Good day and welcome to the NVE conference call on 2009 fiscal year second quarter results. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to President and Chief Executive Officer, Mr. Daniel Baker. Please go ahead sir.

Thank you and good afternoon, and welcome to our conference call for the second quarter of fiscal 2009. With me on the call is Curt Reynders, our CFO. This call is being webcast live and being recorded. A replay will be available through nve.com. Our press release with quarterly results and our quarterly report on Form 10-Q were both filed with the SEC in the past hour following the close of market and are available through the SEC’s web site. As always, both filings contain unaudited financials. After my opening comments, Curt will present a financial review of the quarter. I’ll highlight some business items and then we’ll open the call to questions. Comments we may make that relate to future plans, events, financial results or performance are forward-looking statements that are subject to certain risks and uncertainties, including, among others, such factors as risks and continued revenue growth and continued profitability; risks associated with our reliance on several large customers; risks of quarter-to-quarter variations in revenue and income; uncertainties related to the awarding of future research and development contracts; uncertainties in the possible issuance of allowed patents, as well as the risk factors listed from time to time in our filings with the SEC, including our annual report on Form 10-K as updated in our quarterly reports on Form 10-Q. The company undertakes no obligation to update forward-looking statements we may make. I'm pleased to report strong quarterly results. Revenues increased 14% including a 24% increase in contract R&D. Net margin was an extraordinary 40% and earnings were a record $0.48 per diluted share including a non-cash reduction of $0.01 due to FASB 123R. Now I’ll turn the call over the Curt to discuss details of our financial results.

Thanks, Dan, and good afternoon. As Dan said, we had our best quarterly earnings ever despite a challenging environment with the economic downturn. Revenue for the quarter ended September 30, the second quarter of fiscal 2009, increased 14% to $5.73 million due to a 13% increase in product sales and a 24% increase in contract R&D. This was our 12 consecutive quarter with a year-over-year revenue increase. The increase in product sales was due to both the addition of new customers and increased purchases by existing customers. This was our 15 consecutive quarter with a year-over-year product sales increase. Strength in the medical device market more than offset continued weakness in the industrial market. The industrial market appears to be suffering from the manufacturing downturn. The strong quarter in contract R&D was encouraging in a tough funding environment. The increase in contract R&D revenue was primarily due to new contracts. Gross margin in the quarter increased to 69% of revenue compared to 63% in the prior year quarter. The increase was primarily due to higher margins on product sales. Research and development expense decreased 11% compared to the second quarter of fiscal 2008. The decrease was due to the completion of certain R&D projects in the past year and the increase in funded R&D which tends to pull resources from company-funded R&D to customer-funded R&D. Because we have received revenue for these activities, customer-funded R&D is included in cost of sales. We have said that R&D expense both in dollar terms and as a percentage of revenue could increase as we identify additional company-funded product development programs. With the increased revenue, increased gross margins and decreased expenses, operating income increased to $3.11 million in the quarter. Interest income increased 12% to $277,000 for the quarter due to an increase in…

Thanks, Curt. Our strategy for product growth has been new products and broader distribution. We summarized our advantages with four B’s, boxes or small footprint, bits more precise, bulletproof inherently reliable and batteries low power and long battery life. As we had discussed in our last call, in the past quarter, we introduced a new Coupler family called the IsoLoop IL-500 series designed to be cost-effective optical coupler replacements. These parts are smaller, have higher channel densities and are more reliable than semiconductor optical couplers. They’re the lowest-priced couplers we’ve ever offered and we believe they could open up a large price-sensitive market. The market reaction so far has been quite positive. Since our last call in July, we’ve added another part size to the IL-500 family for a total of eight-part size. The part we added was in our unique Micro-Small Outline Package which we build as the world’s smallest couplers of their type. All eight parts are now available for sale either directly from us or through distributors such as Digi-Key. There’s more information on the new parts on mde.com or isoloop.com. Also the IL-500 family was covered in the past quarter in the pulse section on Innovations in EDN, a leading trade magazine. There is a link to the online version of the article from our web site. We’ve received notice of the allowance of two US patents since our last call. A notice of allowance is a written notification that the patent application is cleared a Patent Office review and is nearing issuance. The first allowed patent is titled “Method for Detecting Magnetic Particles in a Fluid Using Thin-Film Magnetic Field Sensors” and is related to a spintronic biosensor technology which could be used in laboratory-on-a-chip system. A recent article in The Economist noted that “quantum…

(Operator instructions) And we’ll go first to Steven Crowley with Craig-Hallum Capital. Steven Crowley – Craig-Hallum Capital: Good afternoon, gentlemen.

Good afternoon, Steve. Steven Crowley – Craig-Hallum Capital: Congratulations on the excellent performance during pretty turbulent times.

Thank you. Steven Crowley – Craig-Hallum Capital: Couple of questions for you. It seems like you pointed out some nice strength in the medical arena that leads to a plethora of questions but maybe one area that’d be a nice place to start is around new applications for your components. One, are you having some success and has your financial success driven to any meaningful degree by some new applications and are there some of those applications that you can talk about in a general sense or, ideally a very specific sense, but whatever you can tell us there would be greatly appreciated.

Sure, Steve, this is Dan. We are always looking at potentially new customers and new applications for our medical products. We believe that they have a number of advantages including smaller, more reliable and more precise. One of the areas that we’ve been looking at is non-life support medical and particularly, neurostimulators and we have had some success on those fronts. Although I think, probably what’s reflected in our financial results are mostly the medical applications that we’ve had and strength in those markets, and perhaps, picking up some additional customers but we continue to look at expanding into new applications. We have non-life support like hearing aids. We have life support like ICDs and pacemakers, and we believe that our parts are an excellent fit for some applications in between. Steven Crowley – Craig-Hallum Capital: Now, your mention of additional customers, are those in your traditional medical device areas?

We were referring across the board, so that would include industrial, scientific and medical but we’re trying to highlight that it isn’t just additional purchases by existing customers. That’s some of the reason for the growth. But some of it also is that we’ve added some new customers. Of course, when you add a customer, it tends to start out small but it bodes well for the future. Steven Crowley – Craig-Hallum Capital: Excellent, excellent and one would jump to the conclusion that your lead-horse customer in cardiac rhythm management is doing quite well. Their results would seem to substantiate that. Are you feeling pretty good about what’s going on in cardiac rhythm management these days for NVE?

Yes, we are. Both in the near-term, things seem to be going pretty well despite a bad economy. Medical tends to hold up pretty well as people are unlikely to go without a pacemaker or an ICD if they need one because of the economy. And also, we see longer-term trends as positive in the medical market. The aging population, the possibility of additional conditions that can be treated with electrical stimulator devices, things such as congestive heart failure and atrial fibrillation are things that have been mentioned so we see a bright future there. And fortunately, we diversified so we have a medical business that tends to hold up pretty well in tough economic time. Steven Crowley – Craig-Hallum Capital: Great and a couple of questions on the industrial side and then I’ll hop back in the queue. Some of the weakness that I’m sure you’ve been subject to in your reference that the margin because of the macroeconomic downturn. Is it fair to say that you solved some of that maybe a little earlier than other companies with what transpired last quarter and you’re bouncing around the bottom? Or how would you characterize the slope or the condition of your industrial business and how should we think about it over the next couple of quarters? Is it a debate over when it gets better or should we have a concern that there could be a step function lower in the industrial business for you?

Well, that’s a very good question Steve. I wish we knew for sure when the economy was going to get better. That’s hard for us to predict. Particularly factory automation is high to durable goods and manufacturing, automotive manufacturing which is one of the applications for factory automation seems to be especially hard hit. And when that will recover, it’s hard to say. But we don’t see this as what you call, as the step function. We think that it’s because of the economic cycles and the cycles are just that. The economy can get worse but then it tends to get better. It’s hard for us to predict. What we try to do is have plans to have the capacity to take advantage of an economic recovery but run a tight ship so that we can still show the type of financial performance that we expect of ourselves even in a tough economy. Steven Crowley – Craig-Hallum Capital: Okay, one final one and I’ll hop back in the queue. One of the products that you talked about during your quarterly conference call, developing product areas around positioning sensors or may be eventually compassing sensors. Anything to report there in terms of applications beginning to open up for initial products or you having a clearer sense for whether or not you’ve hit the mark directionally with this product that there should’ve?

Well we feel very good about that initiative. Just to review, we offer smaller more precise devices and we see them as having applications in things like consumer electronic, cell phones and automotive, And we’re developing positional sensors, as well as compassing systems that would be used for navigation and we’ve worked with several companies. We’re evaluating our parts for those markets and we’ve received very positive feedback. It’s not a significant part of our revenue mix right now but it bodes well for the future and as we become more efficient at manufacturing spintronics we believe it’ll allow us to address some of these more cost-sensitive markets that are higher volume and where there is great potential to really bring some of our products into high-volume mainstream applications. Steven Crowley – Craig-Hallum Capital: Great. Thanks for taking several of my questions.

Thank you.

(Operator instructions) We’ll go next to Bob Mitchell with Conestoga Capital. Bob Mitchell – Conestoga Capital: Good afternoon, gentlemen. How’re you doing?

Good afternoon, Bob. Bob Mitchell – Conestoga Capital: Good. I wonder if you could talk a little about services – the geography in terms of your business, in terms of where you saw pockets of strengths, where you saw pockets of weakness particularly on the industrial side.

Yes, we don’t break that down quarterly, but it’s just my sense is that our business is becoming more internationalized and over the years, foreign sales have made up a higher percentage of our sales. In general, factory automation tends to be in the big manufacturing economies. That would be Western Europe, particularly Germany, Japan, China is emerging in that market and we did see some weakness in those segments in the past quarter, perhaps the past two quarters with the economic downturn. So that might affect our mix somewhat, but in general, we’ve been seeing that more and more of our business is from foreign countries. Bob Mitchell – Conestoga Capital: In terms of your capacity expansion, I know you are going to start to – I think I heard you say that you’re going to start to do that. Do you expect that to be finished by the end of the calendar year or what is the timetable on that?

The timetable is flexible, Bob, because it is going to depend on where we see our capacity needs going. We have adequate capacity now and we’re getting started on this pretty early just because we want to be positioned for growth, but we do not see this as an urgent need so we’re looking at minimizing disruption to our production cycle. We’re looking at the schedules for certain pieces of equipment and other things that would need to come together, and then we’re doing this in phases, so the first phase was going to be to convert production, to convert what’s currently some underutilized space into a production space but not clean-room space. So the clean-room space expansion is something that we’re going to evaluate as we go along, but we do not have an urgent need to do that. Bob Mitchell – Conestoga Capital: Okay. Thank you very much.

Thanks, Bob.

(Operator instructions) We’ll go next to Kevin Sonich with RK Capital. Kevin Sonich – RK Capital: Thanks. Hi, Dan.

Hi, Kevin. Kevin Sonich – RK Capital: Regarding a couple of things you mentioned on the cost but specifically the attraction that you’d gotten with new customers and I think you mentioned it was really across the board industrial, scientific, medical end markets and then as it relates to the new products or applications that seem to be may be just starting to ramp and I don’t know if that spills over into some of these bigger opportunities that you referenced before like consumer electronics and some of the auto labs compassing and navigation. What I’m most interested in is if you can put that in the context of what you normally have in the way of those opportunities because I am assuming just about every quarter, every year, you’ve got new customers and new products, and I’m wondering if we’re on the front of a little bit more exciting product cycle or some new customer wins than we’ve been in the past.

Well, we hope that we’re at the beginning of breaking into new markets, high-volume markets such as consumer and automotive. And, of course, you never know for sure, but based on the very positive feedback we’ve received from customers, we feel very optimistic about our prospects in those markets. And those are relatively recent initiatives that are outside of our legacy markets of industrial, scientific and the medical device markets. Kevin Sonich – RK Capital: Are these opportunities that taken individually, if the feedback translates into the type of scholars that you’re thinking today, these are opportunities that can ramp to be multimillion dollar opportunities looking out a couple of years or what’s a way to think about the optimistic scenario here?

Well, we try to avoid predicting revenues in the future; it’s just hard to predict. But when we look at these markets, we’re looking at markets that are significantly larger than the markets that we currently serve and our goal is to become a leader in spintronics in large markets. So that’s our goal and when we look at markets like consumer electronics, cell phones and automotive, we’re looking at very large markets for our products. Obviously, you tend to start out with a subset, often a subset of a subset and earn market credibility, and build validations for the technology. Those are things that we’ve done successfully in industrial control, that we’ve done in medical and we hope to replicate that success in these high-volume markets. Kevin Sonich – RK Capital: And was part of the revenue this quarter and I guess I’m wondering specifically if this is something that we couldn’t say last quarter or the quarter before, but was part of the revenue this quarter in those areas yet or are we still in the earlier stages? Did you realize some revenue from some of those opportunities, cell phones, other consumer electronics or the auto opportunities?

Yes. We probably have in the past and we probably did this quarter as well, but we’re seeing – we’re optimistic because we’re seeing opportunities for high-volume applications of our products that are relatively new. Kevin Sonich – RK Capital: Okay, that’s –

I mean there are some of our parts that are being used in consumer electronics and automotive now and have been for a while, but the distinction would be that these are targeted applications that are high volume where we have a convincing advantage as opposed to perhaps some more ancillary applications which is what we’ve seen in the past. Kevin Sonich – RK Capital: Okay, great. That’s encouraging. Just lastly if I could, I’m guessing the answer to this is no since you didn’t mention it and you normally would, but anything we should be cognizant of as it relates to customers whether it be the distribution – the distributors that you sell through on the industrial side or maybe some of the medical customers where you’ve seen some -­ we’ve seen inventory trends that are worth noting, favorable or unfavorable.

Kevin, this is Curt. I think you’re asking about inventory levels with out customers. The industry analysts have said that the inventory in the electronics supply chain has been above normal in 2008, although not as high as it’s been in the past. But that may have had an impact on our product sales. Quarterly, our sales can vary but it’s important to remember the general trend has been rapid product sales growth and long-term demographics for our medical products are especially favorable as the baby boomers age and medical technology advances. Kevin Sonich – RK Capital: Okay, thanks.

And we’ll go next to Don McKerning [ph] with Landolt Securities [ph]. Don McKerning – Landolt Securities: Hello.

Hello. Don McKerning – Landolt Securities: Congratulations on another great quarter. It was terrific.

Thank you. Don McKerning – Landolt Securities: I want to follow up on the last caller’s question, some of these high-volume opportunities. The pricing levels that you’re experiencing right now and that you expect to experience, would you be able to maintain the kind of gross margins that the rest of the business has or would we look for something lower because of the volume nature of the opportunity?

This is Dan. Yes, we might be looking at lower margins than what we have seen historically in industrial control primarily in industrial control in medical. We think that that would be very worthwhile business though because even though the margins might be lower, the volume might be quite a bit higher, and we've worked very hard at becoming more efficient with better equipment, more efficient equipment, with excellent employees, very productive employees, and continually improving our design, so that we believe that we can address cost-sensitive markets. The margins might be lower but we believe that it would provide economic value to our company and our shareholders to address these markets. Don McKerning – Landolt Securities: And then another question, your cash level keeps going up every quarter which is great and it’s starting to be rather significant, any plans to use some of that cash and make some acquisitions in this environment where prices are pretty attractive in some areas?

We don’t have any specific plans that we can talk about but our Board is always looking at ways to improve shareholder value long term. We have said in the past that it’s important in our business to have a strong balance sheet in order to protect our intellectual property and the other excellent assets we have at this company, so we currently don’t have any plans to do anything that might weaken our balance sheet but we are continuously looking at options. Don McKerning – Landolt Securities: Thanks again.

Thank you.

And will take a follow-up question from Steven Crowley of Craig-Hallum Capital. Steven Crowley – Craig-Hallum Capital: A couple follow-ups. First of all, on the contract research and development side of the equation, you obviously had a big quarter and that has, as you laid out in your prepared commentary, in effect on the type, the amount of R&D expense that hits your income statements because some moves up to the cost of goods sold line, so therefore, for us folks trying to model your company, that’s a variable that’s important and difficult for us to gage. It looks like you’re now on a much better position for that business as a whole, if we look at the current fiscal year as a whole versus last year, for that number to be pretty comparable in total for this year as what last year or how should we – how should we think about the run rate of that business given you had one quarter of close to 300,000, in one quarter close to 850,000. Should we shoot [ph] the middle somewhere? How would you guide us or help us there.

Well, Steve, we are pleased to win new contracts as we did note in the prepared remarks but contracts also expire and it is a challenging contract funding environment, so we don’t know how many future contracts we'll win. Contract R&D can fluctuate from quarter to quarter due to the timing and amount of contract towards and a number of factors that are beyond our control. It is important to remember that our long-term strategy has been to reduce our dependence on contract R&D and toward a future of products and licensing as our principal revenue sources. Steven Crowley – Craig-Hallum Capital: Understood. I guess the equation we’re trying to deal with there, for folks who try and put together models is the same. The thought process has been that it would be closer to $300,000 or $400,000 on a run rate basis and 850, it doesn’t sound like that there’s any reason for me to change my thoughts on that topic.

Well, the revenue can fluctuate significantly from quarter to quarter. As I have said, a lot of that is beyond our control. Steven Crowley – Craig-Hallum Capital: Okay, but is there any visibility that you have for falling way off the table given the strength you had this quarter or is it really just a question of where in the recent neighborhood it falls?

This is Dan. I don’t think we see us falling off the table because some of the contracts that we won are longer-term contracts but we don’t have a very good visibility. A lot of our contractors are tied to the Department of Defense and to the military and that’s a challenging environment and it’s susceptible to politics and who wins the elections and philosophies on funding Defense and Congress and the Executive Branch [ph], so there are things that we don’t have a lot of very good visibility on. But we do have a kind of a core of contracts that we expect to be going on for a while. Our contracts, our larger contracts are often two years or close to that but that’s a relatively – that is just a portion of the contracts that we have in-house, then we have some as Curt said, they’re expiring almost continuously and it’s hard for us to see how – have visibility on whether we’ll be able to replace them or not. Steve Crowley – Craig-Hallum Capital: While I tried to take our pretty conservative tax [ph] on that revenue item, I think I will continue to do so. Switching gears, in terms of the company's activities around continuing to bolster your eMRAM intellectual property portfolio and opportunity there, you mentioned some patent activity around your intellectual property portfolio, but what can you tell us about what you’re doing to continue to build the asset that is your IP in the eMRAM area and to potentially monetize that asset?

What you are referring to is, yes, just this month we were notified that the allowance of patent relating to eMRAM for anti-tamper application, so we are doing a couple of things. One is we’re looking at some of these particular applications for eMRAM such as anti-tamper where we believe we have excellent intellectual property and we’re developing that intellectual property and we have several patents either issued or pending in that space. Then we also have excellent intellectual properties for the eMRAM, what's called general eMRAM or classic eMRAM as well as spin-momentum eMRAM, next-generation eMRAM, vertical eMRAM, and magnetothermal eMRAM. We see a very bright future for that. Several companies have announced plans to commercialize eMRAM. There has been interest in spin-momentum eMRAM which is the next-generation eMRAM and the eMRAM continues to be recognized as a revolutionary technology, so we’re optimistic about the prospects for called it mainstream eMRAM, and also for some of the particular applications like anti-tamper where eMRAM is just an excellent fit because it is nonvolatile, because the data integrity is so high that it makes a great device for detecting tamper and for security applications. Steven Crowley – Craig-Hallum Capital: I appreciate that color. Part of the question was whether or not you are exercising the same muscles you have been exercising for awhile in terms of your eMRAM value building efforts or whether or not you are doing anything different in terms of – even if it's presence at the scientific trade shows, presentations, cultivating potential partners, I am just wondering if it is going more of the play book that you have been using for awhile or whether or not you’re even expanding that?

Well, part of it is – part of our efforts are, as you say, they are efforts that we’ve had for quite a while which is to spread the word about our technology and to participate in conferences and things like that. Also, we look at things that we can build here and further develop ourselves and commercialize because our plan, as you know, is not to commercialize eMRAM for mainstream memory. We don’t have the capability to make memory and we don’t think that that is the right direction for us, but some of the smaller memory that might be use for anti-tamper are devices that we believe that we can make. Therefore, there can be some efforts to develop that technology, to work with potential partners, to commercialize those types of memories that deployed them and that also allows us to advance the intellectual property by developing things for small-scale memory that might be able to be extrapolated to a larger memory. Steven Crowley – Craig-Hallum Capital: Interesting. Is that something that’s relatively near-term opportunity, over the next year or two? Or would that be beyond that horizon?

That’s hard to say. Those are devices that we’ve been working on for a while. I think you’re seeing now some intellectual property bubble up with the patent that was allowed just this month, so hopefully, it will be something that we might be able to talk about before too long. Steven Crowley – Craig-Hallum Capital: Great. Thanks again for taking the questions.

Thanks, Steve.

And that does conclude our question-and-answer session. I’d now like to turn the call back over to Mr. Baker for any additional or closing remarks.

Well, thank you. Again, we were pleased to report record earnings for the quarter and we look forward to speaking with you again in January when we report third quarter results. Thank you for participating in this quarter’s call.

That does conclude today’s call. We do appreciate your participation. You may disconnect at this time.