0155 and will reset again upon resolution of the Outboard Lawsuits valuation
described above.


47


We do not
believe the shares issued in settlement of the Outboard Lawsuits should be
valued based solely upon the value of the 2006 Debenture principal and interest
that was cancelled as part of each settlement.  If the valuation was made
on that basis, however, the lowest price at which shares could be deemed issued
by us would be $0.00043 per share, and the conversion price and maximum
conversion price for the 2007 Debentures, the exercise price of the warrants
issued in connection therewith, and the exercise price of the April 2007 Bridge
Loan Warrants would reset to that price.  If the exercise price of all such
warrants were reduced to $0.00043 per share we would recognize a gain based on
the change in fair value of the warrants.  At June 20, 2008, the amount of
such gain would have been approximately $1,591,000.





Increase in Authorized
Shares





On June
3, 2008 shareholders approved an amendment to our Articles of Incorporation to
increase the number of authorized shares from 900,000,000 to
4,000,000,000.





There is
an inverse relationship between our stock price and the number of shares
issuable upon conversion of our debentures.  That is, the higher the
market price of the common stock at the time a debenture is converted, the fewer
shares we would be required to issue, and the lower the market price of the
common stock at the time a debenture is converted, the more shares we would be
required to issue.  If the maximum conversion price of the 2007
Debentures is reduced as a result of the issuance of stock in the Outboard
Lawsuit settlements, or our stock price does not improve, we would need to
further increase the number of shares of common stock authorized in order to
honor our obligations to issue shares to the debenture holders and other holders
of options, warrants, convertible promissory notes and other derivative
securities.





Advances from
Chairman





From time
to time during 2008, our Chairman of the Board and Executive Vice President, Ray
Willenberg, Jr., has advanced funds to the Company, which have been repaid when
we receive additional funding.  As of April 30, 2008 and as of the
date of this Report, we owed Mr. Willenberg $49,000.  We do not have a
written agreement with Mr. Willenberg regarding these advances, which are
non-interest bearing.


48


ITEM
6.  Exhibits





3.1
            Articles
      of Amendment to the Articles of Incorporation of the
    Company*10.1
            Agreement
      and Plan of Acquisition dated March 24, 2008, by and between Multi-Carrier
      Communications, Inc., UTEK Corporation and the Company (incorporated by
      reference to Exhibit 10.6 of the Company’s Report on Form 10-QSB for the
      period ended January 31, 2008 filed with the Commission on March 24, 2008
      (the “January 2008 10-QSB”).10.2
            Amendment
      to 7% Senior Secured Convertible Debenture Series 06-01C Due March 10,
      2008 by Puritan LLC., dated March 17, 2008 (incorporated by reference to
      Exhibit 10.7 of the Company’s January 2008 10-QSB).10.3
            Amendment
      to 7% Senior Secured Convertible Debenture Series 06-01C Due March 10,
      2008 by Double U Master Fund LP., dated March 17, 2008 (incorporated by
      reference to Exhibit 10.8 of the Company’s January 2008
      10-QSB).10.4
            Amendment
      to 7% Senior Secured Convertible Debenture Series 06-01C Due March 10,
      2008 by Professional Offshore Opportunity Fund, Ltd., dated March 18, 2008
      (incorporated by reference to Exhibit 10.9 of the Company’s January 2008
      10-QSB).10.5
            Amendment
      to 7% Senior Secured Convertible Debenture Series 06-01C Due March 10,
      2008 by Generation Capital Associates, dated March 18, 2008 (incorporated
      by reference to Exhibit 10.10 of the Company’s January 2008
      10-QSB).10.6
            Employment
      Agreement dated March 20, 2008 between Ray Willenberg, Jr. and the Company
      (incorporated by reference to Exhibit 10.11 of the Company’s January 2008
      10-QSB)(1).10.7
            Letter
      Agreement, executed March 20, 2008 between the Charles R. Cono Trust and
      the Company (incorporated by reference to Exhibit 10.12 of the Company’s
      January 2008 10-QSB).10.8
            Amendment
      No. 1 to Secured Convertible Note effective as of March 31, 2008, by and
      among the Company and the following parties: Alpha Capital Anstalt; Bessie
      Weiss Family Partnership; Bristol Investment Fund, Ltd.; Bursteine and
      Lindsay Sec. Corp.; CMS Capital; Congregation Sharei Chaim; Double U
      Master Fund LP; Brio Capital LP; and Whalehaven Capital Fund
      Limited.*10.9
            Amendment
      No. 2 to 7% Senior Secured Convertible Debenture Series 06-01C due March
      10, 2008 effective as of April 18, 2008 between Generation Capital
      Associates and the Company.*10.10
            Amendment
      No. 2 to 7% Senior Secured Convertible Debenture Series 06-01C due March
      10, 2008 effective as of April 18, 2008 between Professional Offshore
      Opportunity Fund and the Company.*10.11
            Amendment
      No. 3 to 7% Senior Secured Convertible Debenture Series 06-01C due March
      10, 2008 effective as of May 29, 2008 between Generation Capital
      Associates and the Company.*10.12
            Amendment
      No. 3 to 7% Senior Secured Convertible Debenture Series 06-01C due March
      10, 2008 effective as of May 29, 2008 between Professional Offshore
      Opportunity Fund and the Company.*10.13
            Promissory
      Note dated June 3, 2008 by the Company in favor of Charles
      Sheppard.*10.14
            Promissory
      Note dated June 4, 2008 by the Company in favor of Craig
      Musick.*10.15
            Promissory
      Note dated June 5, 2008 by the Company in favor of Dewaine M.
      Svela.*10.16
            Promissory
      Note dated June 6, 2008 by the Company in favor of Lamar
      Peterman.*10.17
            Promissory
      Note dated June 11, 2008 by the Company in favor of Robert
      Canning.*10.18
            Promissory
      Note dated June 13, 2008 by the Company in favor of Robert
      Kolnes.*10.19
            Promissory
      Note dated June 16, 2008 by the Company in favor of George
      Hightower.*10.20
            Promissory
      Note dated June 16, 2008 by the Company in favor of Michael
      Manone.*10.21
            Amendment
      No. 4 to 7% Senior Secured Convertible Debenture Series 06-01C due
      March 10, 2008 effective as of June 19, 2008 between Professional
      Offshore Opportunity Fund, Ltd. and the Company.*31.1
            Rule
      13a-14/15d-14(a) Certification*32.1
            Section
      1350 Certification*





_________________


*           Filed
herewith.


(1)           Signifies
a management agreement or compensatory plan or arrangement





49


SIGNATURES








In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





RIM
      SEMICONDUCTOR COMPANYDATE: 
      June 26, 2008
            BY:
            /s/ Brad
      KetchBrad
      KetchPresident
      and Chief Executive Officer (Principal Executive Officer,
              Financial
      and Accounting Officer and Authorized
  Signatory)