-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 LkirH6HEw2hpDjjWjDc3fuO2jjN4ao7g7AgQqIxyjCoXj7ZDDKadXCEBEtGqeY1y
 xd7eYRyOl8IeeLFvCotV5w==

<SEC-DOCUMENT>0000724910-06-000006.txt : 20060118
<SEC-HEADER>0000724910-06-000006.hdr.sgml : 20060118
<ACCEPTANCE-DATETIME>20060118165057
ACCESSION NUMBER:		0000724910-06-000006
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20051231
FILED AS OF DATE:		20060118
DATE AS OF CHANGE:		20060118

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:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-12196
		FILM NUMBER:		06536012

	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>10-Q
<SEQUENCE>1
<FILENAME>tenq3q06.txt
<TEXT>
                              UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

                                FORM 10-Q

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

For the quarterly period ended  December 31, 2005

Commission File Number:  000-12196


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



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


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


                             (952) 829-9217
        (Registrant's telephone number, including area code)


     Indicate by check mark whether the 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 the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.                  [X] Yes  [ ] No

     Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act. (Check one):

Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [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, $0.01 Par Value - 4,582,903 shares outstanding as of
January 13, 2006

<PAGE>
                         PART I--FINANCIAL INFORMATION

Item 1. Financial Statements.

                                NVE CORPORATION
                                BALANCE SHEETS
                      DECEMBER 31, 2005 AND MARCH 31, 2005

<TABLE>
<CAPTION>
                                                  (Unaudited)
                                                Dec. 31, 2005   March 31, 2005*
                                                -------------   ---------------
<S>                                             <C>              <C>
ASSETS
Current assets
   Cash and cash equivalents                    $   1,111,009    $   1,240,205
   Short-term investments                             998,205          252,775
   Accounts receivable, net of allowance for
     uncollectible accounts of $15,000              1,741,367        2,285,472
   Inventories                                      2,033,941        1,572,759
   Deferred tax assets                              1,042,877          756,074
   Prepaid expenses and other assets                  138,311          130,873
                                                --------------   --------------
Total current assets                                7,065,710        6,238,158
Fixed assets
   Machinery and equipment                          4,122,662        4,140,307
   Leasehold improvements                             413,482          413,482
                                                --------------   --------------
                                                    4,536,144        4,553,789
   Less accumulated depreciation                    3,205,085        2,826,227
                                                --------------   --------------
Net fixed assets                                    1,331,059        1,727,562
Long-term investments                               7,669,263        6,224,284
                                                --------------   --------------
Total assets                                    $  16,066,032    $  14,190,004
                                                ==============   ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                             $     270,447    $     319,427
   Accrued payroll and other                          503,991          465,930
   Deferred revenue                                    99,015          267,355
   Capital lease obligations                           50,685           67,430
                                                --------------   --------------
Total current liabilities                             924,138        1,120,142
Capital lease obligations, less current portion           -             33,281
                                                --------------   --------------
Total liabilities                                     924,138        1,153,423

Shareholders' equity:
   Common stock                                        45,765           45,698
   Additional paid-in capital                      14,983,963       14,064,625
   Accumulated other comprehensive loss              (124,322)        (132,228)
   Retained earnings (deficit)                        236,488         (941,514)
                                                --------------   --------------
Total shareholders' equity                         15,141,894       13,036,581
                                                --------------   --------------
Total liabilities and shareholders' equity      $  16,066,032    $  14,190,004
                                                ==============   ==============
</TABLE>

*The March 31, 2005 Balance Sheet is from the audited financial statements
 contained in our Annual Report on Form 10-KSB for the year ended
 March 31, 2005.

                            See accompanying notes.

<PAGE>
                                NVE CORPORATION
                             STATEMENTS OF INCOME
                   QUARTERS ENDED DECEMBER 31, 2005 AND 2004
                                  (Unaudited)

<TABLE>
<CAPTION>
                                             Quarter Ended December 31
                                                2005           2004
                                            ------------   ------------
<S>                                         <C>            <C>
Revenue
  Product sales                             $ 1,742,163    $ 1,118,210
  Contract research and development             868,119      1,440,262
                                            ------------   ------------
Total revenue                                 2,610,282      2,558,472

Cost of sales                                 1,308,752      1,570,826
                                            ------------   ------------
Gross profit                                  1,301,530        987,646

Expenses
  Research and development                      342,616        257,284
  Selling, general, and administrative          434,183        437,839
                                            ------------   ------------
Total expenses                                  776,799        695,123
                                            ------------   ------------

Income from operations                          524,731        292,523

Interest income                                  88,168         60,177
Interest expense                                 (1,336)        (2,796)
Other income                                      3,101         25,268
                                            ------------   ------------
Income before taxes                             614,664    $   375,172

Provision for income taxes                      213,279            -
                                            ------------   ------------
Net income                                  $   401,385    $   375,172
                                            ============   ============

Net income per share - basic                $      0.09    $      0.08
                                            ============   ============
Net income per share - diluted              $      0.09    $      0.08
                                            ============   ============

Weighted average shares outstanding
  Basic                                       4,576,454      4,501,345
  Diluted                                     4,677,712      4,883,402
</TABLE>



                            See accompanying notes.

<PAGE>
                                NVE CORPORATION
                             STATEMENTS OF INCOME
                  NINE MONTHS ENDED DECEMBER 31, 2005 AND 2004
                                  (Unaudited)

<TABLE>
<CAPTION>
                                             Nine Months Ended Dec. 31
                                                2005           2004
                                            ------------   ------------
<S>                                         <C>            <C>
Revenue
  Product sales                             $ 5,548,085    $ 3,931,402
  Contract research and development           3,139,667      4,612,011
                                            ------------   ------------
Total revenue                                 8,687,752      8,543,413

Cost of sales                                 4,617,543      5,157,504
                                            ------------   ------------
Gross profit                                  4,070,209      3,385,909

Expenses
  Research and development                    1,237,355        925,136
  Selling, general, and administrative        1,238,757      1,404,083
                                            ------------   ------------
Total expenses                                2,476,112      2,329,219
                                            ------------   ------------

Income from operations                        1,594,097      1,056,690

Interest income                                 233,606        173,543
Interest expense                                 (5,084)       (10,858)
Other income                                     39,667         62,766
                                            ------------   ------------
Income before taxes                           1,862,286      1,282,141

Provision for income taxes                      684,284            -
                                            ------------   ------------
Net income                                  $ 1,178,002    $ 1,282,141
                                            ============   ============

Net income per share - basic                $      0.26    $      0.29
                                            ============   ============
Net income per share - diluted              $      0.25    $      0.26
                                            ============   ============

Weighted average shares outstanding
  Basic                                       4,573,173      4,497,919
  Diluted                                     4,674,431      4,879,976
</TABLE>



                            See accompanying notes.

<PAGE>
                                NVE CORPORATION
                           STATEMENTS OF CASH FLOWS
                  NINE MONTHS ENDED DECEMBER 31, 2005 AND 2004
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                     Nine Months Ended Dec. 31
                                                        2005           2004
                                                    ------------   ------------
<S>                                                 <C>            <C>
OPERATING ACTIVITIES
Net income                                          $ 1,178,002    $ 1,282,141
Adjustments to reconcile net income to net
  cash provided by operating activities:
    Depreciation and amortization                       426,450        409,530
    Gain on sale of fixed assets                        (25,500)          -
    Deferred income taxes                               668,334           -
    Changes in operating assets and liabilities:
      Accounts receivable                               544,105       (526,851)
      Inventories                                      (461,182)      (601,135)
      Prepaid expenses and other assets                  (7,438)       164,914
      Accounts payable and accrued expenses             (10,919)        52,920
      Deferred revenue                                 (168,340)      (107,762)
                                                    ------------   ------------
Net cash provided by operating activities             2,143,512        673,757

INVESTING ACTIVITIES
Proceeds from the sale of fixed assets                   25,500           -
Purchases of fixed assets                               (20,573)      (805,148)
Purchases of investment securities                   (2,255,922)      (226,320)
                                                    ------------   ------------
Net cash used in investing activities                (2,250,995)    (1,031,468)

FINANCING ACTIVITIES
Net proceeds from sale of common stock                   28,313         79,147
Repayment of capital lease obligations                  (50,026)      (106,507)
                                                    ------------   ------------
Net cash used in financing activities                   (21,713)       (27,360)
                                                    ------------   ------------

Decrease in cash and cash equivalents                  (129,196)      (385,071)
Cash and cash equivalents at beginning of period      1,240,205      1,055,796
                                                    ------------   ------------

Cash and cash equivalents at end of period          $ 1,111,009    $   670,725
                                                    ============   ============
</TABLE>



                            See accompanying notes.

<PAGE>
                                NVE CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
                              DECEMBER 31, 2005
                                  (Unaudited)

NOTE 1. 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.


NOTE 2. 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 Securities and Exchange Commission rules and
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 unaudited financial statements be read in
conjunction with the audited financial statements and the notes included in our
latest annual financial statements included in our Annual Report on Form 10-KSB
for the fiscal year ended March 31, 2005. The results of operations for the
quarter ended December 31, 2005 are not necessarily indicative of the results
that may be expected for the full fiscal year ending March 31, 2006.


NOTE 3. FINANCIAL INSTRUMENTS
     Our financial instruments consist of cash and cash equivalents,
investments, short-term trade receivables, and accounts payable. Because of
their short-term nature, carrying values of our financial instruments
approximate their fair value.


NOTE 4. COMPREHENSIVE INCOME
     The components of comprehensive income are as follows:

<TABLE>
<CAPTION>
                                           Quarter Ended December 31
                                             2005             2004
                                         ------------     ------------
<S>                                      <C>              <C>
Net income                               $   401,385      $   375,172
Unrealized (loss) gain from investments      (19,568)         (41,902)
                                         ------------     ------------
Comprehensive income                     $   381,817      $   333,270
                                         ============     ============


                                         Nine Months Ended December 31
                                             2005             2004
                                         ------------     ------------
<S>                                      <C>              <C>
Net income                               $ 1,178,002      $ 1,282,141
Unrealized gain (loss) from investments        7,906         (126,997)
                                         ------------     ------------
Comprehensive income                     $ 1,185,908      $ 1,155,144
                                         ============     ============
</TABLE>


<PAGE>
NOTE 5. INVENTORIES

     Inventories consisted of the following:

<TABLE>
<CAPTION>
                                    December 31     March 31
                                       2005           2005
                                   ------------   ------------
<S>                                <C>            <C>
       Raw materials               $   646,153    $   754,456
       Work-in-process                 850,643        614,337
       Finished goods                  717,145        383,966
                                   ------------   ------------
                                     2,213,941      1,752,759
       Less obsolescence reserve      (180,000)      (180,000)
                                   ------------   ------------
                                   $ 2,033,941    $ 1,572,759
                                   ============   ============
</TABLE>

NOTE 6. STOCK-BASED COMPENSATION
     We have adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) Nos. 123 and 148, Accounting for Stock-Based
Compensation, but apply Accounting Principles Board 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 2.7% to 3.9% for the three and nine months ended
December 31, 2005 and 2004; expected volatility of 55% to 99% for the three and
nine months ended December 31, 2005 and 2004; 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.

     The pro forma information is as follows:

<TABLE>
<CAPTION>
                                                     Quarter Ended December 31
                                                        2005           2004
                                                    ------------   ------------
<S>                                                 <C>            <C>
   Net income applicable to common shares:
        As reported                                 $   401,385    $   375,172
        Pro forma adjustment for stock options          (92,474)      (186,761)
                                                    ------------   ------------
        Pro forma net income                        $   308,911    $   188,411
                                                    ============   ============
   Earnings per share:
     Basic - as reported                            $      0.09    $      0.08
     Basic - pro forma                              $      0.07    $      0.04

     Diluted - as reported                          $      0.09    $      0.08
     Diluted - pro forma                            $      0.07    $      0.04
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                     Nine Months Ended Dec. 31
                                                        2005           2004
                                                    ------------   ------------
<S>                                                 <C>            <C>
   Net income applicable to common shares:
        As reported                                 $ 1,178,002    $ 1,282,141
        Pro forma adjustment for stock options         (207,877)      (570,779)
                                                    ------------   ------------
        Pro forma net income                        $   970,125    $   711,362
                                                    ============   ============
   Earnings per share:
     Basic - as reported                            $      0.26    $      0.29
     Basic - pro forma                              $      0.21    $      0.16

     Diluted - as reported                          $      0.25    $      0.26
     Diluted - pro forma                            $      0.21    $      0.15
</TABLE>


NOTE 7. INCOME TAXES
     Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.

     We reversed $137,463 and $469,776 of our valuation allowance for the
quarter and nine months ended December 31, 2004 due to the utilization of
net operating loss carryforwards, resulting in no income tax expense for the
quarter and nine months ended December 31, 2004.

     We do not expect to pay taxes in the near future, other than possibly
alternative minimum tax, because we have stock-based compensation
deductions. However, we began recognizing tax expenses for reporting
purposes in fiscal 2006 because under SFAS No. 109, Accounting for Income
Taxes, stock-based compensation deductions do not reduce provision for
income taxes reported for book purposes. Tax provisions of $668,334 have
been credited to "Additional paid-in capital" in fiscal 2006. Regardless of
our expectations, there can be no assurance that we will generate any
specific level of continuing earnings.


NOTE 8. SUBSEQUENT EVENT

Termination of our Employee Stock Purchase Plan
     Effective January 1, 2006 the NVE Corporation 2001 Employee Stock Purchase
Plan was terminated. This was an implementation of our Board of Directors' vote
on October 17, 2005 to terminate the Plan effective January 1, 2006. The
termination of the Plan did not affect participants' options to purchase shares
under the Plan on December 31, 2005. The termination was in anticipation of the
impact of Financial Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 123(R), which we believe would have required
recognizing expenses associated with the issuance of shares under the Plan.
Public entities that do not file as small business issuers will be required to
apply SFAS No. 123(R) as of the first annual reporting period beginning after
June 15, 2005.


<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.


Forward-looking statements
     Some of the statements made in this Report 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, 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, our dependence on significant suppliers, 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 that may be alluded to in this Report and those discussed
in Exhibit 99 to this Report, as well as those discussed in Exhibit 99 to our
Annual Report on Form 10-KSB for the year ended March 31, 2005.


General
     We develop, manufacture, 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.


<PAGE>
Quarter ended December 31, 2005 compared to the quarter ended December 31, 2004

     The table below summarizes certain summary information for various items
for the periods indicated:

<TABLE>
<CAPTION>
                                     Percentage of Revenue            Period-
                                   Quarter Ended December 31         to-Period
                                     2005             2004            Change
                                    -------          -------         ---------
<S>                                 <C>              <C>              <C>
Revenue
  Product sales                      66.7 %           43.7 %           55.8 %
  Research and development           33.3 %           56.3 %          (39.7)%
                                    -------          -------
Total revenue                       100.0 %          100.0 %            2.0 %
Cost of sales                        50.1 %           61.4 %
                                    -------          -------
Gross profit                         49.9 %           38.6 %

Total expenses                       29.8 %           27.1 %           11.7 %
                                    -------          -------
Income from operations               20.1 %           11.5 %           79.4 %
Net interest and other income         3.5 %            3.2 %            8.8 %
                                    -------          -------
Income before taxes                  23.6 %           14.7 %           63.8 %
Provision for income taxes            8.2 %              -                -
                                    -------          -------
Net income                           15.4 %           14.7 %            7.0 %
                                    =======          =======
</TABLE>


     Total revenue for the quarter ended December 31, 2005 (the third quarter
of fiscal 2006) was $2,610,282, an increase of 2% from $2,558,472 for the
quarter ended December 31, 2004 (the third quarter of fiscal 2005). The
increase was due to a 56% increase in product sales to $1,742,163 from
$1,118,210, partially offset by a 40% decrease in contract research and
development revenue to $868,119 from $1,440,262. The decrease in contract
research and development revenue was due to a shift to company-funded research
from contract-funded research and a decrease in U.S. Government contract awards
to us. The increase in product sales was due to increased sales of spintronic
couplers and other products.

     Gross profit margin increased to 50% of revenue for the third quarter of
fiscal 2006 from 39% for the same quarter of fiscal 2005. The increase was due
a more profitable revenue mix consisting of a higher percentage of product
sales, and higher product margins due primarily to lower-cost coupler designs.

     Research and development expense increased 33% to $342,616 for the quarter
ended December 31, 2005 compared to $257,284 for the quarter ended
December 31, 2004. The increase was due to efforts to develop new and improved
products and a shift to company-funded research from contract-funded research.

     Net interest and other income increased 9% to $89,933 for the quarter
ended December 31, 2005 from $82,649 for the quarter ended December 31, 2004.
The increase was mostly due to an increase in interest-bearing investments.

     Income before taxes increased 64% to $614,664 for the quarter ended
December 31, 2005 from $375,172 for the quarter ended December 31, 2004. The
increase was due to an increase in revenue and an increase in gross profit
margin. These changes were partially offset by an increase in research and
development expense.


<PAGE>
     The provision for income taxes for the quarter ended December 31, 2005 was
due to the exhaustion of our net operating losses in fiscal 2005. We do not
expect to pay significant cash taxes in the near future because we have
significant stock-based compensation deductions. Under SFAS No. 109,
Accounting for Income Taxes, stock-based compensation deductions do not
reduce provision for income taxes reported for book purposes.

     Net income totaled $401,385 for the quarter ended December 31, 2005
compared to $375,172 for the quarter ended December 31, 2004. The increase in
net income was primarily due to an increase in revenue and an increase in gross
profit partially offset by an increase in research and development expense and
a provision for income tax in the quarter ended December 31, 2005.

     Weighted average diluted shares outstanding decreased to 4,677,712 shares
for the quarter ended December 31, 2005 from 4,883,402 shares for the quarter
ended December 31, 2004. The decrease was due to the expiration of a warrant
issued to Cypress Semiconductor Corporation for the purchase of up to 400,000
shares of our common stock.

     Earnings per diluted share were $0.09 for the quarter ended
December 31, 2005 compared to $0.08 for the quarter ended December 31, 2004.
The increase was due to an increase in net income and a decrease in diluted
weighted average shares outstanding, and despite a provision for income tax in
the quarter ended December 31, 2005.


<PAGE>
Nine months ended December 31, 2005 compared to the nine months ended
December 31, 2004

     The table below summarizes certain summary information for various items
for the periods indicated:

<TABLE>
<CAPTION>
                                     Percentage of Revenue            Period-
                                  Nine Months Ended December 31      to-Period
                                     2005             2004            Change
                                    -------          -------         ---------
<S>                                 <C>              <C>              <C>
Revenue
  Product sales                      63.9 %           46.0 %           41.1 %
  Research and development           36.1 %           54.0 %          (31.9)%
                                    -------          -------
Total revenue                       100.0 %          100.0 %            1.7 %
Cost of sales                        53.2 %           60.4 %
                                    -------          -------
Gross profit                         46.8 %           39.6 %

Total expenses                       28.5 %           27.2 %            6.3 %
                                    -------          -------
Income from operations               18.3 %           12.4 %           50.9 %
Net interest and other income         3.1 %            2.6 %           19.0 %
                                    -------          -------
Income before taxes                  21.4 %           15.0 %           45.2 %
Provision for income taxes            7.9 %              -                -
                                    -------          -------
Net income                           13.5 %           15.0 %           (8.1)%
                                    =======          =======
</TABLE>


     Total revenue for the nine months ended December 31, 2005 was $8,687,752,
an increase of 2% from revenue of $8,543,413 for the nine months ended
December 31, 2004. The increase was due to a 41% increase in product sales to
$5,548,085 from $3,931,402 partially offset by a 32% decrease in contract
research and development revenue to $3,139,667 from $4,612,011. The decrease in
contract research and development revenue was due to a shift to company-funded
from contract-funded research and a decrease in U.S. Government contract awards
to us. The increase in product sales was due to increased sales of spintronic
couplers and other products.

     Gross profit margin increased to 47% of revenue for the first nine months
of fiscal 2006 from 40% for the first nine months fiscal 2005. The increase in
gross profit margin was due to a more profitable revenue mix and higher product
margins due primarily to lower-cost coupler designs.

     Research and development expense increased by 34% to $1,237,355 for the
nine months ended December 31, 2005 compared to $925,136 for the nine months
ended December 31, 2004. The increase was due to efforts to develop new and
improved products and a shift to company-funded research from contract-funded
research.

     Selling, general and administrative expense for the nine months ended
December 31, 2005 decreased 12% to $1,238,757 compared to $1,404,083 for the
nine months ended December 31, 2004. The decrease was due to a shift to
distributors to sell our products rather than manufacturers' representatives.
This shift reduced commissions we paid and expenses associated with supporting
manufacturers' representatives.

     Net interest and other income increased 19% to $268,189 for the nine
months ended December 31, 2005 from $225,451 for the nine months ended
December 31, 2004. The increase was due to an increase in interest-bearing
investments.


<PAGE>
     Income before taxes increased 45% to $1,862,286 for the nine months ended
December 31, 2005 from $1,282,141 for the nine months ended December 31, 2004.
The increase was due to an increase in revenue, an increase in gross profit
margin, and a decrease in selling, general and administrative expense. These
changes were partially offset by an increase in research and development
expense.

     The provision for income taxes for the for the nine months ended
December 31, 2005 was due to the exhaustion of our net operating losses in
fiscal 2005. We do not expect to pay significant cash taxes in the near future
because we have significant stock-based compensation deductions. Under SFAS
No. 109, Accounting for Income Taxes, stock-based compensation deductions do
not reduce provision for income taxes reported for book purposes.

     Net income totaled $1,178,002 for the nine months ended December 31, 2005
compared to $1,282,141 for the nine months ended December 31, 2004. The
decrease in net income was due to provisions for income taxes.

     Weighted average diluted shares outstanding decreased to 4,674,431 shares
for the nine months ended December 31, 2005 from 4,879,976 shares for the nine
months ended December 31, 2004. The decrease was due to the expiration of a
warrant issued to Cypress Semiconductor Corporation for the purchase of up to
400,000 shares of our common stock.

     Earnings per diluted share were $0.25 for the nine months ended
December 31, 2005 compared to $0.26 for the nine months ended
December 31, 2004. The decrease was due to provisions for income taxes in the
nine months ended December 31, 2005.


Liquidity and capital resources
     At December 31, 2005 we had $9,778,477 in cash plus investments compared
to $7,717,264 at March 31, 2005. The increase was due to cash generated from
operations and non-operating income. Our entire portfolio of short-term and
long-term investments is classified as available for sale.

     Inventories increased $461,182 to $2,033,941 at December 31, 2005 compared
to $1,572,759 at March 31, 2005. The increase was primarily due to increases in
finished goods and work-in-process product inventories to support increased
product sales. In the future we expect inventories to tend to increase roughly
in line with product sales.

     Working capital and long-term investments increased to $13,810,835 from
$11,342,300. The increase was due to cash provided by operating activities.
Working capital consists of current assets less current liabilities.

     We currently have a commitment of approximately $100,000 for capital
expenditures for equipment to process even smaller products than we currently
sell. We believe our working capital is adequate for our needs at least for the
next 12 months.


<PAGE>
Our outlook
     We expect product revenue to increase in the fourth quarter fiscal 2006
compared to fiscal 2005 due to sales of new coupler and sensor products,
anticipated growth of our sales into the medical device market, and price
increases for certain of our products that will go into effect in calendar year
2006.

     Research and development revenue may continue to decrease in fiscal 2006
compared to the prior year due to more limited availability of Government
research funds, our shift in emphasis from contract-funded to company-funded
research, particularly new product development, and our focus of contract
research on certain strategic areas.

     We expect gross profit margins to continue to increase in the remainder of
fiscal 2006 compared to the prior year due to lower-cost product designs
completed in fiscal 2005, price increases for certain of our products that will
go into effect in calendar year 2006, and a planned continued shift in our
revenue mix to product sales from research and development revenue. Our product
sales have generally had higher gross profit margins than our research and
development revenue.

     Selling, general and administrative expenses could increase in the future
as we attempt to acquire additional MRAM license agreements and enforce
existing MRAM license agreements.

     Research and development expense may increase in fiscal 2006 compared to
the prior year as we develop new products and continue to shift to company-
funded research and development from contract-funded research and development.

     We do not expect to pay any significant income taxes in fiscal 2006 due to
our stock-based compensation deductions, however we expect to recognize
provisions for income taxes. Unlike net operating loss carryforwards, stock-
based compensation deductions do not reduce taxes reported for book purposes
when realized.

     We anticipate being profitable in the fourth quarter of fiscal 2006,
although no assurance can be given that we will be successful in achieving this
goal.

     We currently have a commitment of approximately $100,000 for capital
expenditures for equipment to process even smaller products than we currently
sell. We are planning certain other smaller expenditures to increase our
capacity. We evaluate capital investments as needs and opportunities arise so
our capital expenditures could deviate significantly from our expectations. We
will likely fund capital expenditures from operating profits or our cash and
cash equivalents.


<PAGE>
New accounting pronouncements
     In June 2005 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 154, Accounting Changes
and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes,
and Statement No. 3, Reporting Accounting Changes in Interim Financial
Statements. SFAS No. 154 applies to all voluntary changes in accounting
principle, and it changes the requirements for the accounting for and reporting
of a change in accounting principle. SFAS No. 154 requires retrospective
application to prior periods' financial statements of a voluntary change in
accounting principle unless it is impracticable. APB Opinion No. 20 previously
required that most voluntary changes in accounting principle be recognized by
including in net income of the period of the change the cumulative effect of
changing to the new accounting principle. SFAS No. 154 also requires that a
change in method of depreciation, amortization, or depletion for long-lived,
nonfinancial assets be accounted for as a change in accounting estimate that is
effected by a change in accounting principle. APB Opinion No. 20 previously
required that such a change be reported as a change in accounting principle.
SFAS No. 154 is effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. We do not expect that
adoption of SFAS No. 154 will have a material effect on our financial position,
results of operations, or liquidity.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.
     Our interest income is subject to interest rate risks on cash, cash
equivalents, and investments. Our investments in fixed-rate debt securities,
which were classified as available for sale as of December 31, 2005, have
remaining maturities from four to 60 months, and are exposed to the risk of
fluctuating interest rates. Available-for-sale securities had a market value of
$8,667,468 at December 31, 2005, representing 54% of our total assets. The
primary objective of our investment activities is to preserve capital. We have
not used derivative financial instruments in our investment portfolio.

     We performed a sensitivity analysis assuming a hypothetical 10% adverse
movement in interest rates applicable to fixed rate instruments maturing during
the next 12 months that are subject to reinvestment risk. As of
December 31, 2005, the analysis indicated that these hypothetical market
movements would not have a material effect on our financial position, results
of operations, or cash flow.


Item 4. Controls and Procedures.
     As of the end of the period covered by this Report, we conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of our disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. There was no change
in our internal control over financial reporting during our most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.


<PAGE>
                          PART II--OTHER INFORMATION


Item 6. Exhibits.

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

  31.2    Certification by Curt A. Reynders pursuant to
          Rule 13a-14(a)/15d-14(a).

  32      Certification by Daniel A. Baker and Curt A. Reynders 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

     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.


                                                                NVE CORPORATION
                                                                  (Registrant)


      January 18, 2006                                      /s/ Daniel A. Baker
      ----------------                    -------------------------------------
           Date                                                 Daniel A. Baker
                                          President and Chief Executive Officer


      January 18, 2006                                     /s/ Curt A. Reynders
      ----------------                    -------------------------------------
           Date                                                Curt A. Reynders
                                                        Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>2
<FILENAME>ex31-dab.txt
<DESCRIPTION>CERTIFICATION BY DANIEL A. BAKER PURSUANT TO RULE 13A-14(A)/15D-14(A)
<TEXT>
                                                                   Exhibit 31.1
                               CERTIFICATION

I, Daniel A. Baker, certify that:

   1. I have reviewed this Quarterly Report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;

   4. The registrant'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 registrant
      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
            registrant, 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 registrant'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 registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

   5. The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant'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 registrant'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 registrant's
            internal control over financial reporting.


Date: January 18, 2006

                                  /s/ Daniel A. Baker
                                  -------------------
                                  Daniel A. Baker
                                  President and Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>ex31-car.txt
<DESCRIPTION>CERTIFICATION BY CURT A. REYNDERS PURSUANT TO RULE 13A-14(A)/15D-14(A)
<TEXT>
                                                                   Exhibit 31.2
                               CERTIFICATION

I, Curt A. Reynders, certify that:

   1. I have reviewed this Quarterly Report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;

   4. The registrant'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 registrant
      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
            registrant, 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 registrant'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 registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

   5. The registrant's other certifying officer(s) and I have disclosed, based
      on our most recent evaluation of internal control over financial
      reporting, to the registrant's auditors and the audit committee of the
      registrant'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 registrant'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 registrant's
            internal control over financial reporting.


Date: January 18, 2006

                                  /s/ Curt A. Reynders
                                  --------------------
                                  Curt A. Reynders
                                  Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>ex-32.txt
<DESCRIPTION>CERTIFICATION BY DANIEL A. BAKER AND CURT A. REYNDERS PURSUANT TO 18 U.S.C. SECTION 1350
<TEXT>
                                                                     Exhibit 32

                     CERTIFICATION PURSUANT TO SECTION 906
           OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)

The undersigned certify pursuant to 18 U.S.C. Section 1350, that:

           1. The accompanying Quarterly Report of NVE Corporation (the
              "Company") on Form 10-Q for the quarter ended December 31, 2005,
              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: January 18, 2006



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



/s/ Curt A. Reynders
- --------------------
Curt A. Reynders
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>risk3q06.txt
<DESCRIPTION>CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
<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-Q
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-Q,
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

WE RELY ON GOVERNMENT CONTRACTS FOR A LARGE PERCENTAGE OF OUR REVENUE AND WE
WILL LOSE REVENUE IF GOVERNMENT FUNDING IS REDUCED OR ELIMINATED.
United States Government contracts accounted for the majority of our fiscal
2005 revenue. Although we have been reducing the portion of our revenues from
Government contracts, such contracts remain a significant portion of our
revenue. A material decrease in Government funding research or disqualification
as a vendor to the U.S. Government for any reason would cause serious setbacks
and would likely hamper both future research and development activity, as well
as related revenue.

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 revenue, profits, and research and development
efforts.


<PAGE>
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 revenue; these
include Avago Technologies (the company comprised of the former Agilent
Technologies, Inc. Semiconductor Product Group), St. Jude Medical, Inc., the
U.S. Government, Digi-Key Corporation, and certain other distributors. In
fiscal 2006 we reduced our number of manufacturers' representatives, which
increased our dependence on our North American distributors. Orders from these
large customers can be cancelled, postponed, or reduced without cause, and the
loss of any of these customers could have a significant impact on our revenue
and our profitability.

WE FACE AN UNCERTAIN ECONOMIC ENVIRONMENT IN OUR INDUSTRY THAT COULD ADVERSELY
AFFECT OUR BUSINESS AND OPERATIONS.
The semiconductor market, which is the primary market for our products, has
been subject to sudden downturns in the past. Any future downturn in the
economic environment would likely have a material adverse impact on our
business and revenue.

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 revenue.

OUR FAILURE TO MEET STRINGENT CUSTOMER TECHNICAL REQUIREMENTS COULD RESULT IN
THE LOSS OF KEY CUSTOMERS AND POTENTIALLY REDUCE OUR SALES.
Some of our customers, including Avago (the company comprised of the former
Agilent Technologies, Inc. Semiconductor Product Group), St. Jude Medical, and
Starkey Laboratories, 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.

OUR SENSORS ARE INCORPORATED INTO MEDICAL DEVICES, WHICH COULD EXPOSE US TO A
RISK OF PRODUCT LIABILITY CLAIMS AND SUCH CLAIMS COULD SERIOUSLY HARM OUR
BUSINESS AND FINANCIAL CONDITION.
Certain of our sensor products are used in medical devices, including cardiac
pacemakers and implantable cardioverter defibrillators ("ICDs") made by St.
Jude Medical, which help sustain human life. We are also marketing our sensor
technology to other manufacturers of cardiac pacemakers and ICDs. Although we
have an indemnification agreement with a St. Jude Medical company with
provisions designed to limit our exposure to product liability claims, there
can be no assurance that we will not be subject to losses, claims, damages,
liabilities, or expenses arising out of bodily injury or property damage
arising from the incorporation of our sensors in products sold by St. Jude
Medical or others. Existing or future laws or unfavorable judicial decisions
could limit or invalidate the provisions of our indemnification agreement, or
the agreement may not be enforceable in all instances. A successful product
liability claim could require us to pay, or contribute to payment of,
substantial damage awards, which would have a significant negative effect on
our business and financial condition.


<PAGE>
FEDERAL LEGISLATION MAY NOT PROTECT US AGAINST LIABILITY FOR THE USE OF OUR
SENSORS IN MEDICAL DEVICES AND A SUCCESSFUL LIABILITY CLAIM COULD SERIOUSLY
HARM OUR BUSINESS AND FINANCIAL CONDITION.
Although the Biomaterials Access Assurance Act of 1998 may provide us some
protection against potential liability claims, that Act includes significant
exceptions to supplier immunity provisions, including limitations relating to
negligence or willful misconduct. A successful product liability claim could
require us to pay, or contribute to payment of, substantial damage awards,
which would have a significant negative effect on our business and financial
condition. Any product liability claim against us, with or without merit, could
result in costly litigation, divert the time, attention and resources of our
management and have a material adverse impact on our business.

CHANGES IN THE INTERACTION BETWEEN OUR SENSORS AND OUR CUSTOMERS' MEDICAL
DEVICES COULD CAUSE THE MEDICAL DEVICES TO FAIL, EXPOSING US TO A RISK OF
PRODUCT LIABILITY CLAIMS THAT COULD SERIOUSLY HARM OUR BUSINESS AND FINANCIAL
CONDITION.
Our sensors function in interaction with our customers' medical devices. Our
sensors are manufactured to meet various electrical, magnetic, and other
specifications, but the actual performance of the products is dependent on how
they are used in the customers' devices over the lifetime of the devices. This
interaction could be different than expected for a number of reasons.
Consequently, it is possible that customers may experience problems with their
medical devices that could require device recall or other corrective action,
where our sensors met the specification at delivery, and for reasons that are
not related primarily or at all to any failure by our product to perform in
accordance with specifications. It is possible that our customers or our
customers' patients may assert that our sensors caused or contributed to device
failure where our product was not the primary cause of the device performance
issue.

ANY MALFUNCTION OF OUR SENSORS IN EXISTING MEDICAL DEVICES COULD LEAD TO THE
NEED TO RECALL FROM THE MARKET DEVICES INCORPORATING OUR SENSORS, WHICH MAY BE
HARMFUL TO OUR REPUTATION AND CAUSE A SIGNIFICANT LOSS OF REVENUE.
Any malfunction of our sensors could lead to the need to recall from the market
existing medical devices incorporating our sensors, which may be harmful to our
reputation which is dependent on product safety and efficacy. Even if
assertions that our sensors caused or contributed to device failure do not lead
to product liability or contract claims, such assertions could harm our
reputation and our customer relationships. Any damage to our reputation and/or
the reputation of our products, or the reputation of our customers or their
products could limit the market for our and our customers' products and harm
our results of operations.

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.


<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. Agilent may be able to assign its rights
under our agreement to Avago, the company comprised of the former Agilent
Semiconductor Product Group.

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 that
are incorporated in our products. These critical suppliers include Advanced
Semiconductor Manufacturing Corporation of Shanghai (China), AMI Semiconductor,
Inc., Intersil Corporation, Silicon Quest International, Inc., 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 OF ANY CRITICAL CHEMICALS OR SUPPLIES COULD IMPACT OUR
ABILITY TO PRODUCE AND DELIVER PRODUCTS AND CAUSE LOSS OF REVENUE.
There are a number of critical chemicals and supplies that we require to make
products. These include certain photoresists, polymers, metals, and alloys. We
maintain inventory of critical chemicals and materials, but in many cases we
are dependant on single sources, and some of the materials could be
discontinued by their suppliers at any time. Any supply interruptions could
seriously jeopardize our ability to provide products that are critical to our
business and operations and may cause us to lose revenue.

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 NS Electronics Bangkok
(Thailand), Ltd., Circuit Electronic Industries Public Co., Ltd. ("CEI,"
Ayutthaya, Thailand), and CIRTEK Electronics Corporation of Laguna, The
Philippines. 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.
CEI is operating under voluntary debt rehabilitation under Thailand law. CEI
has told us that the rehabilitation process will not affect their ability to
support their customers in any way. We have identified potential alternate
vendors in case CEI's ability to serve our needs becomes impaired, however it
could prove expensive or time-consuming, or technically challenging to convert
to an alternate vendor. If one of our packaging vendors were to become
insolvent we might not be able to recover work in process or finished goods in
their possession. Any supply interruptions or loss of inventory could seriously
jeopardize our ability to provide products that are critical to our business
and operations and may cause us to lose revenue. Higher packaging costs with an
alternate vendor could have a significant impact on our profitability.


<PAGE>
BECAUSE WE ARE SIGNIFICANTLY SMALLER THAN THE MAJORITY OF OUR COMPETITORS, WE
MAY LACK THE FINANCIAL RESOURCES NEEDED TO INCREASE OUR MARKET SHARE AND FUTURE
REVENUE.
Our known competitors and potential competitors include Advanced Micro Devices,
Inc., Avago, Allegro Microsystems, Inc., Analog Devices, Inc., Coatue, Cypress
Semiconductor Corporation, Elpida Memory, Inc., Fairchild Semiconductor
International, Fujitsu Limited, Grandis, Inc., Hermetic Switch, Inc., IBM
Corporation, Infineon Technologies AG, Intel Corporation, Linear Technology
Inc., Macronix International Co., Ltd., Maxim Integrated Products, Inc., Meder
Electronic AG, Memscap SA, Nantero, Inc., NEC Corporation, Ovonyx, Inc.,
Ramtron International Corporation, Renesas Technology Corporation, Royal
Philips Electronics, Samsung Electronics, Ltd., Sensitec GmbH, Simtek
Corporation, Spintec, Spintron, STMicroelectronics NV, Texas Instruments Inc.,
Thin Film Electronics ASA, Toshiba Corporation, Vishay Intertechnology, and
others. We believe that we face particularly aggressive competition in our
coupler business, and we believe that our competition is increasing 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.

WE DERIVE SIGNIFICANT REVENUE FROM OUR SALE OF PRODUCTS USED IN MEDICAL
DEVICES, AND LOSS OF BUSINESS DUE TO COMPETITIVE FACTORS COULD CAUSE A
SIGNIFICANT LOSS OF REVENUE.
Our medical sensors face competition from electromechanical magnetic sensors
such as reed switches. Reed switches have been in use for several decades. A
reed switch uses a pair of contacts that pull together when subjected to a
magnetic field, closing an electrical circuit. Our medical sensor competitors
include Hermetic Switch, Inc., which manufactures miniature magnetically-
operated reed switches. Additionally, Meder Electronic AG (Engen/Welschingen,
Germany) and Memscap SA (Grenoble, France) manufacture microelectromechanical
system (MEMS) reed switches. Because our sensors have no moving parts, we
believe they are more reliable than reed switches. We also believe our sensors
are smaller than the smallest reed switches, more precise in their magnetic
switch points, and more sensitive to small magnetic fields. While we believe
that our sensors have important competitive advantages in medical devices, our
competitors may succeed in developing and marketing products that perform
better or are less expensive than ours, or that would render our products
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 revenue 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 revenue 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 revenue and profits is dependent on our
current and future licensees 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 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 licensees
to convert our intellectual property into commercially viable MRAM. While our
licensees have made samples, there may be technical and manufacturing issues to
be resolved before commercially viable devices can be produced, and these
problems may never successfully be solved.

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, Inc. We are highly dependent on the success of Motorola or Freescale
Semiconductor, Inc. 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.

FREESCALE COULD CANCEL ITS MRAM DEVELOPMENT PROGRAM AT ANY TIME, WHICH WOULD
REDUCE OUR FUTURE REVENUE POTENTIAL.
Freescale could cancel its MRAM development programs at any time because of
financial or other considerations. Such a cancellation would likely eliminate
our opportunity to negotiate a license agreement with Freescale or receive
royalties from the sale of devices under our agreements with Motorola.
Furthermore, we believe Royal Philips Electronics and STMicroelectronics NV are
dependent on Freescale for their MRAM designs. Therefore a cancellation or lack
of success of Freescale's MRAM programs would likely hamper or eliminate any
opportunity to negotiate license agreements with Philips or STMicroelectronics.

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, 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.


<PAGE>
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 devices
Freescale and Motorola have described 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.

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 NOT BE ABLE TO NEGOTIATE A NEW MRAM LICENSING AGREEMENT WITH FREESCALE.
Our Patent License Option Agreement with Motorola provided for termination
December 31, 2005 or on the date Motorola ceases manufacturing MRAM Products
whichever is later. We believe such a termination is likely to have occurred as
a result of Motorola apparently having eliminated its ability to manufacture
MRAM Products through its spinoff of Freescale. We are free to negotiate a new
agreement with Freescale or an assignment of the Motorola Patent License Option
Agreement to Freescale, but would do so only with amendments thereto. There can
be no assurance, however, that any such agreement can 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>
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, could decide to retire in Fiscal 2006 and we may not be able to
replace his technical or contract development expertise.

WHILE WE BELIEVE THAT WE CURRENTLY HAVE ADEQUATE INTERNAL CONTROL OVER
FINANCIAL REPORTING IN PLACE, IN THE FUTURE OUR MANAGEMENT WILL BE REQUIRED TO
EVALUATE OUR INTERNAL CONTROL OVER FINANCIAL REPORTING UNDER SECTION 404 OF THE
SARBANES-OXLEY ACT OF 2002 AND ANY ADVERSE RESULTS FROM SUCH EVALUATION COULD
RESULT IN A LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL REPORTS AND HAVE AN
ADVERSE AFFECT ON OUR FINANCIAL RESULTS AND THE MARKET PRICE OF OUR COMMON
STOCK.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"),
the SEC adopted rules requiring each public company to include a management
report assessing the effectiveness of its internal control over financial
reporting in Annual Reports on Form 10-KSB or 10-K, and the independent
registered public accounting firm auditing such company's financial statements
must attest to and report on management's assessment of the effectiveness of
the internal control over financial reporting. This requirement will apply to
our Annual Report for the fiscal year ending March 31, 2007 if we meet the
tests for being an "Accelerated Filer" as of September 30, 2006. If we are not
deemed to be an Accelerated Filer on that date, under current regulations we
will be required to comply with Section 404 in our Annual Report for the fiscal
year ending March 31, 2008. While we currently anticipate being able to fully
implement the requirements relating to compliance with Section 404 in a timely
fashion, we cannot be certain as to the timing of completion of our evaluation,
testing and remediation actions or the impact of such activities on our
operations due in large part to the lack of precedent available by which to
measure compliance with such requirements. If we are not able to implement the
requirements of Section 404 in a timely manner or with adequate compliance,
investors could lose confidence in the reliability of our financial statements,
which could result in a decrease in the market price of our common stock. In
addition, to the extent we or our independent registered public accounting firm
identify a significant deficiency in our internal control over financial
reporting, the resources and costs required to remediate such deficiency could
have a material adverse impact on our future results of operations.


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 Capital Market (formerly known as 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.


<PAGE>
THE PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY SIGNIFICANT PRICE
FLUCTUATIONS DUE TO A NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.
Our stock price declined significantly in the past fiscal year, and could
continue to decline. In the past, securities class-action litigation has often
been brought against a company following periods of decline in the market price
of its securities. In the future we could be the target of this type of
litigation. Securities litigation may result in substantial costs and divert
management's attention and resources, which can seriously harm our business.

The market price of our common stock may be significantly affected by many
factors, some of which are beyond our control, 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.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
