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<SEC-DOCUMENT>0000724910-04-000015.txt : 20041020
<SEC-HEADER>0000724910-04-000015.hdr.sgml : 20041020
<ACCEPTANCE-DATETIME>20041020161027
ACCESSION NUMBER:		0000724910-04-000015
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041020
DATE AS OF CHANGE:		20041020

FILER:

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

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-12196
		FILM NUMBER:		041087659

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

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

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PREMIS CORP
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>tenq2q05.txt
<TEXT>
                              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                FORM 10-QSB

(Mark One)
   [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934
                           For the quarterly period ended  September 30, 2004


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

               For the transition period from _______________to______________

                                            Commission file number  000-12196

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

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


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

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

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

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.01 Par Value - 4,501,345 shares outstanding
as of October 15, 2004


Transitional Small Business Disclosure Format (Check one): Yes [ ]    No [X]


<PAGE>
                       PART I--FINANCIAL INFORMATION

Item 1. Financial Statements.

                                 NVE CORPORATION
                                  BALANCE SHEET
                                SEPTEMBER 30, 2004
                                   (Unaudited)

<TABLE>
<CAPTION>
<S>                                                                <C>
Current assets:
   Cash and cash equivalents                                       $   808,767
   Investment securities                                             6,416,036
   Accounts receivable, net of allowance for
     uncollectible accounts of $15,000                               2,548,143
   Inventories                                                       1,090,171
   Deferred tax asset                                                  250,000
   Prepaid expenses and other assets                                   179,239
                                                                   ------------
Total current assets                                                11,292,356
Fixed assets:
   Machinery and equipment                                           4,017,087
   Leasehold improvements                                              379,588
                                                                   ------------
                                                                     4,396,675
   Less accumulated depreciation                                     2,524,543
                                                                   ------------
Net fixed assets                                                     1,872,132
                                                                   ------------
Total assets                                                       $13,164,488
                                                                   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                $   447,072
   Accrued payroll and other                                           593,402
   Deferred revenue                                                    348,598
   Capital lease obligations                                            73,432
                                                                   ------------
Total current liabilities                                            1,462,504
Capital lease obligations, less current portion                         67,719
                                                                   ------------
Total liabilities                                                    1,530,223

Shareholders' equity:
   Common stock                                                         45,013
   Additional paid-in capital                                       13,376,776
   Accumulated other comprehensive income                                5,275
   Accumulated deficit                                              (1,792,799)
                                                                   ------------
Total shareholders' equity                                          11,634,265
                                                                   ------------
Total liabilities and shareholders' equity                         $13,164,488
                                                                   ============
</TABLE>



                            SEE ACCOMPANYING NOTES.


<PAGE>
                                NVE CORPORATION
                             STATEMENTS OF INCOME
                  THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                  (Unaudited)

<TABLE>
<CAPTION>
                                        Three Months Ended Sept. 30
                                            2004           2003
                                        ------------   ------------
<S>                                     <C>            <C>
Revenue:
  Contract research and development     $ 1,645,662    $ 1,595,612
  Product sales                           1,450,052      1,268,573
                                        ------------   ------------
Total revenue                             3,095,714      2,864,185

Cost of sales                             1,960,797      1,738,702
                                        ------------   ------------
Gross profit                              1,134,917      1,125,483

Expenses:
  Research and development                  306,593        302,573
  Selling, general & administrative         481,648        475,691
                                        ------------   ------------
Total expenses                              788,241        778,264
                                        ------------   ------------

Income from operations                      346,676        347,219

Interest income                              58,497         44,455
Interest expense                             (3,605)        (6,907)
Other income                                 21,730         21,709
                                        ------------   ------------
Net income                              $   423,298    $   406,476
                                        ============   ============

Net income per share-basic              $      0.09    $      0.10
                                        ============   ============
Net income per share-diluted            $      0.09    $      0.09
                                        ============   ============

Weighted average shares outstanding:
  Basic                                   4,499,180      4,232,666
  Diluted                                 4,932,500      4,679,415
</TABLE>



                            SEE ACCOMPANYING NOTES.


<PAGE>
                                NVE CORPORATION
                             STATEMENTS OF INCOME
                 SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                  (Unaudited)

<TABLE>
<CAPTION>
                                         Six Months Ended Sept. 30
                                            2004           2003
                                        ------------   ------------
<S>                                     <C>            <C>
Revenue:
  Contract research and development     $ 3,171,749    $ 3,316,518
  Product sales                           2,813,192      2,367,516
                                        ------------   ------------
Total revenue                             5,984,941      5,684,034

Cost of sales                             3,586,678      3,647,697
                                        ------------   ------------
Gross profit                              2,398,263      2,036,337

Expenses:
  Research and development                  667,852        481,242
  Selling, general & administrative         966,244        926,554
                                        ------------   ------------
Total expenses                            1,634,096      1,407,796
                                        ------------   ------------

Income from operations                      764,167        628,541

Interest income                             113,366         93,468
Interest expense                             (8,062)       (14,598)
Other income                                 37,498         33,483
                                        ------------   ------------
Net income                              $   906,969    $   740,894
                                        ============   ============

Net income per share-basic              $      0.20    $      0.18
                                        ============   ============
Net income per share-diluted            $      0.18    $      0.16
                                        ============   ============

Weighted average shares outstanding:
  Basic                                   4,495,442      4,199,715
  Diluted                                 4,928,762      4,646,464
</TABLE>



                            SEE ACCOMPANYING NOTES.


<PAGE>
                               NVE CORPORATION
                          STATEMENTS OF CASH FLOWS
                 SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                     Six Months Ended Sept. 30
                                                       2004            2003
                                                    ------------   ------------
<S>                                                 <C>            <C>
OPERATING ACTIVITIES
Net income                                          $   906,969    $   740,894
Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization                       254,531        244,459
    Changes in operating assets and liabilities:
      Accounts receivable                              (808,664)       (71,138)
      Inventories                                        59,683       (427,586)
      Prepaid expenses and other                        117,298         36,755
      Accounts payable and accrued expenses               1,358        273,134
      Deferred revenue                                  (75,578)      (262,812)
                                                    ------------   ------------
Net cash provided by operating activities               455,597        533,706

INVESTING ACTIVITIES
Purchases of fixed assets                              (679,812)      (650,911)
Purchases of investment securities                      (19,921)       455,929
                                                    ------------   ------------
Net cash used in investing activities                  (699,733)      (194,982)

FINANCING ACTIVITIES
Net proceeds from sale of common stock                   79,147        166,791
Repayment of capital lease obligations                  (82,040)       (75,503)
                                                    ------------   ------------
Net cash (used in) provided by
  financing activities                                   (2,893)        91,288
                                                    ------------   ------------

(Decrease) increase in cash and cash equivalents       (247,029)       430,012
Cash and cash equivalents at beginning of period      1,055,796        595,768
                                                    ------------   ------------

Cash and cash equivalents at end of period          $   808,767    $ 1,025,780
                                                    ============   ============
</TABLE>



                            SEE ACCOMPANYING NOTES.


<PAGE>
                                NVE CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2004


1.  INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements of NVE Corporation (the
"Company") are consistent with accounting principles generally accepted in the
United States and reporting with SEC regulations. In the opinion of
management, these financial statements reflect all adjustments, consisting
only of normal and recurring adjustments, necessary for a fair presentation of
the financial statements. Although we believe that the disclosures are adequate
to make the information presented not misleading, it is suggested that these
condensed financial statements be read in conjunction with the audited
financial statements and the notes included in our latest annual financial
statements included in our report on Form 10-KSB. The results of operations
for the three and six month periods ended September 30, 2004 are not
necessarily indicative of the results that may be expected for the full year
ending March 31, 2005.

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

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

4.  EARNINGS PER SHARE
We calculate our net income per share pursuant to SFAS No. 128, Earnings per
Share. Basic earnings per share is computed based upon the weighted average
number of common shares issued and outstanding during each year. Diluted net
income per share amounts assume conversion, exercise or issuance of all
potential common stock instruments (stock options and warrants). Stock options
were not included in the computation of diluted earnings per share if the
exercise prices of the options were greater than the market price of the common
stock.

5.  INVESTMENTS
We classify and account for debt and equity securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Our entire portfolio
consists of government-backed and corporate bonds and is classified as
available for sale; thus, securities are recorded at fair market value and any
associated unrealized gain or loss, net of tax, is included as a separate
component of shareholders' equity, "Accumulated other comprehensive income."


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

<TABLE>
<CAPTION>
                                    Three months            Six months
                                ended September 30      ended September 30
                                 2004        2003        2004        2003
                               --------    --------    --------    --------
<S>                            <C>         <C>         <C>         <C>
Net income                     $423,298    $406,476    $906,969    $740,894
Change in unrealized gains       73,150     (26,352)    (85,095)      1,235
                               --------    --------    --------    --------
Comprehensive income           $496,448    $380,124    $821,874    $742,129
                               ========    ========    ========    ========
</TABLE>

7.  INVENTORIES
Inventories consist of the following:

<TABLE>
<S>                        <C>
Raw materials              $  447,839
Work-in-process               509,096
Finished goods                313,236
                           -----------
                            1,270,171
Less obsolescence reserve    (180,000)
                           -----------
                           $1,090,171
                           ===========
</TABLE>

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

     Pro forma information regarding net income and income per share is
required by SFAS Nos. 123 and 148, and has been determined as if we had
accounted for our employee stock options under the fair value method. The fair
value for these options was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
risk-free interest rate of 3.1% and 2.7% for the three and six months ended
September 30, 2004 and 2003, expected volatility of 55% to 99% and 55% for the
three and six months ended September 30, 2004 and 2003, a weighted average
expected life of the options of one to five years, and no dividend yield.

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


<PAGE>
     The pro forma information is as follows:

<TABLE>
<CAPTION>
                                                    Three Months Ended Sept. 30
                                                        2004           2003
                                                    ------------   ------------
<S>                                                 <C>            <C>
   Net income applicable to common shares:
        As reported                                 $   423,298    $   406,476
        Pro forma adjustment
          for stock options                            (241,196)       (81,325)
                                                    ------------   ------------
        Pro forma net income                        $   182,102    $   325,151
                                                    ============   ============
   Earnings per share:
     Basic - as reported                            $      0.09    $      0.10
     Basic - pro forma                              $      0.04    $      0.08

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


<TABLE>
<CAPTION>
                                                     Six Months Ended Sept. 30
                                                        2004           2003
                                                    ------------   ------------
<S>                                                 <C>            <C>
   Net income applicable to common shares:
        As reported                                 $   906,969    $   740,894
        Pro forma adjustment
          for stock options                            (383,982)      (162,650)
                                                    ------------   ------------
        Pro forma net income                        $   522,987    $   578,244
                                                    ============   ============
   Earnings per share:
     Basic - as reported                            $      0.20    $      0.18
     Basic - pro forma                              $      0.12    $      0.14

     Diluted - as reported                          $      0.18    $      0.16
     Diluted - pro forma                            $      0.11    $      0.12
</TABLE>


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

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

General
     We develop and sell devices using "spintronics," a nanotechnology we
helped pioneer, which utilizes electron spin rather than electron charge to
acquire, store and transmit information. We are a licensor of spintronic
magnetic random access memory technology, commonly referred to as MRAM, which
we believe has the potential to revolutionize electronic memory. We also
manufacture high-performance spintronic products including sensors and couplers
to revolutionize data sensing and transmission.

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

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

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

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

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


<PAGE>
Three months ended September 30, 2004 compared to three months ended
September 30, 2003

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

<TABLE>
<CAPTION>
                                       Three Months Ended Sept. 30
                                          2004             2003
                                         -------          -------
<S>                                      <C>              <C>
Revenue:
  Research and development                53.2 %           55.7 %
  Product sales                           46.8             44.3
                                         -------          -------
Total revenue                            100.0            100.0
Cost of sales                             63.3             60.7
                                         -------          -------
Gross profit                              36.7             39.3

Total expenses                            23.0             25.1
                                         -------          -------
Net income                                13.7 %           14.2 %
                                         =======          =======
</TABLE>


     Revenue for the three months ended September 30, 2004 (the second quarter
of fiscal 2005) was $3,095,714, an increase of 8% from revenue of $2,864,185,
for the three months ended September 30, 2003 (the second quarter of fiscal
2004). The revenue increase was due to a 14% increase in commercial product
sales to $1,450,052 from $1,268,573 and a 3% increase in research and
development revenue to $1,645,662 from $1,595,612.

     Gross profit margins decreased to 37% for the three months ended September
30, 2004 as compared to 39% for the three months ended September 30, 2003. The
decrease was due to a shift in product mix partially offset by a more favorable
mix between product sales and contract research and development.

     Research and development expenses increased by 1% to $306,593 for the
three months ended September 30, 2004 as compared to $302,573 for the three
months ended September 30, 2003.

     Selling, general and administrative expenses for the three months ended
September 30, 2004 increased by 1% to $481,648 compared to $475,691 for the
three months ended September 30, 2003.

     We recorded pre-tax income of $423,298 and $406,476 for the three months
ended September 30, 2004 and September 30, 2003, respectively. The income tax
provision for the three months ended September 30, 2004 is comprised of a U.S.
Federal income tax expense of $143,921, offset by a tax valuation allowance
adjustment of $143,921. The income tax provision for the three months ended
September 30, 2003 is comprised of a U.S. Federal income tax expense of
$138,202, offset by a tax valuation allowance adjustment of $138,202.

     Net income totaled $423,298 for the three months ended September 30, 2004
compared to $406,476 for the three months ended September 30, 2003. The
increase in net income was due primarily to higher revenues and higher interest
income.


<PAGE>
Six months ended September 30, 2004 compared to six months ended
September 30, 2003

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

<TABLE>
<CAPTION>
                                         Six Months Ended Sept. 30
                                          2004             2003
                                         -------          -------
<S>                                      <C>              <C>
Revenue:
  Research and development                53.0 %           58.3 %
  Product sales                           47.0             41.7
                                         -------          -------
Total revenue                            100.0            100.0
Cost of sales                             59.9             64.2
                                         -------          -------
Gross profit                              40.1             35.8

Total expenses                            24.9             22.8
                                         -------          -------
Net income                                15.2 %           13.0 %
                                         =======          =======
</TABLE>

     Revenue for the six months ended September 30, 2004 was $5,984,941, an
increase of 5% from revenue of $5,684,034, for the six months ended September
30, 2003. The revenue increase was due to increases in commercial product sales
partially offset by a decline in research and development revenue.

     Research and development revenue decreased 4% for the six months ended
September 30, 2004 to $3,171,749 from $3,316,518 for the six months ended
September 30, 2003 due to a shift in resources from government-funded research
contracts to company-funded research. Commercial product sales increased 19% to
$2,813,192 from $2,367,516.

     Gross profit margins increased to 40% for the six months ended September
30, 2004 as compared to 36% for the six months ended September 30, 2003. The
increase was due to manufacturing efficiencies on commercial products and a
more favorable mix between product sales and contract research and development,
partially offset by a shift in product mix.

     Research and development expenses increased by 39% to $667,852 for the six
months ended September 30, 2004 as compared to $481,242 for the six months
ended September 30, 2003. The increase was due to shifting resources from
government-funded research contracts to company-funded research.

     Selling, general and administrative expenses for the six months ended
September 30, 2004 increased by 4% to $966,244 compared to $926,554 for the six
months ended September 30, 2003. The increase was due primarily to higher
intellectual property legal expenses.

     We recorded pre-tax income of $906,969 and $740,894 for the six months
ended September 30, 2004 and September 30, 2003, respectively. The income tax
provision for the six months ended September 30, 2004 is comprised of a U.S.
Federal income tax expense of $308,369, offset by a tax valuation allowance
adjustment of $308,369. The income tax provision for the six months ended
September 30, 2003 is comprised of a U.S. Federal income tax expense of
$251,904, offset by a tax valuation allowance adjustment of $251,904.

     Net income totaled $906,969 for the six months ended September 30, 2004
compared to $740,894 for the six months ended September 30, 2003. The increase
in net income was due to higher gross profit margins partially offset by higher
expenses.


<PAGE>
Liquidity and capital resources
     At September 30, 2004 we had $7,224,803 in cash and available-for-sale
securities, consisting of marketable fixed-income investments. We believe our
working capital is adequate to meet our requirements for at least the next
twelve months.


<PAGE>
Outlook
     We have been shifting resources from government-funded research contracts
to company-funded research in order to develop new commercial products. Our
contract research and development revenue may decline in the remainder of
fiscal 2005.

     Gross profit margins could decrease in the balance of fiscal 2005 compared
to the prior year as competitive pressures could force us to decrease our
selling prices and our mix may shift to industrial product sales from medical
product sales.

     Increased MRAM development expenses could reduce research and development
revenue and increase research and development expenses going forward.

     We expect selling, general and administrative expenses to increase in
fiscal 2005 if we rollout MRAM manufactured under our technology agreement with
Cypress Semiconductor Corporation. We may also increase expenditures relating
to MRAM license procurement. Legal expenses relating to enforcing our MRAM
intellectual property may also increase. We expect general and administrative
expenses to increase in the remainder of fiscal 2005 due to consulting and
auditing related to compliance with Sarbanes-Oxley.

     While we expect to remain profitable in the rest of the fiscal year, there
is a risk that these additional expenses could lead to lower net income
compared to the prior year or operating losses.

     We may purchase additional capital equipment needed to package and test
MRAM from wafers manufactured under our technology agreement with Cypress.


<PAGE>
Item 3. Controls and Procedures.

Disclosure Controls and Procedures
     The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this report. Based on
such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.

Internal Control Over Financial Reporting
     There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act) during the quarter ended September 30, 2004 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


<PAGE>
                          PART II--OTHER INFORMATION

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

     An annual meeting of shareholders was held on August 17, 2004. There were
4,496,245 shares of common stock entitled to vote at the meeting with a
majority represented at the meeting. The shareholders elected six directors to
serve until the next Annual Meeting of Shareholders: Terrence Glarner, Daniel
A. Baker, James M. Daughton, Robert H. Irish, Jeffrey K. Kaszubinski, and
Patricia M. Hollister.


<PAGE>
Item 5. Other Information.

IMPLICATIONS OF MOTOROLA'S SPIN OFF OF FREESCALE

On March 10, 1995, we executed a Patent License Option Agreement with Motorola,
Inc., which gave Motorola the right but not the obligation to take a license
under our MRAM intellectual property within a limited time.

On April 14, 2000 we executed a Patent License Option Agreement Amendment which
obligated Motorola to pay NVE $500,000 in consideration for extending the
Patent License Option Agreement, and gave Motorola the right to elect to
exercise its option to license our intellectual property for a further payment
of $800,000.

On September 18, 2000 Motorola notified us that it was electing to exercise its
option to acquire a non-exclusive, non-transferable, and non-assignable license
under the Patent License Option Agreement Amendment and made the corresponding
further payment.

Certain of our patents cover MRAM cells with transistor selection for data
retrieval, which we believe may be necessary for successful high-density, high-
performance MRAMs. We know of no practical alternative design being pursued by
potential MRAM suppliers that could be sold in commercial quantities in the
foreseeable future.

On July 16, 2004 Motorola spun off its Freescale Semiconductor Division as a
separate, publicly-traded entity affiliated with, and controlled by, Motorola
including Motorola's semiconductor manufacturing facilities.

In early October 2004 we received written notification that Motorola intends to
distribute its remaining ownership interest in Freescale to its common
stockholders. In its filings with the SEC, Freescale Semiconductor, Inc. has
said it has been advised by Motorola that Motorola anticipates that the
distribution will occur by the end of 2004. Completion of the distribution is
contingent upon a variety of conditions, and Freescale has stated that the
distribution may not occur by the contemplated time or may not occur at all.

In a letter received in early October 2004, Motorola and Freescale asked us to
consent to Motorola's assignment of the Patent License Option Agreement to
Freescale without additional consideration. We have declined to provide such
consent.

Our attorneys have reviewed our agreements with Motorola in light of the
Freescale spinoff.

Based on that review, we believe that as long as Motorola controls Freescale,
Motorola and Freescale both enjoy rights granted to our intellectual property
under our agreements with Motorola.

We believe that Motorola cannot, however, effectively assign its rights to our
MRAM intellectual property under our Patent License Option Agreement to
Freescale without our consent when, if ever, it no longer controls Freescale.

Furthermore, we believe that our Patent License Option Agreement with Motorola
will terminate December 31, 2005 or on the date Motorola ceases manufacturing
MRAM Products whichever is later. Such a termination appears likely should
Motorola eliminate its ability to manufacture MRAM Products through its spinoff
of, and any ending control of, Freescale.


<PAGE>
If Freescale loses its license through Motorola from NVE through ceasing to be
controlled by Motorola, or if the Patent License Option Agreement is terminated
through a cessation of manufacturing of MRAM Products by Motorola, we would be
free to negotiate a new license agreement with Freescale.

We have had exploratory discussions with Freescale concerning the possible
structure of a new agreement or an assignment of the Patent License Option
Agreement with additional amendments. There can be no assurance, however, that
agreement will be reached with Freescale, or that any such agreement with
Freescale would be on more favorable terms to NVE than the present agreement
with Motorola, or that NVE would receive any value under the existing Patent
License Option Agreement or any value under any such further agreement with
Freescale.


<PAGE>
Item 6. Exhibits.

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

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

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

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


<PAGE>
                                   SIGNATURES

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


                                                                NVE CORPORATION
                                                                  (Registrant)


Date  October 20, 2004                                      /s/ Daniel A. Baker
      ----------------                    -------------------------------------
                                                                Daniel A. Baker
                                          President and Chief Executive Officer


Date  October 20, 2004                                    /s/ Richard L. George
      ----------------                    -------------------------------------
                                                              Richard L. George
                                                        Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>2
<FILENAME>dabex31.txt
<DESCRIPTION>EXHIBIT 31.1 - CERTIFICATION BY DANIEL A. BAKER
<TEXT>
                                                                   Exhibit 31.1
                               CERTIFICATION

I, Daniel A. Baker, certify that:

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

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

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

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

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

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

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

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

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

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


Date: October 20, 2004

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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>dgex31.txt
<DESCRIPTION>EXHIBIT 31.2 - CERTIFICATION BY RICHARD L. GEORGE
<TEXT>
                                                                   Exhibit 31.2
                               CERTIFICATION

I, Richard L. George, certify that:

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

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

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

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

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

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

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

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

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

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


Date: October 20, 2004

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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>ex32.txt
<DESCRIPTION>EXHIBIT 32 - SECTION 906 CERTIFICATION
<TEXT>
                                                                     Exhibit 32

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

In connection with the Quarterly Report of NVE Corporation (the "Company")
on Form 10-QSB for the period ended September 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we,
Daniel A. Baker, Chief Executive Officer; and Richard L. George, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
based on our knowledge:

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

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


Date: October 20, 2004

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



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


A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>5
<FILENAME>risk2q05.txt
<DESCRIPTION>EXHIBIT 99 - CAUTIONARY STATEMENTS
<TEXT>
                                                                     EXHIBIT 99

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

NVE Corporation is filing this Exhibit 99 to its Quarterly Report on Form 10-
QSB to avail itself of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-
QSB, future filings with the Securities and Exchange Commission, press releases
and in oral statements made with the approval of an authorized executive
officer, the words may, will, expect, anticipate, intend, believe, estimate,
should, or continue or the negatives of these terms or other variations on
these words or comparable terminology are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These types of statements and the facts or events to which they relate
express risks and uncertainties that could cause actual results to differ
materially from historical financial condition, operating results, business
prospects or any other aspect of NVE, and those presently anticipated or
projected. We caution readers that the following important factors, among
others, could affect our financial condition, operating results, business
prospects or any other aspect of NVE, and could cause our actual results to
differ materially from that projected or estimated by us in the forward-looking
statements made by us or on our behalf. Although we have attempted to list
below the important factors which do or may affect our financial condition,
operating results, business prospects or any other aspect of NVE, other factors
may in the future prove to be more important. New factors emerge from time to
time and it is not possible for us to predict all of such factors. Similarly,
we cannot necessarily assess or quantify the impact of each such factor on the
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in forward-
looking statements.


RISKS RELATED TO OUR BUSINESS

ALTHOUGH WE HAVE BEEN PROFITABLE RECENTLY, WE HAVE A HISTORY OF OPERATING
LOSSES AND COULD SUFFER FURTHER LOSSES IN THE FUTURE.
We had an accumulated deficit of $2,699,768 as of March 31, 2004. Although we
reported positive net income in fiscal 2004 and fiscal 2003, prior to fiscal
2003 we had a history of losses. Additional expenditures could lead to
operating losses in fiscal 2005 and beyond. Shifting resources from government-
funded research contracts to company-funded research may increase our research
and development expenses. We expect selling, general and administrative
expenses to increase in fiscal 2005 if we rollout MRAM manufactured under our
technology agreement with Cypress Semiconductor Corporation. Expenditures
relating to MRAM license procurement and legal expenses relating to enforcing
our MRAM intellectual property may also increase.

WE RELY ON GOVERNMENT CONTRACTS FOR A LARGE PERCENTAGE OF OUR REVENUES AND WE
WILL LOSE REVENUE IF WE LOSE THESE CONTRACTS.
During fiscal 2004 United States government contracts accounted for
approximately 54% of our revenues. Disqualification as a vendor to the United
States government for any reason or a material decrease in government funding
research would cause serious setbacks and would likely hamper both future
research and development activity, as well as related revenues.

<PAGE>


FAILURE TO QUALIFY AS A SMALL BUSINESS UNDER FEDERAL REGULATIONS COULD MAKE US
INELIGIBLE FOR SOME GOVERNMENT-FUNDED RESEARCH GRANTS WHICH COULD HAVE A
SIGNIFICANT IMPACT ON OUR REVENUE AND OUR ABILITY TO MAKE RESEARCH AND
DEVELOPMENT PROGRESS.
Federal regulations place a number of criteria for a business to be eligible to
compete for Small Business Innovation Research (SBIR) awards. Those criteria
include number of employees and ownership structure. While we believe we meet
the criteria, changes in our ownership beyond our control could cause us to
lose our eligibility to compete for SBIR awards, which in turn could have a
material adverse effect on our revenues profits, and research and development
efforts.

WE MAY LOSE REVENUE IF ANY OF OUR LARGE CUSTOMERS CANCEL, POSTPONE, OR REDUCE
THEIR PURCHASES.
We rely on several large customers for a large percentage of our commercial
revenues; these include Agilent Technologies, Inc., St. Jude Medical, Inc., the
United States Government, and certain distributors. Orders from these customers
can be cancelled, postponed, or reduced without cause or notice, and the loss
of any of these customers could have a significant impact on our commercial
revenues and our profitability.

WE FACE A DIFFICULT AND UNCERTAIN ECONOMIC ENVIRONMENT IN OUR INDUSTRY WHICH
COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS.
The semiconductor and electronics industries in general have experienced a
significant economic downturn during recent years, and several experts are
predicting weak demand in the coming quarters. The poor economic environment
may have adversely affected the sales of many of our customers' products, thus
limiting our sales. Economic conditions may not improve in the near term or at
all. Any failure of the economic environment to improve or a future downturn
would likely have a material adverse impact on our business and revenues.

OUR REPUTATION COULD BE DAMAGED AND WE COULD LOSE REVENUE IF WE FAIL TO MEET
TECHNICAL CHALLENGES REQUIRED TO PRODUCE MARKETABLE PRODUCTS.
Our products use new technology and we are continually researching and
developing product designs and production processes. Our production processes
require control of magnetic and other parameters that are not required in
conventional semiconductor processes. If we are unable to develop stable
designs and production processes we may not be able to produce products that
meet our customers' requirements, which could cause damage to our reputation
and loss of revenues.

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

OUR FAILURE TO MEET STRINGENT CUSTOMER TECHNICAL REQUIREMENTS COULD RESULT IN
THE LOSS OF KEY CUSTOMERS AND POTENTIAL REDUCED SALES.
Some of our customers, including Agilent and St. Jude Medical, have stringent
technical requirements which require our products to pass certain test and
qualification criteria before they are accepted by such customers. Failure to
meet those criteria could result in the loss of current sales revenue,
customers and future sales.

<PAGE>


IF WE ARE UNABLE TO DELIVER PRODUCTS WE FACE PENALTIES, INCLUDING LOSS OF
CERTAIN EXCLUSIVE MANUFACTURING RIGHTS.
Our Agilent supply agreement allows Agilent to gain rights to manufacture
couplers based on our technology if we are unable to deliver products on time.
The imposition of this penalty could have a material impact on future sales of
our products. Furthermore, on reaching certain sales goals, Agilent could gain
exclusive rights to distribute certain couplers based on our technology, which
could reduce our product sales and leave us partially or totally dependent on
Agilent for future coupler sales.

THE LOSS OF SUPPLY FROM ANY OF OUR KEY SINGLE-SOURCE WAFER SUPPLIERS COULD
IMPACT OUR ABILITY TO PRODUCE AND DELIVER PRODUCTS AND CAUSE LOSS OF REVENUE.
Critical suppliers include our suppliers of certain semiconductor wafers which
are incorporated in our products. These critical suppliers include Advanced
Semiconductor Manufacturing Corporation of Shanghai (China), AMI Semiconductor,
Inc., Intersil Corporation, Taiwan Semiconductor Manufacturing Corporation, and
Texas Instruments Inc. We maintain inventory of some critical wafers, but we
have not identified or qualified alternate suppliers for many of the wafers now
being obtained from single sources.

THE LOSS OF SUPPLY FROM ANY OF OUR SINGLE-SOURCE PACKAGING VENDORS COULD IMPACT
OUR ABILITY TO PRODUCE AND DELIVER PRODUCTS AND CAUSE LOSS OF REVENUE.
We are dependent on our packaging vendors including Circuit Electronics
Industries (Ayutthaya, Thailand) and NS Electronics Bangkok (Thailand), Ltd.
Some of our products use processes or tooling unique to a particular packaging
vendor, and it might be expensive, time-consuming, or impractical to convert to
another vendor in the event of a supply interruption. Supply interruptions
could seriously jeopardize our ability to provide products that are critical to
our business and operations which may cause us to lose revenue.

BECAUSE WE ARE SIGNIFICANTLY SMALLER THAN THE MAJORITY OF OUR COMPETITORS, WE
MAY LACK THE FINANCIAL RESOURCES NEEDED TO INCREASE OUR MARKET SHARE AND FUTURE
REVENUE.
Our known competitors and potential competitors include Advanced Micro Devices,
Inc., Agilent Technologies, Inc., Allegro Microsystems, Inc., NEC Corporation,
Analog Devices, Inc., Fujitsu Limited, Hewlett-Packard Company, IBM
Corporation, Infineon Technologies AG, Intel Corporation, NEC Corporation,
Ramtron International Corporation, Renesas Technology Corporation, Royal
Philips Electronics, Samsung Electronics, Ltd., Sony Corporation, Texas
Instruments Inc., Vishay Intertechnology, Xicor, Inc., and others. We believe
that our competition has increased in the past year as the technology matures.
This has meant more competitors and more severe pricing pressure. Furthermore,
our competitors are narrowing or eliminating performance advantages we may have
had. We expect these trends to continue, and our future competitiveness will
depend on our ability to develop new products and reduce our product costs.
Most of our competitors and potential competitors are established companies
that have significantly greater financial, technical, and marketing resources
than us. While we believe that our products have important competitive
advantages, our competitors may succeed in developing and marketing products
that perform better or are less expensive than ours, or that would render our
products and technology obsolete or noncompetitive.

OUR LICENSE AGREEMENTS INCLUDE REVENUE MINIMUMS AND ROYALTY LIMITS WHICH COULD
LIMIT THE TOTAL AMOUNT OF REVENUE WE CAN DERIVE UNDER THESE AGREEMENTS.
Our existing license agreements do not provide for us to receive royalties
until revenue minimums are met by licensees. In addition, some of these
agreements place limits on future royalty and license payments. These
provisions could substantially delay our potential revenues and profits from
these licensing arrangements and could limit the total amount of revenue that
we can derive under these license agreements. Such limits are common practice
in our industry, but they could limit our potential MRAM revenues and profits
even if our intellectual property is widely adopted.

<PAGE>


OUR BUSINESS MAY SUFFER BECAUSE WE HAVE LIMITED INFLUENCE OVER THE RATE OF
ADOPTION OF OUR TECHNOLOGY, AND MRAM TECHNOLOGY MAY NOT BUILD INTO A LARGE OR
SIGNIFICANT MARKET.
A significant portion of our future revenues and profits is dependent on our
licensees and manufacturing partners introducing MRAM products. Production
difficulties, technical barriers, high production costs, poor market reception
or other problems, almost all of which are outside our control, could prevent
the deployment of MRAM or limit its market potential. In addition, our
licensees and manufacturing partners may have other priorities that detract
attention and resources from introduction of MRAM products using our
technology. Furthermore, competing technologies could prevent or supplant MRAM
from becoming an important memory technology.

OUR LICENSEES MAY NOT BE ABLE TO MAKE COMMERCIALLY VIABLE MRAMS, WHICH WOULD
LIMIT OUR REVENUE FROM MRAM AND LIKELY CAUSE OUR STOCK PRICE TO DECLINE.
MRAM is a new technology, and we are almost completely dependent on our
licensees to convert our intellectual property into commercially viable MRAM.
While our licensees have made prototypes and samples, several technical and
manufacturing issues must be resolved before commercially viable devices can be
produced, and these problems may never successfully be solved. Cypress has said
it expects to sample in calendar 2004, but has missed several schedule targets
for sample devices, and further delays could have a material impact on our
revenues from MRAM. In July 2004, Motorola, Inc. transferred its semiconductor
business to a majority owned subsidiary, Freescale Semiconductor, Inc.
Freescale expects to be in production with standard MRAM products in 2005, but
any delays could have a material impact on our potential MRAM license revenues.

WE ARE HIGHLY DEPENDENT ON MOTOROLA OR FREESCALE TO COMBINE OUR MRAM TECHNOLOGY
WITH CONVENTIONAL SEMICONDUCTORS AND WE MAY LOSE POTENTIAL REVENUE IF MOTOROLA
OR FREESCALE ARE UNSUCCESSFUL.
Embedded MRAM, that is, MRAM combined with conventional semiconductors, is a
major market for MRAM and our primary potential source of royalties from
Motorola. We are highly dependent on the success of Motorola's majority owned
subsidiary, Freescale, embedding MRAM into cellphone and system integrated
circuits. Technical difficulties with embedding, production difficulties, high
production costs, or other problems, almost all of which are outside our
control, could limit our potential MRAM royalties under our license agreement
with Motorola.

WE ARE HIGHLY DEPENDENT ON CYPRESS FOR POTENTIAL SUPPLY OF MRAM DEVICES USING
THEIR DESIGNS AND MAY LOSE REVENUE IF WE NEED TO REPLACE CYPRESS AS A SUPPLIER.
Although we have rights to Cypress' MRAM designs, mask works, and other
intellectual property, it could be difficult for us to fabricate devices based
on those designs and intellectual property at a foundry other than Cypress.
This is because other potential foundries might not have the needed equipment,
and Cypress' designs are tailored for their factories. If Cypress is unable to
manufacture devices for us for any reason, it could be difficult for us to find
another manufacturer for their designs.

WE MUST PACKAGE AND TEST CYPRESS MRAM WAFERS TO MAKE SALABLE PRODUCTS, AND MAY
LOSE REVENUE IF WE ARE UNABLE TO PROCURE SUCH SERVICES.
Although Cypress is obligated under our agreement to provide us MRAM wafers, it
is not obligated to provide us packaged, tested devices. We may be able to
reach an agreement with Cypress to provide packaging and testing services, or
we may be able to procure such "back-end" services from a third party. Delays
or failure to procure such services could cause us to lose or delay potential
revenues from selling MRAM devices.

<PAGE>


ONE OR MORE OF OUR LICENSEES COULD CANCEL THEIR MRAM DEVELOPMENT PROGRAMS,
WHICH WOULD REDUCE OUR FUTURE REVENUE POTENTIAL.
Freescale and Cypress could cancel their MRAM development programs at any time
because of financial or other consideration. A cancellation of Freescale's MRAM
program would eliminate our opportunity to receive royalties from the sale of
devices under our agreement with Motorola. A cancellation of Cypress' MRAM
program would likely eliminate our opportunity to sell devices based on their
designs.

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

WE WILL NOT RECEIVE ROYALTIES IF OUR LICENSEES DO NOT USE OUR INTELLECTUAL
PROPERTY.
Our license agreements do not require our licensees to use our intellectual
property. Although we believe, based on their public disclosures, that the
devices that Motorola, Inc. and Cypress Semiconductor Corporation have
demonstrated would use our intellectual property at least to some extent, our
licensees could circumvent or find alternatives to all or some of our
technology, and our license agreements require royalty payments only if our
licensees use our intellectual property in their devices. It is possible that
our licensees might make MRAM devices without using our technology or
infringing on our patents, and we would not receive royalties on such devices.

WE MAY NOT BE ABLE TO ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR OUR
TECHNOLOGY MAY PROVE TO INFRINGE UPON PATENTS OR RIGHTS OWNED BY OTHERS WHICH
MAY PREVENT THE FUTURE SALE OF OUR PRODUCTS OR INCREASE THE COST OF SUCH SALES.
We protect our proprietary technology and intellectual property by seeking
patents, trademarks, and copyrights, and by maintaining trade secrets through
entering into confidentiality agreements with employees, suppliers, customers,
and prospective customers depending on the circumstances. We hold patents or
are the licensee of others owning patented technology covering certain aspects
of our sensor, coupler, and MRAM technology. These patent rights may be
challenged, rendered unenforceable, invalidated or circumvented. In addition,
rights granted under the patents or under licensing agreements may not provide
a competitive advantage to us. At least several potential MRAM competitors have
described designs that we believe would infringe on our patents if such designs
were to be commercialized. Efforts to legally enforce patent rights can involve
substantial expense which we may not be able to afford and in any case may not
be successful. Further, others may independently develop similar, superior, or
parallel technologies to any technology developed by us, or our technology may
prove to infringe upon patents or rights owned by others. Thus the patents held
by or licensed to us may not afford us any meaningful competitive advantage.
Also, our confidentiality agreements may not provide meaningful protection of
our proprietary information. Our inability to maintain our proprietary rights
could have a material adverse effect on our business, financial condition and
results of operations.

<PAGE>


OUR FUTURE BUSINESS MAY SUFFER IF WE ARE UNABLE TO ENFORCE OUR INTELLECTUAL
PROPERTY RIGHTS WITH EXISTING LICENSEES.
Our success in enforcing our intellectual property rights may be dependent on
our ability to enforce our contract rights under existing license agreements.
Our existing licensees could claim without merit that they do not use our
intellectual property or claim that one or more of our patents are invalid. In
2000 we were forced to resort to litigation to enforce our intellectual
property rights with Motorola, and we plan to continue to vigorously defend our
intellectual property rights.  Our limited capital resources could put us at a
disadvantage if we take legal action to enforce our intellectual property
rights.

WE MAY NEED TO NEGOTIATE A NEW MRAM LICENSING AGREEMENT WITH FREESCALE
SEMICONDUCTOR AND THE OUTCOME OF SUCH NEGOTIATIONS IS UNCERTAIN.
We believe that our Patent License Option Agreement with Motorola will
terminate December 31, 2005 or on the date Motorola ceases manufacturing MRAM
Products whichever is later. We believe Motorola is manufacturing MRAM products
through its majority owned subsidiary, Freescale. However, we have been
notified that Motorola intends to distribute its remaining ownership interest
in Freescale to its common stockholders. In its filings with the SEC, Freescale
Semiconductor, Inc. has said it has been advised by Motorola that Motorola
anticipates that the distribution will occur by the end of 2004. If Freescale
loses its license through Motorola from NVE through ceasing to be controlled by
Motorola, or if the Patent License Option Agreement is terminated through a
cessation of manufacturing of MRAM Products by Motorola, we would be free to
negotiate a new license agreement with Freescale. There can be no assurance,
however, that agreement will be reached with Freescale, or that any such
agreement with Freescale would be on more favorable terms to NVE than the
present agreement with Motorola, or that NVE would receive any value under the
existing Patent License Option Agreement or any value under any such further
agreement with Freescale.

MOTOROLA MAY NOT DISTRIBUTE ITS CONTROLLING INTEREST IN FREESCALE, IN WHICH
CASE OUR AGREEMENT WITH MOTOROLA WOULD CONTINUE TO APPLY TO FREESCALE AND WE
WOULD NOT HAVE THE OPPORTUNITY TO NEGOTIATE A MORE FAVORABLE LICENSING
AGREEMENT WITH FREESCALE.
Completion of Motorola's distribution of its remaining ownership interest in
Freescale is contingent upon a variety of conditions, and may not occur by the
contemplated time or may not occur at all. If Motorola does not distribute its
controlling interest in Freescale, our patent license option agreement with
Motorola might continue to apply to Freescale in which case we would not have
the opportunity to negotiate a more favorable license agreement with Freescale.
The limitations of our agreement with Motorola may continue to apply at least
until other termination provisions are met. Limitations of our agreement with
Motorola include revenue minimums and royalty limits which could limit our
royalties from Freescale's sales of MRAM products.

OUR BUSINESS SUCCESS MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO ATTRACT AND
RETAIN HIGHLY-QUALIFIED MANAGEMENT AND TECHNICAL EMPLOYEES.
We have no employment agreements with any of our management other than our
Chief Executive Officer, Dr. Baker, and have no key-person insurance covering
employees. Competition for highly-qualified management and technical personnel
is generally intense and we may not be able to attract and retain the personnel
necessary for the development and operation of our business. The loss of the
services of key personnel could have a material adverse effect on our business,
financial condition and results of operations. Our Chief Technology Officer,
Dr. Daughton, may decide to retire at any time in the next several years, and
we may not be able to replace his technical or contract development expertise.

<PAGE>


RISKS RELATED TO BUYING OUR STOCK

OUR STOCK HAS BEEN MORE VOLATILE THAN OTHER TECHNOLOGY SECTOR STOCKS.
The market price of our common stock has experienced significant fluctuations
and may continue to fluctuate in the future. We believe these fluctuations have
been greater on a percentage basis than other technology sector stocks.

OUR STOCK MAY BE SUBJECT TO VOLATILITY BECAUSE IT IS NOT LISTED ON A NATIONAL
MARKET.
Our common stock is traded on the NASDAQ SmallCap Market, which has less daily
trading volume on average than the average trading market for companies quoted
on the NASDAQ National Market or the New York Stock Exchange. A public trading
market having the desired characteristics of depth, liquidity and orderliness
depends on the presence in the marketplace of willing buyers and sellers of our
common stock at any given time. This presence depends on the individual
decisions of investors and general economic and market conditions over which we
have no control.

THE PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY SIGNIFICANT PRICE
FLUCTUATIONS DUE TO A NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.
The market price of the common stock may be significantly affected by many
factors, including:

     * technological innovations by us, our licensees, or our competitors;

     * the announcement of new products, product enhancements, contracts, or
       license agreements by us, our licensees, or our competitors;

     * changes in requirements or demands for our products;

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

     * quarterly variations in our operating results;

     * changes in our revenue and revenue growth rates;

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

     * short selling and covering of short positions in our stock; and

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

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


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