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With continued Income losses, they simply will not have enough cash to cover their total obligations.

Edig kept the doors open because they continued to receive funds from added financing and stock.

Perhaps Spansion has considered these alternatives but with no success.

The latest financials are shown below.



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Spansion Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

Three Months Ended Nine Months Ended
Sep. 28
2008 		Sep. 30
2007 		Sep. 28
2008 		Sep. 30
2007

Net sales

$ 474,170 $ 408,605 $ 1,300,621 $ 1,197,270

Net sales to related parties

156,690 202,464 513,231 650,742

Total net sales

630,860 611,069 1,813,852 1,848,012

Expenses:

Cost of sales (Note 7)

544,273 499,758 1,523,654 1,538,761

Research and development (Note 7)

106,845 111,248 335,469 324,139

Sales, general and administrative (Note 7)

64,094 59,192 197,122 179,379

In-process research and development (Note 3)

— — 10,800 —

Restructuring charges (Note 13)

1,377 — 11,299 —

Operating loss

(85,729 ) (59,129 ) (264,492 ) (194,267 )

Other income (expense):

Other than temporary impairment on marketable securities

(14,518 ) — (14,518 ) —

Loss on early extinguishment of debt

— — — (3,435 )

Interest and other income (expense), net

1,432 6,835 7,347 30,873

Interest expense

(24,853 ) (23,628 ) (73,507 ) (65,316 )

Other income (expense), net

(37,939 ) (16,793 ) (80,678 ) (37,878 )

Loss before income taxes

(123,668 ) (75,922 ) (345,170 ) (232,145 )

Income tax (provision) benefit

(9,583 ) 4,320 (7,195 ) 18,163

Net loss

$ (133,251 ) $ (71,602 ) $ (352,365 ) $ (213,982 )

Net loss per common share:

Basic and diluted

$ (0.83 ) $ (0.53 ) $ (2.30 ) $ (1.59 )

Shares used in per share calculation:

Basic and diluted

160,687 135,049 153,216 134,805

See accompanying notes

3

Table of Contents

Spansion Inc.

Condensed Consolidated Balance Sheets

(in thousands)

Sep. 28
2008 		Dec. 30
2007 (*)
(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$ 152,107 $ 199,092

Marketable securities

107,382 216,650

Trade accounts receivable, net

249,363 181,443

Trade accounts receivable from related parties, net ( Note 7 )

127,796 186,646

Other receivables

8,881 —

Other receivables from related parties (Note 7)

7,024 11,873

Inventories:

Raw materials

24,271 31,877

Work-in-process

485,289 421,765

Finished goods

105,157 130,227

Total inventories

614,717 583,869

Deferred income taxes

13,976 26,607

Prepaid expenses and other current assets

48,903 46,452

Total current assets

1,330,149 1,452,632

Property, plant and equipment, net

2,308,480 2,271,964

Deferred income taxes

43,240 29,957

Acquisition related intangible assets, net (Note 3)

57,761 —

Goodwill (Note 3)

18,506 —

Other assets

81,771 61,092

Total assets

$ 3,839,907 $ 3,815,645

Liabilities and Stockholders’ Equity

Current liabilities:

Notes payable to banks under revolving loans

$ 130,411 $ —

Accounts payable

545,374 489,163

Accounts payable to related parties ( Note 7 )

46,046 56,929

Accrued compensation and benefits

76,960 60,778

Accrued liabilities to related parties ( Note 7 )

5,617 9,666

Other accrued liabilities

88,001 88,006

Income taxes payable

608 13,818

Deferred income on shipments

52,826 39,957

Current portion of long-term debt

104,191 68,705

Current portion of long-term obligations under capital leases

42,640 33,092

Total current liabilities

1,092,674 860,114

Deferred income taxes

4,260 186

Long-term debt, less current portion

1,233,477 1,258,616

Long-term obligations under capital leases, less current portion

44,769 40,920

Other long-term liabilities

22,429 23,361

Commitments and contingencies

Stockholders’ equity

1,442,298 1,632,448

Total liabilities and stockholders’ equity

$ 3,839,907 $ 3,815,645

* Derived from audited financial statements at December 30, 2007.

See accompanying notes

4

Table of Contents

Spansion Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Nine Months Ended
Sep. 28
2008 		Sep. 30
2007

Cash Flows from Operating Activities:

Net loss

$ (352,365 ) $ (213,982 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

468,440 387,709

Write-off of in-process research and development

10,800 —

Loss on pension curtailment

— 2,010

Loss on early extinguishment of debt

— 3,435

Provision for doubtful accounts

525 1,693

Benefit for deferred income taxes

(792 ) (43,537 )

Net gain on sale and disposal of property, plant and equipment, net

(19,910 ) (21,946 )

Other than temporary impairment on marketable securities

14,518 —

Gain on sale of marketable securities

(621 ) —

Compensation recognized under employee stock plans

15,493 12,084

Amortization of premium on floating rate notes and discount on senior subordinated and senior notes, net

1,693 1,745

Changes in operating assets and liabilities:

Decrease in trade account receivables from related parties

55,874 26,796

Increase in other receivables from related parties

(1,639 ) (6,177 )

(Increase) decrease in trade account receivables and other receivables

(55,467 ) 27,700

Increase in inventories

(30,848 ) (76,558 )

Decrease (increase) in prepaid expenses and other current assets

1,121 (28,019 )

Decrease in other assets

(3,735 ) (1,361 )

(Decrease) increase in accounts payable and accrued liabilities to related parties

(113,085 ) 34,938

Increase in accounts payable and accrued liabilities

163,330 75,981

Increase (decrease) in accrued compensation and benefits

16,182 (965 )

(Decrease) increase in income taxes payable

(13,210 ) 18,984

Increase in deferred income on shipments

12,752 1,365

Net cash provided by operating activities

169,055 201,895

Cash Flows from Investing Activities:

Proceeds from sale of property, plant and equipment

6,333 188,525

Purchases of property, plant and equipment

(396,697 ) (964,666 )

Proceeds from maturity and sale of marketable securities

133,695 679,900

Purchases of marketable securities

(36,950 ) (822,075 )

Loan made to an investee

(4,125 ) —

Cash proceeds from Saifun acquisition

733 —

Net cash used in investing activities

(297,011 ) (918,316 )

Cash Flows from Financing Activities:

Proceeds from borrowings, net of issuance costs

250,559 810,840

Payments on debt and capital lease obligations

(162,278 ) (580,004 )

Proceeds from issuance of common stock, net of offering costs

— 60

Net cash provided by financing activities

88,281 230,896

Effect of exchange rate changes on cash and cash equivalents

(7,310 ) (13,323 )

Net (decrease) increase in cash and cash equivalents

(46,985 ) (498,848 )

Cash and cash equivalents at the beginning of period

199,092 759,794

Cash and cash equivalents at end of period

$ 152,107 $ 260,946

Non-cash investing and financing activities:

Equipment capital leases

$ 50,474 $ —

Issuance of common stock and stock options to acquire Saifun

108,898 —

See accompanying notes

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