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<SEC-DOCUMENT>0000724910-03-000016.txt : 20031022
<SEC-HEADER>0000724910-03-000016.hdr.sgml : 20031022
<ACCEPTANCE-DATETIME>20031021184616
ACCESSION NUMBER:		0000724910-03-000016
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20030930
FILED AS OF DATE:		20031022

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NVE CORP /NEW/
		CENTRAL INDEX KEY:			0000724910
		STANDARD INDUSTRIAL CLASSIFICATION:	SEMICONDUCTORS & RELATED DEVICES [3674]
		IRS NUMBER:				411424202
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-12196
		FILM NUMBER:		03950518

	BUSINESS ADDRESS:	
		STREET 1:		11409 VALLEY VIEW ROAD
		CITY:			EDEN PRAIRIE
		STATE:			MN
		ZIP:			55344
		BUSINESS PHONE:		9528299217

	MAIL ADDRESS:	
		STREET 1:		11409 VALLEY VIEW ROAD
		CITY:			EDEN PRAIRIE
		STATE:			MN
		ZIP:			55344

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PREMIS CORP
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>tenq2-04.txt
<TEXT>
                              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549

                                FORM 10-QSB

(Mark One)
   [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934
                           For the quarterly period ended  September 30, 2003


   [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

               For the transition period from _______________to______________

                                            Commission file number  000-12196

                                NVE Corporation
            (Exact name of registrant as specified in its charter)

          Minnesota                                           41-1424202
(State or other jurisdiction of                             (IRS Employer
 incorporation or organization)                           Identification No.)


            11409 Valley View Road, Eden Prairie, Minnesota 55344
                   (Address of principal executive offices)

                                (952) 829-9217
                         (Issuer's telephone number)

Check whether the issuer (1) 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 shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]    No [ ]

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.01 Par Value - 4,319,689 shares outstanding as of
October 20, 2003


Transitional Small Business Disclosure Format (Check one): Yes [ ]    No [X]
<PAGE>
                       PART I--FINANCIAL INFORMATION

Item 1. Financial Statements.

                                 NVE CORPORATION
                                  BALANCE SHEET
                                SEPTEMBER 30, 2003

<TABLE>
<S>                                                                <C>
Current assets:
   Cash                                                            $ 1,025,780
   Investment securities                                             5,411,183
   Accounts receivable, net of allowance for
     uncollectible accounts of $15,000                               1,099,428
   Inventories                                                       1,268,362
   Prepaid expenses and other assets                                   133,565
                                                                   ------------
Total current assets                                                 8,938,318
Fixed assets:
   Machinery and equipment                                           3,287,918
   Furniture and fixtures                                               35,499
   Leasehold improvements                                              365,187
                                                                   ------------
                                                                     3,688,604
   Less accumulated depreciation                                     2,101,431
                                                                   ------------
Total fixed assets                                                   1,587,173
                                                                   ------------
Total assets                                                       $10,525,491
                                                                   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                $   539,201
   Accrued payroll and other                                           670,346
   Deferred revenue                                                    626,815
   Capital lease obligations                                           160,744
                                                                   ------------
Total current liabilities                                            1,997,106
   Capital lease obligations, less current portion                     141,151
                                                                   ------------
Total liabilities                                                    2,138,257

Shareholders' equity:
   Common stock                                                         43,069
   Additional paid-in capital                                       12,336,303
   Accumulated other comprehensive income                               74,456
   Accumulated deficit                                              (4,066,594)
                                                                   ------------
Total shareholders' equity                                           8,387,234
                                                                   ------------
Total liabilities and shareholders' equity                         $10,525,491
                                                                   ============
</TABLE>


                            SEE ACCOMPANYING NOTES.

<PAGE>
                                NVE CORPORATION
                            STATEMENT OF OPERATIONS
                 THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>

                                      Three Months Ended September 30
                                            2003           2002
                                      -------------------------------
<S>                                     <C>            <C>
Revenue
  Contract research and development     $ 1,595,612    $ 1,633,915
  Product sales                           1,268,573        612,812
  License revenue                              -            97,917
                                        ------------   ------------
Total revenue                             2,864,185      2,344,644

Cost of sales                             1,738,702      1,508,900
                                        ------------   ------------
Gross profit                              1,125,483        835,744

Expenses
  Research and development                  302,573        288,256
  Selling, general & administrative         475,691        456,441
                                        ------------   ------------
Total expenses                              778,264        744,697
                                        ------------   ------------

Income from operations                      347,219         91,047

Interest income                              44,455         55,430
Interest expense                             (6,907)        (9,992)
Other income                                 21,709         23,811
                                        ------------   ------------
Net income                               $  406,476    $   160,296
                                        ============   ============

Net income per share-basic              $       .10    $       .04
                                        ============   ============
Net income per share-diluted            $       .09    $       .04
                                        ============   ============

Weighted average shares outstanding:
  Basic                                   4,232,666      4,157,379
  Diluted                                 4,679,415      4,438,485
</TABLE>



                            SEE ACCOMPANYING NOTES.

<PAGE>
                                NVE CORPORATION
                            STATEMENT OF OPERATIONS
                  SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>

                                      Six Months Ended September 30
                                            2003           2002
                                      -----------------------------
<S>                                     <C>            <C>
Revenue
  Contract research and development     $ 3,316,518    $ 3,169,766
  Product sales                           2,367,516      1,142,000
  License revenue                              -           195,834
                                        ------------   ------------
Total revenue                             5,684,034      4,507,600

Cost of sales                             3,647,697      2,849,046
                                        ------------   ------------
Gross profit                              2,036,337      1,658,554

Expenses
  Research and development                  481,242        616,858
  Selling, general & administrative         926,554        903,440
                                        ------------   ------------
Total expenses                            1,407,796      1,520,298
                                        ------------   ------------

Income from operations                      628,541        138,256

Interest income                              93,468         95,680
Interest expense                            (14,598)       (22,898)
Other income                                 33,483         41,487
                                        ------------   ------------
Net income                               $  740,894    $   252,525
                                        ============   ============

Net income per share-basic              $       .18    $       .06
                                        ============   ============
Net income per share-diluted            $       .16    $       .06
                                        ============   ============

Weighted average shares outstanding:
  Basic                                   4,199,715      4,097,926
  Diluted                                 4,646,464      4,379,032
</TABLE>



                            SEE ACCOMPANYING NOTES.

<PAGE>
                               NVE CORPORATION
                           STATEMENT OF CASH FLOWS
                  SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                     Six Months Ended Sept. 30
                                                       2003            2002
                                                    ------------   ------------
<S>                                                 <C>            <C>
OPERATING ACTIVITIES
Net income                                          $   740,894    $   252,525
Adjustments to reconcile net income to net
  cash provided by (used in) operating activities:
    Depreciation and amortization                       244,459        243,682
    Changes in operating assets and liabilities:
      Accounts receivable                               (71,138)       (50,285)
      Inventories                                      (427,586)      (124,581)
      Prepaid expenses and other                         36,755       (118,035)
      Accounts payable and accrued expenses             273,134        184,398
      Deferred revenue                                 (262,812)      (499,717)
                                                    ------------   ------------
Net cash provided by (used in) operating activities     533,706       (112,013)

INVESTING ACTIVITIES
Purchases of fixed assets                              (650,911)      (313,796)
Sales (purchases) of investment securities              455,929     (5,574,134)
                                                    ------------   ------------
Net cash used in investing activities                  (194,982)    (5,887,930)

FINANCING ACTIVITIES
Net proceeds from sale of common stock                  166,791      6,221,366
Repayment of note payable and
  capital lease obligations                             (75,503)      (288,028)
                                                     -----------   ------------
Net cash provided by financing activities                91,288      5,933,338
                                                     -----------   ------------

Increase in cash                                        430,012        (66,605)
Cash and cash equivalents at beginning of period        595,768        537,258
                                                     -----------   ------------

Cash and cash equivalents at end of period           $1,025,780     $  470,653
                                                     ===========   ============
</TABLE>



                            SEE ACCOMPANYING NOTES.

<PAGE>
                                NVE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2003


1.  INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements of NVE Corporation (the
"Company") are consistent with accounting principles generally accepted in the
United States and reporting with SEC regulations. In the opinion of
management, these financial statements reflect all adjustments, consisting
only of normal and recurring adjustments, necessary for a fair presentation of
the financial statements. Although we believe that the disclosures are adequate
to make the information presented not misleading, it is suggested that these
condensed financial statements be read in conjunction with the audited
financial statements and the notes included in our latest annual financial
statements included in our report on Form 10-KSB. The results of operations
for the three and six month periods ended September 30, 2003 are not
necessarily indicative of the results that may be expected for the full year
ending March 31, 2004.

2.  NATURE OF BUSINESS
We develop and sell "spintronics" devices, which rely on electron spin
rather than electron charge to acquire, store, and transmit information.

3.  REVENUE RECOGNITION
Revenue from product sales to direct customers is recognized upon shipment.
Revenue from licensing and technology development programs, which is
nonrefundable and for which no significant future obligations exist, is
recognized when the license is signed. Revenue from licensing and technology
development programs, which is refundable, recoupable against future royalties,
or for which future obligations exist, is recognized when we have completed our
obligations under the terms of the agreements. Revenue from royalties is
recognized upon the shipment of product from our technology license partners to
direct customers. Certain research and development activities are conducted for
third parties and such revenue is recognized as the services are performed.

4.  EARNINGS PER SHARE
We calculate our income (loss) per share pursuant to Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share. Basic earnings
per share is computed based upon the weighted average number of common shares
issued and outstanding during each year. Diluted net income per share amounts
assume conversion, exercise or issuance of all potential common stock
instruments (stock options, warrants and convertible preferred stock).
Potentially dilutive securities including warrants and stock options are
excluded from diluted earnings per share during net loss periods because these
securities would be anti-dilutive.

5.  INVESTMENTS
We classify and account for debt and equity securities in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. The
Company's entire portfolio is classified as available for sale; thus,
securities are recorded at fair market value and any associated unrealized gain
or loss, net of tax, is included as a separate component of shareholders'
equity, "Accumulated other comprehensive income."

<PAGE>
6.  COMPREHENSIVE INCOME
The components of comprehensive income (loss) are as follows:

<TABLE>
<CAPTION>
                                    Three months            Six months
                                ended September 30      ended September 30
                                 2003          2002      2003          2002
                               --------    --------    --------    --------
<S>                            <C>         <C>         <C>         <C>
Net income                     $406,476    $160,296    $740,894    $252,525
Change in unrealized gains      (26,352)     68,016       1,235      91,114
                               --------    --------    --------    --------
Comprehensive income           $380,124    $228,312    $742,129    $343,639
                               ========    ========    ========    ========
</TABLE>

7.  INVENTORIES
Inventories consist of the following at September 30, 2003:

<TABLE>
<S>                        <C>
Raw materials              $  490,977
Work-in-process               644,472
Finished goods                387,913
                           -----------
                            1,523,362
Less obsolescence reserve    (255,000)
                           -----------
                           $1,268,362
                           ===========
</TABLE>

8.  STOCK SPLIT
We executed a one-for-five reverse split of our Common Stock to stockholders of
record at the close of business on November 21, 2002. All share and per share
amounts have been restated for the three and six month periods ended September
30, 2002 in the accompanying financial statements.

9.  STOCK-BASED COMPENSATION
We have adopted the disclosure-only provisions of SFAS Nos. 123 and 148,
Accounting for Stock-Based Compensation, but apply Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for our plans. Under APB No. 25, when the
exercise price of employee stock options equals or exceeds the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.

Pro forma information regarding net income and income per share is required by
SFAS Nos. 123 and 148, and has been determined as if we had accounted for our
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
risk-free interest rate of 2.7% for the three months ended September 30, 2003
and 2002, expected volatility of 55%, a weighted-average expected life of the
options of four to seven years, and no dividend yield.

Option valuation models were developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions. Because our employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of our employee stock options.

<PAGE>
     The pro forma information is as follows:

<TABLE>
<CAPTION>
                                                    Three Months Ended Sept. 30
                                                        2003           2002
                                                    ------------   ------------
   <S>                                              <C>            <C>
   Net income applicable to common shares:
        As reported                                 $   406,476    $   160,296
        Pro forma adjustment
          for stock options                             (81,325)      (164,709)
                                                    ------------   ------------
        Pro forma net income (loss)                 $   325,151    $    (4,413)
                                                    ============   ============
   Earnings per share:
     Basic - as reported                            $      0.10    $      0.04
     Basic - pro forma                              $      0.08    $     (0.00)

     Diluted - as reported                          $      0.09    $      0.04
     Diluted - pro forma                            $      0.07    $     (0.00)
</TABLE>


<TABLE>
<CAPTION>
                                                     Six Months Ended Sept. 30
                                                        2003           2002
                                                    ------------   ------------
   <S>                                              <C>            <C>
   Net income applicable to common shares:
        As reported                                 $   740,894    $   252,525
        Pro forma adjustment
          for stock options                            (162,650)      (329,418)
                                                    ------------   ------------
        Pro forma net income (loss)                 $   578,244    $   (76,893)
                                                    ============   ============
   Earnings per share:
     Basic - as reported                            $      0.18    $      0.06
     Basic - pro forma                              $      0.14    $     (0.02)

     Diluted - as reported                          $      0.16    $      0.06
     Diluted - pro forma                            $      0.12    $     (0.02)
</TABLE>


10.  TECHNOLOGY EXCHANGE AGREEMENT
On April 19, 2002 the Company closed a technology exchange agreement
accompanied by an investment by Cypress Semiconductor Corporation ("Cypress").
Cypress purchased 686,849 shares of NVE Common Stock for $6.228 million, which
on September 5, 2003 they announced they had sold. Cypress also received a
warrant for the purchase of up to an 400,000 shares of Common Stock for $15.00
per share for a term of three years.

<PAGE>
Item 1.  Legal Proceedings.
None.


Item 2. Management's Discussion and Analysis or Plan of Operation.


Special note regarding forward-looking statements

Some of the statements made in this Quarterly Report on Form 10-QSB, except for
historical information contained in this Form 10-QSB, constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements are subject to the safe harbor provisions
of the reform act. Forward-looking statements may be identified by the use of
the terminology such as may, will, expect, anticipate, intend, believe,
estimate, should, or continue or the negatives of these terms or other
variations on these words or comparable terminology. To the extent that this
Form 10-QSB contains forward-looking statements regarding the financial
condition, operating results, business prospects or any other aspect of NVE,
you should be aware that our actual financial condition, operating results and
business performance may differ materially from that projected or estimated by
us in the forward-looking statements. These differences may be caused by a
variety of factors, including but not limited to adverse economic conditions,
intense competition, including entry of new competitors, our ability to obtain
sufficient financing to support our operations, progress in research and
development activities by us and others, variations in costs that are beyond
our control, adverse federal, state and local government regulations,
unexpected costs, lower sales and net income, or higher net losses than
forecasted, price increases for equipment, our dependence on significant
suppliers, including Taiwan Semiconductor Manufacturing Corporation for foundry
semiconductor wafers, our ability to meet stringent customer technical
requirements, our ability to consummate additional license agreements, our
ability to continue eligibility for SBIR awards, our inability to raise prices,
failure to obtain new customers, the possible fluctuation and volatility of our
operating results and financial condition, inability to carry out marketing and
sales plans, loss of key executives, and other specific risks included in
Exhibit 99.1 "Cautionary statements for purposes of the 'safe harbor'
provisions of The Private Securities Litigation Reform Act," filed herewith.


General

     We develop and sell "spintronics" devices, which are integrated circuit
type devices that rely on electron spin rather than electron charge to acquire,
store, and transmit information in electronic systems. We derive revenue from
three sources:

     1) contract spintronics research and development (principally government
        contracts);

     2) commercial sales of spintronic sensor and coupler products; and

     3) licenses for our magnetic random-access memory (MRAM)
        intellectual property.

<PAGE>
Critical accounting policies

     It is important to understand our significant accounting policies in order
to understand our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. These accounting principles require us to make estimates and
assumptions that affect amounts reported in our consolidated financial
statements and the accompanying notes. Actual results are likely to differ
from those estimates, but we do not believe such differences will materially
affect our financial position or results of operations for the periods
presented in this report.


Revenue recognition

     Revenue from product sales to direct customers is recognized upon
shipment. Revenue from licensing and technology development programs, which is
nonrefundable and for which no significant future obligations exist, is
recognized when the license is signed. Revenue from licensing and technology
development programs, which is refundable, recoupable against future royalties,
or for which future obligations exist, is recognized when we complete our
obligations under the terms of the agreements. Revenue from royalties is
recognized upon the shipment of product from our technology license partners
to direct customers. Certain research and development activities are conducted
for third parties and such revenue is recognized as the services are
performed. Payments received from licensing and technology development
programs relating to future obligations as well as prepayments for future
discounts on product sales are recorded as deferred revenue.


Bad Debt

     We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments.
If the financial condition of our customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may
be required.


Inventory

     We reduce the stated value of our inventory for excess quantities or
obsolescence in an amount equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions are less
favorable than those projected by management, additional reductions in stated
value may be required.


Income Taxes

     In determining the carrying value of our net deferred tax assets, we must
assess the likelihood of sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions to realize the benefit of
these assets. Our management evaluates the realizability of the deferred
assets quarterly and assesses the need for valuation allowances or reduction
of existing allowances quarterly.

<PAGE>
Three months ended September 30, 2003 compared to three months ended
September 30, 2002

     The table below summarizes the percentage of revenue for the various
items for the periods indicated:

<TABLE>
<CAPTION>
                                     Three months ended September 30
                                          2003             2002
                                         -------          -------
<S>                                      <C>              <C>
Revenue:
  Research and development                55.7 %           69.7 %
  Product sales                           44.3             26.1
  License fees                              -               4.2
                                         -------          -------
Total revenue                            100.0            100.0
Cost of sales                             60.7             64.4
                                         -------          -------
Gross profit                              39.3             35.6
Total expenses                            25.1             28.8
                                         -------          -------
Net income                                14.2 %            6.8 %
                                         =======          =======
</TABLE>


     Revenue for the three months ended September 30, 2003 ("Fiscal 2003") was
$2,864,185, an increase of 22% from revenue of $2,344,64 for the three months
ended September 30, 2002. The revenue increase was due to a 107% increase in
commercial product sales to $1,268,573 from $612,812. Research and development
revenue decreased 2% to $1,595,612 from $1,633,915 due to completion of revenue
recognized under our agreement with Agilent Technologies, Inc., partially
offset by increased government contract revenue.  Such revenues from Agilent
were $150,000 for the three months ended September 30, 2002. Increases in
commercial product sales were partially offset by a decrease in license revenue
due to completion of revenue recognition for our MRAM license agreements. Such
MRAM license agreements contributed $97,917 in revenues for the three months
ended September 30, 2002.

     Gross profit increased to 39% for the three months ended September 30,
2003 as compared to 36% for the three months ended September 30, 2002. The
increase was due to higher commercial product margins due to successful yield
improvement and wafer cost reduction programs.

     Research and development expenses increased by 5% to $302,573 for the
three months ended September 30, 2003 as compared to $288,256 for the three
months ended September 30, 2002. The increase was due to in part to increased
product development activities.

     Selling, general and administrative expenses for the three months ended
September 30, 2003 increased by 4% to $475,691 compared to $456,441 for the
three months ended September 30, 2002. The increase was due to increased
commercial selling expenditures as well as increased patent expenses and
expenses associated with restoring our SBIR eligibility.

     Net income totaled $406,476 for the three months ended September 30, 2003
compared to $160,296 for the three months ended September 30, 2002. The
increase in net income was due to higher revenues and higher commercial product
margins.

     Diluted net income per share increased to $.09 from $.04. The increase in
diluted net income per share was despite an increase in diluted shares to
4,679,415 from 4,438,485 due to a large increase in our stock price, which
resulted in a larger dilutive effect from the Cypress warrant and other
options.


<PAGE>
Six months ended September 30, 2003 compared to six months ended
September 30, 2002

     The table shown below summarizes the percentage of revenue for the
various items for the periods indicated:

<TABLE>
<CAPTION>
                                      Six Months Ended September 30
                                          2003             2002
                                         -------          -------
<S>                                      <C>              <C>
Revenue:
  Research and development                58.3 %           70.3 %
  Product sales                           41.7             25.3
  License fees                              -               4.4
                                         -------          -------
Total revenue                            100.0            100.0
Cost of sales                             64.2             63.2
                                         -------          -------
Gross profit                              35.8             36.8
Total expenses                            22.8             31.2
                                         -------          -------
Net income (loss)                         13.0 %            5.6 %
                                         =======          =======
</TABLE>


     Revenue for the six months ended September 30, 2003 was $5,684,034, an
increase of 26% from revenue of $4,507,600 for the six months ended September
30, 2002. The revenue increase was due to increases in commercial product sales
and research and development revenue. Commercial product sales increased 107%
to $2,367,516 from $1,142,000. Research and development revenue increased 5% to
$3,316,518 from $3,169,766 due to increased government contract revenue,
partially offset by the completion of revenue recognized under our agreement
with Agilent Technologies, Inc. Such revenues from Agilent were $300,000 for
the six months ended September 30, 2002. Increases in commercial product sales
and research and development revenue were partially offset by a decrease in
license revenue due to completion of revenue recognition for our MRAM license
agreements. Such MRAM license agreements contributed $195,834 in revenues for
the six months ended September 30, 2002.

     Gross profit margins decreased to 36% for the six months ended September
30, 2003 as compared to 37% for the six months ended September 30, 2002. The
decrease was due to $195,834 in license revenue and $300,000 in revenue
recognized under our agreement with Agilent Technologies, Inc. for the six
months ended September 30, 2002 which have not recurred. The decreases in gross
profit were mostly offset by higher commercial product margins due to
successful yield improvement and wafer cost reduction programs.

     Research and development expenses decreased by 22% to $481,242 for the six
months ended September 30, 2003 as compared to $616,858 for the six months
ended September 30, 2002. The decrease was due to completion of the development
of some of our commercial products.

     Selling, general and administrative expenses for the six months ended
September 30, 2003 increased by 3% to $926,554 compared to $903,440 for the six
months ended September 30, 2002. The increase was due to increased commercial
selling expenditures.

     Net income totaled $740,894 for the six months ended September 30, 2003
compared to $252,525 for the six months ended September 30, 2002. The increase
in net income was due to higher revenues and higher commercial product margins.


<PAGE>
Liquidity and capital resources

     At September 30, 2003 we had $5,411,183 in available-for-sale securities,
consisting of marketable fixed-income investments. We had cash on September 30,
2003 of $1,025,780 and working capital of $6,941,212.

     Cash plus available-for-sale securities were $6,436,963 at September 30,
2003, compared to $6,475,865 at March 31, 2003. The decrease was due to net
income offset by investments in machinery and equipment and increases in
inventories related to the growth of our commercial product sales.

     We expect to continue to invest in machinery, equipment, and facilities in
the balance of the fiscal year to continue to increase our manufacturing
capacity. We believe our working capital is adequate to meet our requirements
for at least the next twelve months.


Outlook

     We expect to broaden our sensor and coupler product lines, and continue to
increase commercial product sales in the rest of Fiscal 2004. We expect to be
solidly profitable in Fiscal 2004. Possible expenses related to
commercialization and market development for Cypress-manufactured MRAMs to be
sold by us could decrease our quarterly profits or cause us to incur losses. We
expect to make such expenditures, however, only if Cypress is successful in
producing commercial MRAM.


<PAGE>
Item 4. Controls and Procedures.

  a. Evaluation of disclosure controls and procedures.

     Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the last
day of the period covered by this quarterly report (the "Evaluation Date").
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in timely alerting them to the material information
relating to us required to be included in our periodic SEC filings.


  b. Changes in internal controls.

     There were no significant changes made in our internal controls over
financial reporting (as defined in Rule 13 a-15(f) under the Exchange Act)
during the period covered by this report that materially affected or are
reasonably likely to materially affect our internal controls over financial
reporting.

<PAGE>
                          PART II--OTHER INFORMATION


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

     An annual meeting of shareholders was held on August 7, 2003. There were
4,174,778 shares of common stock entitled to vote at the meeting with a total
of 3,761,020 shares or 90.1% represented at the meeting.

     The shareholders elected five directors for a term of one year. The
shareholders present in person or by proxy cast the following number of votes
in connection with the election of directors, resulting in the election of all
of the nominees:

<TABLE>
<CAPTION>
                                       Votes For      Votes Withheld
                                       ---------      --------------
              <S>                      <C>                 <C>
              Terrence Glarner         3,761,020           210
              Daniel A. Baker          3,761,020           210
              James M. Daughton        3,761,020           210
              Robert H. Irish          3,761,020           210
              Jeffrey K. Kaszubinski   3,761,020           210
</TABLE>


Item 6.  Exhibits and Reports on Form 8-K.

  a. Exhibits.
  31.1    Certification by Daniel A. Baker pursuant to
          Rule 13a-14(a)/15d-14(a).

  31.2    Certification by Richard L. George pursuant to
          Rule 13a-14(a)/15d-14(a).

  32.1    Certification by Daniel A. Baker pursuant to 18 U.S.C. Section 1350,
          as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2    Certification by Richard L. George pursuant to 18 U.S.C. Section
          1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.

  99.1    Cautionary statements for purposes of the "safe harbor" provisions of
          The Private Securities Litigation Reform Act.

  b. Reports on Form 8-K.
          We submitted a Form 8-K on July 17, 2003 including our press release
reporting results for the quarter ended June 30, 2003 and raising our earnings
guidance. This information was furnished under Item 12, Results of Operations
and Financial Condition.

<PAGE>
                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on behalf of the undersigneds thereunto duly authorized.

NVE CORPORATION

Date: October 21, 2003


By /s/ Daniel A. Baker
- -------------------------------------
Daniel A. Baker
President and Chief Executive Officer


By /s/ Richard L. George
- -------------------------------------
Richard L. George
Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>dabex31.txt
<DESCRIPTION>EX 31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION BY DANIEL A. BAKER
<TEXT>
                                                                   Exhibit 31.1
                               CERTIFICATION

I, Daniel A. Baker, certify that:

   1. I have reviewed this quarterly report on Form 10-QSB of NVE Corporation;

   2. Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered
      by this report;

   3. Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the small business issuer as of, and for, the periods presented in this
      report;

   4. The small business issuer's other certifying officer(s) and I are
      responsible for establishing and maintaining disclosure controls and
      procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
      for the small business issuer and have:

        (a) Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            small business issuer, including its consolidated subsidiaries, is
            made known to us by others within those entities, particularly
            during the period in which this report is being prepared;

        (b) Evaluated the effectiveness of the small business issuer's
            disclosure controls and procedures and presented in this report our
            conclusions about the effectiveness of the disclosure controls and
            procedures, as of the end of the period covered by this report
            based on such evaluation; and

        (c) Disclosed in this report any change in the small business issuer's
            internal control over financial reporting that occurred during the
            small business issuer's most recent fiscal quarter (the small
            business issuer's fourth fiscal quarter in the case of an annual
            report) that has materially affected, or is reasonably likely to
            materially affect, the small business issuer's internal control
            over financial reporting; and

   5. The small business issuer's other certifying officer(s) and I have
      disclosed, based on our most recent evaluation of internal control over
      financial reporting, to the small business issuer's auditors and the
      audit committee of the small business issuer's board of directors (or
      persons performing the equivalent functions):

        (a) All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the small business issuer's
            ability to record, process, summarize and report financial
            information; and

        (b) Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the small business
            issuer's internal control over financial reporting.


Date: October 21, 2003

                                  /s/ Daniel A. Baker
                                  -------------------
                                  Daniel A. Baker
                                  President and Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>4
<FILENAME>dgex31.txt
<DESCRIPTION>EX 31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION BY RICHARD L. GEORGE
<TEXT>
                                                                   Exhibit 31.2
                               CERTIFICATION

I, Richard L. George, certify that:

   1. I have reviewed this quarterly report on Form 10-QSB of NVE Corporation;

   2. Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered
      by this report;

   3. Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the small business issuer as of, and for, the periods presented in this
      report;

   4. The small business issuer's other certifying officer(s) and I are
      responsible for establishing and maintaining disclosure controls and
      procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
      internal control over financial reporting (as defined in Exchange Act
      Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

        (a) Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            small business issuer, including its consolidated subsidiaries, is
            made known to us by others within those entities, particularly
            during the period in which this report is being prepared;

        (b) Designed such internal control over financial reporting, or caused
            such internal control over financial reporting to be designed under
            our supervision, to provide reasonable assurance regarding the
            reliability of financial reporting and the preparation of financial
            statements for external purposes in accordance with generally
            accepted accounting principles;

        (c) Evaluated the effectiveness of the small business issuer's
            disclosure controls and procedures and presented in this report our
            conclusions about the effectiveness of the disclosure controls and
            procedures, as of the end of the period covered by this report
            based on such evaluation; and

        (d) Disclosed in this report any change in the small business issuer's
            internal control over financial reporting that occurred during the
            small business issuer's most recent fiscal quarter (the small
            business issuer's fourth fiscal quarter in the case of an annual
            report) that has materially affected, or is reasonably likely to
            materially affect, the small business issuer's internal control
            over financial reporting; and

   5. The small business issuer's other certifying officer(s) and I have
      disclosed, based on our most recent evaluation of internal control over
      financial reporting, to the small business issuer's auditors and the
      audit committee of the small business issuer's board of directors (or
      persons performing the equivalent functions):

        (a) All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the small business issuer's
            ability to record, process, summarize and report financial
            information; and

        (b) Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the small business
            issuer's internal control over financial reporting.


Date: October 21, 2003

                                  /s/ Richard L. George
                                  -----------------------
                                  Richard L. George
                                  Chief Financial Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>5
<FILENAME>dabex32.txt
<DESCRIPTION>EX 32.1 - SECTION 906 CERTIFICATION BY DANIEL A. BAKER
<TEXT>
                                                                   Exhibit 32.1

                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                            AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of NVE Corporation (the "Company")
on Form 10-QSB for the period ended September 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel
A. Baker, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that based on my knowledge:

           1. The Report fully complies with the requirements of section 13(a)
              or 15(d) of the Securities Exchange Act of 1934; and

           2. The information contained in the Report fairly presents, in all
              material respects, the financial condition and results of
              operations of the Company.


Date: October 21, 2003

/s/ Daniel A. Baker
- -------------------
Daniel A. Baker
President and Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>6
<FILENAME>dgex32.txt
<DESCRIPTION>EX 32.2 - SECTION 906 CERTIFICATION BY RICHARD L. GEORGE
<TEXT>
                                                                   Exhibit 32.2

                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                            AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of NVE Corporation (the "Company")
on Form 10-QSB for the period ended September 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Richard
L. George, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that based on my knowledge:

           1. The Report fully complies with the requirements of section 13(a)
              or 15(d) of the Securities Exchange Act of 1934; and

           2. The information contained in the Report fairly presents, in all
              material respects, the financial condition and results of
              operations of the Company.


Date: October 21, 2003

/s/ Richard L. George
- -----------------------
Richard L. George
Chief Financial Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>7
<FILENAME>risks.txt
<DESCRIPTION>EX 99.1 - CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
<TEXT>
                                                                   EXHIBIT 99.1

            CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
           PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT

NVE Corporation is filing this Exhibit 99.1 to its Quarterly Report on Form 10-
QSB to avail itself of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-
QSB, future filings with the Securities and Exchange Commission, press releases
and in oral statements made with the approval of an authorized executive
officer, the words may, will, expect, anticipate, intend, believe, estimate,
should, or continue or the negatives of these terms or other variations on
these words or comparable terminology are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These types of statements and the facts or events to which they relate
express risks and uncertainties that could cause actual results to differ
materially from historical financial condition, operating results, business
prospects or any other aspect of NVE, and those presently anticipated or
projected. We caution readers that the following important factors, among
others, could affect our financial condition, operating results, business
prospects or any other aspect of NVE, and could cause our actual results to
differ materially from that projected or estimated by us in the forward-looking
statements made by us or on our behalf. Although we have attempted to list
below the important factors which do or may affect our financial condition,
operating results, business prospects or any other aspect of NVE, other factors
may in the future prove to be more important. New factors emerge from time to
time and it is not possible for us to predict all of such factors. Similarly,
we cannot necessarily assess or quantify the impact of each such factor on the
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in forward-
looking statements.


RISKS RELATED TO OUR BUSINESS

ALTHOUGH WE WERE PROFITABLE IN THE MOST RECENT QUARTER AND FISCAL YEAR, WE HAVE
A HISTORY OF OPERATING LOSSES AND COULD SUFFER FURTHER LOSSES IN THE FUTURE.

We had net income (loss) of $646,850 and ($2,100,442) for the years ended March
31, 2003 and 2002, which we refer to as Fiscal 2003 and Fiscal 2002. As of
September 30, 2003 we had an accumulated deficit of $4,066,594. We reported net
income in Fiscal 2003 and in the first two quarters of the Fiscal 2004. During
Fiscal 2004 approximately $250,000 per quarter of contract research and
development revenue and recognition of MRAM license revenues of approximately
$98,000 per quarter have ceased. We were able to replace those revenue and
profit sources with expanded commercial product sales in the quarters ended
June 30, 2003 and September 30, 2003, but we may not be able to do so in future
periods. Furthermore, start-up costs associated with manufacturing, marketing,
and selling MRAM devices could lead to operating losses.


<PAGE>
WE RELY ON GOVERNMENT CONTRACTS FOR A LARGE PERCENTAGE OF OUR REVENUES AND WE
WILL LOSE REVENUE IF WE LOSE THESE CONTRACTS.

During Fiscal 2003 United States government contracts accounted for
approximately 60% of our revenues. Disqualification as a vendor to the United
States government for any reason or a material decrease in government funding
research would cause serious setbacks and would likely hamper both future
research and development activity, as well as related revenues.


OUR POTENTIAL FUTURE INELIGIBILITY FOR GOVERNMENT FUNDED RESEARCH GRANTS COULD
HAVE A SIGNIFICANT IMPACT ON OUR REVENUE AND OUR ABILITY TO MAKE RESEARCH AND
DEVELOPMENT PROGRESS.

Federal regulations require a business to be at least 51% owned by one or more
individuals to be eligible to compete for Small Business Innovation Research
(SBIR) awards. In the three months ended September 30, 2003, we were awarded
approximately $2.12 million in SBIR contracts. SBIR contracts represented 47.7%
of total revenue in Fiscal 2003. While we believe we currently meet the 51%
ownership rule, purchases by non-individuals in the open market or by other
means could cause us to become ineligible. Such changes in ownership are beyond
our control and could cause us to lose our eligibility to compete for SBIR
awards, which in turn could have a material adverse effect on our revenues
profits, and research and development efforts.


WE MAY LOSE REVENUE IF ANY OF OUR LARGE CUSTOMERS CANCEL, POSTPONE, OR REDUCE
THEIR PURCHASES.

We rely on several large customers for a large percentage of our commercial
revenues; these include Agilent Technologies, Inc., St. Jude Medical, Inc.,
United States Government, and certain distributors. Orders from these customers
can be cancelled, postponed, or reduced without cause or notice, and the loss
of any of these customers could have a significant impact on our commercial
revenues and our profitability.


WE FACE A DIFFICULT AND UNCERTAIN ECONOMIC ENVIRONMENT IN OUR INDUSTRY WHICH
COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS.

The semiconductor and electronics industries in general have experienced a
significant economic downturn during the past two years. The poor economic
environment may have adversely affected the sales of many of our customers'
products, thus limiting our sales. Economic conditions may not improve in the
near term or at all. Any failure of the economic environment to improve or a
future downturn would likely have a material adverse impact on our business and
revenues.


OUR REPUTATION COULD BE DAMAGED AND WE COULD LOSE REVENUE IF WE FAIL TO MEET
TECHNICAL CHALLENGES REQUIRED TO PRODUCE MARKETABLE PRODUCTS.

Our products use new technology and we are continually researching and
developing product designs and production processes. Our production processes
require control of magnetic and other parameters that are not required in
conventional semiconductor processes. If we are unable to develop stable
designs and production processes we may not be able to produce products that
meet our customers' requirements, which could cause damage to our reputation
and loss of revenues.

<PAGE>
WE MAY LOSE BUSINESS AND REVENUE IF OUR CRITICAL PRODUCTION EQUIPMENT FAILS.

Our production process relies on certain critical pieces of equipment for
defining, depositing, and modifying the magnetic properties of very thin metal
films. Some of this equipment was designed or customized by us, and some may no
longer be in production. While we have back-ups for some of the equipment, an
in-house maintenance staff, some critical spare parts, and maintenance
agreements for certain pieces of equipment, we cannot be sure we could repair
or replace critical manufacturing equipment were it to fail.


OUR FAILURE TO MEET STRINGENT CUSTOMER TECHNICAL REQUIREMENTS COULD RESULT IN
THE LOSS OF KEY CUSTOMERS AND POTENTIAL REDUCED SALES.

Some of our customers, including Agilent and St. Jude Medical, have stringent
technical requirements which require our products to pass certain test and
qualification criteria before they are accepted by such customers. Failure to
meet those criteria could result in the loss of current sales revenue,
customers and future sales.


IF WE ARE UNABLE TO DELIVER PRODUCTS WE FACE PENALTIES, INCLUDING LOSS OF
CERTAIN EXCLUSIVE MANUFACTURING RIGHTS.

Our Agilent supply agreement allows Agilent to gain rights to manufacture
couplers based on our technology if we are unable to deliver products on time.
The imposition of this penalty could have a material impact on future sales of
our products. Furthermore, on reaching certain sales goals, Agilent could gain
exclusive rights to distribute certain couplers based on our technology, which
could reduce our product sales and leave us partially or totally dependent on
Agilent for future coupler sales.


THE LOSS OF SUPPLY FROM ANY OF OUR KEY SINGLE-SOURCE SUPPLIERS COULD IMPACT OUR
ABILITY TO PRODUCE AND DELIVER PRODUCTS AND CAUSE LOSS OF REVENUE.

Critical suppliers include our suppliers of certain semiconductor wafers which
are incorporated in our products. These critical suppliers include Taiwan
Semiconductor Manufacturing Corporation, Advanced Semiconductor Manufacturing
Corporation of Shanghai (China), Texas Instruments Inc., and AMI Semiconductor,
Inc. We maintain inventory of some critical wafers, but we have not identified
or qualified alternate suppliers for many of the wafers now being obtained from
single sources. We are also dependent on our packaging vendors, including
Circuit Electronics Industries (Ayutthaya, Thailand), and NS Electronics
Bangkok (Thailand), Ltd. Some of our products use processes or tooling unique
to a particular packaging vendor, and it might be expensive, time-consuming, or
impractical to convert to another vendor in the event of a supply interruption.
Supply interruptions could seriously jeopardize our ability to provide products
that are critical to our business and operations which may cause us to lose
revenue.

<PAGE>
BECAUSE WE ARE SIGNIFICANTLY SMALLER THAN THE MAJORITY OF OUR COMPETITORS, WE
MAY LACK THE FINANCIAL RESOURCES NEEDED TO INCREASE OUR MARKET SHARE AND FUTURE
REVENUE.

Our known competitors and potential competitors include Royal Philips
Electronics, Allegro Microsystems, Inc., Agilent Technologies, Inc., Vishay
Intertechnology, NEC Corporation, Analog Devices, Inc., Advanced Micro Devices,
Inc., Intel Corporation, Ramtron International Corporation, Infineon
Technologies AG, Xicor, Inc., IBM Corporation, Fujitsu Limited, and others.
Most of our competitors and potential competitors are established companies
that have significantly greater financial, technical, and marketing resources
than us. While we believe that our products have important competitive
advantages, our competitors may succeed in developing and marketing products
that perform better or are less expensive than ours, or that would render our
products and technology obsolete or noncompetitive.


OUR LICENSE AGREEMENTS INCLUDE REVENUE MINIMUMS AND ROYALTY LIMITS WHICH COULD
LIMIT THE TOTAL AMOUNT OF REVENUE WE CAN DERIVE UNDER THESE AGREEMENTS.

Our existing license agreements do not provide for us to receive royalties
until revenue minimums are met by licensees. In addition, some of these
agreements place limits on future royalty and license payments. These
provisions could substantially delay our potential revenues and profits from
these licensing arrangements and could limit the total amount of revenue that
we can derive under these license agreements. Such limits are common practice
in our industry, but they could limit our potential MRAM revenues and profits
even if our intellectual property is widely adopted. Therefore, we may never
derive significant revenues under these licenses.


OUR BUSINESS MAY SUFFER BECAUSE WE HAVE LIMITED INFLUENCE OVER THE RATE OF
ADOPTION OF OUR TECHNOLOGY, AND MRAM TECHNOLOGY MAY NOT BUILD INTO A LARGE OR
SIGNIFICANT MARKET.

A significant portion of our future revenues and profits is dependent on our
licensees and manufacturing partners introducing MRAM products. Production
difficulties, technical barriers, high production costs, poor market reception
or other problems, almost all of which are outside our control, could prevent
the deployment of MRAM or limit its market potential. In addition, our
licensees and manufacturing partners may have other priorities that detract
attention and resources from introduction of MRAM products using our
technology. Furthermore, competing technologies could prevent or supplant MRAM
from becoming an important memory technology.


OUR LICENSEES MAY NOT BE ABLE TO MAKE COMMERCIALLY VIABLE MRAMS WHICH WOULD
LIMIT OUR REVENUE FROM MRAM AND LIKELY CAUSE OUR STOCK PRICE TO DECLINE.

MRAM is a new technology, and we are almost completely dependent on our
licensees to convert our intellectual property into commercially viable MRAM.
While our licensees have made prototypes, several technical and manufacturing
issues must be resolved before commercially viable devices can be produced, and
these problems may never successfully be solved. In particular, Cypress
Semiconductor Corporation has missed several targets for the production of
sample devices and has significantly changed its estimate of the timetable to
sample a working MRAM. Cypress executives have currently stated a timeframe of
sometime in the next year. Additional delays and/or changes would likely have a
material impact on our revenues from MRAM and the likelihood of its widespread
adoption.

<PAGE>
WE ARE HIGHLY DEPENDENT ON CYPRESS FOR POTENTIAL SUPPLY OF MRAM DEVICES USING
THEIR DESIGNS AND MAY LOSE REVENUE IF WE NEED TO REPLACE CYPRESS AS A SUPPLIER.

Although we have rights to Cypress' MRAM designs, mask works, and other
intellectual property, it could be difficult for us to fabricate devices at a
foundry other than Cypress. This is because other potential foundries might not
have the needed equipment, and Cypress' designs are tailored for their
factories. If Cypress is unable to manufacture devices for us for any reason,
it could be difficult for us to find another manufacturer for their designs.


CYPRESS COULD CANCEL THEIR MRAM DEVELOPMENT PROGRAM, WHICH WOULD REDUCE OUR
FUTURE REVENUE BECAUSE WE COULD NO LONGER SELL DEVICES BASED ON THEIR DESIGNS.

Cypress is not obligated to continue their MRAM development program
indefinitely. While we have no indication of any plans to cancel their MRAM
development program, they could do so at any time because of financial or other
considerations. Such a cancellation would eliminate our opportunity to sell
devices based on their designs.


OUR FUTURE BUSINESS MAY SUFFER BECAUSE WE MAY NOT BE ABLE TO CONSUMMATE
ADDITIONAL MRAM LICENSE AGREEMENTS.

Although there are potential licensees for our MRAM intellectual property in
addition to our current licensees and partners, we may never be able to
consummate additional license agreements. Potential licensees for our MRAM
intellectual property might not be interested unless and until the commercial
viability of the technology is demonstrated. Potential licensees could also use
their own or a third party's MRAM intellectual property rather than ours. In
addition, our existing agreements place restrictions on future license
agreements. Specifically, one of our agreements allows one of our licensees to
approve licenses with certain other potential licensees. Each of these
limitations could hinder our ability to consummate additional MRAM license
agreements.


WE WILL NOT RECEIVE ROYALTIES IF OUR LICENSEES DO NOT USE OUR INTELLECTUAL
PROPERTY.

Our license agreements do not require our licensees to use our intellectual
property. Our licensees could circumvent or find alternatives to our
technology, and our license agreements apply only if our licensees use our
intellectual property in their devices. It is possible that our licensees might
make MRAM devices without using our intellectual property or infringing on our
patents, and we would not receive royalties on such devices.

<PAGE>
WE MAY NOT BE ABLE TO ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR OUR
TECHNOLOGY MAY PROVE TO INFRINGE UPON PATENTS OR RIGHTS OWNED BY OTHERS WHICH
MAY PREVENT THE FUTURE SALE OF OUR PRODUCTS.

We protect our proprietary technology and intellectual property by seeking
patents and maintaining trade secrets, which we implement by entering into
confidentiality agreements with employees and suppliers, depending on the
circumstances. We hold patents or are the licensee of patented technology
covering certain aspects of our sensor, coupler, and MRAM technology. These
patent rights may be challenged, rendered unenforceable, invalidated or
circumvented. In addition, rights granted under the patents or under licensing
agreements may not provide a competitive advantage to us. Efforts to legally
enforce patent rights can involve substantial expense and may not be
successful. Further, others may independently develop similar or superior
technologies or duplicate any technology developed by us, or our technology may
prove to infringe upon patents or rights owned by others. Thus the patents held
by or licensed to us may not afford us any meaningful competitive advantage.
Also, our confidentiality agreements may not provide meaningful protection of
our proprietary information. Our inability to maintain our proprietary rights
could have a material adverse effect on our business, financial condition and
results of operations.


OUR BUSINESS SUCCESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO ATTRACT AND
RETAIN HIGHLY-QUALIFIED MANAGEMENT AND TECHNICAL EMPLOYEES.

We have no employment agreements with any of our management other than our
Chief Executive Officer, Dr. Baker, and have no key-person insurance covering
employees. Competition for highly-qualified management and technical personnel
is generally intense and we may not be able to attract and retain the personnel
necessary for the development and operation of our business. The loss of the
services of key personnel could have a material adverse effect on our business,
financial condition and results of operations. Our Chief Technology Officer,
Dr. Daughton, may decide to retire at any time in the next several years, and
we may not be able to replace his technical or contract development expertise.


RISKS RELATED TO BUYING OUR STOCK

OUR STOCK IS SUBJECT TO VOLATILITY BECAUSE OF LOW LIQUIDITY AND TRADING
VOLUMES.

Our common stock is traded on the NASDAQ SmallCap Market, which has less daily
trading volume on average than the average trading market for companies quoted
on the NASDAQ National Market or any other national securities exchange. While
the trading volume of our common stock has been much higher in the second half
of 2003, for most of our history since we became public in November 2000 there
had been a limited trading market for our common stock. A public trading market
having the desired characteristics of depth, liquidity and orderliness depends
on the presence in the marketplace of willing buyers and sellers of our common
stock at any given time. This presence depends on the individual decisions of
investors and general economic and market conditions over which we have no
control.

<PAGE>
THE PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY SIGNIFICANT PRICE
FLUCTUATIONS DUE TO A NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.

The market price of our common stock has experienced significant fluctuations
and may continue to fluctuate in the future. The market price of the common
stock may be significantly affected by many factors, including:

     *  changes in requirements or demands for our products;

     *  the announcement of new products or product enhancements by us or our
        competitors;

     *  technological innovations by us or our competitors;

     *  quarterly variations in our or our competitors' operating results;

     *  changes in prices of our or our competitors' products and services;

     *  changes in our revenue and revenue growth rates;

     *  changes in earnings estimates by market analysts, speculation in the
        press or analyst community; and

     *  general market conditions or market conditions specific to particular
        industries.

The stock prices for many companies in the technology sector have experienced
wide fluctuations that often have been unrelated to their operating
performance. Such fluctuations may adversely affect the market price of our
common stock.

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