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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
--------- ---------

Commission File Number 0-17739

RAMTRON INTERNATIONAL CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 84-0962308
- ------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

1850 Ramtron Drive, Colorado Springs, CO 80921
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code) (719) 481-7000

Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes / / No /X/

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Common Stock, $.01 Par Value - 22,181,625 shares as of November 05, 2003.

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

Page-1

RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except par value and share amounts)

Sept. 30, Dec. 31,
2003 2002
--------- ---------
ASSETS

Current assets:
Cash and cash equivalents $ 3,856 $ 3,222
Accounts receivable, less allowances
of $409 and $231, respectively 4,421 8,981
Inventories 5,206 8,952
Other current assets 312 232
--------- ---------
Total current assets 13,795 21,387

Property, plant and equipment, net 4,079 4,600
Intangible assets, net 8,085 14,150
Other assets 663 805
--------- ---------
Total assets $26,622 $40,942
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 4,498 $ 5,960
Accrued liabilities 882 1,147
Deferred revenue 1,038 2,778
Current portion of long-term debt, net of
unamortized discount of $746 and $0, respectively 1,674 --
--------- ---------
Total current liabilities 8,092 9,885

Deferred revenue 4,641 5,175
Long-term debt, net of unamortized
discount of $1,251 and $2,272, respectively 3,529 5,728
--------- ---------
Total liabilities 16,262 20,788
--------- ---------

Stockholders' equity:
Common stock, $.01 par value, 50,000,000 authorized:
22,165,591 and 22,123,768 shares issued and
outstanding, respectively 222 221
Additional paid-in capital 234,794 234,517
Accumulated deficit (224,656) (214,584)
--------- ---------
Total stockholders' equity 10,360 20,154
--------- ---------
Total liabilities and stockholders' equity $26,622 $40,942
========= =========
See accompanying notes to consolidated financial statements.

Page-2

RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
(Amounts in thousands, except per share amounts)

Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Revenue:
Product sales $ 7,252 $10,967 $27,564 $31,303
License and development fees 117 1,996 350 4,812
Royalties 155 238 380 357
Customer-sponsored research
and development 396 624 2,325 2,621
-------- -------- -------- --------
7,920 13,825 30,619 39,093
-------- -------- -------- --------
Costs and expenses:
Cost of product sales 4,581 7,547 16,492 21,730
Provision for inventory write-off 30 40 1,311 216
Research and development 2,400 2,627 6,412 8,071
Customer-sponsored research
and development 370 496 1,636 1,569
Sales, general and administrative 2,377 2,731 8,074 8,625
Impairment of goodwill -- -- 3,843 --
Impairment of intangible assets -- -- 1,687 --
-------- -------- -------- --------
9,758 13,441 39,455 40,211
-------- -------- -------- --------
Operating income (loss) (1,838) 384 (8,836) (1,118)
Interest expense, related party (132) (109) (342) (199)
Interest expense, other (252) (182) (637) (369)
Other income, net 5 115 27 151
Loss on disposition of assets (78) (55) (284) (143)
-------- -------- --------- --------
Net income (loss) $(2,295) $ 153 $(10,072) $(1,678)
======== ======== ========= =========
Net income (loss) per common share:
Net income (loss) $(2,295) $ 153 $(10,072) $(1,678)
Dividends on redeemable
preferred stock -- (12) -- (82)
Accretion of redeemable
preferred stock -- (2) -- (14)
-------- -------- -------- ---------
Net income (loss) applicable
to common shares $(2,295) $ 139 $(10,072) $(1,774)
======== ======== ========= =========
Net income (loss) per share:
Basic $ (0.10) $ 0.01 $ (0.45) $ (0.08)
======== ======== ======== ========
Diluted $ (0.10) $ 0.01 $ (0.45) $ (0.08)
======== ======== ======== ========
Weighted average shares outstanding:
Basic 22,148 22,083 22,138 22,082
======== ======== ======== ========
Diluted 22,148 22,658 22,138 22,082
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
Page-3

RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
(Amounts in thousands)

2003 2002
-------- --------
Cash flows from operating activities:
Net loss $(10,072) $(1,678)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,300 1,476
Amortization of debt discount 454 260
Provision for inventory write-off 1,311 216
Loss on abandonment of intangible assets 295 140
Impairment of goodwill 3,843 --
Impairment of intangible assets 1,687 --
Gain on sale of equipment (11) --
Stock options issued for services -- 71

Changes in assets and liabilities:
Accounts receivable 4,560 (864)
Inventories 2,435 (176)
Accounts payable and accrued liabilities (1,727) 1,521
Deferred revenue (2,274) (2,812)
Other 76 240
--------- ---------
Net cash provided by (used in) operating
activities 1,877 (1,606)
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (228) (698)
Proceeds from sale of assets 29 --
Intellectual property (329) (272)
--------- ---------
Net cash used in investing activities (528) (970)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt issuance -- 8,000
Long-term debt issue costs -- (746)
Principal payments on long-term debt (800) --
Redemption of convertible preferred stock -- (1,174)
Issuance of common stock 85 4
--------- ---------
Net cash provided by (used in) financing
activities (715) 6,084
--------- ---------
Net increase in cash and cash equivalents 634 3,508

Cash and cash equivalents, beginning of period 3,222 3,259
--------- ---------
Cash and cash equivalents, end of period $ 3,856 $ 6,767
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 320 $ 112
========= =========
Warrant issued for debt issuance costs $ -- $ 190
========= =========
See accompanying notes to consolidated financial statements.
Page-4

RAMTRON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
- ------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION AND MANAGEMENT OPINION

The accompanying consolidated financial statements at September 30, 2003 and
December 31, 2002 and for the three and nine months ended September 30, 2003
and 2002 have been prepared from the books and records of Ramtron
International Corporation, (the "Company"), without audit. The statements
reflect all normal recurring adjustments, which in the opinion of the
Company's management, are necessary for the fair presentation of financial
position, results of operations and cash flows for the periods presented.

Certain information and disclosures normally included in financial statements
have been omitted under Securities and Exchange Commission regulations. It is
suggested that the accompanying financial statements be read in conjunction
with the Company's annual report on Form 10-K for the year ended December 31,
2002. The results of operations for the periods ended September 30, 2003 are
not necessarily indicative of the operating results for the full year.

NOTE 2. REVENUE RECOGNITION

The Company has historically recorded all shipments to distributors as
deferred revenue until shipped to the end customer because the Company did not
believe it had adequate historical data to make a reasonable estimate of the
amount of future returns as required under Statement of Financial Accounting
Standard No. 48, "Revenue Recognition When Right of Return Exists". During
the first quarter of 2003, the Company concluded that it had sufficient
shipment and return experience to allow for the recognition of revenue on
shipments to distributors at the time of shipment, along with a reserve for
estimated returns. Accordingly, during the first quarter of 2003, the Company
recognized an additional $1.3 million in product sales revenue that would have
been deferred prior to this change in estimate. The impact on gross margins
from this additional revenue was approximately $490,000 during the first
quarter of 2003 and the nine-month period ended September 30, 2003.

NOTE 3. STOCK-BASED COMPENSATON

The Company accounts for employee stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees" and related
interpretations. All options granted under these plans have an exercise
price equal to the market value of the underlying common stock on the date of
grant, therefore no stock-based compensation is reflected in net income
(loss). Had compensation cost for these plans been determined consistent with
SFAS No. 123, "Accounting for Stock-Based Compensation" as amended by SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No. 123", the Company's net income (loss) for the
three and nine month periods ended September 30, 2003 and 2002 would have
changed to the following adjusted amounts:

Page-5

Three Months Ended
September 30,
-------------------------
2003 2002
-------- --------
(in thousands, except per share amounts)
Net income (loss) applicable to
common shares:
As reported $(2,295) $ 139
Pro forma (2,460) (250)

Net income (loss) per share:
As reported - basic and diluted $(0.10) $ 0.01
Pro forma - basic and diluted (0.11) (0.01)

Nine Months Ended
September 30,
-------------------------
2003 2002
-------- --------
(in thousands, except per share amounts)
Net loss applicable to
common shares:
As reported $(10,072) $(1,774)
Pro forma (10,754) (3,267)

Net loss per share:
As reported - basic and diluted $ (0.45) $ (0.08)
Pro forma - basic and diluted (0.49) (0.15)

For disclosure purposes, the fair value of stock based compensation was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants during the three and nine months
ended September 30, 2003 and 2002:

Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
2003 2002 2003 2002
-------- -------- -------- --------
Risk free interest rate 4.00% 4.00% 4.00% 4.00%
Expected dividend yield 0% 0% 0% 0%
Expected lives 4.0 yrs 4.0 yrs 4.0 yrs 4.0 yrs
Expected volatility 110% 111% 110% 111%

The weighted average fair value of shares granted during the nine months
ended September 30, 2003 and 2002 was $1.62 and $2.40, respectively.

Page-6

NOTE 4. INVENTORIES

Inventories consist of:
Sept. 30, Dec. 31,
2003 2002
--------- --------
(in thousands)

Finished goods $3,193 $3,783
Work in process 2,331 5,401
Obsolescence reserve (318) (232)
------ ------
Total $5,206 $8,952
====== ======

NOTE 5. EARNINGS PER SHARE

The Company calculates its income (loss) per share pursuant to Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
Under SFAS No. 128, basic net income (loss) per share is computed by dividing
reported net income (loss) available to common stockholders by weighted
average shares outstanding. Diluted net income (loss) per share reflects the
potential dilution assuming the issuance of common shares for all dilutive
potential common shares outstanding during the period. In periods where the
Company recorded a net loss, all potentially dilutive securities, including
warrants and stock options, would be anti-dilutive and thus, are excluded from
diluted loss per share.

The following table sets forth the calculation of net income (loss) per common
share for the three and nine months ended September 30, 2003 and 2002 (in
thousands, except per share amounts):

Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net income (loss) applicable to
common shares $(2,295) $ 139 $(10,072) $(1,774)
======== ======== ========= ========
Common shares outstanding:
Historical common shares
outstanding at beginning
of period 22,138 22,083 22,124 22,081
Weighted average common
shares issued during period 10 -- 14 1
-------- -------- -------- --------
Weighted average common shares at
end of period - basic 22,148 22,083 22,138 22,082

Effect of other dilutive securities:
Options -- 421 -- --
Warrants -- 154 -- --
-------- -------- -------- --------
Weighted average common shares at
end of period - diluted 22,148 22,658 22,138 22,082
======== ======== ======== ========

Net income (loss) per share:
basic $ (0.10) $ 0.01 $ (0.45) $ (0.08)
======== ======== ======== ========
diluted $ (0.10) $ 0.01 $ (0.45) $ (0.08)
======== ======== ======== ========

Page-7

As of September 30, 2003, the Company had several equity instruments or
obligations that could create future dilution to the Company's common
shareholders and are not currently classified as outstanding common shares of
the Company. The following table details such instruments and obligations and
the common stock equivalent for each. The common stock number is based on
specific conversion or issuance assumptions pursuant to the corresponding
terms of each individual instrument or obligation. These potential stock
issuances are excluded from loss per share calculations because their
effect was anti-dilutive:

Three and
Nine Months Three Months Nine Months
Ended Ended Ended
Sep. 30, 2003 Sep. 30, 2002 Sep. 30, 2002
------------- ------------- -------------
(in thousands)
Warrants 2,349 1,489 2,394
Options 3,630 2,024 3,729
Convertible debentures 1,910 2,123 2,123

NOTE 6. CONTINGENCIES

PATENT INTERFERENCE PROCEEDING. A patent interference proceeding, which was
declared in 1991 in the United States Patent and Trademark Office (the "Patent
Office") between the Company, National Semiconductor Corporation ("National")
and the Department of the Navy in regard to one of the Company's issued United
States patents, is continuing. The patent involved covers a basic
ferroelectric memory cell design invention the Company believes is of
fundamental importance to its FRAM business in the United States. An
interference is declared in the Patent Office when two or more parties each
claim to have made the same invention. The interference proceeding is
therefore conducted to determine which party is entitled to the patent rights
covering the invention. In the present interference proceeding, the Company
is the "senior" party, which means that it is in possession of the issued
United States Patent and retains all rights associated with such patent,
pending the ultimate outcome of the patent interference proceeding. The
other two parties involved in the interference are the "junior" parties, and
each has the burden of proof of convincing the Patent Office by a
preponderance of the evidence that it was the first to invent the subject
matter of the invention and thus is entitled to the corresponding patent
rights. Only the Company and National filed briefs in this matter. Oral
arguments were presented before the Patent Office on March 1, 1996.

The Patent Office decided the interference on May 6, 1997, holding that all of
the claims were patentable to National, one of the "junior" parties. The
other "junior" party, the Department of the Navy, was not granted any patent
claims pursuant to the interference proceedings. On June 20, 1997, the
Company filed a Request for Reconsideration with the Patent Office concerning
the interference decision. Pursuant to the Request for Reconsideration, the
Company requested that five separate issues be reconsidered because, from the
Company's perspective, they were either ignored or misconstrued in the

Page-8

original decision. A decision on the Request for Reconsideration was issued
on November 19, 1998, again holding that all of the claims were patentable to
National. On January 9, 1999, the Company appealed the decision of the Patent
Office on one of the interference counts directly to the Court of Appeals for
the Federal Circuit. On February 2, 2000, the Court of Appeals vacated and
remanded the decision of the Patent Office for further proceedings. The
Company also filed complaints in Federal District Court in the District of
Columbia seeking a review of the decision of the Patent Office on the
remaining interference counts, which are still pending. The Company remains
in possession of the issued United States Patent and retains all rights
associated with such patent while it pursues its appeal options. The "junior"
party has received no rights associated with this patent decision and will not
receive any such rights as long as the appeal process continues. Under a
Patent Office decision on August 13, 2001, the Company was found to be the
first to invent, however, the Patent Office concluded that the enablement and
best-mode requirements for patent issuance had not been met by the Company.
In October 2001, both the Company and National filed a Request for
Reconsideration with the Patent Office. In November 2002, the Patent Office
informed the Company and National that it will not change its August 2001
decision. In December 2002, the Company appealed this decision to the
District Court of the District of Columbia.

If the Company's patent rights that are the subject of the interference
proceeding are ultimately lost or significantly compromised and National or
another third party is successful in obtaining a patent covering the Company's
ferroelectric technology, the Company would be precluded from producing, using
or selling FRAM products in the United States using the Company's existing
design architecture, absent being able to obtain a suitable license to exploit
such rights. If such patent rights are ultimately awarded to National, and if
a license to such rights is not subsequently entered into by the Company with
National, National could use the patent to prevent the manufacture, use or
sale by the Company, and/or its licensees, within the United States of any
products that come within the scope of such patent rights, which would include
all FRAM products as currently designed, and which would materially adversely
affect the Company. The Company has vigorously defended its patent rights in
the interference proceeding and will continue such efforts. The Company is
uncertain as to the ultimate outcome of the interference proceeding, as well
as to the resulting effects upon the Company's financial position or results
of operations.

NOTE 7. LONG-TERM DEBT

On March 14, 2002, the Company signed an agreement to issue $8.0 million
of 5 year, 5% fixed rate, convertible debentures to Infineon Technologies AG
("Infineon"), Halifax Fund ("Halifax"), managed by The Palladin Group, L.P.
and Bramwell Capital Corporation ("Bramwell"), managed by Cavallo Capital.
Prior to issuance of the convertible debentures, Infineon owned 4,430,005
shares of Ramtron's outstanding common stock, or 20% of its outstanding
shares, and 20% of the outstanding shares of the Company's subsidiary,
Enhanced Memory Systems, Inc. ("EMS"). On March 29, 2002, the Company issued

Page-9

a $3 million debenture to Infineon. The Halifax and Bramwell debentures,
totaling $5 million, were issued on April 1, 2002. The debentures are
convertible into the Company's common stock at a fixed conversion price of
$3.769, which is equal to 110% of the five-day volume weighted average price
("VWAP") of the Company's common stock prior to the transaction signing. The
debentures issued to Halifax and Bramwell are secured by a Deed of Trust on
the Company's headquarters facility in Colorado Springs, Colorado. The
Infineon debenture is secured by a security interest the Company granted to
Infineon in certain of its accounts receivable and patents.

In addition, 700,435 5-year common stock warrants were issued to the investors
with an initial exercise price of $4.28 per share. The warrants were valued
using the Black Scholes option pricing method with a resulting total value of
approximately $1,773,000 at March 28, 2002. The following assumptions were
used at the time of initial issuance to value these warrants: risk free
interest rate of 4.93%, expected yield of 0%, expected life of five years, and
expected volatility of 113%. This amount is accounted for as a discount to
the outstanding debentures and is being amortized over the remaining life of
the debentures as a charge to interest expense. The unamortized discount
as of September 30, 2003 is approximately $1,376,000.

As a result of the conversion terms of these debentures, a beneficial
conversion feature of $900,000 was created. This beneficial conversion
feature is recorded as an increase to additional paid-in-capital and as a debt
discount to the outstanding debentures. This discount is being amortized over
the remaining life of the debentures as a charge to interest expense. The
unamortized discount as of September 30, 2003 is approximately $621,000.

The debentures contain covenants, which are customary for this type of
financing, including, without limitation: achieving a minimum amount of
earnings before interest, taxes, depreciation and amortization ("EBITDA"), as
defined in the debenture agreements, and not exceeding a defined level of
capital expenditures. As of June 30, 2003, the Company failed to meet the
minimum EBITDA covenant under the debenture agreements, which by the terms of
the debentures became an event of default on July 30, 2003 (the "Default"). On
August 18, 2003, the Company entered into a Waiver and Amendment to Debenture
Agreement (the "Waiver Agreement") with the debenture holders. The Waiver
Agreement provided for a waiver of the Default as well as a waiver of all
remaining EBITDA covenants during 2003. In addition, the Waiver Agreement
requires that the Company make quarterly principal payments to the debenture
holders totaling $3.8 million over the next six quarters. The Company paid
the initial principal payment of $800,000 on August 19, 2003. The remaining
five quarterly payments will be between $600,000 and $620,000. If the Company
fails to make any of the required principal payments the debenture holders may
elect to convert the missed payment amount to common stock at a conversion
price equal to 90% of the daily volume weighted moving average for each of the
60 trading days following the notice of failure to pay. The debenture holders
may elect to waive any quarterly redemption. In addition, the Waiver
Agreement provides that the Company will lower the exercise price of the
700,435 common stock warrants held by the debenture holders from $4.28 to a
price equal to 150% of the average closing bid price for the Company's common
stock for the 5 trading days immediately preceding the effective date of the
Waiver Agreement ($3.04) and extend the exercise period for one year. The
adjustment to the original terms of the warrants created an additional non-
cash increase of approximately $179,000 to debt discount and additional

Page-10

paid-in capital, which was recorded during the quarter ended September 30,
2003. This increase to debt discount will be amortized into interest expense
over the remaining life of the debenture. As of September 30, 2003 the
Company was in compliance with all covenants of the debentures. The Company
believes it will be able to meet its covenant requirements from January 1,
2004 through at least September 30, 2004 and, as such, has classified the
amounts due after September 30, 2004 as long-term as of September 30, 2003.

NOTE 8. SEGMENT INFORMATION

The Company's reportable segments are those that are based on the Company's
method of internal reporting, which generally segregates the strategic
business units based upon differences in products and distribution channels.

The Company's operations are conducted through three business segments. The
Company's FRAM business licenses, manufactures and distributes ferroelectric
nonvolatile random access memory products. EMS licenses, manufactures and
distributed high-speed DRAM products. The Company's wholly owned subsidiary,
Mushkin Inc. ("Mushkin"), distributes high-speed DRAM products in the
aftermarket through both direct and e-commerce sales channels.

The accounting policies for determining segment net income or loss are the
same used in the consolidated financial statements. There are no internal
sales between segments.

The following table presents segment information for the three months ended
September 30, 2003 and 2002.

2003 2002
------------------------------------ -------------------------------------
FRAM EMS Mushkin Total FRAM EMS Mushkin Total
------------------------------------ -------------------------------------
(in thousands)

Revenue:
Product sales $ 4,622 $ 15 $ 2,615 $ 7,252 $ 6,668 $ 248 $4,051 $10,967
License and
development fees 117 -- -- 117 1,996 -- -- 1,996
Royalties 155 -- -- 155 238 -- -- 238
Customer-sponsored
research and development 154 242 -- 396 235 389 -- 624
-------- -------- -------- -------- -------- -------- ------ --------
5,048 257 2,615 7,920 9,137 637 4,051 13,825

Costs and expenses 6,102 991 2,665 9,758 6,763 2,671 4,007 13,441
-------- -------- -------- -------- -------- -------- ------ --------
Operating income (loss) (1,054) (734) (50) (1,838) 2,374 (2,034) 44 384
Other (78) -- -- (78) (51) (4) -- (55)
-------- -------- -------- -------- -------- -------- ------ --------
Segment income (loss) $(1,132) $ (734) $ (50) $(1,916) $ 2,323 $(2,038) $ 44 329
======== ======== ======== ======== ======== ======== ====== ========


Page-11

Segment income (loss) excludes interest income, interest expense and
miscellaneous charges on a total basis of $(379,000) and $(176,000) in 2003
and 2002, respectively, not allocated to business segments.

The following table presents segment information for the nine months ended
September 30, 2003 and 2002.

2003 2002
------------------------------------ -------------------------------------
FRAM EMS Mushkin Total FRAM EMS Mushkin Total
------------------------------------ -------------------------------------
(in thousands)


Revenue:
Product sales $19,266 $ 571 $ 7,727 $27,564 $17,246 $ 820 $13,237 $31,303
License and
development fees 350 -- -- 350 4,812 -- -- 4,812
Royalties 380 -- -- 380 357 -- -- 357
Customer-sponsored
research and development 976 1,349 -- 2,325 578 2,043 -- 2,621
-------- -------- -------- -------- -------- -------- -------- --------
20,972 1,920 7,727 30,619 22,993 2,863 13,237 39,093

Costs and expenses 19,752 6,354 7,819 33,925 18,406 8,638 13,167 40,211
Impairment charges -- 1,687 3,843 5,530 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss) 1,220 (6,121) (3,935) (8,836) 4,587 (5,775) 70 (1,118)
Other (150) (123) -- (273) (116) (27) -- (143)
-------- -------- -------- -------- -------- -------- -------- --------
Segment income (loss) $ 1,070 $(6,244) $(3,935) $(9,109) $ 4,471 $(5,802) $ 70 $(1,261)
======== ======== ======== ======== ======== ======== ======== ========
Total assets $17,608 $ 3,505 $ 5,509 $26,622 $24,363 $ 6,001 $ 9,833 $40,197
======== ======== ======== ======== ======== ======== ======== ========


Segment income (loss) excludes interest income, interest expense and
miscellaneous charges on a total basis of $(963,000) and $(417,000) in 2003
and 2002, respectively, not allocated to business segments.

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

Accounting for goodwill and intangible assets requires that goodwill no
longer be amortized but be tested for impairment at least annually at the
reporting unit level in accordance with SFAS No. 142. Recognized intangible
assets with determinable useful lives should be amortized over their useful
life and reviewed for impairment in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." At least annually, the Company completes an analysis of
the fair value of its goodwill to determine if there is an indicated
impairment of its goodwill. The determination of impairment of goodwill and
other intangible assets requires significant judgments and estimates.

Page-12

As a result of an analysis completed as of June 30, 2003, the Company recorded
impairment charges totaling $5,530,000. These charges included $3,843,000 for
impairment of goodwill related to the Company's Mushkin business unit. As a
result of the events discussed below, the Company determined it was necessary
to perform an analysis of the fair value of this goodwill during the second
quarter. This charge is reflective of a sustained downturn in DRAM market
conditions that the Company expects to continue for some time into the future
and has resulted in lower than expected actual and projected revenue and
profitability of this business unit. In calculating the impairment charge,
the fair value was estimated using a discounted cash flow methodology and
market comparisons.

In June 2003, EMS was notified by its primary contract engineering service
customers that on-going product development programs would be discontinued no
later than July 31, 2003. As a result, the Company will no longer pursue
sales or development of Enhanced-DRAM products. However, the Company will
pursue the sale or licensing of EMS' intellectual property assets. Any sale
of the intellectual property assets will require the prior approval of
Infineon. A valuation of EMS' intangible assets was completed and impairment
charges of $1,687,000 were recorded to adjust asset carrying values to their
estimated fair value at June 30, 2003. The fair values were determined by
obtaining an appraisal from an independent consulting firm specializing in
such valuations.

The impairment charges are non-cash in nature and do not affect the Company's
liquidity. There can be no assurance that future goodwill and long-lived
asset impairments will not occur.

The changes in the carrying amount of goodwill for the nine months ended
September 30, 2003, by business segment are as follows:

Goodwill
Balance Changes Balance
as of During as of
January 1, the Sep. 30,
2003 Period 2003
--------- --------- ---------
(in thousands)

FRAM $ 585 $ -- $ 585
Mushkin 7,278 (3,843)(a) 3,435
-------- -------- --------
Total $7,863 $(3,843) $4,020
======== ======== ========
- ---------
(a) Second quarter 2003 impairment charge.

Page-13

Included in intangible assets on the Company's Consolidated Balance
Sheets are intangible assets with determinable lives as follows:

September 30, December 31,
2003 2002
------------- ------------
(in thousands)
Amortizable intangible assets:
Patents $7,023 $7,934
Product license fees 2,150 2,150
Process technology -- 1,983
Accumulated amortization (5,108) (5,780)
------- -------
Total $4,065 $6,287
======= =======

Amortization expense for intangible assets for the three months ended
September 30, 2003 and 2002, was approximately $127,000 and $263,000,
respectively. Amortization expense for the nine months ended September 30,
2003 and 2002, was approximately $570,000 and $683,000, respectively.
Estimated amortization expense for intangible assets, is $700,000 in 2003,
$550,000 in 2004 through 2007 and $1.7 million thereafter.

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS; FACTORS AFFECTING FUTURE RESULTS

This quarterly report contains statements under this caption that constitute
"forward-looking statements" under the Private Securities Litigation Act of
1995 and that are subject to certain risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in such
forward-looking statements. Factors that might cause such a difference
include but are not limited to: (i) the timely completion of the development
and qualification for manufacturing of the Company's new FRAM products;
(ii) broader customer acceptance of its FRAM products; (iii) the Company's
ability to manufacture its products on a cost-effective and timely basis at
its alliance foundry partners; (iv) the Company's ability to perform under
existing alliance and joint development agreements and to develop new alliance
and foundry relationships; (v) our ability to introduce timely new
technologies and products and market acceptance of such technologies and
products; (vi) the success of our on-going cost-reduction efforts; (vii) the
timing and availability of manufacturing resources provided by our
manufacturing and alliance partners for the production of our products;
(viii) the alliance partners' willingness to continue development activities
as they relate to their license agreements with the Company; (ix)the loss of a
significant customer or delay in our customers' manufacturing programs;
(x) effects on the Company's cash flow and available cash as a result of
quarterly redemptions of debentures (xi) the availability and related cost of
future financing; (xii) the retention of key personnel; (xiii) the outcome of
the Company's patent interference litigation proceedings; (xiv) factors not
directly related to the Company, such as competitive pressures on pricing,
marketing conditions in general, competition, technological progression,
product obsolescence and the changing needs of potential customers and the
semiconductor industry in general; and (xv) global economic and political
conditions related to on-going military actions against terrorism.

Page-14

Additionally, recently enacted and proposed changes in the laws and
regulations affecting public companies, including the provisions of the
Sarbanes-Oxley Act of 2002 and rules proposed by the SEC and Nasdaq,
could result in increased costs to the Company as it evaluates the
implications of new rules and responds to their requirements. The new rules
could make it more difficult for the Company to obtain certain types of
insurance, including director and officer liability insurance, and the Company
may be forced to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. The impact
of these events could also make it more difficult for the Company to attract
and retain qualified persons to serve on our board of directors, on committees
of our board of directors, or as executive officers.

Since its inception, the Company has been primarily engaged in the research
and development of ferroelectric technology and the design, development and
commercialization of FRAM products and Enhanced-DRAM products. Since 1992,
revenue has been derived from the sale of the Company's FRAM and Enhanced-DRAM
products. The Company has also generated revenue under license and
development agreements entered into with a limited number of established
semiconductor manufacturers and involving the development of specific
applications of the Company's technologies. Accordingly, fluctuations in the
Company's revenues have resulted primarily from the timing of significant
product orders, the timing of the signing of and delivery under license and
development agreements, and the achievement of related performance milestones.

RESULTS OF OPERATIONS

QUARTER ENDED SEPTEMBER 30, 2003 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
2002.

REVENUES. Total revenue for the quarter ended September 30, 2003 was $7.9
million, a decrease of $5.9 million, or 43%, from the quarter ended
September 30, 2002. This decrease is primarily due to a decline in product
revenue of $3.7 million and lower license and development fee revenue of
$1.9 million.

The 34% decline in product revenue for the quarter ended September 30, 2003
was the result of decreased product sales at both the FRAM and Mushkin
businesses. Compared to the quarter ended September 30, 2002, FRAM product
revenues decreased $2.0 million, a decrease of 31%. The decrease from the
third quarter of 2002 was the result of a $3.0 million decline in revenue from
the Enel meter program offset by a $1.0 million increase in all other customer
revenue. Strong order and shipment activity for the Enel meter program during
the second quarter of 2003 resulted in the reduced activity during the current
quarter. Shipments into the Ampy/ENEL program represented approximately 43%
and 76% of total FRAM product revenue for the quarters ended September 30,
2003 and 2002, respectively.

Product revenues at the Company's Mushkin subsidiary decreased approximately
$1.4 million to $2.6 million during the three months ended September 30, 2003,
or 35%, compared to the same period in 2002. The Company's focus on higher
margin, lower volume opportunities, as well as the sustained downturn in the
DRAM markets, are the primary reasons for the quarterly decrease in revenues.

Page-15

Product revenue at the Company's EMS subsidiary was $16,000 and $248,000
for the three months ended September 30, 2003 and 2002, respectively. During
the second quarter of 2003 the Company announced its intention to realign
operations of its EMS subsidiary, improving operational efficiency and
concentrating the Company's resources on its FRAM product business. In April
2003, as part of the realignment, EMS reached an agreement with Hewlett
Packard, its principal customer, to release the Company from future
development and engineering costs and product delivery requirements. The
original terms of the development contract, which included sales of the
Company's ESRAM product, would have been financially unfavorable to the
Company given the contractual selling price of the product relative to present
and expected wafer foundry and manufacturing costs. Under its revised
agreement with Hewlett Packard, EMS expected to provide contract engineering
and design services in support of the joint product development program for an
additional six to twelve months. However, in June 2003, Hewlett Packard
notified the Company its engineering services would not be required beyond
July 31, 2003. EMS also generated revenue from the product development program
it entered into with Infineon. In June 2003, Infineon decided not to market
the product EMS was developing for Infineon. As a result of the changes in
the Hewlett Packard and Infineon engineering services agreements, the Company
will no longer pursue product or service revenue related to EMS' DRAM
technology.

The Company recognized $117,000 and $2.0 million in license and development
fee revenue during the quarters ended September 30, 2003 and 2002,
respectively. The decline of $1.9 million resulted from recognizing the
remaining revenue related to the Company's Texas Instruments license and
development agreement during 2002. The Company continues to work with Texas
Instruments on a customer sponsored research and development basis.

The Company recognized royalty revenue of $155,000 in the quarter ended
September 30, 2003. In the same period of 2002, royalty revenue of $238,000
was recognized. Royalty revenue in 2003 and 2002 is attributable to FRAM
licensing agreements with existing licensees.

Customer-sponsored research and development revenue is primarily attributable
to the Company's technology development program with Texas Instruments and
product development programs with Hewlett Packard Co. and Infineon
Technologies AG. The Company recognized customer-sponsored research and
development revenue of $396,000 and $624,000 during the quarters ended
September 30, 2003 and 2002, respectively. The amount of customer sponsored
research and development revenue recognized during a given quarter is
dependent on the specific programs the Company is working on, the development
stage of each program, the costs incurred during the quarter and the amount of
work remaining to complete the program.

Page-16

COST OF SALES. Overall cost of product sales (exclusive of provisions for
inventory write-offs) as a percentage of product revenue during the third
quarter of 2003 decreased from 69% to approximately 63% as compared with the
same period in 2002. Cost of sales associated with the Company's FRAM
products decreased during the quarter from 59% in 2002 to approximately 51% in
2003. FRAM cost of sales declined as the Company improved manufacturing
yields and achieved volume related cost reductions. Cost of sales as a
percentage of product revenue for the Company's Mushkin subsidiary were 85%
and 87% for the quarters ended September 30, 2003 and 2002, respectively.
This decrease is attributable to changes in the focus of Mushkin sales to
higher margin opportunities.

PROVISION FOR INVENTORY WRITE-DOWN. During the third quarter of 2003, the
Company increased its provision for excess and obsolete inventory by $30,000
compared to $40,000 during the third quarter of 2002. Quarterly charges to
the provision are the result of management's estimate of excess and obsolete
inventories as of the balance sheet date and fluctuate with changes in
inventory levels and sales forecasts for the Company's products.

RESEARCH AND DEVELOPMENT. Combined research and development expenses for the
quarter ended September 30, 2003 decreased $353,000 to $2.8 million, a
decrease of 11% as compared with the same period in 2002. This decline is
primarily due to decreased costs related to the development of products at the
Company's EMS subsidiary.

SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and administrative
expenses for the quarter ended September 30, 2003 decreased $354,000 to $2.4
million as compared to $2.7 million for the same period in 2002. This
reduction is primarily related to lower marketing expenses at the Company's
EMS subsidiary, reduced sales representative commissions resulting from lower
product revenues and decreases in administrative salaries and benefits.

INTEREST EXPENSE, RELATED PARTY. Related party interest expense increased
$23,000 to $132,000 for the quarter ended September 30, 2003, as compared to
the same period in 2002, primarily due to increases in interest expense
related to the convertible debenture issued to Infineon in March 2002.

INTEREST EXPENSE, OTHER. Other interest expense increased $70,000 to
$252,000 for the three months ended September 30, 2003, primarily due to
minimum interest charges related to the Company's Wells Fargo credit facility
and increased amortization of debt discount resulting from principal payments
during the quarter on the Company's convertible debentures.

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2002

REVENUES. Total revenue for the nine months ended September 30, 2003 was
$30.6 million, a decrease of $8.5 million, or 22%, from the same period in
2002.

Page-17

Revenue from product sales decreased $3.7 million, or 12%, for the nine months
ended September 30, 2003 as compared to the same period in 2002. FRAM product
revenues for the nine months ended September 30, 2003 increased $2.0 million
to $19.3 million, from the nine months ended September 30, 2002. The
Company's shipments to new and existing (non-Ampy/ENEL) customers increased
$2.5 million during the period, while Ampy/ENEL shipments decreased
approximately $1.5 million. Additionally, the Company recorded revenue of
approximately $950,000 related to a change in our estimate of returns from
distributors during the nine-month period ended September 30, 2003. The
Company historically recorded all shipments to distributors as deferred
revenue until shipped to the end customer because the Company did not believe
it had adequate historical data to make a reasonable estimate of the amount of
future returns as required under Statement of Financial Accounting Standard
No. 48 ("FAS No. 48"), "Revenue Recognition When Right of Return Exists".
During the first quarter of 2003, the Company concluded that it now had
sufficient shipment and return experience to allow for the recognition of
revenue on shipments to distributors at the time of shipment, along with a
reserve for estimated returns. Accordingly, during the first quarter of 2003,
the Company recognized an additional $950,000 in product sales revenue that
would have been deferred prior to this change in estimate. The impact on
gross margins from this additional revenue was approximately $450,000 during
the first nine months of 2003.

Shipments into the Ampy/ENEL program represented approximately 60% and 78% of
total FRAM product revenue for the nine-month periods ended September 30, 2003
and 2002, respectively.

Product revenues at the Company's Mushkin subsidiary decreased approximately
$5.5 million to $7.3 million during the nine months ended September 30, 2003,
or 42%, compared to the same period in 2002. Mushkin revenues during the
nine-month period ended September 30, 2002 were high and resulted from
targeting high volume low margin business. During the quarter ended June 30,
2002, the Company began to focus on higher margin, lower volume opportunities,
which resulted in decreasing revenue beginning in the latter half of 2002.
Additionally, during the first quarter of 2003 Mushkin recognized $311,000 of
revenue related to a change in the estimated amount of distributor product
returns as discussed above. The impact on gross margins from this additional
revenue was approximately $40,000 during the nine months ended September 30,
2003.

Product revenues at the Company's EMS subsidiary were $571,000 and $820,000
for the nine months ended September 30, 2003 and 2002, respectively. During
the second quarter of 2003 the Company announced its intention to realign
operations of its EMS subsidiary, improving operational efficiency and
concentrating the Company's resources on its FRAM product business. In April
2003, as part of the realignment, EMS reached an agreement with Hewlett
Packard, its principal customer, to release the Company from future
development and engineering costs and product delivery requirements. The
original terms of the development contract, which included sales of the
Company's ESRAM product, would have been financially unfavorable to the

Page-18

Company given the contractual selling price of the product relative to present
and expected wafer foundry and manufacturing costs. Under its revised
agreement with Hewlett Packard, EMS expected to provide contract engineering
and design services in support of the joint product development program for an
additional six to twelve months. However, in June 2003, Hewlett Packard
notified the Company its engineering services would not be required beyond
July 31, 2003. EMS also generated revenue from the product development program
it entered into with Infineon. In June 2003, Infineon decided not to market
the product EMS was developing for Infineon. As a result of the changes in
the Hewlett Packard and Infineon engineering services agreements the Company
will no longer pursue product or service revenue related to EMS' DRAM
technology.

The Company recognized $350,000 and $4.8 million in license and development
fee revenue during the nine months ended September 30, 2003 and 2002,
respectively. The decline of $4.5 million resulted from recognizing the
remaining revenue related to the Company's Texas Instruments license and
development agreement during 2002. The Company continues to work with Texas
Instruments on a customer sponsored research and development basis.

The Company recognized royalty revenue of $380,000 in the nine months ended
September 30, 2003. In the same period of 2002, royalty revenue of $357,000
was recognized. Royalty income in 2003 and 2002 is attributable to FRAM
licensing agreements with existing licensees.

Customer-sponsored research and development revenue is primarily attributable
to the Company's technology development program with Texas Instruments and
product development programs with Hewlett Packard Co. and Infineon
Technologies AG. The Company recognized customer-sponsored research and
development revenue of $2.3 million and $2.6 million during the nine months
ended September 30, 2003 and 2002, respectively. The amount of customer
sponsored research and development revenue recognized during a given quarter
is dependent on the specific programs the Company is working on, the
development stage of each program, the costs incurred during the quarter and
the amount of work remaining to complete the program. Customer funded
research and development revenue in future periods is expected to decline as a
result of the completion of the Hewlett Packard and Infineon product
development programs.

COST OF SALES. Overall cost of product sales (exclusive of inventory write-
offs) as a percentage of product revenue during the nine months ended
September 30, 2003 decreased from 69% to approximately 60% as compared with
the same period in 2002. Cost of sales associated with the Company's FRAM
products decreased during the nine months ended September 30, 2003 from 58% in
2002 to approximately 50% in 2003. FRAM cost of sales declined as the Company
improved manufacturing yields, shipped a more economical version of the
product used in the Ampy/ENEL metering program and realized cost reductions at
the Company's subcontract manufacturers. Cost of sales as a percentage of
product revenue for the Company's Mushkin subsidiary were 83% and 88% for the
nine months ended September 30, 2003 and 2002, respectively. This decrease is
attributable to changes in the focus of Mushkin sales to higher margin
opportunities.

Page-19

PROVISION FOR INVENTORY WRITE-DOWN. During the nine months ending
September 30, 2003, the Company increased its provision for excess and
obsolete inventory by $1.3 million compared to $216,000 during the same period
of 2002. The 2003 charge is primarily related to the realignment of the
Company's EMS business due to poor market conditions and the high costs of
developing EMS' new products. As a result, the Company believes it is
unlikely existing inventories at EMS can be sold.

RESEARCH AND DEVELOPMENT. Combined research and development expenses for the
nine months ended September 30, 2003 decreased $1.6 million to $8 million, a
decrease of 17% as compared with the same period in 2002. This decline is
primarily due to decreased costs related to the development of new products at
the Company's EMS subsidiary.

SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and administrative
expenses for the nine months ended September 30, 2003 of $8.1 million
decreased $551,000 as compared the same period in 2002 primarily due to
on-going cost reduction activities which reduced salary, employee benefits and
travel expenses.

IMPAIRMENT OF GOODWILL. A sustained downturn in DRAM market conditions
resulted in lower than expected actual and projected revenue and profitability
of Mushkin during the first half of 2003. Because the Company believed the
downturn was likely to continue to cause lower than expected sales and
profitability for some time into the future the Company believed it was
appropriate to review the fair value of goodwill related to Mushkin as of
June 30, 2003. The result of the Company's review was a charge of $3.8
million for impairment of goodwill in the quarter ended June 30, 2003. In
calculating the impairment charge, the fair value was estimated using a
discounted cash flow methodology and market comparisons. The impairment
charge is non-cash in nature and does not affect the Company's liquidity.
There can be no assurance that future goodwill impairments will not occur.

IMPAIRMENT OF INTANGIBLE ASSETS. In June 2003, Enhanced Memory Systems was
notified by its primary contract engineering service customers that on-going
product development programs would be discontinued no later than July 31,
2003. As a result, the Company will no longer pursue sales or development of
Enhanced-DRAM products. However, the Company will pursue the sale or
licensing of EMS' intellectual property assets. Any sale of the intellectual
property assets will require the prior approval of Infineon. This caused the
Company to review the valuation of Enhanced Memory Systems' intangible asset
portfolio and resulted in the recording of impairment charges of $1.7 million
to adjust the asset carrying values to their estimated fair value at June 30,
2003. The fair values were determined by obtaining an appraisal from an
independent consulting firm specializing in such valuations. The impairment
charges are non-cash in nature and do not affect the Company's liquidity.
There can be no assurance that future long-lived asset impairments will not
occur.

Page-20

INTEREST EXPENSE, RELATED PARTY. Related party interest expense increased
$143,000 to $342,000 for the nine months ended September 30, 2003, as compared
to the same period in 2002, primarily due to increases in interest expense
related to the convertible debenture issued to Infineon in March 2002.

INTEREST EXPENSE, OTHER. Other interest expense increased $268,000 to
$637,000 for the nine months ended September 30, 2003, primarily due to
interest expense related to convertible debentures issued to Halifax and
Bramwell in April 2002 and minimum interest charges related to the Company's
Wells Fargo credit facility.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from operations for the nine months ended September 30,
2003 were $1.9 million, an increase of $3.5 million as compared to the same
period in 2002. Cash used to fund operations, after non-cash charges,
increased $1.7 million for the nine-month period ending September 30, 2003 as
compared to the same period in 2002. The increase was due primarily to
operating losses during the third quarter of 2003 resulting from a one-quarter
slow down in shipments to the Company's principal FRAM customer. Fourth
quarter shipments to this customer are expected to return to normal levels of
approximately 2 million units per quarter.

Accounts receivable decreases of $4.6 million since the end of 2002 are
primarily attributable to collection of all outstanding amounts due from a
particular Ampy/ENEL subcontractor who was delayed in paying the Company $2.6
million and lower third quarter sales activity as previously discussed.

Inventories decreased $2.4 million during the nine-month period ended
September 30, 2003. This decrease is the result of shipping FRAM product into
the Ampy/ENEL program that were built up during the fourth quarter of 2002
because of a temporary slowdown of shipments into the Ampy/ENEL program and
reduced product shipments from the Company's foundry, Fujitsu, due to the
effects of an earthquake in the vicinity of Fujitsu's wafer foundry in May
2003. Wafer shipments returned to normal levels in the latter half of the
third quarter 2003. Additionally, during the nine months ended September 30,
2003, the Company recorded a provision for inventory write-off of $1.3
million, primarily related to the realignment of the Company's EMS business
due to poor market conditions and the high costs of developing EMS' new
products. As a result, the Company believes it is unlikely existing EMS
inventories can be sold.

Accounts payable and accrued liabilities decreased approximately $1.7 million
during the nine months ended September 30, 2003, from $7.1 million at the end
of 2002 to $5.4 million at September 30, 2003. The decrease is primarily
related to reduced shipments of FRAM production wafers from the Company's
foundry partners as the Company depleted excess inventories built up
during the fourth quarter of 2002 and reduced product shipments from the
Company's foundry, Fujitsu, due to the effects of an earthquake in the
vicinity of Fujitsu's wafer foundry in May 2003. Wafer shipments returned to
normal levels in the latter half of the third quarter 2003. Additionally, the
Company's expense levels have decreased as a result of the reduction in EMS'
operating activities.

Page-21

Deferred revenue decreased approximately $2.3 million from December 31, 2002.
This change is primarily related to a change in our estimate of returns from
distributors (refer to Results of Operations for further discussion) and
recognizing revenue on the Company's customer sponsored research and
development programs with Hewlett Packard and Infineon.

Cash used in investing activities was $528,000 for the nine months ended
September 30, 2003, compared to $970,000 for the same period in 2002. Capital
expenditures were $228,000 in the nine months ended September 30, 2003
compared to $698,000 in the nine-month period ended September 30, 2002.
Equipment and plant expenditures are expected to be minimal through the end of
2004. During the nine months ended September 30, 2003, $329,000
was expended for intellectual property, compared to $272,000 for the same
period in 2002.

During the nine months ended September 30, 2003, net cash used in financing
activities was $715,000 primarily related to principal payments of $800,000 to
the Company's debenture holders in accordance with the terms of the covenant
Waiver Agreement entered into with Halifax, Bramwell and Infineon on
August 18, 2003 (See Note 7 in Notes to Consolidated Financial Statements).
Per the terms of the agreement, the Company is required to make quarterly
principal payments to the debenture holders for the next five quarters in
amounts ranging from $600,000 to $620,000 per quarter. During the nine months
ended September 30, 2002, $6.1 million of cash provided by financing
activities was primarily from the issuance of $8 million of 5 year, 5% fixed
rate, convertible debentures to Infineon, Halifax Fund and Bramwell Capital
Corporation, offset by approximately $1.2 million used to redeem 1,160 shares
of redeemable convertible preferred stock on its maturity date.

The Company is currently involved in a patent interference proceeding (see
Note 6 of Part I - "Contingencies"). If the Company is ultimately unsuccessful
in these proceedings, there would be no retroactive cash payment requirements
from the Company to the junior party as a result of such an adverse decision.
While the Company cannot accurately estimate the financial effects of such a
result, the Company believes that such a result could, depending on when a
final non-appealable judgment is ultimately rendered, materially adversely
affect the Company's FRAM product business and operating results and, thus,
have a materially adverse effect on the Company's financial condition as a
whole. The Company may also incur significant litigation expenses in the
defense of the interference proceeding.

The Company has $7.2 million of 5%, 5 year, fixed price convertible debentures
outstanding at September 30, 2003 (See Note 7 of Part I - "Long-term Debt").
The debentures contain covenants, which are customary for this type of
financing, including: achieving a minimum amount of EBITDA, as defined in the
debenture agreements, and not exceeding a defined level of capital
expenditures. As of June 30, 2003, the Company failed to meet the minimum
EBITDA covenant under the debenture agreements, which by the terms of the
debentures became an event of default on July 30, 2003. On August 18, 2003,
the Company entered into a Waiver Agreement with the debenture holders. The

Page-22

Waiver Agreement provided for a waiver of the Default as well as a waiver of
all remaining EBITDA covenants during 2003. In addition, the Waiver Agreement
requires that the Company make quarterly principal payments to the debenture
holders totaling $3.8 million over the six quarters from July 2003 to December
2004. The initial principal payment of $800,000 was made on August 19, 2003.
The remaining five quarterly payments will be between $600,000 and $620,000.
If the Company fails to make any of the required principal payments the
debenture holders may elect to convert the missed payment amount to common
stock at a conversion price equal to 90% of the daily volume weighted moving
average for each of the 60 trading days following the notice of failure to
pay. The debenture holders may elect to waive any quarterly redemption. As
of September 30, 2003 the Company was in compliance with all covenants of the
debentures. The Company believes it will be able to meet the EBITDA covenant
requirements from January 1, 2004 through at least September 30, 2004 and, as
such, has classified the amounts due after September 30, 2004 as long-term as
of September 30, 2003. The Company believes its future cash flows will be
sufficient to meet the quarterly payment schedule through 2004.

During the remainder of 2003 and into 2004, the Company will continue to
receive cash from product sales, an expected FRAM license payment from an
existing licensee and ongoing FRAM customer-sponsored research and development
programs.

In an effort to appropriately size its business to expected revenue levels and
reduce its operating losses and cash usage, the Company took expense reduction
measures during the third quarter of 2003 that are expected to result in
savings of up to $500,000 per quarter.

The Company has entered into a credit and security agreement with Wells Fargo
Business Credit, Inc. to provide a secured $3 million revolving line of
credit. The credit facility currently provides for interest at a floating
rate equal to the prime lending rate plus 1.75% per annum and a term of three
years. Security for the credit facility includes the Company's non-European
accounts receivable and inventories. The Company plans to use the credit
facility for working capital requirements. Borrowing limits are subject to
available collateral balances. At September 30, 2003, the borrowing base was
$1.6 million. The Company has yet to borrow any funds under this credit
agreement.

The Company had $3.9 million in cash and cash equivalents at September 30,
2003. The Company believes it has sufficient resources to fund its operations
through at least September 2004. In view of the Company's expected future
working capital requirements in connection with the design, manufacturing and
sale of its FRAM products, the Company's projected continuing research and
development expenditures, other operating expenditures, the required quarterly
redemption of the Company's outstanding debentures, totaling $3.0 million
between October 1, 2003 and December 31, 2004, and the potential results of
pending patent litigation, the Company may be required to seek additional
equity or debt financing. There is no assurance, however, that the Company
will be able to obtain such financing on terms acceptable to the Company, or

Page-23

at all. Any issuance of common or preferred stock to obtain additional
funding would result in dilution of existing stockholders' interests in
Ramtron. The inability to obtain additional financing when needed would have
a material adverse effect on the business, financial condition and operating
results and could adversely affect the Company's ability to continue its
business operations.

CONTRACTUAL COMMITMENTS. For more information on the Company's contractual
obligations on operating leases and contractual commitments, see Notes 5 and
6 of the Notes to Consolidated Financial Statements included in the Company's
2002 Form 10-K. At September 30, 2003, the Company's commitments under these
obligations were as follows (in thousands):

Operating NEBF Convertible Committed
Leases Consulting Fee(1) Debentures Capacity(2) Total
--------- --------------- ----------- --------- -------

2003 $200 $ 35 $ 600 $129 $ 964
2004 20 80 2,440 -- 2,540
2005 19 80 -- -- 99
2006 15 80 -- -- 95
2007 -- 80 4,160 -- 4,240
------ ------ ------ ------- -------
Total $254 $355 $7,200 $129 $7,938
====== ====== ====== ======= =======
- -----------
(1) These consulting fees are required to be paid to NEBF as long as NEBF owns
at least 5% of the outstanding shares of the Company.

(2) In 2002, the Company's EMS subsidiary entered into an agreement with its
subcontract assembly and test supplier for committed capacity on certain
semiconductor test equipment. During the quarter ended September 30, 2003 EMS
recorded approximately $129,000 in excess capacity charges to complete its
agreement with the assembly and test supplier.

CRITICAL ACCOUNTING POLICIES. The Company's discussion and analysis of its
financial condition and results of operations are based upon its consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, the Company evaluates its estimates, including those related
to bad debts, inventories, long-lived assets, income taxes, and contingencies
and litigation. The Company bases its estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.

Page-24

REVENUE RECOGNITION. Revenue from product sales to direct customers is
recognized upon shipment as the Company generally does not have any post-
shipment obligations or allow for any acceptance provisions. The Company
defers recognition of sales to distributors when it is unable to make a
reasonable estimate of product returns due to insufficient historical product
return information.

Revenue from licensing programs is recognized over the period the Company is
required to provide services under the terms of the agreement. Revenue from
research and development activities that are funded by customers are
recognized as the services are performed, generally, as contractual
milestones are met. In situations where the Company licenses its technology
and also provides development assistance, the Company records the total
proceeds to be received as revenue over the longer licensing period.

Revenue from royalties is recognized when reported to the Company after the
shipment of product from the Company's technology license partners to direct
customers.

SIGNIFICANT POLICIES AFFECTED BY JUDGMENTS AND ESTIMATES. The Company
believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its
consolidated financial statements.

The Company generally records product sales revenue upon shipment to the
customer or distributor. Product sales revenue in a given period is reduced
by an estimated allowance for expected product returns based on historical
information. The revenue recorded by the Company in each reporting period is
dependent on estimates of product return rates. Changes in return rate
estimates could result in revisions to the amount of product revenue
recognized in a given period.

The Company records license and customer sponsored research and development
revenue on arrangements entered into with customers. The revenue recorded by
the Company in each reporting period is dependent upon estimates regarding
the cost of projects and the achievement of milestones. Changes in estimates
regarding these matters could result in revisions to the amount of revenue
recognized on these arrangements.

While the Company maintains a stringent credit approval process, significant
judgments are made by management in connection with assessing our customers'
ability to pay at the time of shipment. Despite this assessment, from time
to time, our customers are unable to meet their payment obligations. The
Company continues to monitor our customers' credit worthiness, and use our
judgment in establishing the estimated amounts of customer receivables, which
will ultimately not be collected. A significant change in the liquidity or
financial position of our customers could have a material adverse impact on
the collectibility of our accounts receivable and our future operating
results.

Page-25

The Company writes down its inventory for estimated obsolescence or lack of
marketability for the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.

The Company reviews the carrying values of its long-lived assets whenever
events or changes in circumstances indicate that such carrying values may not
be recoverable. Under current standards, the assets must be carried at
historical cost if the projected cash flows from their use will recover their
carrying amounts on an undiscounted basis and without considering interest.
However, if projected cash flows are less than their carrying value, the
long-lived assets must be reduced to their estimated fair value.
Considerable judgment is required to project such cash flows and, if
required, estimate the fair value of the impaired long-lived asset. The
estimated future cash flows are based upon, among other things, assumptions
about expected future operating performance and may differ from actual cash
flows. During the quarter ended June 30, 2003 the Company recorded $1.7
million of intangible asset impairments related to its EMS subsidiary. These
impairments were the result of changing business conditions that decreased the
likelihood that certain intangible assets would provide sufficient cash-flows
to support the historical cost valuations. The fair values were determined by
obtaining an appraisal from an independent consulting firm specializing in
such valuations. There can be no assurance that future long-lived asset
impairments will not occur.

Goodwill represents the excess of the purchase price over the fair
value of identifiable net tangible and intangible assets acquired in a
business combination. Goodwill is required to be tested for impairment
annually, or more frequently if events or changes in circumstances indicate
that goodwill may be impaired. The Company performed its annual goodwill
impairment testing as of December 31, 2002, and determined that no impairments
existed at that date. However, due to changing business conditions in its
Mushkin business unit the Company performed an additional goodwill impairment
test as of June 30, 2003 and recorded a $3.8 million impairment charge as of
June 30, 2003 (see Note 9 of the Notes to Consolidated Financial Statements -
Part I). This assessment requires estimates of future revenue, operating
results and cash flows, as well as estimates of critical valuation
inputs such as discount rates, terminal values and similar data. The Company
will continue to perform periodic and annual impairment analyses of goodwill
resulting from its acquisitions. As a result of future periodic, at least
annual, impairment analyses, impairment charges may be recorded and may have a
material adverse impact on the financial position and operating results of the
Company. Additionally, the Company may make strategic business decisions in
future periods which impact the fair value of goodwill, which could result in
significant impairment charges. There can be no assurance that future
goodwill impairments will not occur.

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The Company records deferred tax assets and liabilities for the estimated
future tax effects of temporary differences between the tax basis of assets
and liabilities and amounts recorded in the consolidated financial
statements, and for operating loss and tax credit carryforwards. Realization
of the recorded deferred tax assets is dependent upon the Company generating
sufficient taxable income in the appropriate tax jurisdiction in future years
to obtain benefit from the reversal of net deductible temporary differences
and from tax credit and operating loss carryforwards. A valuation allowance
is provided to the extent that management deems it more likely than not that
the net deferred tax assets will not be realized. The amount of deferred tax
assets considered realizable is subject to adjustment in future periods if
estimates of future taxable income are changed.

NEW ACCOUNTING STANDARDS

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No.
46"). This interpretation clarifies existing accounting principles related to
the preparation of consolidated financial statements when the equity investors
in an entity do not have the characteristics of a controlling financial
interest or when the equity at risk is not sufficient for the entity to
finance its activities without additional subordinated financial support from
others parties. FIN No. 46 requires a company to evaluate all existing
arrangements to identify situations where a company has a "variable interest"
(commonly evidenced by a guarantee arrangement or other commitment to provide
financial support) in a "variable interest entity" (commonly a thinly
capitalized entity) and further determine when such variable interests require
a company to consolidate the variable interest entities' financial statements
with its own. The Company is required to perform this assessment by
December 31, 2003 and consolidate any variable interest entities for which it
will absorb a majority of the entities' expected losses or receive a majority
of the expected residual gains. Management has not yet performed this
assessment, however it is not aware of any variable interest entities that it
may be required to consolidate.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity. Statement
150 is effective for financial instruments entered into or modified after
May 31, 2003, and to all other instruments existing as of the beginning of
the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS No. 150 did not have an impact on the Company's financial
position, results of operations or cash flows.

OUTLOOK

The Company expects revenues will continue to be variable in the foreseeable
future until the Company's products gain wider market acceptance, the Company
reduces its dependence on certain key customers for product revenue, there is
increased stability in world-wide DRAM markets, new products are developed and
the Company's products can be manufactured in increased volumes and in a more
cost-effective manner.

Page-27

The Company is continuing its efforts to improve and increase commercial
production and sales of its FRAM and DRAM module products, decrease the cost
of producing such products and develop and commercialize new FRAM and DRAM
module products.

There can be no assurance that all of the Company's foundry and alliance
partners will be able to achieve commercial production of the products
currently in development. If such commercial production is not achieved or is
not achieved in a timely manner, the Company's results of operations could be
materially adversely affected.

In June 2003, Enhanced Memory Systems was notified by its primary contract
engineering service customers that on-going product development programs would
be discontinued no later than July 31, 2003. As a result, the Company will no
longer pursue sales or development of Enhanced-DRAM products. The Company
will pursue the sale or licensing of EMS' intellectual property assets. Any
sale of the intellectual property assets will require the prior approval of
Infineon.

On June 30, 2003, the Company failed to meet the minimum EBITDA required under
its debenture agreements, which by the terms of the debentures became an event
of default on July 30, 2003. The Company and the debenture holders have
entered into an agreement to waive the covenant violation. The Waiver
Agreement provides for a waiver of the Default as well as a waiver of all
remaining EBITDA covenants during 2003. In addition, the Waiver Agreement
requires that the Company make quarterly principal payments to the debenture
holders totaling $3.8 million over the six quarters. The initial principal
payment of $800,000 was made on August 19, 2003. The remaining five quarterly
payments will be between $600,000 and $620,000. If the Company fails to make
any of the required principal payments the debenture holders may elect to
convert the missed payment amount to common stock at a conversion price equal
to 90% of the daily volume weighted moving average for each of the 60 trading
days following the notice of failure to pay. The debenture holders may elect
to waive any quarterly redemption. In addition, the Waiver Agreement provides
that the Company will lower the exercise price of the 700,435 common stock
warrants held by the debenture holders from $4.28 to a price equal to 150% of
the average closing bid price for the Company's common stock for the 5 trading
days immediately preceding the effective date of the Waiver Agreement ($3.04)
and extend the exercise period for one year. The adjustment to the original
terms of the warrants created an additional non-cash increase to debt discount
of approximately $179,000 which was recorded during the quarter ended
September 30, 2003. This increase to debt discount will be amortized into
interest expense over the remaining life of the debenture. As of
September 30, 2003 the Company was in compliance with all covenants of the
debentures. The Company believes it will be able to meet the EBITDA covenant
requirements from January 1, 2004 through at least September 30, 2004 and, as
such, has classified the amounts due after September 30, 2004 as long-term as
of September 30, 2003. The Company believes its future cash flows will be
sufficient to meet the quarterly payment schedule through 2004.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in financial and commodity market prices and rates. The Company is
exposed to market risk in the areas of changes in United States interest rates
and changes in foreign currency exchange rates as measured against the United
States dollar. These exposures are directly related to its normal operating
activities. The Company currently has no derivative financial instruments.

Interest payable on the Company's convertible debentures is fixed at 5% over
the term of the debentures. As such, changes in interest rates will not
affect future earnings or cash flows.

The Company manages interest rate risk by investing its excess cash in cash
equivalents bearing variable interest rates, which are tied to various market
indices. The Company does not believe that near-term changes in interest
rates will result in a material effect on future earnings, fair values or cash
flows of the Company. The net effect of a 10% change in interest rates on
outstanding cash and cash equivalents at September 30, 2003 would have less
than an $100,000 effect on the Company's earnings or cash flows.

ITEM 4 - CONTROLS AND PROCEDURES

As of September 30, 2003, under direction of the Company's Chief Executive
Officer and Chief Financial Officer, the Company evaluated the effectiveness
of its disclosure controls and procedures and internal controls over financial
reporting and concluded that (i) the Company's disclosure controls and
procedures were effective as of September 30, 2003, and (ii) no changes
occurred during the quarter ended September 30, 2003, that materially
affected, or are reasonably likely to materially affect, such internal
controls.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

While there have been no material developments during the third quarter of
2003 in any previously reported litigation, see Note 6 of Part I for a current
description of on-going litigation.

ITEMS 2-5 - NONE

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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

4.1 First Amendment to Credit and Security Agreement between the
Registrant, the Registrant's subsidiaries Enhanced Memory
Systems, Inc. and Mushkin Inc. and Wells Fargo Business
Credit, Inc., dated June 12, 2003.

4.2 Second Amendment to Credit and Security Agreement between the
Registrant, the Registrant's subsidiaries Enhanced Memory
Systems, Inc. and Mushkin Inc. and Wells Fargo Business
Credit, Inc., dated September 5, 2003.

31.1 Certification of Principal Executive Officer pursuant to
18 U.S.C. SECTION 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Principal Financial Officer pursuant to
18 U.S.C. SECTION 1350, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Principal Executive Officer pursuant to
18 U.S.C. SECTION 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Principal Financial Officer pursuant to
18 U.S.C. SECTION 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On August 7, 2003, the Registrant filed a report on Form 8-K. The
items reported were Item 7 - "Financial Statements and Exhibits" and
Item 12 - "Results of Operations and Financial Condition."

On October 23, 2003, the Registrant filed a report on Form 8-K. The
items reported were Item 5 - "Other Events" and Item 7 - "Financial
Statements and Exhibits."

On October 24, 2003, the Registrant filed a report on Form 8-K. The
items reported were Item 7 - "Financial Statements and Exhibits" and
Item 12 - "Results of Operations and Financial Condition."

Page-30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

RAMTRON INTERNATIONAL CORPORATION
(Registrant)

November 7, 2003 /S/ LuAnn D. Hanson
-------------------------
LuAnn D. Hanson
Chief Financial Officer
(Principal Accounting Officer)

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