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<SEC-DOCUMENT>0000724910-10-000007.txt : 20100505
<SEC-HEADER>0000724910-10-000007.hdr.sgml : 20100505
<ACCEPTANCE-DATETIME>20100505160845
ACCESSION NUMBER:		0000724910-10-000007
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20100331
FILED AS OF DATE:		20100505
DATE AS OF CHANGE:		20100505

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-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-12196
		FILM NUMBER:		10801956

	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-K
<SEQUENCE>1
<FILENAME>ten-k10.htm
<DESCRIPTION>ANNUAL REPORT FOR THE YEAR ENDED MARCH 31, 2010
<TEXT>
<html>
<font style="font-size: 10pt; font-family: Times New Roman"><br><a href="#TOC"><b>Table of Contents</b></a><br><br>
</font>
<hr style="margin-top: -5px; color: black;" noshade size="3">
<hr style="margin-top: -14px; color: black;" noshade size="1">
<div align="center"><font style="font-size: 12pt; font-family: Times New Roman"><b>UNITED STATES
<br>SECURITIES AND EXCHANGE COMMISSION</b></font></div><div align="center"><font style="font-size: 10pt; font-family: Times New Roman"><b>Washington, D.C.&nbsp;&nbsp;20549</b></font></div><div align="center"><font style="font-size: 10pt; font-family: Times New Roman line-height: 5pt;">_______________</font></div><font style="font-size: 10pt; font-family: Times New Roman line-height: 5pt;">&nbsp;</font>
<div align="center"><font style="font-size: 12pt; font-family: Times New Roman"><b>FORM 10-K</b></font></div><font style="font-size: 8pt; font-family: Times New Roman">(Mark One)<br>
</font><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[X]&nbsp;&nbsp;ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</font>
<font style="font-size: 10pt; font-family: Times New Roman">
<div align="right">For the fiscal year ended <b>March 31, 2010</b></div>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[&nbsp;&nbsp;&nbsp;]&nbsp;&nbsp;</font><font style="font-size: 10pt; font-family: Times New Roman letter-spacing: -.02em;">TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</font>
<font style="font-size: 10pt; font-family: Times New Roman"><div align="right">For the transition period from _____________________to____________________</div>Commission file number <b>000-12196</b><br>
</font>
<div align="center"><font style="font-size: 10pt; font-family: Arial;">&nbsp;<img src="logo-10k.gif" alt="NVE Logo" width="132" height="26"><br><b>NVE CORPORATION</b></font><br>
<font style="font-size: 10pt; font-family: Times New Roman">(Exact name of registrant as specified in its charter)</font><font style="line-height: 5pt;"><br>
&nbsp;<br></font></div><table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr align="center">
<td width="50%">
<b>Minnesota</b>
</td><td>
<b>41-1424202</b>
</td></tr>
<tr align="center">
<td>State or other jurisdiction of incorporation or organization</td><td>
(I.R.S.Employer Identification No.)
</td></tr>
<tr>
<td colspan="2">&nbsp;</td></tr>
<tr align="center">
<td><b>11409 Valley View Road, Eden Prairie, Minnesota</b></td><td><b>55344</b></td></tr>
<tr align="center">
<td>(Address of principal executive offices)
</td><td>(Zip Code)
</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
Registrant&#146;s telephone number, including area code <b>(952) 829-9217</b><br>
<br>Securities registered pursuant to Section 12(b) of the Act:</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr><td width="50%">
<div align="center"><u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title
of each class&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></div></td><td>
<div align="center"><u>Name of each exchange on which registered</u></div></td></tr>
<tr>
<td>
<div align="center"><b>Common stock, $0.01 par value (&#147;Common Stock&#148;)</b></div></td><td>
<div align="center"><b>The NASDAQ Stock Market, LLC</b></div></td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman line-height: 5pt;">&nbsp;<br></font>
<font style="font-size: 10pt; font-family: Times New Roman"><div align="center">
Securities registered pursuant to Section 12(g) of the Act: <b>None</b></div><font style="font-size: 10pt; font-family: Times New Roman line-height: 5pt;">&nbsp;<br></font>
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
</font>
<div align="right"><font style="font-size: 10pt; font-family: Times New Roman">Yes&nbsp;[&nbsp;&nbsp;&nbsp;]&nbsp;&nbsp;No [X]</font></div><font style="font-size: 10pt; font-family: Times New Roman">Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
</font>
<div align="right"><font style="font-size: 10pt; font-family: Times New Roman">Yes&nbsp;[&nbsp;&nbsp;&nbsp;]&nbsp;&nbsp;No [X]</font></div><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&nbsp;required&nbsp;to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
</font>
<div align="right"><font style="font-size: 10pt; font-family: Times New Roman">Yes&nbsp;[X]&nbsp;&nbsp;No [&nbsp;&nbsp;&nbsp;]<br>
</font></div><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
</font>
<div align="right"><font style="font-size: 10pt; font-family: Times New Roman">Yes&nbsp;&nbsp;[&nbsp;&nbsp;&nbsp;]&nbsp;&nbsp;No [&nbsp;&nbsp;&nbsp;]<br>
</font></div><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate
by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405 of
Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant&#146;s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.&nbsp; [&nbsp;&nbsp;&nbsp;]<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of &#147;large accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller
reporting company&#148; in Rule 12b-2 of the Exchange Act.</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td width="67%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Large accelerated filer [&nbsp;&nbsp;&nbsp;]</td><td>Accelerated filer [X]</td></tr>
<tr><td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-accelerated filer&nbsp;[&nbsp;&nbsp;&nbsp;]&nbsp;(Do not check if a smaller reporting company)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td><td>Smaller reporting company [&nbsp;&nbsp;&nbsp;]&nbsp;</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman line-height: 5pt;">&nbsp;
<br>
</font>
<font style="font-size: 10pt; font-family: Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
<div align="right">Yes&nbsp;[&nbsp;&nbsp;&nbsp;]&nbsp;&nbsp;No&nbsp;[X]</div>&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate market value of the voting stock
held by non-affiliates of the Registrant, based on the closing price on September&nbsp;30, 2009, the last business day of the Registrant&#146;s most recently completed
second fiscal quarter, as reported on the NASDAQ Stock Market, was approximately $207&nbsp;million.<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number of shares of the registrant&#146;s Common
Stock (par value $0.01) outstanding as of April&nbsp;30, 2010 was 4,700,583.</font>
<div align="center"><font style="font-size: 10pt; font-family: Times New Roman line-height: 5pt;">_______________</font></div><font style="font-size: 10pt; font-family: Times New Roman line-height: 5pt;">&nbsp;</font><font style="font-size: 10pt; font-family: Times New Roman">
<div align="center"><b>DOCUMENTS INCORPORATED BY REFERENCE</b></div></font>
<font style="font-size: 10pt; font-family: Times New Roman line-height: 5pt;">&nbsp;</font><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Portions
of our Proxy Statement for our 2010 Annual Meeting of Stockholders are incorporated
by reference into Items 10,&nbsp;11,&nbsp;12, 13, and 14 of Part III hereof.<br>
<br></font>
<div id="PN" style="page-break-after: always;">
<hr style="margin-top: -5px; color: black;" noshade size="1">
<hr style="margin-top: -15px; color: black;" noshade size="3">
</div><font style="font-size: 10pt; font-family: 'Arial','Helvetica';">&nbsp;<br>
<br>
<div align="center"><a name="TOC"></a><b>NVE CORPORATION<br>
INDEX TO FORM 10-K</b></div></font>
<font style="font-size: 10pt; font-family: Times New Roman;"><br>
<b><a href="#part1">PART I</a></b>
<div style="margin-left: 18pt;"><a href="#item1">Item 1. Business.</a></div><div style="margin-left: 36pt;"><a href="#strategy">Our Strategy</a>
<br>
<a href="#prodsandmkts">Our Products and Markets</a></div><div style="margin-left: 54pt;"><a href="#Sensors">Sensor Products and Markets</a><br>
<a href="#Couplers">Coupler Products and Markets</a><br>
<a href="#MRAM">MRAM Products and Markets</a></div><div style="margin-left: 36pt;"><a href="#mfg">Product Manufacturing</a><br>
<a href="#sales">Sales and Product Distribution</a><br>
<a href="#newproducts">New Product Status</a><br>
<a href="#competition">Our Competition</a><br>
<a href="#suppliers">Sources and Availability of Raw Materials</a><br>
<a href="#IP">Intellectual Property</a><br>
<a href="#seasonality">Seasonality</a><br>
<a href="#workingcap">Working Capital Items</a><br>
<a href="#majorcustomers">Dependence on Major Customers</a><br>
<a href="#backlog">Firm Backlog</a><br>
<a href="#RandD">Research and Development Activities</a><br>
<a href="#environment">Environmental Matters</a><br>
<a href="#employees">Number of Employees</a><br>
<a href="#geographic">Financial Information About Geographic Areas</a><br>
<a href="#availinfo">Available Information</a></div><div style="margin-left: 18pt;"><a href="#item1a">Item 1A. Risk Factors.</a><br>
<a href="#item2">Item 2. Properties.</a><br>
<a href="#item3">Item 3. Legal Proceedings.</a></div><br>
<b><a href="#partII">PART II</a></b>
<div style="margin-left: 18pt;"><a href="#item5">Item 5. Market for Registrant&#146;s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.</a></div><div style="margin-left: 36pt;"><a href="#MarketInfo">Market Information</a><br>
<a href="#Shareholders">Shareholders, Dividends, and Securities Authorized for Issuance Under Equity Compensation Plans</a><br>
<a href="#StockGraph">Stock Performance Graph</a><br>
<a href="#buyback">Stock Repurchase Program</a><br>
</div><div style="margin-left: 18pt;"><a href="#item6">Item 6. Selected Financial Data.</a><br>
<a href="#item7">Item 7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations.</a></div><div style="margin-left: 18pt;"><a href="#item7a">Item 7A. Quantitative and Qualitative Disclosures About Market Risk.</a><br>
<a href="#item8">Item 8. Financial Statements and Supplementary Data.</a><br>
<a href="#item9A">Item 9A. Controls and Procedures.</a></div><br>
<b><a href="#part3">PART III</a></b>
<div style="margin-left: 18pt;"><a href="#item10">Item 10. Directors, Executive Officers and Corporate Governance.</a><br>
<a href="#item11">Item 11. Executive Compensation.</a><br>
<a href="#item12">Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.</a><br>
<a href="#item13">Item 13. Certain Relationships and Related Transactions, and Director Independence.</a><br>
<a href="#item14">Item 14. Principal Accounting Fees and Services.</a><br>
</div><br>
<b><a href="#itemIV">PART IV</a></b>
<div style="margin-left: 18pt;"><a href="#item15">Item 15. Exhibits, Financial Statement Schedules.</a></div><br>
<b><a href="#signatures">SIGNATURES</a></b>
<br>
<br>
<b><a href="#Report">FINANCIAL STATEMENTS</a></b>
<div style="margin-left: 18pt;"><a href="#Report">Reports of Independent Registered Public Accounting Firm</a><br>
<a href="#BS">Balance Sheets</a><br>
<a href="#income">Statements of Income</a><br>
<a href="#SHE">Statements of Shareholders&#146; Equity</a><br>
<a href="#CF">Statements of Cash Flows</a><br>
<a href="#notes">Notes to Financial Statements</a><br>
</div><br>
<br>
</font>
<div id="PN" style="page-break-after: always;">
<hr></div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br></font>
<div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b><u><a name="part1">PART I</a></u></b></font></div><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<b>FORWARD-LOOKING STATEMENTS</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of the statements made in this Report or in the documents incorporated by reference
in this Report and in other materials filed or to be filed by us with the Securities
and Exchange Commission (&#147;SEC&#148;) as well as information included in verbal
or written statements made by us 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 risks associated with competition, progress in research and development activities
by us and others, variations in costs that are beyond our control, decreased sales, failure of suppliers to meet our requirements, failure
to obtain new customers, inability
to meet customer technical requirements, inability to consummate license agreements,
ineligibility for SBIR awards, and other specific risks
that may be alluded to in this Report or in the documents incorporated by reference
in this Report. For further information regarding our risks and uncertainties,
see Item 1A &#147;Risk Factors&#148; of this Report.<br>
<br>
<b><a name="item1">ITEM 1. BUSINESS.</a></b><br>
<b>In General</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NVE Corporation, referred to as NVE, we, us, or
our, develops and sells devices that use spintronics, a nanotechnology that relies
on electron spin rather than electron charge to acquire, store and transmit information.
We manufacture high-performance spintronic products including sensors and couplers
that are used to acquire and transmit data. We have also licensed our spintronic
magnetoresistive random access memory technology, commonly known as MRAM.<br>
<br>
<b>NVE History and Background</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NVE is a Minnesota corporation headquartered
in a suburb of Minneapolis. We were founded in 1989 by James&nbsp;M. Daughton,
Ph.D., a spintronics pioneer. Our common stock became publicly traded
in 2000 through a reverse merger and became NASDAQ listed in 2003. Since our founding,
we have been awarded more than $50&nbsp;million in government research contracts, including
more than 30 MRAM development contracts. These contracts have helped us build
our intellectual property portfolio. Over the years our product sales have increased
and we have reduced our dependence on research contracts. Fiscal years referenced
in this report end March&nbsp;31.<br>
<br>
<b>Industry Background<br>
</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Much of the electronics industry is devoted
to the acquisition, storage, and transmission of information. We have focused
on three applications for our spintronic technology: magnetic sensors, couplers,
and memories. Sensors acquire information, couplers transmit information, and
memories store information. In that sense, our technology can provide the eyes,
nerves, and brains of electronic systems.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Magnetic sensors can be used for a number of purposes including detecting the position
or speed of robotics and mechanisms, or for communicating with implantable medical
devices. We believe our spintronic sensors are smaller, more precise, and more
reliable than competing devices.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Couplers are widely used in factory automation,
providing reliable digital communication between electronic subsystems in factories.
For example, couplers are used to send data between robots and central controllers
at very high speed. As manufacturing automation expands, there is a need for higher
speed data and more channel density. Because of their unique properties, we believe
our couplers transmit more data at higher speeds and over longer distances than
conventional devices.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Near-term potential MRAM applications include mission-critical
storage such as military, industrial, and anti-tamper applications. Long term,
MRAM could address the market for ubiquitous high-density memory.<br>
<br>
<b>Our Enabling Technology<br>
</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our designs are generally based on either giant magnetoresistance or tunneling magnetoresistance. These structures
produce a large change in electrical resistance depending on the electron spin
orientation in a free layer.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In giant magnetoresistance (GMR) devices, resistance
changes due to conduction electrons scattering at interfaces within the devices.
The GMR effect is only significant if the layer thicknesses are less than the
mean free path of conduction electrons, which is approximately five nanometers.
Our critical GMR conductor layers may be less than two nanometers, or five
atomic layers, thick. Technological advances in recent years
have made it practical to manufacture such small dimensions.<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b><br>
<br>
</a>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The second type of spintronic structure we use is based on tunneling magnetoresistance (TMR). Such devices are known as Spin-Dependent Tunnel (SDT) junctions,
Magnetic Tunnel Junctions (MTJs), or Tunneling Magnetic Junctions (TMJs). SDT junctions use tunnel barriers that are so thin
that electrons can &#147;tunnel&#148; through a normally insulating material to
cause a resistance change. SDT barrier thicknesses can be in the range of one to
four nanometers (less than ten molecules).<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our products, the spintronic elements are connected
to integrated circuitry and packaged in much the same way as conventional integrated
circuits.<br>
<br>
<a name="strategy"></a><b>Our Strategy</b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our vision is to become the leading developer
of practical spintronics technology and devices. We plan to do that by selling
the products described below and licensing our MRAM technology. To grow product sales,
we plan to broaden our sensor and coupler product lines, and longer-term to target
larger markets such as consumer electronics.<br>
<br>
<a name="prodsandmkts"></a><b>Our Products and Markets</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate in one reportable segment. For financial
information concerning this segment see &#147;Note&nbsp;8&nbsp;&#150; Segment Information&#148;
of the Financial Statements included in this Report.<br>
<br>
<a name="Sensors"></a><b><i>Sensor Products and Markets</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our sensor products detect the strength or gradient of
magnetic fields and are often used to determine position or speed. The GMR changes its electrical
resistance depending on the magnetic field. In our devices, GMR is combined with
conventional foundry integrated circuitry and packaged in much the same way as
conventional integrated circuits. We sell standard or catalog sensors, and custom
sensors designed to meet customers&#146; exact requirements. Our sensors are quite
small, very sensitive to magnetic fields, precise, and reliable.<br>
<br>
<i>Standard sensors</i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our standard, or catalog, sensors are generally
used to detect the presence of a magnetic or metallic material to determine position or speed.
We believe our spintronic sensors are smaller, more precise, and more reliable
than competing devices. Our major market for standard sensors is factory automation.<br>
<br>
<i>Custom and medical sensors</i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary custom products are sensors for
medical devices, which are customized to our customers&#146; requirements and
manufactured under stringent medical device quality standards. Most are used to
replace electromechanical magnetic switches. We believe our sensors have important
advantages in medical devices compared to electromechanical switches, including
no moving parts for inherent reliability, and being smaller, more sensitive, and
more precise. Our sensors can be customized using customer-specific integrated
signal processing and design variations that can include the range and sensitivity
to magnetic fields, electrical resistance, and multi-sensor elements configuration.
Future custom sensor target markets include consumer and automotive electronics.<br>
<br>
<a name="Couplers"></a><b><i>Coupler Products and Markets</i></b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our spintronic couplers combine a GMR sensor element
and an &#147;IsoLoop&#148; integrated microscopic coil. The coil creates a small
magnetic field that is picked up by the spintronic sensor, transmitting data almost
instantly. Couplers are also known as &#147;isolators&#148; because they electrically
isolate the coupled systems. Our IsoLoop couplers are much faster than the fastest
optical couplers.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have four lines of coupler products: cost-effective IL500-Series couplers; IL600-Series passive-input couplers; IL700/IL200-Series digital-input couplers; and IL400/IL3000-Series isolated network couplers.<br>
<br>
<a name="MRAM"></a><b><i>MRAM Products and Markets</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MRAM uses spintronics to store data. It has been called the ideal or universal memory because of its potential
to combine the speed of SRAM, the density of DRAM, and the nonvolatility of flash
memory. Data is stored in the spin of the electrons in thin
metal alloy films, and read with spin-dependent tunnel junctions. Unlike electrical
charge, the spin of an electron is inherently permanent. We have invented several types
of MRAM memory cells including inventions related to advanced MRAM designs and MRAM for tamper prevention or detection.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our strategy is to develop, manufacture, and sell low bit-density MRAM for applications such as tamper prevention and detection. For high bit-density MRAM, our strategy is to license our technology to companies with large-scale memories manufacturing capabilities.<br>
<br>
<br>
</font>
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<br>
<a name="mfg"></a><b>Product Manufacturing</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our fabrication facility is a clean-room area
with specialized equipment to deposit, pattern, etch, and process spintronic materials.
Most of our products are fabricated in our facility using either raw silicon wafers or
foundry wafers. Foundry wafers contain conventional electronics that perform housekeeping
functions such as voltage regulation and signal conditioning in our products.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each wafer may include thousands of devices. We
build spintronics structures on wafers in our fabrication facility. We either
saw wafers to be sold in die form, or wafers are sent to Asia for dicing and packaging.
Other production operations include inspection and testing. Packaged parts are returned to us to be tested, inventoried, and shipped.<br>
<br>
<b><a name="sales"></a>Sales and Product Distribution<br>
</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on distributors who stock and sell our
products in more than 75 countries. Distributors of our products include two
of the largest electronic component distributors in the world: Digi-Key Corporation and the Premier Farnell Group. Our
distributor agreements generally renew annually. In addition, Avago Technologies,
a leading supplier of solid-state couplers, distributes private-branded versions
of some of our couplers under an agreement that expires in June 2010.<br>
<br>
<a name="newproducts"></a><b>New Product Status</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past year we began marketing several
new products including certain sensors in an ultraminiature 1.1&nbsp;by 1.1&nbsp;by 0.45&nbsp;millimeter
package and new couplers designed for Controller Area Networks, which are networks used in automobiles and
factory automation. Long-term product development programs in fiscal 2010 included:<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;spintronc biosensors designed for clinical instruments;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;spintronic solid-state compasses designed for improved cellphone navigation systems; and<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;MRAM designed for tamper prevention and detection.<br>
<br>
<a name="competition"></a><b>Our Competition<br>
<i>Industrial Sensor Competition</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A limited number of other companies claim
to either make or have the capability to make GMR and TMR sensors. Also, several competitors
make solid-state industrial magnetic sensors including silicon Hall-effect sensors
and anisotropic magnetoresistive (AMR) sensors. We believe those types of sensors
are not as sensitive as our GMR or TMR sensors.<br>
<br>
<b><i>Medical Sensor Competition<br>
</i></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our sensors for medical devices face competition
from electromechanical magnetic sensors and from other solid-state magnetic sensors. Electromechanical magnetic sensors such
as reed and micro-electromechanical system (MEMS) switches have been in use for several decades. Electromechanical competitors
include Hermetic Switch, Inc., Meder Electronic&nbsp;AG (Engen/Welschingen, Germany),
and Memscap&nbsp;SA (Grenoble, France). Because our sensors have no moving parts,
we believe they are inherently more reliable than electromechanical magnetic sensors.
We also believe our sensors are smaller than the smallest electromechanical magnetic
sensors, more precise in their magnetic switch points, and more sensitive. Compared to other solid-state sensors,
our medical sensors
may have advantages in size, sensitivity to small magnetic fields, or electrical
interface simplicity.<br>
<br>
<b><i>Coupler Competition</i></b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competing coupler technologies include
optical couplers, inductive couplers (transformers), and capacitive couplers.
Our strategy is to compete based on product features rather than to compete solely on price.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to being a customer, Avago is a leading
producer of high-speed optical couplers. Other prominent optical coupler suppliers
are Fairchild Semiconductor International, NEC Corporation, Sharp Corporation,
Toshiba Corporation, and Vishay Intertechnology. We believe our couplers are smaller, faster,
have less signal distortion, and have longer life than optical couplers.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inductive couplers are made by a number of companies
including Analog Devices, Inc. and Silicon Laboratories Inc. IsoLoop couplers are
smaller and therefore require less circuit board space per channel than most optical
or inductive couplers. MEMS inductive couplers are smaller than other inductive
couplers, but we believe our devices have higher channel density per
area and have less signal distortion. Manufacturers of capacitive couplers include
Texas Instruments Incorporated. We believe we have a broader product line, higher
channel density, less signal distortion, longer product life, and lower power
consumption than capacitive couplers.<br>
<br>
<b><i>MRAM Competition</i><br>
</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A number of companies compete or may compete with us for MRAM
research and development or service business, or may be attempting to develop
MRAM intellectual property for licensing to others. Emerging technologies that could compete with MRAM include
graphene and carbon nanotubes, phase-change memory (PCM; also known as PRAM, PCRAM, chalcogenide,
CRAM, or Ovonic memory), resistive RAM (RRAM), memory resistors (memristors), and conductive metal oxide (CMOx) memory. MRAM may have
advantages over these technologies in either manufacturability, speed, data
retention, or endurance.<br>
<br>
<br>
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<br>
<b><a name="suppliers"></a>Sources and Availability of Raw Materials</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal sources of raw materials include suppliers
of raw silicon and semiconductor foundry wafers that are incorporated into our
products, and suppliers of device packaging services. Our wafers sources are based
around the world; our device packaging services are primarily in Asia.<br>
<br>
<b><a name="IP"></a>Intellectual Property<br>
<i>Patents</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were granted three U.S. patents assigned
to us in the fiscal year ended March&nbsp;31, 2010. As of March&nbsp;31, 2010 we had more than 50
issued U.S. patents assigned to us. We also have a number of foreign patents,
a number of U.S. and foreign patents pending, and we have licensed patents from
others. There are no patents we regard as critical to our business owned by us or
licensed to us that expire in the next 12 months.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Much of our intellectual property has been developed
with U.S. Government support. Under federal legislation, companies normally may
retain the principal worldwide patent rights to any invention developed with U.S.
Government support.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 believe our 6,275,411 and 6,349,053 U.S.
patents, both titled &#147;Spin Dependent Tunneling Memory,&#148; are particularly
important. Both patents cover MRAMs using arrays of Spin Dependent Tunnel Junctions.
Based on their public disclosures, we believe several companies are pursuing the
approach described in these patents. The 6,275,411 patent expires in 2019 and
the 6,349,053 patent expires in 2021. We also have patents on advanced MRAM designs
that we believe are important, including patents that relate to magnetothermal
MRAM, spin-momentum MRAM, and synthetic antiferromagnetic storage.<br>
<br>
<b><i>Trademarks</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;NVE&#148; and &#147;IsoLoop&#148;
are our registered trademarks. Other trademarks we claim include &#147;GMR
Switch&#148; and &#147;GT Sensor.&#148;<br>
<br>
<b><i>Licenses</i></b>
<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have licensed certain of our MRAM intellectual
property to several companies, including Honeywell International Inc. and Motorola, Inc.<br>
<br><i>Agreements with Honeywell</i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have agreements and amendments to agreements
with Honeywell dating back approximately to our founding. Under these agreements
we are not required to pay royalties to Honeywell for the use of their intellectual property,
and Honeywell has intellectual property rights to certain of our earlier-developed
MRAM technology.<br>
<br><i>Motorola License</i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We granted Motorola a non-exclusive, non-transferable,
and non-assignable license to our MRAM intellectual property and received advance
payments in conjunction with the agreement. Motorola has since separated Freescale Semiconductor, Inc.
Motorola and Freescale asked us to consent to Motorola&#146;s assignment of the
Patent License Option Agreement to Freescale. We have declined to provide such
consent without additional consideration. We believe the Motorola agreement likely
terminated in 2005 because Motorola transferred manufacturing to Freescale. Freescale
later announced the formation of Everspin, an independent company that would take ownership
of Freescale&#146;s MRAM manufacturing assets.<br>
<br><i>Royalty Agreement</i>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have licensed rights to another organization&#146;s
GMR-related patent family, and that agreement calls for us to pay royalties on
our sales of certain products. Payments under this agreement have been less than
$5,000 for each of the most recent three fiscal years. We believe the patent family
has expired and we do not expect to make any additional royalty payments under the agreement.<br>
<br>
<a name="seasonality"></a><b>Seasonality</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In fiscal 2009 and 2008 our product sales were less in quarters
ended December&nbsp;31 than the quarters
ended September&nbsp;30. This seasonality may have been due in part to distributor ordering patterns or customer vacations
and shutdowns late in calendar years. This seasonal pattern did not occur in fiscal 2010, however,
possibly due to an improving economic environment. We cannot predict whether this seasonal pattern
will return in future fiscal years, and we cannot predict the possible impact of economic conditions
on future results of operations.<br>
<br>
<br>
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<br>
<a name="workingcap"></a><b>Working Capital Items</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like other companies in the electronics industry,
we have historically invested in capital equipment for manufacturing and testing
our products, as well as research and development equipment. We have also
deployed significant capital in inventories to have finished products available from stock,
to receive more favorable pricing for raw materials, and to guard against raw
material shortages.<br>
<br>
<a name="majorcustomers"></a><b>Dependence on Major Customers</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on several large customers for a significant percentage
of our revenue, including Avago Technologies; Phonak AG; St. Jude Medical, Inc.;
certain other medical device manufacturers; certain distributors; and the U.S. Government. The loss of
any one or more of these customers could have a material adverse effect on us.
For the purposes of this disclosure, all agencies of the U.S. Government are considered
a single customer.<br>
<br>
<a name="backlog"></a><b>Firm Backlog</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2010 we had $1,527,621 of contract
research and development backlog we believed to be firm, compared to $2,198,545
as of March&nbsp;31, 2009. We expect the firm backlog as of March&nbsp;31, 2010
to be filled in fiscal 2011. Approximately 51% of our backlog as of March&nbsp;31, 2010
and 53% as of March&nbsp;31, 2009 was from
agencies of the U.S. Government. U.S. Government orders that are not yet funded,
or contracts awarded but not yet signed, are not included in firm backlog. The
portion of orders already included in operating revenues on the basis of percentage
of completion or program accounting are excluded. We do not believe any material
portion of our business is subject to renegotiation of profits or termination
of contracts or subcontracts at the election of the U.S. Government. There can
be no assurance of additional contracts or follow-on contracts for expired or
completed U.S. Government or other contracts.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not believe product sales backlog as of any
particular date is indicative of future results. Our product sales are made primarily
under standard purchase orders. We have certain agreements that require customers
to forecast purchases; however, these agreements do not generally obligate the
customer to purchase any particular quantity of products. Shipment schedules and
quantities actually purchased by customers are often revised to reflect changes
in customers&#146; needs. Based on semiconductor industry practice and our experience,
we do not believe that such agreements are meaningful for determining backlog
amounts. We believe that only a small portion of our product order backlog is
non-cancelable and that the dollar amount associated with the non-cancelable portion
is not significant.<br>
<br>
<a name="RandD"></a><b>Research and Development Activities</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over the past three fiscal years our research and
development activities have included development of new sensors, couplers, and memories. We spent $872,673 for fiscal
2010, $966,610 for fiscal 2009, and $1,202,504 for fiscal 2008 in company-sponsored
research and development activities. Additionally, we spent $4,346,200 during
fiscal 2010, $3,085,726 during fiscal 2009, and $2,139,059 during fiscal 2008
on customer-sponsored research and development contract activities. These research
and development contracts were with various agencies of the U.S. Government as
well non-government entities.<br>
<br>
<a name="environment"></a><b>Environmental Matters</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to environmental laws and regulations,
particularly with respect to industrial waste and emissions. Compliance with these
laws and regulations has not had a material impact on our capital expenditures,
earnings, or competitive position to date. Existing and
future environmental laws and regulations could result in expenses related to
emission abatement or remediation, but we are currently unable to estimate such
expenses.<br>
<br>
<b><a name="employees"></a>Number of Employees</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had 52 employees as of March&nbsp;31, 2010 compared to 50 as of March&nbsp;31, 2009.
Our employment can fluctuate due to a variety of factors. None of our employees are represented by a labor union
or are subject to a collective bargaining agreement, and we believe we maintain good relations with our employees.<br>
<br>
<b><a name="geographic"></a>Financial Information About Geographic Areas</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;International sales accounted for approximately
49% of our revenue in fiscal 2010, 47% in fiscal 2009, and 47% in fiscal 2008.
More information about geographic areas is contained in &#147;Note&nbsp;8&nbsp;&#150;
Segment Information&#148; of the Financial Statements included elsewhere in this
Report.<br>
<br>
<a name="availinfo"></a><b>Available Information</b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All reports we file with the SEC, including
our annual reports on <font style="white-space: nowrap;">Form 10-K</font>, quarterly reports on <font style="white-space: nowrap;">Form 10-Q</font>, current
reports on <font style="white-space: nowrap;">Form 8-K</font>, and proxy statements and additional proxy materials on Schedule&nbsp;14A, as well as any
amendments to those reports and schedules, are accessible at no cost through the &#147;Investors&#148;
section of our Website (www.nve.com). We make those filings available as soon as reasonably practicable after filing. These filings are also accessible through
the SEC&#146;s Website (www.sec.gov).<br>
<br>
<br>
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<br>
<a name="item1a"></a><b>ITEM 1A. RISK FACTORS.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 that 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.<br>
<br>
<b>Risks Related to Our Business<br>
<i>We may lose revenue if any of our large customers cancel, postpone, or reduce
their purchases.</i><br>
</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on several large customers for a significant
percentage of our revenue. These large customers include Avago Technologies; Phonak AG;
St. Jude Medical, Inc.; certain other medical device manufacturers; certain distributors; and the U.S. Government.
Although we have agreements with certain large customers, these agreements do not obligate customers to purchase
from us and may not prevent price reductions. Furthermore, orders from our large customers can generally be reduced, postponed, or canceled.
Any decreases in purchase quantities or purchase prices, or the loss of any of our large customers, could have a significant impact on our revenue
and our profitability.<br>
<br>
<i><b>We risk losing business to our competitors.</b></i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our known product competitors include Avago
Technologies; Analog Devices, Inc.; Fairchild Semiconductor International; Hermetic
Switch, Inc.; Linear Technology Inc.; Maxim Integrated Products,&nbsp;Inc.; Meder
Electronic&nbsp;AG; Memscap&nbsp;SA; NEC Corporation; Sharp Corporation; Silicon
Laboratories,&nbsp;Inc.; Texas Instruments Incorporated; Toshiba Corporation; Vishay Intertechnology;
and others. Many of our competitors and potential competitors have significantly greater financial, technical, and marketing
resources than us. We believe that our competition is increasing as the technology
and markets mature. This has meant more competitors and more severe pricing pressure. In
addition, our competitors may be narrowing or eliminating our performance advantages.
We expect these trends to continue, and we may lose business to competitors or it may be
necessary to significantly reduce our prices in order to acquire or retain business.
These factors could cause a material adverse impact on our financial condition, revenue,
gross profit margins, or income.<br>
<br>
<b><i>We may lose revenue if we are unable to renew agreements with large customers.</i></b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our agreement with Avago Technologies, Inc.,
as amended, expires June&nbsp;26, 2010; our Supplier Partnering Agreement with
St.&nbsp;Jude Medical, as amended, expires December&nbsp;31, 2010; and our
Phonak AG Supply Agreement expires May&nbsp;1, 2012. We cannot predict
if any of these agreements will be renewed, or if renewed, under
what terms. Although it is possible we could continue to sell products to these
customers without formal agreements, an inability to agree on mutually acceptable terms or the loss of
any of these large customers could have a significant adverse impact on our
revenue and our profitability.<br>
<br>
<b><i>We will lose
revenue if government contract funding is reduced or eliminated.<br>
</i></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although our revenue from agencies of the
U.S. Government was less than 10% of our total revenue in each of the past three fiscal years,
a material decrease in U.S. Government funded research or disqualification as a vendor to
the U.S. Government for any reason would likely hamper future research and development
activity and decrease related revenue. In addition to direct Government funding,
certain of our non-Government customers depend on Government support to fund their
contracts with us. Our Government funding depends on adequate continued funding
of the agencies and their programs, which is affected by Government spending priorities
that can change and over which we have no control. Furthermore, a significant portion
of our Government funding has been through Small Business Innovation Research (SBIR)
contracts. SBIR budgets may be changed by legislation or by agencies such as the
Department of Defense.<br>
<br>
<b><i>Failure to qualify as a small business under federal regulations could make
us ineligible for some government-funded research contracts, which could have
a significant adverse impact on our revenue and our ability to make research and
development progress.</i></b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We received approximately $1.07 million in Small
Business Innovation Research (SBIR) contract awards in fiscal 2010. Federal regulations
place a number of criteria for a business
to be eligible to compete for SBIR awards. Those criteria currently include number
of employees and ownership structure. While we believe we meet the eligibility
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. In addition,
SBIR eligibility requirements could be changed at any time.<br>
<br>
<b><i>Our backlog may not result in future revenue.</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we evaluate each order to determine
qualification for inclusion in our firm backlog, there can be no assurance that
amounts included in our firm backlog ultimately will result in future revenue.
A reduction in our firm backlog during any particular period, or the failure of
our firm backlog to result in future revenue, could harm our business and revenue.<br>
<br>
<br>
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<br>
<b><i>We face an uncertain economic environment in the industries we serve, which could adversely
affect our business.</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our product sales are into
industries affected by the economic downturn during the past two fiscal years.
This downturn has resulted in a significant decrease
in the semiconductor market, which is the primary market for our products. Industries
we serve that have been affected by the economic downturn include industrial control,
factory automation, scientific instruments, and medical devices. Additionally,
elements of U.S. healthcare system reform could have an adverse effect on the
economic environment for the medical device industries we serve. We
cannot predict the timing, strength, or duration of any economic recovery or subsequent
slowdown, worldwide or in the industries we serve. The economic environment could
have a material adverse impact on our business and revenue.<br>
<br>
<i><b>Our reputation could be damaged and we could lose revenue if we fail to
meet technical challenges required to produce marketable products.</b></i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our products use new technology and we are continually
researching and developing product designs and production processes. Our production
processes require control of dimensional, 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&#146; requirements, which could cause damage to our reputation and loss
of revenue.<br>
<br>
<i><b>Our failure to meet stringent customer requirements could result
in the loss of key customers and potentially reduce our sales.</b></i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of our customers, including Avago Technologies and certain medical device manufacturers, have stringent technical
and quality requirements that require our products to meet certain test and
qualification criteria. Failure to meet those criteria could result
in the loss of current sales revenue, customers, and future sales.<br>
<br>
<i><b>Some of 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.</b></i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of our sensor products are used
in medical devices, including devices that help sustain human life. We are also
marketing our sensor technology to other manufacturers of cardiac pacemakers and
ICDs. Although we have indemnification agreements with certain customers including
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 resulting from bodily injury or property damage arising from the incorporation
of our products in devices sold by our customers. Existing or future laws or unfavorable
judicial decisions could limit or invalidate the provisions of our indemnification
agreements, or the agreements 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.<br>
<b><i><br>
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.</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.<br>
<br>
<i><b>Any malfunction of our sensors in existing medical devices could lead to
the need to recall devices incorporating our sensors from the market, which may
be harmful to our reputation and cause a significant loss of revenue.<br>
</b></i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any malfunction of our sensors could lead
to the need to recall existing medical devices incorporating our sensors from
the market, which may be harmful to our reputation because it 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&#146; products and harm
our results of operations.<br>
<br>
<b><i>We may lose business and revenue if our critical production equipment fails.</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 an in-house maintenance
staff, maintenance agreements for certain equipment, some critical spare parts,
and back-ups for some of the equipment, we cannot be sure we could repair or replace
critical manufacturing equipment were it to fail.<br>
<br>
<br>
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<br>
<b><i>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.<br>
</i></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our critical suppliers include suppliers
of certain raw silicon and semiconductor foundry wafers that are incorporated in our products.
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.
Increased industry demand due to an economic recovery or other
factors beyond our control or ability to predict could cause or exacerbate wafer supply
shortages. Any wafer 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.<br>
<br>
<i><b>The loss of supply of any critical chemicals or supplies could impact our
ability to produce and deliver products and cause loss of revenue.</b></i>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are a number of critical chemicals
and supplies that we require to make products. These include certain gases, photoresists,
polymers, metals, and alloys. We maintain inventory of critical chemicals and materials,
but in many cases we are dependent on single sources,
and some of the materials could be discontinued by their suppliers at any time. Furthermore,
current and future climate change regulations could increase
our costs or cause the loss of supply of critical chemicals. We use chemicals such as sulfur hexafluoride in our
manufacturing process that have been identified
as greenhouse gases. If such chemicals were restricted or prohibited we would need to obtain substitutes that
might be more expensive or less available. Supply interruptions
or shortages for any reason could seriously jeopardize our ability to provide products that are
critical to
our business and operations and may cause us to lose revenue.<br>
<br>
<i><b>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.<br>
</b></i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are dependent on our packaging vendors
including Circuit Electronic Industries Public Co., Ltd. (&#147;CEI&#148;) of
Ayutthaya, Thailand. 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 has been
operating under voluntary debt rehabilitation under Thailand law since 2005. We
have identified potential alternate vendors for our most important products in
case CEI&#146;s ability to serve our needs becomes impaired, but
it could prove expensive, 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. Furthermore, an alternate vendor may not
have sufficient capacity available to meet our requirements.
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.<br>
<br>
<b><i>We are subject to risks inherent in doing business in foreign countries
that could impair our results of operations.<br>
</i></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign sales were approximately 49%
of our revenue for fiscal 2010, and we expect foreign sales to continue to represent a significant
portion of our revenue in the future. Furthermore, we rely on suppliers in China, India, Taiwan,
Thailand, and other foreign countries. Risks relating to or arising from operating
in foreign markets that could impair our results of operations include economic
and political instability;
difficulties in enforcement of contractual obligations and intellectual property rights;
changes in regulatory requirements, tariffs, customs,
duties, and other trade barriers; transportation delays; acts of God, including
floods, typhoons, and earthquakes; and other uncertainties relating to the administration
of, or changes in, or new interpretation of, the laws, regulations, and policies
of the jurisdictions where we do business.<br>
<br>
<b><i>Our business may suffer because we have limited influence over the rate
of adoption of our MRAM technology, and MRAM technology may not build into a large
or significant market.</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our future revenue and
profits may be dependent on our current or future licensees
introducing MRAM products using our technology. 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. Furthermore, competing technologies could prevent or supplant
MRAM from becoming an important memory technology.<br>
<br>
<b><i>Our future
business may suffer because we may not be able to consummate additional MRAM
license agreements.<br>
</i></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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
could also use their own or a third party&#146;s MRAM intellectual property
rather than ours.<br>
<br>
<br>
</font>
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<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">10</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a>
<br>
<br>
<i><b>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.<br>
</b></i>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 products and 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 and may not be successful.
Furthermore, others may independently develop similar, superior, or parallel technologies
to any technology developed by us, or our technology may prove to infringe
on patents or rights owned by others. Thus the patents held by or licensed
to us may not afford us any meaningful competitive advantage. If technology we use infringes
on patents or rights owned by others, we may be prevented from selling products that use such technology,
we might be required to license the patents or rights owned by others,
or we may be required to indemnify our customers against expenses relating to possible infringement.
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.<br>
<br>
<i><b>We may not be able to negotiate a new MRAM licensing agreement with Freescale or EverSpin.</b></i>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Patent License Option Agreement
with Motorola provided for termination on December&nbsp;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. In 2008 Freescale announced that it had transferred its
MRAM technology and intellectual property to an independent company, EverSpin
Technologies. We believe we are free to negotiate a new agreement with Freescale or EverSpin,
or an assignment of the Motorola Patent License Option Agreement, but we have
said we would do so only with amendments thereto. We have notified Freescale
that we believe that MRAM products it has sold come within the scope of claims
of a number of our patents. There can be no assurance, however, that any agreement
can be reached with Freescale or EverSpin, or that any such agreement would
be on more favorable terms to NVE than our agreement with Motorola, or that
NVE would receive any value under the existing agreement with Motorola or
any value under any such further agreement with Freescale or EverSpin.<br>
<br>
<i><b>Our business success may be adversely affected if we are unable to attract
and retain highly qualified management and technical employees.</b></i><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employment agreements with our Chief Executive Officer and Chief Financial
Officer do not prevent either from leaving the company, and we have no employment agreements with any
other employees. We have no key-person insurance covering employees. Competition
for highly qualified management and technical personnel can be 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.<br>
<br>
<b><i>We could incur losses on our marketable securities.</i></b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March&nbsp;31, 2010, we held $48,154,478 in short-term
and long-term marketable securities, representing approximately 84% of our total
assets. For the fiscal year ended March&nbsp;31, 2010 we earned $1,617,880 in
interest, virtually all of which was from those securities. During the past two
fiscal years many bonds, including a number of bond securities we hold, were downgraded
by Moody&#146;s or Standard and Poor&#146;s indicating a possible increase in
default risk. The credit crisis may have caused or contributed to these downgrades.
Additionally, the assignment of a high credit rating does not preclude the risk
of default on any marketable security. We could incur losses on our marketable
securities, which could have a material adverse impact on our financial condition,
income, or cash flows. Furthermore, those risks could increase depending on market
and economic conditions beyond our control or ability to anticipate.<br>
<br>
<br>
</font>
<div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">11</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
<b>Risks Related to Buying Our Stock<br>
<i>Our stock has been more volatile than other technology sector stocks.</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market price of our common stock has experienced
significant fluctuations and may continue to fluctuate in the future. Depending
on the metric used, we believe this volatility is more than the overall market
or some other technology-sector stocks.<br>
<br>
<b><i>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.
</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time our stock price has decreased
sharply, and could decline in the future. The market price of our common stock
may be significantly affected by many factors, some of which are beyond our control,
including:<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" width="100%" border="0" cellspacing="00" cellpadding="0">
<tr>
<td rowspan="10" width="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td><td width="1" valign="top">&#149;&nbsp;</td><td>technological innovations by us or our competitors;</td></tr>
<tr>
<td valign="top">&#149;</td><td>the announcement of new products, product enhancements, contracts, or license agreements by us or our competitors;</td></tr>
<tr>
<td valign="top">&#149;</td><td>delays in our introduction of new products or technologies or market acceptance of these new products or technologies;</td></tr>
<tr>
<td valign="top">&#149;</td><td>changes in demand for our customers&#146; products;</td></tr>
<tr>
<td valign="top">&#149;</td><td>the announcement of changes in strategy or discontinuation of products by us or our potential licensees;</td></tr>
<tr>
<td>&#149;</td><td>quarterly variations in our operating results, revenue, or revenue growth rates;</td></tr>
<tr>
<td valign="top">&#149;</td><td>changes in revenue estimates, earnings estimates, or market projections by market analysts;</td></tr>
<tr>
<td valign="top">&#149;</td><td>speculation in the press or analyst community about our business, potential revenue, or potential earnings;</td></tr>
<tr>
<td valign="top">&#149;</td><td>short selling and covering of short positions in our stock; and</td></tr>
<tr>
<td valign="top">&#149;</td><td>general economic conditions or market conditions specific to particular industries served
or potentially served by us or our customers.</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><b><br>
ITEM 1B. UNRESOLVED STAFF COMMENTS.</b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
<br><br>
<b><a name="item2">ITEM 2. PROPERTIES.</a></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive offices and manufacturing
facility are located at 11409 Valley View Road, Eden Prairie, Minnesota, 55344.
The space consists of 21,362 square feet of offices, laboratories, and production
areas. The space is owned and managed by Carlson Real Estate Company, Inc. and
leased under an agreement expiring December&nbsp;31, 2015, with a right
to cancel the lease at our option on December&nbsp;31, 2012. We believe the
facility is adequate to support our needed production capacity and plan to expand
our production space within the facility. We hold no investments in real estate.<br>
<br>
<b><a name="item3">ITEM 3. LEGAL PROCEEDINGS.</a></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the ordinary course of business we may become involved in litigation. At this time,
we are not aware of any material pending or threatened legal proceedings or other proceedings contemplated by
governmental authorities that we expect would have a material adverse impact on our future results of operation and
financial condition.<br>
<br>
<b>ITEM 4. RESERVED.</b>
<br>
<br>
</font>
<div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b><u><a name="partII">PART II</a></u></b></font></div><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<b><a name="item5">ITEM 5. MARKET FOR REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.</a></b><br>
<a name="MarketInfo"></a><b>Market Information</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Common Stock trades on the Capital Market tier of the NASDAQ Stock Market under the symbol NVEC.
The following table shows the high and low sales
prices of our Common Stock as reported on the NASDAQ for each quarter within our two most recent fiscal years:<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td colspan="23" style="border-bottom: 1px solid black;" width="55%" align="center"><b>Quarter Ended</b></td></tr>
<tr>
<td colspan="2" style="border-bottom: 1px solid black;" width="6%" align="center"><b>3/31/10</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center"><b>12/31/09</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center"><b>9/30/09</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center"><b>6/30/09</b></td><td></td><td colspan="2" style="border-bottom: 1px solid black;" width="6%" align="center"><b>3/31/09</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center"><b>12/31/08</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center"><b>9/30/08</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center"><b>6/30/08</b></td></tr>
<tr bgcolor="#ccdaef">
<td>High&nbsp;&nbsp;</td><td width="1%">$</td><td align="right" width="8%">48.61</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">53.49</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">63.64</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">49.49</td><td width="2%"></td><td width="1%">$</td><td align="right" width="8%">34.93</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">29.35</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">35.00</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">39.60</td></tr>
<tr>
<td>Low</td><td>$</td><td align="right">39.83</td><td></td><td>$</td><td align="right">35.51</td><td></td><td>$</td><td align="right">40.00</td><td></td><td>$</td><td align="right">28.02</td><td></td><td>$</td><td align="right">20.11</td><td></td><td>$</td><td align="right">16.56</td><td></td><td>$</td><td align="right">26.01</td><td></td><td>$</td><td align="right">24.99</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><br>
<a name="Shareholders"></a><b>Shareholders, Dividends, and Securities Authorized for Issuance Under Equity Compensation Plans</b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had approximately 115
shareholders of record and 8,259 total shareholders
as of April&nbsp;7, 2010. We have never paid or declared any cash dividends on
our Common Stock. We do not anticipate paying dividends in the foreseeable future,
as we intend to retain any earnings we may generate if needed to provide for the
expansion of our business or for the possible defense of our intellectual property.
Information regarding our securities authorized for issuance under equity compensation
plans will be included in the section &#147;Equity Compensation Plan Information&#148;
of our Proxy Statement for our 2010 Annual Meeting of Shareholders, and is incorporated
by reference into Item 12 of this Report.<br>
<br>
<br>
</font>
<div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">12</font></div><hr></div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
<a name="StockGraph"></a><b>Stock Performance Graph</b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The graph below compares the performance of
our Common Stock to the cumulative five-year performance of the NASDAQ Industrial
Index and the Cedrus Nanotechnology Index&nbsp;&#150; Pure. NVE is included in both
indices. The NASDAQ Industrial Index includes NASDAQ domestic and international
based common-type stocks. We presented the Global Crown Capital (GCC) Nanotechnology Index,
which was discontinued during fiscal 2010, in our previous year&#146;s report on <font style="white-space: nowrap;">Form 10-K</font>.
The graph and table assume $100 was invested on March&nbsp;31,
2005 in each of our Common Stock, the NASDAQ Industrial Index, the GCC Nanotechnology Index,
and the Cedrus Nanotechnology Index &#150; Pure, with reinvestment of dividends.<br>
&nbsp;
<div align="center"><img src="stkgraph.gif" alt="Stock Price Performance Graph" width="504" height="183"><br>
&nbsp;</div></font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>3/31/2005</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>3/31/2006</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>3/31/2007</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>3/31/2008</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>3/31/2009</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>3/31/2010</b></td></tr>
<tr valign="bottom" bgcolor="#ccdaef">
<td>NVE Corporation</td><td width="1%">$</td><td width="7%" align="right">100.00</td><td width="3%"></td><td width="1%">$</td><td width="7%" align="right">84.23</td><td width="3%"></td><td width="1%">$</td><td width="7%" align="right">143.43</td><td width="3%"></td><td width="1%">$</td><td width="7%" align="right">129.86</td><td width="3%"></td><td width="1%">$</td><td width="7%" align="right">151.47</td><td width="3%"></td><td width="1%">$</td><td width="7%" align="right">238.17</td></tr>
<tr>
<td>Cedrus Nanotechnology Index &#150; Pure</td><td>$</td><td align="right">100.00</td><td></td><td>$</td><td align="right">154.95</td><td></td><td>$</td><td align="right">172.41</td><td></td><td>$</td><td align="right">187.74</td><td></td><td width="1%">$</td><td align="right">114.38</td><td></td><td>$</td><td align="right">212.63</td></tr>
<tr bgcolor="#ccdaef">
<td>GCC Nanotechnology Index</td><td>$</td><td align="right">100.00</td><td></td><td>$</td><td align="right">127.39</td><td></td><td>$</td><td align="right">133.27</td><td></td><td>$</td><td align="right">125.41</td><td></td><td width="1%">$</td><td align="right">67.93</td><td colspan="3" align="right">-
</td></tr>
<tr>
<td>NASDAQ Industrial Index</td><td>$</td><td align="right">100.00</td><td></td><td>$</td><td align="right">117.67</td><td></td><td>$</td><td align="right">125.33</td><td></td><td>$</td><td align="right">111.88</td><td></td><td width="1%">$</td><td align="right">66.30</td><td></td><td>$</td><td align="right">110.09</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<a name="buyback"></a><b>Stock Repurchase Program</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;21, 2009, we announced that our
Board of Directors authorized the repurchase of up to $2,500,000 of our Common
Stock. The repurchase program may be modified or discontinued at any time without
notice. We did not repurchase any of our Common Stock during the quarter ended March 31, 2010.<br>
<br>
<a name="item6"></a><b>ITEM 6. SELECTED FINANCIAL DATA.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following balance sheet and income statement
selected financial data should be read in conjunction with our financial statements
and notes included in Item&nbsp;8 of this Report, and with &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operation&#148;
included in Item&nbsp;7 of this Report. The data are derived from our financial statements.<br>
<br></font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td colspan="14" style="border-bottom: 1px solid black;" align="center">
<b>Balance Sheet Data as of March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2010</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2009</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2008</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2007</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>2006</b></td></tr>
<tr valign="bottom">
<td bgcolor="#ccdaef">Cash, cash equivalents,<br>
<div style="margin-left: 9pt;">and marketable securities</div></td><td width="1%" bgcolor="#ccdaef">$</td><td width="10%" align="right" bgcolor="#ccdaef">49,543,766</td><td width="2%" bgcolor="#ccdaef"></td><td width="1%" bgcolor="#ccdaef">$</td><td width="10%" align="right" bgcolor="#ccdaef">34,321,811</td><td width="2%" bgcolor="#ccdaef"></td><td width="1%" bgcolor="#ccdaef">$</td><td align="right" width="10%" bgcolor="#ccdaef">24,736,874</td><td width="2%" bgcolor="#ccdaef"></td><td width="1%" bgcolor="#ccdaef">$</td><td align="right" width="10%" bgcolor="#ccdaef">18,289,191</td><td width="2%" bgcolor="#ccdaef"></td><td width="1%" bgcolor="#ccdaef">$</td><td align="right" width="10%" bgcolor="#ccdaef">10,891,326</td></tr>
<tr>
<td>Total assets</td><td>$</td><td align="right">57,462,914</td><td></td><td>$</td><td align="right">42,566,440</td><td></td><td>$</td><td align="right">32,768,128</td><td></td><td width="1%">$</td><td align="right">25,010,494</td><td></td><td width="1%">$</td><td align="right">17,758,919</td></tr>
<tr>
<td bgcolor="#ccdaef">Capital lease obligations, less current portion</td><td bgcolor="#ccdaef">$</td><td align="right" bgcolor="#ccdaef">-</td><td bgcolor="#ccdaef"></td><td bgcolor="#ccdaef">$</td><td align="right" bgcolor="#ccdaef">-</td><td bgcolor="#ccdaef"></td><td bgcolor="#ccdaef">$</td><td align="right" bgcolor="#ccdaef">-</td><td bgcolor="#ccdaef"></td><td width="1%" bgcolor="#ccdaef">$</td><td align="right" bgcolor="#ccdaef">-</td><td bgcolor="#ccdaef"></td><td width="1%" bgcolor="#ccdaef">$</td><td align="right" bgcolor="#ccdaef">33,281</td></tr>
<tr>
<td>Total shareholders&#146; equity</td><td>$</td><td align="right">55,953,294</td><td></td><td>$</td><td align="right">41,567,571</td><td></td><td>$</td><td align="right">31,513,482</td><td></td><td width="1%">$</td><td align="right">23,888,255</td><td></td><td width="1%">$</td><td align="right">16,778,111</td></tr>
<tr>
<td rowspan="2"></td><td colspan="14" style="border-bottom: 1px solid black;" align="center" width="55%"><b>&nbsp;<br>
Income Statement Data for Years Ended March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2010</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2009</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2008</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2007</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>2006</b></td></tr>
<tr>
<td colspan="15" bgcolor="#ccdaef">Revenue</td></tr>
<tr>
<td>
<div style="margin-left: 18pt;">Product sales</div></td><td>$</td><td align="right">22,665,860</td><td></td><td>$</td><td align="right">19,715,311</td><td></td><td>$</td><td align="right">
18,505,650</td><td></td><td>$</td><td align="right">
14,425,632</td><td></td><td>$</td><td align="right">
8,345,967</td></tr>
<tr>
<td bgcolor="#ccdaef">
<div style="margin-left: 18pt;">Contract research and development</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">5,481,325</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">3,656,958</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">
2,023,162</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">
2,035,198</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">
3,824,559</td></tr>
<tr>
<td>Total revenue</td><td>$</td><td align="right">28,147,185</td><td></td><td>$</td><td align="right">23,372,269</td><td></td><td>$</td><td align="right">20,528,812</td><td></td><td width="1%">$</td><td align="right">16,460,830</td><td></td><td width="1%">$</td><td align="right">12,170,526</td></tr>
<tr>
<td colspan="15" bgcolor="#ccdaef">&nbsp;</td></tr>
<tr>
<td>Gross profit</td><td>$</td><td align="right">19,834,170</td><td></td><td>$</td><td align="right">16,648,027</td><td></td><td>$</td><td align="right">13,695,504</td><td></td><td width="1%">$</td><td align="right">10,673,172</td><td></td><td width="1%">$</td><td align="right">5,951,993</td></tr>
<tr bgcolor="#ccdaef">
<td>Income from operations</td><td>$</td><td align="right">16,298,536</td><td></td><td>$</td><td align="right">13,251,590</td><td></td><td>$</td><td align="right">10,048,779</td><td></td><td width="1%">$</td><td align="right">6,545,569</td><td></td><td width="1%">$</td><td align="right">2,471,026</td></tr>
<tr>
<td>Net income</td><td>$</td><td align="right">11,999,344</td><td></td><td>$</td><td align="right">9,782,895</td><td></td><td>$</td><td align="right">7,187,384</td><td></td><td width="1%">$</td><td align="right">4,780,783</td><td></td><td width="1%">$</td><td align="right">1,797,746</td></tr>
<tr bgcolor="#ccdaef">
<td>Net income per share &#150; diluted</td><td>$</td><td align="right">2.47</td><td></td><td>$</td><td align="right">2.04</td><td></td><td>$</td><td align="right">1.51</td><td></td><td width="1%">$</td><td align="right">1.00</td><td></td><td width="1%">$</td><td align="right">0.39</td></tr>
</table><div id="PN" style="page-break-after: always;">
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13</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
<b><a name="item7"></a>ITEM 7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should read this discussion together with our
financial statements and notes included elsewhere in this Report. In addition
to historical information, the following discussion contains forward-looking information
that involves risks and uncertainties. Our actual future results could differ
materially from those presently anticipated due to a variety of factors, including
those discussed in Item&nbsp;1A of this Report.<br>
<br>
<b>General</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop and sell devices that use &#147;spintronics,&#148;
a nanotechnology that relies on electron spin rather than electron charge to acquire,
store, and transmit information. We manufacture high-performance spintronic products
including sensors and couplers to revolutionize data sensing and transmission.
We also receive contracts for research and development and are a licensor of spintronic
magnetoresistive random access memory technology,
commonly known as MRAM.<br>
<br>
<b>Application of Critical Accounting Policies and Estimates</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with SEC guidance, those material
accounting policies that we believe are the most critical to an investor&#146;s
understanding of our financial results and condition and require complex management
judgment are discussed below.<br>
<br>
<b><i>Research and Development Contract Percentage of Completion Estimation</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognize research and development contract revenues and costs pro-rata as work progresses, which
requires us to make estimates of the percentage of completion. If increases in projected costs-to-complete are sufficient to create
a loss contract, the entire estimated loss is charged to operations in the period
the loss first becomes known. This estimate has not affected our financial statements
in the past three fiscal years. Increases in projected costs to complete
contracts could materially impact our future results, however.<br>
<br><b><i>Inventory Valuation</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or net
realizable value. Cost is determined by the first in, first out method. Where
there is evidence that inventory could be disposed of at less than carrying value,
the inventory is written down to the net realizable value in the current period.
Additionally, we periodically examine our inventory in the context of inventory
turnover, sales trends, competition and other market factors, and we record provisions
to inventory reserve when we determine certain inventory is unlikely to be sold.
If reserved inventory is subsequently sold, corresponding reductions in inventory
and inventory reserve are made. Our inventory reserve was $300,000 at March&nbsp;31,
2010 and 2009.<br>
<br>
<b><i>Allowance for Doubtful Accounts Estimation</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We must make estimates of the uncollectibility
of our accounts receivable. The most significant risk is the risk of sudden unexpected
deterioration in financial condition of a significant customer that is not considered
in the allowance. We specifically analyze accounts receivable, historical bad
debts, and customer credit-worthiness when evaluating the adequacy of the allowance
for doubtful accounts. Our results could be materially impacted if the financial
condition of a significant customer deteriorated and related accounts receivable
are deemed uncollectible. Our allowance for doubtful accounts was $15,000
at March&nbsp;31, 2010 and 2009. Our allowance for doubtful accounts is a relatively
small percentage of our accounts receivable because our revenues are primarily
from large customers, distributors, and U.S. Government agencies, all of which
we consider generally credit-worthy. Our allowance for doubtful accounts could
increase in the future if larger portions of our sales come from small end-user
customers.<br>
<br>
<b><i>Deferred Tax Assets Estimation</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2010 our net deferred tax liabilities
were $102,138 compared to net deferred tax assets of $667,729 as of March&nbsp;31,
2009. Deferred taxes included $162,869 in stock-based compensation deductions
as of March&nbsp;31, 2010 and $136,587 as of March&nbsp;31, 2009. Utilization
of certain of our deferred tax assets is subject to limitations based on Internal
Revenue Code Section&nbsp;382.<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b><br>
<br>
</a><b><a name="resultoperations">Results of Operations</a></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table summarizes the percentage of revenue and year-to-year
changes for various items for the last three fiscal years:<br>
&nbsp;<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" border="0" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td style="border-bottom: 1px solid black;" align="center" colspan="8"><b>Percentage of Revenue<br>
Year Ended March 31</b></td><td rowspan="2">&nbsp;</td><td style="border-bottom: 1px solid black;" align="center" colspan="5"><b>Year-to-Year&nbsp;Change<br>
Years&nbsp;Ended&nbsp;March&nbsp;31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" align="center" colspan="2" valign="bottom"><b>2010</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2" valign="bottom"><b>2009</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2" valign="bottom"><b>2008</b></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>2009 to<br>
2010</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>2008 to<br>
2009</b></td></tr>
<tr>
<td bgcolor="#ccdaef" colspan="15">Revenue</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Product sales</div></td><td align="right" width="9%">80.5</td><td width="1%">%</td><td width="2%"></td><td align="right" width="9%">84.4</td><td width="1%">%</td><td width="2%"></td><td align="right" width="9%">90.1</td><td width="1%">%</td><td width="4%"></td><td align="right" width="9%">15.0</td><td width="1%">%</td><td width="2%"></td><td align="right" width="9%">6.5</td><td width="1%">%</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Contract&nbsp;research&nbsp;and&nbsp;development&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</div></td><td style="border-bottom: 1px solid black;" align="right">19.5</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">15.6</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">9.9</td><td style="border-bottom: 1px solid black;">%</td><td></td><td align="right">49.9</td><td>%</td><td></td><td align="right">80.8</td><td>%</td></tr>
<tr>
<td>Total revenue</td><td align="right">100.0</td><td>%</td><td></td><td align="right">100.0</td><td>%</td><td></td><td align="right">100.0</td><td>%</td><td></td><td align="right">20.4</td><td>%</td><td></td><td align="right">13.9</td><td>%</td></tr>
<tr bgcolor="#ccdaef">
<td>Cost of sales</td><td style="border-bottom: 1px solid black;" align="right">29.5</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">28.8</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">33.3</td><td style="border-bottom: 1px solid black;">%</td><td></td><td align="right">23.6</td><td>%
</td><td></td><td align="right">(1.6</td><td>)%
</td></tr>
<tr>
<td>Gross profit</td><td align="right">70.5</td><td>%</td><td></td><td align="right">71.2</td><td>%</td><td></td><td align="right">66.7</td><td>
%</td><td></td><td align="right">19.1</td><td>
%
</td><td></td><td align="right">21.6</td><td>
%
</td></tr>
<tr bgcolor="#ccdaef">
<td colspan="15">Expenses</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Selling, general, and administrative</div></td><td align="right">8.6</td><td>%</td><td></td><td align="right">9.3</td><td>%</td><td></td><td align="right">
10.5</td><td>
%</td><td></td><td align="right">
10.9</td><td>%</td><td></td><td align="right">0.9</td><td>%</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Research&nbsp;and&nbsp;development</div></td><td style="border-bottom: 1px solid black;" align="right">4.0</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">5.2</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">7.2</td><td style="border-bottom: 1px solid black;">%</td><td></td><td align="right">(8.0</td><td>)%</td><td></td><td align="right">(18.1</td><td>)%</td></tr>
<tr>
<td>Total expenses</td><td style="border-bottom: 1px solid black;" align="right">12.6</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">14.5</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">17.7</td><td style="border-bottom: 1px solid black;">%</td><td></td><td align="right">4.1</td><td>%</td><td></td><td align="right">(6.9</td><td>)%</td></tr>
<tr bgcolor="#ccdaef">
<td>Income from operations</td><td align="right">57.9</td><td>%</td><td width="2%"></td><td align="right">56.7</td><td>%</td><td width="2%"></td><td align="right">49.0</td><td>%</td><td></td><td align="right">23.0</td><td>%</td><td></td><td align="right">31.9</td><td>%</td></tr>
<tr>
<td>Interest and other income</td><td style="border-bottom: 1px solid black;" align="right">5.7</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">5.0</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">5.0</td><td style="border-bottom: 1px solid black;">%</td><td></td><td align="right">37.6</td><td>%</td><td></td><td align="right">14.0</td><td>%</td></tr>
<tr bgcolor="#ccdaef">
<td>Income before taxes</td><td align="right">63.6</td><td>%</td><td width="2%"></td><td align="right">61.7</td><td>%</td><td width="2%"></td><td align="right">
54.0</td><td>%</td><td></td><td align="right">24.2</td><td>%</td><td></td><td align="right">30.2</td><td>%</td></tr>
<tr>
<td>Income tax provision</td><td style="border-bottom: 1px solid black;" align="right">21.0</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">19.9</td><td style="border-bottom: 1px solid black;">%</td><td></td><td style="border-bottom: 1px solid black;" align="right">19.0</td><td style="border-bottom: 1px solid black;">%</td><td></td><td align="right">27.4</td><td>%</td><td></td><td align="right">19.3</td><td>%</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Net income</td><td style="border-bottom: 3px double black;" align="right">42.6</td><td style="border-bottom: 3px double black;">%</td><td width="2%"></td><td style="border-bottom: 3px double black;" align="right">41.8</td><td style="border-bottom: 3px double black;">%</td><td width="2%"></td><td style="border-bottom: 3px double black;" align="right">35.0</td><td style="border-bottom: 3px double black;">%</td><td></td><td align="right">22.7</td><td>%</td><td></td><td align="right">36.1</td><td>%</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue for fiscal 2010 increased 20% to $28,147,185
compared to $23,372,269 for fiscal 2009, and increased 14% in fiscal 2009 compared
to $20,528,812 for fiscal 2008. The increase in total revenue in fiscal 2010 was
due to a 15% increase in product sales and a 50% increase in research and development
revenue. The increase in fiscal 2009 was due to a 7% increase in product sales
and an 81% increase in research and development revenue. In fiscal 2010, total
revenue increased 15% in the U.S., 14% in Europe, and 79% in Asia, partially offset
by a 14% decrease in other areas.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Product sales increased 15% for fiscal 2010 to $22,665,860 compared
to $19,715,311 in fiscal 2009. Fiscal 2009 product sales increased 7% from $18,505,650
in fiscal 2008. The increases in both years were due to both the addition of new
customers and increased purchases by existing customers. Strong sales of components for medical
devices in fiscal 2010 more than offset weak sales into other markets such as industrial
control and factory automation. We believe weakness in the industrial
control and factory automation markets was due to a worldwide
manufacturing slowdown.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract research and development revenue increased
50% for fiscal 2010 compared to fiscal 2009 due to new contracts and increased activity on certain contracts. Contract research and development revenue increased 81% for fiscal 2009 compared to fiscal 2008 <font color="#000000">due to new contracts</font>. The increases in research and development
revenue in the past two fiscal years may not be representative of future trends.
Contract research and development activities can fluctuate for
a number of reasons, some of which are beyond our control, and there can be no
assurance of additional or follow-on contracts for expired or completed contracts.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross profit margin decreased to 70% of revenue
for fiscal 2010 from 71% for fiscal 2009 due to a higher percentage of total revenue from
contract research and development, which generally is less profitable than product sales.
Gross profit margin increased to 71% for fiscal 2009 from 67% for fiscal 2008 due to higher margins
on both product sales and research and development revenue as well as manufacturing
efficiencies and a more favorable product sales mix.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling, general, and administrative expense increased
11% for fiscal 2010 compared to fiscal 2009 and 1% for fiscal 2009 compared to
fiscal 2008. The increase for fiscal 2010 was primarily due to increased salaries
and commissions. The increase in selling, general,
and administrative expense for fiscal 2009 was primarily due to increased salaries
and commissions, partially offset by a $82,934 decrease in stock-based compensation expense
and a $78,303 decrease in legal fees. The decrease in stock-based compensation
for fiscal 2009 was primarily due to a decrease to 1,000 share options granted
to each non-employee director on their reelection compared to 2,000 shares in
the prior-year period.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development
expense decreased 8% for fiscal 2010 compared to fiscal 2009 due to an increase in contract research and development activities,
which caused resources to be reallocated from expensed research and development
activities. Research and development expense decreased
18% for fiscal 2009 compared to fiscal 2008 due to the completion of certain research and
development projects and an increase in contract research and development activities,
which caused resources to be reallocated from expensed research and development activities. These decreases may not be representative
of future expense trends. Our research and development expense can fluctuate significantly
depending on staffing, project requirements, and contract research and development
obligations.<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest and other income increased 38% to $1,617,880
for fiscal 2010 compared to $1,176,010 for fiscal 2009, and increased 14% for
fiscal 2009 compared to $1,031,225 in fiscal 2008. The increases for both fiscal
years were due to increases in interest-bearing marketable securities.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effective income tax rate in fiscal 2010 was
33% of income before taxes compared to 32% in fiscal 2009 and 35% in fiscal 2008.
The increased tax rate for fiscal 2010 compared to fiscal 2009 was primarily due
to higher Federal and state effective tax rates.
The decreased tax rate for fiscal 2009 compared to fiscal 2008 was primarily due
to a larger portion of our interest income from federally tax-free securities
and a lower state effective tax rate. Our tax rate can fluctuate from year to
year due to a number of factors, including Federal and state tax rates and regulations,
the mix between taxable and tax-exempt securities in our marketable securities,
deductions related to disqualifying dispositions of our common stock, and other
factors, some of which are outside our control.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income increased 23% in fiscal 2010 compared to fiscal 2009 due to increases in
product sales, contract research and development revenue, and
interest income. Net income increased 36% for fiscal 2009 compared to fiscal 2008 due to increases in
revenue, gross profit as a percentage of revenue, and interest income, and decreases in
total expenses and the effective income tax rate.<br>
<br>
<b><a name="liquidity"></a>Liquidity and Capital Resources</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary source of working capital for fiscal
years 2008 through 2010 was cash provided by operating activities related to product
sales and research and development contract revenue. At March&nbsp;31, 2010 we
had $49,543,766 in cash plus short-term and long-term marketable securities compared
to $34,321,811 at March&nbsp;31, 2009. All of our marketable securities were classified
as available for sale. The $15,221,955 increase in cash plus marketable securities
was primarily due to $12,463,616 in net cash provided by operating
activities, and a $2,161,330 net increase in the market value of our marketable securities
due to market-price changes.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable increased $854,866 as of March&nbsp;31,
2010 compared to March&nbsp;31, 2009 due to the timing of payments by our customers
and an increase in revenue late in fiscal 2010 compared to fiscal 2009. Net deferred
taxes were a $102,138 liability at March&nbsp;31, 2010 compared to a $667,729
asset at March&nbsp;31,&nbsp;2009. The change was primarily due to a $778,665
change in deferred taxes related to the net increase in the value of our marketable
securities. Inventories decreased $541,194 due to our efforts to manage certain
inventories, timing of raw material purchases, and inventory depletion from product
sales late in the fiscal year.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of fixed assets were $305,862 in fiscal 2010 compared to $401,612
in fiscal 2009 and $817,596 in fiscal 2008. Purchases in all three fiscal years were primarily
for capital equipment to increase our production capacity and were financed with
cash provided by operating activities. Our capital expenditures can vary significantly from year to
year depending on our needs and equipment purchasing opportunities.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the past three fiscal years, after purchasing
fixed assets we invested excess cash provided by operating activities in long-term
marketable securities. As of March&nbsp;31, 2010 our marketable securities had
remaining maturities between three weeks and 60&nbsp;months (see &#147;Note&nbsp;4&nbsp;&#150;
Marketable Securities&#148; for additional information). As our marketable securities
mature, we currently plan to either use the proceeds to meet future capital needs
or reinvest the proceeds in other marketable securities.<br>
<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides aggregate information
about our contractual payment obligations and the periods in which payments are
due:<br>
&nbsp;<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td colspan="2"></td><td colspan="14" style="border-bottom: 1px solid black;" align="center">
<b>Payments Due by Period</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;">
<b>Contractual&nbsp;obligations</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>Total</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>&lt;1&nbsp;Year</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>1&#150;3 Years</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>3&#150;5 Years</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>&gt;5&nbsp;Years</b></td></tr>
<tr bgcolor="#ccdaef">
<td>Operating&nbsp;lease&nbsp;obligations</td><td width="2%"></td><td width="1%">$</td><td align="right" width="10%">1,475,497</td><td width="2%"></td><td width="1%">$</td><td align="right" width="10%">248,285</td><td width="2%"></td><td width="1%">$</td><td align="right" width="10%">507,466</td><td width="2%"></td><td width="1%">$</td><td align="right" width="10%">521,240</td><td width="2%"></td><td width="1%">$</td><td align="right" width="10%">198,506</td></tr>
<tr>
<td>
Purchase&nbsp;obligations</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right"> 540,443</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right"> 540,443</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
- -</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
- -</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
- -</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Total</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">2,015,940</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">788,728</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">507,466</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">521,240</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">198,506</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease obligations are primarily for our
facility lease. &#147;Note&nbsp;9&nbsp;&#150; Commitments and Contingencies&#148;
provides additional information about our lease obligations. Purchase obligations
as of March&nbsp;31, 2010 consisted of raw materials purchase commitments. We
expect to meet these contractual payment obligations from cash provided by operating
activities. We plan to evaluate raw materials purchases based on a variety of
factors including forecasted requirements and anticipated supply leadtimes, and
our obligations could vary significantly in the future. Although we had no significant
fixed asset purchase obligations as of March&nbsp;31, 2010, we plan to evaluate
capital expenditures as needs and opportunities arise, and our future capital
expenditures and purchase obligations could vary significantly from expenditures
in the past.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe our working capital and cash generated
from operations will be adequate for our needs at least through fiscal 2011.<br>
<br>
&nbsp;<br>
</font>
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<div style="width: 100%; text-align: center;">16</div></font>
<hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
<b>Inflation</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inflation has not had a significant impact on our
operations in any of our three most recent fiscal years. Prices for our products and for the materials
and labor costs for those products are governed by market conditions. It is possible
that inflation in future years could impact both materials and labor used for the production
of our products.<br>
<br>
<b>Off-Balance-Sheet Arrangements</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our off-balance sheet arrangements
consist of purchase commitments and operating leases for our facility. We believe that our off-balance sheet arrangements
do not have a material current or anticipated future effect on our profitability, cash flows, or financial position.<br>
<br>
<b><a name="item7a">ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</a></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to financial market risks, primarily marketable securities and, to a lesser extent, changes in currency exchange rates.<br>
<br>
<b>Marketable Securities</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary objective of our investment activities
is to preserve principal while at the same time maximizing after-tax yields without
significantly increasing risk. To achieve this objective, we maintain our portfolio
of cash equivalents and marketable securities in a variety of securities including
government agency obligations, municipal obligations, corporate obligations, and
money market funds. Short-term and long-term marketable securities are generally
classified as available-for-sale and consequently are recorded on the balance
sheet at fair value with unrealized gains or losses reported as a separate component
of accumulated other comprehensive income or loss, net of estimated tax. Our
marketable securities as of March&nbsp;31, 2010 had remaining
maturities between three weeks and 60&nbsp;months. Marketable securities had a
market value of $48,154,478 at March&nbsp;31, 2010, representing approximately
 84% of our total assets. We have not used derivative financial instruments in
our investment portfolio.<br>
<br>
<b>Foreign Currency Transactions</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have some limited revenue risks from fluctuations
in values of foreign currency due to product sales abroad. Foreign sales are generally
made in U.S. currency, and currency transaction gains or losses in the past three
fiscal years were not significant.<br>
&nbsp;<br>
<b><a name="item8"></a>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial statements and accompanying notes are included in this Report beginning on page F-1.<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b><br>
<br>
</a><b>Quarterly Summary Information</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selected unaudited quarterly financial data for fiscal 2010 and 2009, presented as supplementary financial information, are as follows:<br>
&nbsp;<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" border="0" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td colspan="11" style="border-bottom: 1px solid black;" align="center"><b>Unaudited; Quarter Ended</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>March 31,&nbsp;2010</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>Dec.&nbsp;31, 2009</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Sept.&nbsp;30, 2009</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>June&nbsp;30, 2009</b></td></tr>
<tr>
<td colspan="12" bgcolor="#ccdaef">Revenue</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Product sales</div></td><td width="2%">$</td><td align="right" width="13%">6,662,150</td><td width="2%"></td><td width="2%">$</td><td align="right" width="13%">5,292,228</td><td width="2%"></td><td width="2%">$</td><td align="right" width="13%">5,177,445</td><td width="2%"></td><td width="2%">$</td><td align="right" width="13%">5,534,037</td></tr>
<tr>
<td bgcolor="#ccdaef">
<div style="margin-left: 9pt;">Contract&nbsp;research&nbsp;and&nbsp;development</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">1,517,145</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">1,332,629</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">1,331,056</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">1,300,495</td></tr>
<tr>
<td>Total revenue</td><td>&nbsp;</td><td align="right">8,179,295</td><td></td><td>&nbsp;</td><td align="right">6,624,857</td><td></td><td>&nbsp;</td><td align="right">6,508,501</td><td></td><td>&nbsp;</td><td align="right">6,834,532</td></tr>
<tr>
<td bgcolor="#ccdaef">Cost of sales</td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">2,333,637</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">2,102,855</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">1,985,100</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">1,891,423</td></tr>
<tr>
<td>Gross profit</td><td>&nbsp;</td><td align="right">5,845,658</td><td></td><td>&nbsp;</td><td align="right">4,522,002</td><td></td><td>&nbsp;</td><td align="right">4,523,401</td><td></td><td>&nbsp;</td><td align="right">4,943,109</td></tr>
<tr>
<td colspan="12" bgcolor="#ccdaef">Expenses</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Selling,&nbsp;general,&nbsp;and&nbsp;administrative</div></td><td>&nbsp;</td><td align="right">607,534</td><td></td><td>&nbsp;</td><td align="right">548,973</td><td></td><td>&nbsp;</td><td align="right">622,354</td><td></td><td>&nbsp;</td><td align="right">635,723</td></tr>
<tr>
<td bgcolor="#ccdaef">
<div style="margin-left: 9pt;">Research&nbsp;and&nbsp;development</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">310,564</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">251,625</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">291,540</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" colspan="2" align="right" bgcolor="#ccdaef">267,321</td></tr>
<tr>
<td>
Total expenses</td><td>&nbsp;</td><td align="right">918,098</td><td></td><td>&nbsp;</td><td align="right">
800,598</td><td></td><td>&nbsp;</td><td align="right">913,894</td><td></td><td>&nbsp;</td><td align="right">903,044</td></tr>
<tr>
<td bgcolor="#ccdaef">Income from operations</td><td bgcolor="#ccdaef">&nbsp;</td><td align="right" bgcolor="#ccdaef">4,927,560</td><td bgcolor="#ccdaef"></td><td bgcolor="#ccdaef">&nbsp;</td><td align="right" bgcolor="#ccdaef">3,721,404</td><td bgcolor="#ccdaef"></td><td bgcolor="#ccdaef">&nbsp;</td><td align="right" bgcolor="#ccdaef">3,609,507</td><td bgcolor="#ccdaef"></td><td bgcolor="#ccdaef">&nbsp;</td><td align="right" bgcolor="#ccdaef">
4,040,065</td></tr>
<tr>
<td>Income before taxes</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">5,367,548</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">4,136,073</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">4,002,705</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">4,410,090</td></tr>
<tr>
<td bgcolor="#ccdaef">Net income</td><td style="border-bottom: 1px solid black;" bgcolor="#ccdaef">$</td><td style="border-bottom: 1px solid black;" align="right" bgcolor="#ccdaef">3,598,746</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" bgcolor="#ccdaef">$</td><td style="border-bottom: 1px solid black;" align="right" bgcolor="#ccdaef">2,767,483</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" bgcolor="#ccdaef">$</td><td style="border-bottom: 1px solid black;" align="right" bgcolor="#ccdaef">2,694,183</td><td bgcolor="#ccdaef"></td><td style="border-bottom: 1px solid black;" bgcolor="#ccdaef">$</td><td style="border-bottom: 1px solid black;" align="right" bgcolor="#ccdaef">2,938,932</td></tr>
<tr>
<td>Net&nbsp;income&nbsp;per&nbsp;share&nbsp;&#150;&nbsp;diluted</td><td>$</td><td align="right">0.74</td><td></td><td>$</td><td align="right">0.57</td><td></td><td>$</td><td align="right">0.55</td><td></td><td>$</td><td align="right">0.61</td></tr>
<tr>
<td rowspan="2"></td><td colspan="11" style="border-bottom: 1px solid black;" align="center">
<b>&nbsp;<br>
Unaudited; Quarter Ended</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>March&nbsp;31,&nbsp;2009</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>Dec.&nbsp;31, 2008</b>
</td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Sept.&nbsp;30, 2008</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>June&nbsp;30, 2008</b></td></tr>
<tr>
<td colspan="12" bgcolor="#ccdaef">
Revenue</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Product sales</div></td><td width="1%">$</td><td align="right" width="13%">5,699,660</td><td width="2%"></td><td width="1%">$</td><td align="right" width="13%">4,596,948</td><td width="2%"></td><td width="1%">$</td><td align="right" width="13%">4,871,381</td><td width="2%"></td><td width="2%">$</td><td align="right" width="13%">4,547,322</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Contract&nbsp;research&nbsp;and&nbsp;development</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
1,196,920</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,287,165</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">856,409</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
316,464</td></tr>
<tr>
<td>
Total revenue</td><td></td><td align="right">6,896,580</td><td></td><td></td><td align="right">
5,884,113</td><td></td><td></td><td align="right">
5,727,790</td><td></td><td></td><td align="right">
4,863,786</td></tr>
<tr bgcolor="#ccdaef">
<td>Cost of sales</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,806,102</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,763,090</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,747,618</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,407,432</td></tr>
<tr>
<td>Gross profit</td><td></td><td align="right">5,090,478</td><td></td><td></td><td align="right">4,121,023</td><td></td><td></td><td align="right">3,980,172</td><td></td><td></td><td align="right">3,456,354</td></tr>
<tr>
<td colspan="12" bgcolor="#ccdaef">Expenses</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Selling,&nbsp;general,&nbsp;and&nbsp;administrative</div></td><td></td><td align="right">554,055</td><td></td><td></td><td align="right">508,953</td><td></td><td></td><td align="right">585,373</td><td></td><td></td><td align="right">529,484</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Research&nbsp;and&nbsp;development</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">292,679</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">258,998</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">280,863</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">386,032</td></tr>
<tr>
<td>Total expenses</td><td></td><td align="right">846,734</td><td></td><td></td><td align="right">767,951</td><td></td><td></td><td align="right">866,236</td><td></td><td></td><td align="right">915,516</td></tr>
<tr bgcolor="#ccdaef">
<td>Income from operations</td><td></td><td align="right">4,243,744</td><td></td><td></td><td align="right">3,353,072</td><td></td><td></td><td align="right">3,113,936</td><td></td><td></td><td align="right">2,540,838</td></tr>
<tr>
<td>Income before taxes</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">4,577,231</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">3,660,686</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">3,391,010</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">2,798,673</td></tr>
<tr bgcolor="#ccdaef">
<td>Net income</td><td style="border-bottom: 1px solid black;">$</td><td style="border-bottom: 1px solid black;" align="right">3,111,494</td><td></td><td style="border-bottom: 1px solid black;">$</td><td style="border-bottom: 1px solid black;" align="right">2,468,404</td><td></td><td style="border-bottom: 1px solid black;">$</td><td style="border-bottom: 1px solid black;" align="right">2,300,381</td><td></td><td style="border-bottom: 1px solid black;">$</td><td style="border-bottom: 1px solid black;" align="right">1,902,616</td></tr>
<tr>
<td>Net&nbsp;income&nbsp;per&nbsp;share&nbsp;&#150;&nbsp;diluted</td><td>$</td><td align="right">0.65</td><td></td><td>$</td><td align="right">0.52</td><td></td><td>$</td><td align="right">0.48</td><td></td><td>$</td><td align="right">0.40</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<b><a name="item9"></a>ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND&nbsp;FINANCIAL&nbsp;DISCLOSURE.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.<br>
<br>
<b><a name="item9A"></a>ITEM 9A. CONTROLS AND PROCEDURES.<br>
Disclosure Controls and Procedures</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management, with the participation of the Chief
Executive Officer and Chief Financial Officer, has performed an evaluation of
our disclosure controls and procedures (as defined in <font style="white-space: nowrap;">Rules 13a-15(e)</font> and <font style="white-space: nowrap;">15d-15(e)</font>
of the Securities Exchange Act) as of the end of the period covered by this
Report. This evaluation included consideration of the controls, processes, and
procedures that are designed to ensure that information required to be disclosed
by us in the reports we file under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC&#146;s
rules and forms and that such information is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of March&nbsp;31, 2010, our disclosure controls and procedures
were effective.<br>
<br>
<b>Management&#146;s Report on Internal Control Over Financial Reporting</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such
term is defined in <font style="white-space: nowrap;">Rule 13a-15(f)</font> under the Exchange Act. Our management,
including our Chief Executive Officer and Chief Financial Officer, assessed
the effectiveness of our internal control over financial reporting as of March&nbsp;31, 2010. In making this assessment, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in <i>Internal Control&nbsp;&#150; Integrated Framework</i>.<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<b><br>
</b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on our assessment using the criteria set
forth by COSO in <i>Internal Control&nbsp;&#150; Integrated Framework</i>, management
concluded that our internal control over financial reporting was effective as
of March&nbsp;31, 2010. Our internal control over financial reporting as of
March&nbsp;31, 2010 has been audited by Ernst&nbsp;& Young&nbsp;LLP, an independent
registered public accounting firm, as stated in their report.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management, including our Chief Executive
Officer and Chief Financial Officer, does not expect that our internal control
over financial reporting will prevent all errors and all fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within NVE have been detected. Our internal controls over
financial reporting, however, are designed to provide reasonable assurance that
the objectives of internal control over financial reporting are met.<br>
<br>
<b>Changes in Internal Controls</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the quarter ended March&nbsp;31, 2010, there was no change in our internal control over financial reporting that materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.<br>
<br>
</font>
<div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b><u><a name="part3">PART III</a></u></b></font></div><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<b><a name="item10">ITEM 10.</a> DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The sections titled &#147;Proposal&nbsp;1. Election of Board of Directors&#148;
and &#147;Certain Relationships and Related Person Transactions&nbsp;&#150; Section 16(a) Beneficial Ownership Reporting
Compliance&#148; to be included in our Proxy Statement for our 2010 Annual Meeting of Shareholders
set forth certain information regarding our directors and executive officers required by Item&nbsp;10,
the section titled &#147;Executive Officers of the Company&#148; sets forth information regarding our
executive officers required by Item&nbsp;10, and the section titled &#147;Corporate Governance&#148; sets forth
information regarding our corporate governance and code of ethics required by Item&nbsp;10. The information in these sections
to be included in our Proxy Statement for our 2010 Annual Meeting of Shareholders are incorporated by reference into this section.<br>
<br>
<b><a name="item11">ITEM 11.</a> EXECUTIVE COMPENSATION.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information in the sections &#147;Executive Compensation,&#148; &#147;Compensation
Discussion and Analysis,&#148; &#147;Corporate Governance&nbsp;&#150; Board Committees&nbsp;&#150;
Compensation Committee Interlocks and Insider Participation,&#148; &#147;Compensation
Committee Report,&#148; and &#147;Director Compensation&#148; to be included
in our Proxy Statement for our 2010 Annual Meeting of Shareholders is incorporated
by reference into this section.<br>
<br>
<b><a name="item12">ITEM 12.</a> SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information in the sections &#147;Equity Compensation Plan Information&#148; and &#147;Security
Ownership&#148; to be included in our Proxy Statement
for our 2010 Annual Meeting of Shareholders is incorporated by reference into this section. Information regarding the material features of
our 2000 Stock Option Plan, as amended, is contained in Note&nbsp;6 to the Financial Statements included elsewhere
in this Report.<br>
<br>
<b><a name="item13">ITEM 13.</a> CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information in the sections &#147;Security
Ownership&nbsp;&#150; Transactions With Related Persons, Promoters, and Certain Control
Persons&#148; and &#147;Corporate Governance&nbsp;&#150; Board Composition and Independence&#148; to be included in our Proxy Statement
for our 2010 Annual Meeting of Shareholders
is incorporated by reference into this section.<br>
<br>
<b><a name="item14">ITEM 14.</a> PRINCIPAL ACCOUNTING FEES AND SERVICES.</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information in the sections &#147;Audit
Committee Disclosure&nbsp;&#150; Fees Billed to Us by Ernst&nbsp;& Young During Fiscal
2010 and 2009&#148; and &#147;Audit Committee Disclosure&nbsp;&#150; Audit Committee
Pre-Approval Policy&#148; to be included in our Proxy
Statement for our 2010 Annual Meeting of Shareholders is incorporated by reference into this section.<br>
<br>
</font>
<div align="center"><font style="font-size: 10pt; font-family: Arial, Helvetica;"><b><u><a name="itemIV">PART IV</a></u></b><br>
&nbsp;<br>
</font></div><font style="font-size: 10pt; font-family: Times New Roman"><b><a name="item15">ITEM 15. </a>EXHIBITS, FINANCIAL STATEMENT SCHEDULES.<br>
(a) Financial Statements and Schedules</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial statements are provided pursuant to
Item&nbsp;8 of this Report. Certain financial statement schedules have been omitted because
they are not required, not applicable, or the required information is provided in other
financial statements or the notes to the financial statements.<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><b><a href="#TOC">Table of Contents</a><br>
<br>
(b) Exhibits</b></font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td style="border-bottom: 1px solid black;"><b>Exhibit&nbsp;#</b></td><td style="border-bottom: 1px solid black;" align="center">
<b>Description</b></td></tr>
<tr bgcolor="#ccdaef">
<td width="27 pt" valign="top">&nbsp;&nbsp;3.1</td><td>Amended and Restated Articles of Incorporation of the company as amended by the
Board of Directors effective November&nbsp;21, 2002 (incorporated by reference
to our Quarterly Report on Form 10-QSB for the period ended December 31, 2002).</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;3.2</td><td>Bylaws of the company as amended by the Board of Directors effective December
18, 2007 (incorporated by reference to our Current Report on Form 8-K
filed December 19, 2007).</td></tr>
<tr bgcolor="#ccdaef">
<td style="width: 27pt;" valign="top">&nbsp;&nbsp;4</td><td>Form of Common Stock Certificate (incorporated by reference to our Registration Statement on Form S-8 filed July&nbsp;20, 2001).</td></tr>
<tr>
<td valign="top">
&nbsp;&nbsp;10.1</td><td>
Lease dated October 1, 1998 between the company and Glenborough Properties, L.P. (incorporated by reference to our Quarterly Report
on Form 10-QSB for the period ended September 30, 2002).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">
&nbsp;&nbsp;10.2</td><td>
First amendment to lease between the company and Glenborough Properties,
LP dated September&nbsp;18, 2002 (incorporated by reference to our Quarterly
Report on Form 10-QSB for the period ended September&nbsp;30, 2002).</td></tr>
<tr>
<td valign="top">
&nbsp;&nbsp;10.3</td><td>Second amendment to lease between the company and Glenborough Properties, LP dated December 1, 2003 (incorporated by reference to our Quarterly
Report on Form 10-QSB for the period ended December 31, 2003).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">
&nbsp;&nbsp;10.4</td><td>
Notification from Glenborough Properties, LP relating to change in building ownership
(incorporated by reference to our Current Report on Form 8-K filed October&nbsp;11, 2005).</td></tr>
<tr>
<td valign="top">
&nbsp;&nbsp;10.5</td><td>
Notification from Carlson Real Estate Company, Inc. relating to change in building ownership (incorporated by reference to our Current
Report on Form 8-K filed October&nbsp;11, 2005).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">
&nbsp;&nbsp;10.6</td><td>
Third amendment to lease between the company and Carlson Real Estate Company, Inc. dated December 17, 2007
(incorporated by reference to our Current Report on Form 8-K/A filed December 20, 2007).</td></tr>
<tr>
<td valign="top">
&nbsp;&nbsp;10.7*</td><td>Employment Agreement between the company and Daniel A. Baker dated January&nbsp;29,
2001 (incorporated by reference to our Annual Report on Form 10-KSB for the year ended March&nbsp;31, 2001).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">
&nbsp;&nbsp;10.8*</td><td>NVE Corporation 2000 Stock Option Plan as Amended July&nbsp;19, 2001 by the
shareholders (incorporated by reference to our Registration Statement on Form S-8 filed July&nbsp;20, 2001).</td></tr>
<tr>
<td valign="top">
&nbsp;&nbsp;10.9+</td><td>Agreement between the company and Agilent Technologies,&nbsp;Inc. dated September&nbsp;27, 2001 (incorporated by reference to our Quarterly
Report on Form 10-QSB for the period ended September&nbsp;30, 2001).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">&nbsp;&nbsp;10.10</td><td>Amendment dated October 18, 2002 to Agreement between the company and Agilent
Technologies, Inc. (incorporated by reference to our Quarterly Report on
Form 10-QSB for the period ended December&nbsp;31, 2002).</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;10.11</td><td>Notification from Agilent Technologies of planned sale of Agilent&#146;s Semiconductor
Product Group (incorporated by reference to our Current Report on Form 8-K filed October&nbsp;19, 2005).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">&nbsp;&nbsp;10.12</td><td>Report of completion of the divestiture of Agilent&#146;s Semiconductor Products
business (incorporated by reference to our Current Report on Form 8-K/A filed December&nbsp;6, 2005).</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;10.13</td><td>Amendment Number 2 to OEM Purchase Agreement dated September 10, 2007 to Agreement between Agilent
Technologies, Inc. (and subsequently assigned to Avago Technologies, Inc.) and the company (incorporated by
reference to our Exhibit 10.5 filed with our Current Report on Form 8-K/A filed September 11, 2007).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">&nbsp;&nbsp;10.14*</td><td>Amendment No.&nbsp;1 dated March&nbsp;28, 2005 to Stock Option Agreement dated May&nbsp;7, 2004
between the Company and Daniel&nbsp;A. Baker (incorporated by reference to our Current Report on Form 8-K filed March&nbsp;30, 2005).</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;10.15</td><td>Amendment No.&nbsp;1 dated March&nbsp;28, 2005 to Stock Option Agreement dated August&nbsp;17, 2004
between the Company and Patricia&nbsp;M. Hollister (incorporated by reference
to our Current Report on Form 8-K filed March&nbsp;30, 2005).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">&nbsp;&nbsp;10.16</td><td>Indemnification Agreement by and between Pacesetter, Inc., a St. Jude Medical Company,
d.b.a. St. Jude Medical Cardiac Rhythm Management Division (&#147;St. Jude&#148;), and the company (incorporated by reference to our Current
Report on Form 8-K filed September&nbsp;27, 2005).</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;10.17+</td><td>Supplier Partnering Agreement by and between St.&nbsp;Jude and
the company (incorporated by reference to our Current Report on Form 8-K
filed January&nbsp;4, 2006).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">&nbsp;&nbsp;10.18+</td><td>Amendment Number 1 dated September 6, 2007 to Supplier Partnering Agreement between St.&nbsp;Jude and the company
(incorporated by reference to our Current Report on Form 8-K/A filed September 10, 2007).</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;10.19+</td><td>Amendment Number 2 dated December&nbsp;15, 2009 to Supplier Partnering Agreement between St.&nbsp;Jude and the company
(incorporated by reference to our Current Report on Form 8-K/A filed December&nbsp;18, 2009).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">&nbsp;&nbsp;10.20*</td><td>Verbal agreement with Curt A. Reynders (incorporated by reference to Item&nbsp;1.01 of our Current Report on <font style="white-space: nowrap;">Form 8-K</font> filed January 18, 2006).</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;10.21</td><td>Supply Agreement by and between the company and Phonak AG (incorporated by reference to our Current Report on Form 8-K filed May&nbsp;6, 2009).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">&nbsp;&nbsp;23</td><td>Consent of Ernst &amp; Young LLP.</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;31.1</td><td>Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">
&nbsp;&nbsp;31.2</td><td>Certification by Curt A. Reynders pursuant to Rule 13a-14(a)/15d-14(a).</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;32</td><td>Certification by Daniel A. Baker and Curt A. Reynders pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</td></tr>
</table><table style="font-size:4pt;" width="80" border="0" cellspacing="00" cellpadding="0">
<tr>
<td style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;">&nbsp;
</td></tr>
<tr>
<td style="padding:0pt .7pt 0pt 0pt;">&nbsp;</td></tr>
</table><table style="font-size: 10pt; font-family: Times New Roman" width="100%" border="0" cellspacing="00" cellpadding="0">
<tr>
<td width="1" valign="top">*</td><td>Indicates a management contract or compensatory plan or arrangement.</td></tr>
<tr>
<td valign="top">+</td><td>Confidential portions of this exhibit were deleted and filed separately with the SEC under a request for confidential
treatment pursuant to Rule 24b-2 or Rule 406.</td></tr>
</table><div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
&nbsp;<br>
20</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b><br>
<br>
</a></font>
<div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b><a name="signatures">SIGNATURES</a></b></font></div>&nbsp;<br>
<font style="font-size: 10pt; font-family: Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
<br>
<br>
<div style="margin-left: 144pt;">
<b><u>NVE CORPORATION</u></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Registrant)
<br>
<br>
<u>/s/Daniel A. Baker</u>
<br>
by Daniel A. Baker
<br>
President and Chief Executive Officer<br>
<br>
Date&nbsp;&nbsp;&nbsp;&nbsp;May 5, 2010</div><br>
<br>
<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="5" cellspacing="0" width="100%">
<tr>
<td valign="top" width="33%" align="center">
<b><u>Name</u></b></td><td valign="top" width="34%" align="center">
&nbsp;<b><u>Title</u></b></td><td width="33%" align="center">
<b><u>Date</u></b>&nbsp;</td></tr>
<tr>
<td valign="top" align="center">
<u>/s/Terrence W. Glarner</u><br>
Terrence W. Glarner</td><td valign="top" align="center">
Director and<br>
Chairman of the Board<br>
&nbsp;
<br>
&nbsp;
</td><td valign="top" align="center">
<u>May 5, 2010</u></td></tr>
<tr>
<td valign="top" align="center">
<u>/s/Daniel A. Baker</u><br>
Daniel A. Baker</td><td valign="middle" align="center">
Director,<br>
President &amp; Chief Executive Officer<br>
(Principal Executive Officer)<br>
&nbsp;
</td><td valign="top" align="center">
<u>May 5, 2010</u></td></tr>
<tr>
<td valign="top" align="center">
<u>/s/Curt A. Reynders</u><br>
Curt A. Reynders</td><td valign="top" align="center">
Treasurer and<br>
Chief Financial Officer<br>
(Principal Financial and<br>
Accounting Officer)</td><td valign="top" align="center">
<u><u>May 5, 2010</u></u></td></tr>
<tr>
<td valign="top" align="center">
<u>/s/James D. Hartman</u><br>
James D. Hartman<br>
&nbsp;
<br>
&nbsp;
</td><td valign="top" align="center">
Director</td><td valign="top" align="center">
<u>May 5, 2010</u></td></tr>
<tr>
<td valign="top" align="center">
<u>/s/Patricia M. Hollister</u><br>
Patricia M. Hollister<br>
&nbsp;<br>
&nbsp;</td><td valign="top" align="center">
Director</td><td valign="top" align="center">
<u>May 5, 2010</u></td></tr>
<tr>
<td valign="top" align="center">
<u>/s/Robert H. Irish</u><br>
Robert H. Irish</td><td valign="top" align="center">
Director</td><td valign="top" align="center">
<u>May 5, 2010</u></td></tr>
</table><div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman"><br>
<br>
21</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
</font>
<font style="font-size: 10pt; font-family: Arial, Helvetica;"><a name="Report"><b>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</b></a></font>
<font style="font-size: 10pt; font-family: Times New Roman, Times, serif;"><br>
&nbsp;<br>
The Board of Directors and Shareholders<br>
NVE Corporation<br>
<br>
We have audited NVE Corporation&#146;s internal control over financial reporting
as of March&nbsp;31, 2010, based on criteria established in <i>Internal Control&nbsp;&#150;
Integrated Framework</i> issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). NVE Corporation&#146;s management
is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying report of management titled &#147;Management&#146;s
 Report on Internal Control Over Financial Reporting.&#148; Our responsibility
is to express an opinion on NVE Corporation&#146;s internal control over financial
reporting based on our audit.<br>
<br>
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.<br>
<br>
A company&#146;s internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company&#146;s internal control
over financial reporting includes those policies and procedures that (1)&nbsp;pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)&nbsp;provide
reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles
and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3)&nbsp;provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company&#146;s assets that could have
a material effect on the financial statements.<br>
<br>
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.<br>
<br>
In our opinion, NVE Corporation maintained, in all material respects, effective
internal control over financial reporting as of March&nbsp;31, 2010, based on the COSO criteria.<br>
<br>
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheets of NVE Corporation as of March&nbsp;31,
2010 and 2009, and the related statements of income, shareholders&#146; equity,
and cash flows for each of the three years in the period ended March&nbsp;31,
2010, and our report dated May 5, 2010 expressed an unqualified opinion thereon.<br>
&nbsp;<br>
&nbsp;<br>
<div align="right">/s/ Ernst &amp; Young LLP</div>&nbsp;<br>
&nbsp;<br>
Minneapolis, Minnesota<br>
May 5, 2010<br>
<br>
<br>
<div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">F-1</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
</font><font style="font-size: 10pt; font-family: Arial, Helvetica;"><a name="Report"></a><b>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</b><br>
&nbsp;<br>
</font>The Board of Directors and Shareholders<br>
NVE Corporation<br>
<br>
We have audited the accompanying balance sheets of NVE Corporation (the Company) as of March&nbsp;31,
2010 and 2009, and the related statements of income, shareholders&#146; equity,
and cash flows for each of the three years in the period ended March&nbsp;31,
2010. These financial statements are the responsibility of the Company&#146;s
management. Our responsibility is to express an opinion on these financial statements
based on our audits.<br>
<br>
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.<br>
<br>
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NVE Corporation at March&nbsp;31,
2010 and 2009, and the results of its operations and its cash flows for each of
the three years in the period ended March&nbsp;31, 2010, in conformity with U.S.
generally accepted accounting principles.<br>
<br>
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), NVE Corporation&#146;s internal control over
financial reporting as of March&nbsp;31, 2010, based on criteria established in
<i>Internal Control&nbsp;&#150; Integrated Framework</i> issued by the Committee
of Sponsoring Organizations of the Treadway Commission, and our report dated May
5, 2010, expressed an unqualified opinion thereon.<br>
&nbsp;<br>
&nbsp;<br>
<div align="right">/s/ Ernst &amp; Young LLP</div>&nbsp;<br>
&nbsp;<br>
Minneapolis, Minnesota<br>
May 5, 2010<br>
<br>
<br>
</font>
<div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">F-2</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b><br>
<br>
</a></font>
<div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b><a name="BS">NVE CORPORATION</a><br>
BALANCE SHEETS</b><br>
&nbsp;<br>
</font></div><table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td style="border-bottom: 1px solid black;" colspan="7" align="center"><b>March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2010</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2009</b></td></tr>
<tr bgcolor="#ccdaef">
<td colspan="8">ASSETS</td></tr>
<tr>
<td colspan="8">Current assets</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Cash and cash equivalents</div></td><td width="1%">$</td><td align="right" width="11%">1,389,288</td><td width="1%"></td><td></td><td width="1%">$</td><td align="right" width="11%">1,875,063</td><td width="1%"></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Marketable securities, short term</div></td><td></td><td align="right">1,566,666</td><td></td><td></td><td></td><td align="right">
- -</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Accounts receivable, net of allowance for uncollectible accounts of $15,000</div></td><td></td><td align="right">4,221,564</td><td></td><td></td><td></td><td align="right">3,366,698</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Inventories</div></td><td></td><td align="right">1,706,427</td><td></td><td></td><td></td><td align="right">2,247,621</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Deferred tax assets</div></td><td></td><td align="right">-</td><td></td><td></td><td></td><td align="right">667,729</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Prepaid expenses and other assets</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">781,294</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">669,307</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Total current assets</td><td></td><td align="right">9,665,239</td><td></td><td></td><td></td><td align="right">8,826,418</td><td></td></tr>
<tr>
<td colspan="8">Fixed assets</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Machinery and equipment&nbsp;</div></td><td></td><td align="right">5,617,136</td><td></td><td></td><td></td><td align="right">5,328,237</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Leasehold improvements</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">450,546</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">450,546</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>&nbsp;</td><td></td><td align="right">6,067,682</td><td></td><td></td><td></td><td align="right">5,778,783</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Less accumulated depreciation&nbsp;</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">4,857,819</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">4,485,509</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Net fixed assets</td><td></td><td align="right">1,209,863</td><td></td><td></td><td></td><td align="right">1,293,274</td><td></td></tr>
<tr>
<td>Marketable securities, long term</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">46,587,812</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">32,446,748</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Total assets</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">57,462,914</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">42,566,440</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
<tr>
<td colspan="8">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td colspan="8">LIABILITIES AND SHAREHOLDERS&#146; EQUITY</td></tr>
<tr>
<td colspan="8">Current liabilities</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Accounts payable</div></td><td>$</td><td align="right">665,782</td><td></td><td></td><td>$</td><td align="right">257,239</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Accrued payroll and other&nbsp;</div></td><td></td><td align="right">720,867</td><td></td><td></td><td></td><td align="right">637,463</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Deferred taxes</div></td><td colspan="2" align="right">102,138</td><td></td><td></td><td colspan="2" align="right">-</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Deferred revenue</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">20,833</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">104,167</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Total current liabilities</td><td></td><td align="right">1,509,620</td><td></td><td></td><td></td><td align="right">998,869</td><td></td></tr>
<tr>
<td colspan="8">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td colspan="8">Shareholders&#146; equity</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Common stock</div></td><td></td><td align="right">47,006</td><td></td><td></td><td></td><td align="right">46,693</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Additional paid-in capital</div></td><td></td><td align="right">20,169,924</td><td></td><td></td><td></td><td align="right">19,166,524</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Accumulated other comprehensive income (loss)</div></td><td></td><td align="right">1,129,726</td><td></td><td></td><td></td><td align="right">(252,940</td><td>)</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Retained earnings</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">34,606,638</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">22,607,294</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td>Total shareholders&#146; equity</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">55,953,294</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">41,567,571</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Total liabilities and shareholders&#146; equity</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">57,462,914</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">42,566,440</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
</table><div align="center"><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<br>
See accompanying notes.<br>
<br>
<br>
</font>
<div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">F-3</font></div><hr>
</div><div align="left"><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
</font>
</div><div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b><a name="income">NVE CORPORATION</a><br>
STATEMENTS OF INCOME</b><br>
&nbsp;<br>
</font></div><table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td colspan="11" style="border-bottom: 1px solid black;" align="center"><b>Year Ended March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="3" align="center">
<b>2010</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" colspan="3" align="center">
<b>2009</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="3"><b>2008</b></td></tr>
<tr>
<td colspan="12" bgcolor="#ccdaef">Revenue</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Product sales</div></td><td width="1%">$</td><td align="right" width="11%">22,665,860</td><td width="1%"></td><td></td><td width="1%">$</td><td align="right" width="11%">19,715,311</td><td width="1%"></td><td></td><td width="1%">$</td><td align="right" width="11%">18,505,650</td><td width="1%"></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Contract research and development</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">5,481,325</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">3,656,958</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
2,023,162</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td>Total revenue</td><td></td><td align="right">28,147,185</td><td></td><td></td><td></td><td align="right">23,372,269</td><td></td><td></td><td></td><td align="right">20,528,812</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Cost of sales</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">8,313,015</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">6,724,242</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">6,833,308</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td>Gross profit</td><td colspan="2" align="right">19,834,170</td><td></td><td></td><td colspan="2" align="right">16,648,027</td><td></td><td></td><td colspan="2" align="right">13,695,504</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td colspan="12">Expenses</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Selling, general, and administrative</div></td><td></td><td align="right">2,414,584</td><td></td><td></td><td></td><td align="right">2,177,865</td><td></td><td></td><td></td><td align="right">
2,158,818</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Research and development</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,121,050</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
1,218,572</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
1,487,907</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td>Total expenses</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">3,535,634</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">3,396,437</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">3,646,725</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Income from operations </td><td></td><td align="right">16,298,536</td><td></td><td></td><td></td><td align="right">13,251,590</td><td></td><td></td><td></td><td align="right">10,048,779</td><td></td></tr>
<tr>
<td>Interest income</td><td></td><td align="right">1,617,880</td><td></td><td></td><td></td><td align="right">1,171,810</td><td></td><td></td><td></td><td align="right">974,990</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Other income</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">-</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">4,200</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">56,235</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td>Income before taxes</td><td></td><td align="right">17,916,416</td><td></td><td></td><td></td><td align="right">14,427,600</td><td></td><td></td><td></td><td align="right">11,080,004</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Provision for income taxes</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">5,917,072</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">4,644,705</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">3,892,620</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td valign="top">Net income</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">11,999,344</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">9,782,895</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">
7,187,384</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td valign="top">Net income per share &#150; basic</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">2.56</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">2.10</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">1.55</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
<tr>
<td valign="top">Net income per share &#150; diluted</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">2.47</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">2.04</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">1.51</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td colspan="12">Weighted average shares outstanding</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Basic</div></td><td colspan="2" align="right">4,692,496</td><td colspan="4" align="right">4,659,486</td><td colspan="4" align="right">4,635,470</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td><div style="margin-left: 9pt;">Diluted</div></td><td colspan="2" align="right">4,857,044</td><td colspan="4" align="right">4,785,565</td><td colspan="4" align="right">4,763,101</td><td></td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<br>
See accompanying notes.<br>
<br>
<br>
</font></div><div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">F-4</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b><br>
<br>
</a></font>
<div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b><a name="SHE">NVE CORPORATION</a>
<br>STATEMENTS OF SHAREHOLDERS&#146; EQUITY</b><br><br></font></div><table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="3"></td><td colspan="4">&nbsp;<br>
&nbsp;<br>
&nbsp;</td><td rowspan="3" style="border-bottom: 1px solid black;">&nbsp;</td><td colspan="2" rowspan="3" align="center" style="border-bottom: 1px solid black;" valign="bottom"><b>Additional<br>
Paid-In<br>
Capital</b></td><td rowspan="3" style="border-bottom: 1px solid black;">&nbsp;</td><td colspan="3" rowspan="3" align="center" style="border-bottom: 1px solid black;" valign="bottom"><b>Accumulated<br>
Other<br>
Comprehen-<br>
sive Income<br>
(Loss)</b></td><td style="border-bottom: 1px solid black;" rowspan="3">&nbsp;</td><td style="border-bottom: 1px solid black;" align="center" rowspan="3" colspan="3" valign="bottom"><b>Retained<br>
Earnings<br>
</b></td><td rowspan="3" style="border-bottom: 1px solid black;">&nbsp;</td><td colspan="3" rowspan="2"></td></tr>
<tr>
<td colspan="4" style="border-bottom: 1px solid black;" align="center"><b>Common Stock</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" align="center"><b>Shares</b></td><td style="border-bottom: 1px solid black;">&nbsp;</td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>Amount</b></td><td style="border-bottom: 1px solid black;" colspan="3" align="center">
<b>Total</b></td></tr>
<tr>
<td>Balance at March 31, 2007</td><td align="right" width="8%">4,627,383</td><td width="2%"></td><td width="1%">$</td><td align="right" width="7%">46,274</td><td width="2%"></td><td width="1%">$</td><td align="right" width="10%">18,289,248</td><td width="2%"></td><td width="1%">$</td><td align="right" width="9%">(84,282</td><td width="1%">)</td><td width="2%"></td><td width="1%">$</td><td align="right" width="10%">5,637,015</td><td width="1%">&nbsp;</td><td width="2%"></td><td width="1%">$</td><td align="right" width="10%">23,888,255</td><td width="1%"></td></tr>
<tr valign="bottom" bgcolor="#ccdaef">
<td><div style="margin-left: 9pt;">Exercise of stock</div><div style="margin-left: 18pt;">options and warrants</div></td><td align="right">11,300</td><td></td><td></td><td align="right">113</td><td></td><td></td><td align="right">46,911</td><td></td><td></td><td align="right">-</td><td></td><td></td><td></td><td align="right">
- -</td><td></td><td></td><td></td><td align="right">47,024</td><td></td></tr>
<tr>
<td colspan="20"><div style="margin-left: 9pt;">Comprehensive income:</div></td></tr>
<tr valign="bottom">
<td><div style="margin-left: 27pt;">Unrealized gain on</div><div style="margin-left: 36pt;">marketable securities, <br>
net of tax</div></td><td align="right">
- -</td><td></td><td></td><td align="right">
- -</td><td></td><td></td><td align="right">
- -</td><td></td><td></td><td align="right">187,440</td><td colspan="8" align="right">187,440</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Net income</div></td><td align="right">
- -</td><td></td><td></td><td align="right">
- -</td><td></td><td></td><td align="right">
- -</td><td></td><td></td><td align="right">-</td><td></td><td></td><td></td><td align="right">7,187,384</td><td>&nbsp;</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">7,187,384</td><td></td></tr>
<tr>
<td colspan="17">
<div style="margin-left: 9pt;">Total comprehensive income</div></td><td></td><td align="right">7,374,824</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Stock-based compensation</div></td><td align="right" colspan="7">169,606</td><td colspan="11" align="right">169,606</td><td></td></tr>
<tr>
<td valign="bottom">
<div style="margin-left: 9pt;">Tax benefit of stock-</div><div style="margin-left: 18pt;">based compensation</div></td><td style="border-bottom: 1px solid black;" colspan="7" valign="bottom" align="right">33,773</td><td style="border-bottom: 1px solid black;" valign="bottom" colspan="11" align="right">33,773</td><td style="border-bottom: 1px solid black;" valign="bottom">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Balance at March 31, 2008</td><td align="right">4,638,683</td><td>&nbsp;</td><td>&nbsp;
</td><td align="right">46,387</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">18,539,538</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">103,158</td><td></td><td></td><td>&nbsp;</td><td align="right">12,824,399</td><td>&nbsp;</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">31,513,482</td><td></td></tr>
<tr valign="bottom">
<td>
<div style="margin-left: 9pt;">Exercise of stock</div><div style="margin-left: 18pt;">options and warrants</div></td><td align="right">30,650</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
306</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">269,901</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">-</td><td></td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
- -</td><td>&nbsp;</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">270,207</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td colspan="20">
<div style="margin-left: 9pt;">Comprehensive income:</div></td></tr>
<tr valign="bottom" bgcolor="#ccdaef">
<td>
<div style="margin-left: 27pt;">Unrealized (loss) on</div><div style="margin-left: 36pt;">marketable securities,<br>
net of tax
</div></td><td align="right">
- -</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
- -</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
- -</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">(356,098</td><td>)</td><td colspan="7" align="right">(356,098</td><td>)</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Net income</div></td><td align="right">
- -</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
- -</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
- -</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">-</td><td></td><td>&nbsp;</td><td>&nbsp;</td><td align="right">9,782,895</td><td>&nbsp;</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">9,782,895</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td colspan="17">
<div style="margin-left: 9pt;">Total comprehensive income</div></td><td>&nbsp;</td><td align="right">9,426,797</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Stock-based compensation</div></td><td align="right" colspan="7">86,672</td><td colspan="11" align="right">86,672</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td valign="bottom">
<div style="margin-left: 9pt;">Tax benefit of stock-</div><div style="margin-left: 18pt;">based compensation</div></td><td style="border-bottom: 1px solid black;" colspan="7" valign="bottom" align="right">270,413</td><td style="border-bottom: 1px solid black;" valign="bottom" colspan="11" align="right">270,413</td><td style="border-bottom: 1px solid black;" valign="bottom">&nbsp;</td></tr>
<tr valign="top">
<td>Balance at March 31, 2009</td><td align="right">4,669,333</td><td>&nbsp;</td><td>&nbsp;
</td><td align="right">46,693</td><td>&nbsp;</td><td>&nbsp;
</td><td align="right">19,166,524</td><td>&nbsp;</td><td>&nbsp;
</td><td align="right">(252,940</td><td>)</td><td>&nbsp;</td><td>&nbsp;
</td><td align="right">22,607,294</td><td>&nbsp;</td><td>&nbsp;</td><td>&nbsp;
</td><td align="right">41,567,571</td><td>&nbsp;</td></tr>
<tr valign="bottom" bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Exercise of stock</div><div style="margin-left: 18pt;">options and warrants</div></td><td align="right">31,250</td><td></td><td></td><td align="right">313</td><td></td><td></td><td align="right">622,110</td><td></td><td></td><td align="right">-</td><td></td><td></td><td></td><td align="right">
- -</td><td></td><td></td><td></td><td align="right">622,423</td><td></td></tr>
<tr>
<td colspan="20">
<div style="margin-left: 9pt;">Comprehensive income:</div></td></tr>
<tr valign="bottom">
<td>
<div style="margin-left: 27pt;">Unrealized gain on</div><div style="margin-left: 36pt;">marketable securities,<br>
net of tax</div></td><td align="right">-</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
- -</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
- -</td><td></td><td></td><td align="right">1,382,666</td><td></td><td colspan="7" align="right">1,382,666</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Net income</div></td><td align="right">-</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">-</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">
- -</td><td></td><td></td><td align="right">-</td><td></td><td></td><td></td><td align="right">11,999,344</td><td></td><td></td><td></td><td align="right">11,999,344</td><td></td></tr>
<tr>
<td colspan="18">
<div style="margin-left: 9pt;">Total comprehensive income</div></td><td align="right">13,382,010</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Stock-based compensation</div></td><td align="right" colspan="7">100,842</td><td></td><td colspan="10" align="right">100,842</td><td></td></tr>
<tr>
<td valign="bottom">
<div style="margin-left: 9pt;">Tax benefit of stock-</div><div style="margin-left: 18pt;">based compensation</div></td><td style="border-bottom: 1px solid black;" colspan="7" valign="bottom" align="right">280,448</td><td style="border-bottom: 1px solid black;" valign="bottom" colspan="11" align="right">280,448</td><td style="border-bottom: 1px solid black;" valign="bottom">&nbsp;</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Balance at March 31, 2010</td><td style="border-bottom: 3px double black;" align="right">4,700,583</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">47,006</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">20,169,924</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">1,129,726</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">34,606,638</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px
 double black;">$</td><td style="border-bottom: 3px double black;" align="right">55,953,294</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
</table><div align="center"><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<br>See accompanying notes.<br>
<br>
<br>
</font>
</div><div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">F-5</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
</font>
<div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b><a name="CF">NVE CORPORATION</a><br>
STATEMENTS OF CASH FLOWS</b><br>
&nbsp;<br>
</font></div><table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td colspan="11" style="border-bottom: 1px solid black;" align="center">
<b>Year Ended March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="3" align="center">
<b>2010</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" colspan="3" align="center">
<b>2009</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" colspan="3" align="center">
<b>2008</b></td></tr>
<tr>
<td colspan="12" bgcolor="#ccdaef">
OPERATING ACTIVITIES</td></tr>
<tr>
<td>
Net income</td><td width="1%">$</td><td align="right" width="11%">11,999,344</td><td width="1%"></td><td></td><td width="1%">$</td><td align="right" width="11%">9,782,895</td><td width="1%"></td><td></td><td width="1%">$</td><td align="right" width="11%">
7,187,384</td><td width="1%"></td></tr>
<tr bgcolor="#ccdaef">
<td colspan="12">Adjustments to reconcile net income to net cash
<div style="margin-left: 9pt;">provided by operating activities:</div></td></tr>
<tr>
<td>
<div style="margin-left: 18pt;">Depreciation</div></td><td colspan="2" align="right">389,273</td><td></td><td></td><td colspan="2" align="right">473,740</td><td></td><td></td><td colspan="2" align="right">560,528</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 18pt;">Stock-based compensation</div></td><td colspan="2" align="right">100,842</td><td></td><td></td><td colspan="2" align="right">86,672</td><td></td><td></td><td colspan="2" align="right">169,606</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 18pt;">Excess tax benefits</div></td><td colspan="2" align="right">(280,448</td><td>)</td><td></td><td colspan="2" align="right">(270,413</td><td>)</td><td></td><td colspan="2" align="right">
(33,773</td><td>)</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 18pt;">(Gain) loss on sale of fixed assets</div></td><td colspan="2" align="right">-</td><td></td><td></td><td colspan="2" align="right">(4,200</td><td>)</td><td></td><td colspan="2" align="right">
601</td><td></td></tr>
<tr>
<td>
<div style="margin-left: 18pt;">Gain on marketable securities, net</div></td><td colspan="2" align="right">-</td><td></td><td></td><td colspan="2" align="right">-</td><td>&nbsp;</td><td></td><td colspan="2" align="right">(56,837</td><td>)</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 18pt;">Deferred income taxes</div></td><td colspan="2" align="right">271,651</td><td></td><td></td><td colspan="2" align="right">256,376</td><td></td><td></td><td colspan="2" align="right">806,307</td><td></td></tr>
<tr>
<td colspan="12">
<div style="margin-left: 18pt;">Changes in operating assets and liabilities</div></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 36pt;">Accounts receivable</div></td><td colspan="2" align="right">(854,866</td><td>
)</td><td></td><td colspan="2" align="right">(140,671</td><td>)</td><td></td><td colspan="2" align="right">(1,221,022</td><td>
)</td></tr>
<tr>
<td>
<div style="margin-left: 36pt;">Inventories</div></td><td colspan="2" align="right">541,194</td><td></td><td></td><td colspan="2" align="right">209,183</td><td>&nbsp;</td><td></td><td colspan="2" align="right">(439,946</td><td>)</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 36pt;">Prepaid expenses and other assets</div></td><td colspan="2" align="right">(111,987</td><td>
)</td><td></td><td colspan="2" align="right">(139,691</td><td>
)</td><td></td><td colspan="2" align="right">(196,029</td><td>
)</td></tr>
<tr>
<td>
<div style="margin-left: 36pt;">Accounts payable and accrued expenses</div></td><td colspan="2" align="right">491,947</td><td></td><td></td><td colspan="2" align="right">(172,444</td><td>)</td><td></td><td colspan="2" align="right">(25,736</td><td>)</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 36pt;">Deferred revenue</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(83,334</td><td style="border-bottom: 1px solid black;">)</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(83,333</td><td style="border-bottom: 1px solid black;">)</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
158,143</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td>Net cash provided by operating activities</td><td colspan="2" align="right">12,463,616</td><td></td><td></td><td colspan="2" align="right">9,998,114</td><td></td><td></td><td colspan="2" align="right">
6,909,226</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td colspan="12">&nbsp;</td></tr>
<tr>
<td colspan="12">INVESTING ACTIVITIES</td></tr>
<tr bgcolor="#ccdaef">
<td colspan="2">Purchases of fixed assets</td><td align="right">(305,862</td><td>)</td><td></td><td colspan="2" align="right">(401,612</td><td>)</td><td></td><td colspan="2" align="right">(817,596</td><td>)</td></tr>
<tr>
<td>Proceeds from sale of fixed assets</td><td colspan="2" align="right">-</td><td></td><td></td><td colspan="2" align="right">4,200</td><td></td><td></td><td colspan="2" align="right">
1,500</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Purchases of marketable securities</td><td colspan="2" align="right">(13,804,629</td><td>)</td><td></td><td colspan="2" align="right">(12,137,160</td><td>)</td><td></td><td colspan="2" align="right">
(16,518,287</td><td>)</td></tr>
<tr>
<td>Proceeds from maturities and sales of marketable securities</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">258,229</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,985,034</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
11,832,804</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Net cash used in investing activities</td><td colspan="2" align="right">(13,852,262</td><td>)</td><td></td><td colspan="2" align="right">(10,549,538</td><td>
)</td><td></td><td colspan="2" align="right">
(5,501,579</td><td>
)</td></tr>
<tr>
<td colspan="12">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td colspan="12">FINANCING ACTIVITIES</td></tr>
<tr>
<td>
Net proceeds from sale of common stock</td><td colspan="2" align="right">622,423</td><td></td><td></td><td colspan="2" align="right">270,207</td><td></td><td></td><td colspan="2" align="right">47,024</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Excess tax benefits</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">280,448</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">270,413</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">33,773</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td>Net cash provided by financing activities</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">902,871</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">540,620</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">
80,797</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td colspan="12">&nbsp;</td></tr>
<tr>
<td>(Decrease) increase in cash and cash equivalents</td><td colspan="2" align="right">(485,775</td><td>)</td><td></td><td colspan="2" align="right">(10,804</td><td>)</td><td></td><td colspan="2" align="right">1,488,444</td><td>&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Cash and cash equivalents at beginning of year</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,875,063</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,885,867</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">397,423</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td colspan="12">&nbsp;</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Cash and cash equivalents at end of year</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">1,389,288</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">1,875,063</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">1,885,867</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
<tr>
<td colspan="12">&nbsp;</td></tr>
<tr>
<td colspan="12" bgcolor="#ccdaef">Supplemental disclosures of cash flow information:</td></tr>
<tr bgcolor="#ccdaef">
<td><div style="margin-left: 18pt;">Cash paid during the year for income taxes</div></td><td>$</td><td align="right">5,587,438</td><td></td><td></td><td>$</td><td align="right">4,356,000</td><td></td><td></td><td>$</td><td align="right">3,254,313</td><td></td></tr>
</table><div align="center"><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<br>
See accompanying notes.<br>
<br>
<br>
</font>
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</div><b><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC">Table of Contents</a><br>
<br>
</font>
<div align="center"><a name="notes"></a><font style="font-size: 10pt; font-family: Arial;">NVE CORPORATION<br>
NOTES TO FINANCIAL STATEMENTS</font></div></b><font style="font-size: 10pt; font-family: Times New Roman">
&nbsp;<br>
<b>NOTE 1. DESCRIPTION OF BUSINESS</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop and sell devices that use spintronics,
a nanotechnology that relies on electron spin rather than electron charge to acquire,
store, and transmit information.<br>
<br>
<b>NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES<br>
Cash and Cash Equivalents</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consider all highly-liquid investments with maturities
of three months or less when purchased to be cash equivalents.<br>
<br>
<b>Fair Value of Financial Instruments</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying amount of cash and cash equivalents,
accounts receivable, and accounts payable approximates fair value because of the
short maturity of these instruments. Fair values of marketable securities are
based on quoted market prices.<br>
<br>
<b>Marketable Securities</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We classify securities with original maturities
greater than three months and remaining maturities less than one year as short-term
marketable securities, and securities with remaining maturities greater than one
year as long-term marketable securities. Securities not due at a single maturity
date are classified by their average life. We classify all of our marketable securities
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&#146; equity, &#147;Accumulated other comprehensive income (loss).&#148;
We use a specific-identification cost basis to determine gains and losses.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consider an other-than-temporary impairment of our
marketable securities to exist if we determine it is probable that we will be
unable to collect all amounts due according to the contractual terms of a debt
security. If we judged a decline in fair value for any security to be other than
temporary, the cost basis of the individual security would be written down and
a charge recognized in net income. We consider a number of factors in determining
whether other-than-temporary impairment exists, including: credit market conditions;
the credit ratings of the securities; historical default rates for securities
of comparable credit rating; the presence of insurance of the securities and,
if insured, the credit rating and financial condition of the insurer; the effect
of market interest rates on the value of the securities; and the duration and
extent of any unrealized losses. We also consider the likelihood that we will
be required to sell the securities prior to maturity based on our financial condition
and anticipated cash flows. We determined that no write-downs were required on
available-for-sale securities during fiscal 2010, 2009, or 2008.<br>
<br>
<b>Concentration of Risk and Financial Instruments</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments potentially subject to significant
concentrations of credit risk consist principally of cash equivalents, marketable
securities, and accounts receivable.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We invest our excess cash in U.S. Government agency
securities, corporate-backed and municipal-backed bonds, and other money market
instruments. Our investment policy prescribes investment only in high-grade securities,
and limits the amount of credit exposure to any one issuer.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our customers include agencies of the U.S. Government
and other customers throughout the world. We generally do not require collateral
from our customers, but we perform ongoing credit evaluations of their financial
condition. More information on accounts receivable is contained in the paragraph
titled &#147;Accounts Receivable and Allowance for Doubtful Accounts&#148; of
this note.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additionally, we are dependent on critical suppliers
including our packaging vendors and suppliers of certain raw silicon and semiconductor
wafers that are incorporated in our products.<br>
<br>
<b>Accounts Receivable and Allowance for Doubtful Accounts</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable are recorded net of an allowance
for doubtful accounts. We make estimates of the uncollectibility of accounts receivable.
We specifically analyze accounts receivable, historical bad debts, and customer
creditworthiness when evaluating the adequacy of the allowance. We had no charges
or provisions to our allowance for doubtful accounts in fiscal 2010, $175 in charges
and provisions in fiscal 2009, and no charges or provisions in fiscal 2008.<br>
<br>
<b>Inventories</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or net
realizable value. Cost is determined by the first in, first out method. We record
inventory reserves when we determine certain inventory is unlikely to be sold
based on sales trends, turnover, competition, and other market factors.
<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
<b>Product Warranty</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general we warrant our products to be free from
defects in material and workmanship for one year. We maintain a reserve for the
estimated cost of maintaining product warranties.<br>
<br>
<b>Fixed Assets</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fixed assets are stated at cost. Depreciation of
machinery and equipment, and furniture and fixtures is recorded over the estimated
useful lives of the assets, generally five years, using the straight-line method.
Amortization of leasehold improvements is recorded using the straight-line method
over the lesser of the lease term or five-year useful life. We record losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets&#146; carrying amount.<br>
<br>
<b>Revenue Recognition</b><br>
<b><i>Product Revenue Recognition</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognize product revenue on shipment because
the terms of our sales are FOB shipping point, meaning that our customers (end
users and distributors) take title and assume the risks and rewards of ownership
upon shipment. Our customers may return defective products for refund or replacement
under warranty, and have other very limited rights of return. We maintain reserves
based on historical returns.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shipping charges billed to customers are included
in product sales and the related shipping costs are included in selling, general,
and administrative expense. Such shipping costs were $34,694 for fiscal 2010,
$33,483 for fiscal 2009, and $28,930 for fiscal 2008.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments from our distributors are not contingent
on resale or any other matter other than the passage of time, and delivery of
products is not dependent on the number of units resold to the ultimate customer.
There are no other significant acceptance criteria, pricing or payment terms that
would affect revenue recognition.<br>
<br>
<b><i>Accounting for Commissions and Discounts</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We sometimes utilize independent sales representatives
that provide services relating to promoting our products and facilitating product
sales but do not purchase our products. We pay commissions to sales representatives
based on the amount of revenue facilitated, and such commissions are recorded
as selling, general, and administrative expenses.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our stocking distributors take title and assume
the risks and rewards of product ownership. We presume
consideration given to a customer is a reduction in revenue unless both of the
following conditions are met: (i)&nbsp;we receive an identifiable benefit in exchange
for the consideration and the identifiable benefit is sufficiently separable from
the customer&#146;s purchase of our products such that we could have purchased
the products or services from a third party; and (ii)&nbsp;we can reasonably estimate
the fair value of the benefit received. We recognize
discounts provided to our distributors as reductions in revenue. Under certain limited circumstances, our distributors
may earn commissions for activities unrelated to their purchases of our products,
such as for facilitating the sale of custom products or research and development
contracts with third parties. We recognize any such commissions as selling, general,
and administrative expenses.<br>
<br>
<b><i>Research and Development Contract Revenue Recognition</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognize contract revenues and costs pro-rata
as work progresses. Our research and development contracts do not contain post-shipment
obligations. Contracts may be either firm-fixed-price or cost-plus-fixed-fee.
Firm-fixed-price contracts provide for a price that is
not subject to any adjustment based on our cost in performing the contract.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost-plus-fixed-fee contracts are cost-reimbursement
contracts that also provide for payment to us of a negotiated fee that is fixed
at the inception of the contract. The costs for which we earn reimbursement are
the actual costs incurred and are recorded in the period in which they are incurred.
We recognize the contract fees pro-rata as work progresses.<br>
<br>
<b><i>Revenue Recognition of Up-Front Fees</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue from nonrefundable up-front fees from
development programs is deferred and recognized over the periods that the
fees are earned. We recognize revenue from development
programs which is refundable, recoupable against future royalties, or for which
future obligations exist, over the term of the agreement.<br>
&nbsp;
<br>
<b>Income Taxes</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We account for income taxes using the liability
method. Deferred income taxes are provided for temporary differences between the
financial reporting and tax bases of assets and liabilities. We provide valuation
allowances against deferred tax assets if we determine that it is less likely
than not that we will be able to utilize the deferred tax assets.<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
<b>Research and Development Expense Recognition</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development costs are expensed as they
are incurred.<br>
<br>
<b>Stock-Based Compensation</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We measure stock-based compensation
cost at the grant date based on the fair value of the award and recognize the
compensation expense over the requisite service period, which is generally the
vesting period. We estimate pre-vesting option forfeitures at the time of grant
by analyzing historical data and revise those estimates in subsequent periods
if actual forfeitures differ from those estimates. Ultimately, the total expense
recognized over the vesting period will only be for those awards that vest.<br>
<br>
<b>Net Income Per Share</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic earnings per share are computed based on
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 and warrants totaling 5,000 for
fiscal 2010; 60,000 for fiscal 2009; and 56,000 for fiscal 2008 were not included
in the computation of diluted earnings per share because the exercise prices
were greater than the market price of the common stock. The following table
reflects the components of common shares outstanding:</font><br>
<br>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%" align="center">
<tr>
<td rowspan="2"></td><td colspan="5" style="border-bottom: 1px solid black;" align="center"><b>Year Ended March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" align="center"><b>2010</b></td><td></td><td style="border-bottom: 1px solid black;" align="center"><b>2009</b></td><td></td><td style="border-bottom: 1px solid black;" align="center">
<b>2008</b></td></tr>
<tr bgcolor="#ccdaef">
<td>
Weighted average common shares outstanding &#150; basic</td><td align="right" width="11%">4,692,496</td><td width="2%"></td><td align="right" width="11%">4,659,486</td><td width="2%"></td><td align="right" width="11%">4,635,470
</td></tr>
<tr>
<td colspan="6">Effect of dilutive securities:</td></tr>
<tr bgcolor="#ccdaef"><td>
<div style="margin-left: 9pt;">Stock options</div></td><td align="right">158,142</td><td></td><td align="right">121,135</td><td></td><td align="right">123,195</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Warrants</div></td><td style="border-bottom: 1px solid black;" align="right">6,406</td><td></td><td style="border-bottom: 1px solid black;" align="right">4,944</td><td></td><td style="border-bottom: 1px solid black;" align="right">4,436</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Shares used in computing net income per share &#150; diluted</td><td style="border-bottom: 3px double black;" align="right">4,857,044</td><td></td><td style="border-bottom: 3px double black;" align="right">4,785,565</td><td></td><td style="border-bottom: 3px double black;" align="right">4,763,101</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<b>Use of Estimates</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those estimates.<br>
<br>
<b>Recent Accounting Pronouncements</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements,
including those not yet effective, is not anticipated to have a material effect on our financial position or results of operations.<br>
<br>
<b>NOTE 3. FAIR VALUE MEASUREMENTS</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally accepted accounting principles establish a framework for measuring fair value,
provide a definition of fair value and prescribe required disclosures about fair-value measurements. Generally accepted
accounting principles define fair value as the price that would be received to sell an asset or paid to transfer a liability.
Fair value is a market-based measurement that should be determined using assumptions that market participants would use in
pricing an asset or liability. Generally accepted accounting principles utilize a valuation hierarchy for disclosure of
fair value measurements. The categorization within the valuation hierarchy is based on the lowest level of input that is
significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:
<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Level 1 &#150; Financial instruments with quoted prices in active markets for identical assets or liabilities. Our Level&nbsp;1 financial instruments consist of publicly-traded marketable debt securities that are classified as available-for-sale. On the balance sheets, available-for-sale securities are classified as &#147;Marketable securities, short term&#148; and &#147;Marketable securities, long term.&#148; The fair value of our available-for-sale securities was $48,154,478 at March&nbsp;31, 2010 and $32,446,748 at March&nbsp;31, 2009.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Level 2 &#150; Financial instruments with quoted prices in active markets for similar assets or liabilities. Level&nbsp;2 fair value measurements are determined using either prices for similar instruments or inputs that are either directly or indirectly observable, such as interest rates. We do not have any financial assets or liabilities being measured at fair value that are classified as Level&nbsp;2 financial instruments.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Level 3 &#150; Inputs to the fair value measurement are unobservable inputs or valuation techniques. We do not have any financial assets or liabilities being measured at fair value that are classified as Level&nbsp;3 financial instruments.
<br>
<br>
<br>
</font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><b><a href="#TOC">Table
of Contents</a></b><br>
<br>
<b>NOTE 4. MARKETABLE SECURITIES</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable securities with remaining maturities
less than one year are classified as short-term, and those with remaining maturities
greater than one year are classified as long-term. The fair value of our marketable
securities as of March&nbsp;31, 2010, by maturity, were as follows:<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" border="0" cellpadding="0" cellspacing="0" width="50%" align="center">
<tr>
<td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>Total</b></td><td width="4%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>&lt;1 Year</b></td><td width="4%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>1&#150;3 Years</b></td><td width="4%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>3&#150;5 Years</b></td></tr>
<tr>
<td width="1%">$</td><td width="12%" align="right">48,154,478</td><td></td><td width="1%">$</td><td align="right" width="12%">1,566,666</td><td></td><td width="1%">$</td><td align="right" width="12%">26,643,339</td><td width="2%"></td><td width="1%">$</td><td align="right" width="12%">19,944,473</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2010 and 2009 our marketable
securities were as follows:<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td style="border-bottom: 1px solid black;" align="center" colspan="12"><b>As of March&nbsp;31, 2010</b></td><td style="border-bottom: 1px solid black;" rowspan="2" width="1"></td><td style="border-bottom: 1px solid black;" align="center" colspan="12"><b>As of March&nbsp;31, 2009</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b><br>
Adjusted<br>
Cost</b></td><td width="1"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Gross<br>
Unrealized<br>
Gains</b></td><td width="1"></td><td style="border-bottom: 1px solid black;" align="center" colspan="3"><b>Gross<br>
Unrealized<br>
Losses</b></td><td width="1"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Fair<br>
Market<br>
Value</b></td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>&nbsp;<br>
Adjusted<br>
Cost</b></td><td width="1"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Gross<br>
Unrealized<br>
Gains</b></td><td width="1"></td><td style="border-bottom: 1px solid black;" align="center" colspan="3"><b>Gross<br>
Unrealized<br>
Losses</b></td><td width="1"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Fair<br>
Market<br>
Value</b></td></tr>
<tr bgcolor="#ccdaef">
<td valign="bottom">
U.S. agency<br>
<div style="margin-left: 9pt;">securities</div></td><td valign="bottom">$</td><td valign="bottom" align="right">702,992</td><td>&nbsp;&nbsp;</td><td valign="bottom">$</td><td align="right" valign="bottom">19,240</td><td>&nbsp;&nbsp;</td><td valign="bottom">$</td><td align="right" valign="bottom">-</td><td valign="bottom">&nbsp; </td><td>&nbsp;&nbsp;</td><td valign="bottom">$</td><td align="right" valign="bottom">722,232</td><td>&nbsp;&nbsp;</td><td valign="bottom">$</td><td valign="bottom" align="right">955,827</td><td>&nbsp;&nbsp;</td><td valign="bottom">$</td><td align="right" valign="bottom">30,647</td><td>&nbsp;&nbsp;</td><td valign="bottom">$</td><td align="right" valign="bottom">-</td><td valign="bottom">&nbsp; </td><td>&nbsp;&nbsp;</td><td valign="bottom">$</td><td align="right" valign="bottom">986,474</td></tr>
<tr>
<td valign="bottom">
Corporate&nbsp;bonds</td><td></td><td align="right" valign="bottom">23,807,375</td><td>&nbsp;</td><td>&nbsp;</td><td align="right" valign="bottom">1,029,273</td><td>&nbsp;</td><td>&nbsp;</td><td align="right" valign="bottom">(23,601</td><td valign="bottom">)</td><td>&nbsp;</td><td>&nbsp;</td><td align="right" valign="bottom">24,813,047</td><td></td><td></td><td align="right" valign="bottom">13,983,202</td><td>&nbsp;</td><td>&nbsp;</td><td align="right" valign="bottom">54,085</td><td></td><td>&nbsp;</td><td align="right" valign="bottom">(942,514</td><td valign="bottom">)</td><td>&nbsp;</td><td>&nbsp;</td><td align="right" valign="bottom">13,094,773</td></tr>
<tr bgcolor="#ccdaef">
<td valign="bottom">
Municipal&nbsp;bonds&nbsp;&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">21,877,258</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">747,483</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(5,542</td><td style="border-bottom: 1px solid black; valign="bottom valign="bottom"">)</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">22,619,199</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">17,902,196</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">489,802</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(26,497</td><td style="border-bottom: 1px solid black; valign="bottom valign="bottom"">)</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">18,365,501</td></tr>
<tr>
<td valign="top">Total</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">46,387,625</td><td>&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">1,795,996</td><td>&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">(29,143</td><td style="border-bottom: 3px double black;">)</td><td>&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">48,154,478</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">32,841,225</td><td>&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">574,534</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">(969,011</td><
td style="border-bottom: 3px double black;">)</td><td>&nbsp;</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">32,446,748</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the gross unrealized losses
and fair value of our investments with unrealized losses, aggregated by investment
category and length of time that individual securities had been in a continuous
unrealized loss position as of March&nbsp;31, 2010 and 2009:<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%" align="center">
<tr>
<td rowspan="2" colspan="2"></td><td style="border-bottom: 1px solid black;" align="center" colspan="6">
<b>Less Than 12 Months</b></td><td rowspan="2"></td><td style="border-bottom: 1px solid black;" align="center" colspan="6">
<b>12 Months or Greater</b></td><td rowspan="2"></td><td style="border-bottom: 1px solid black;" align="center" colspan="6">
<b>Total</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Fair<br>
Market<br>
Value</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="3"><b>Gross<br>
Unrealized<br>
Losses</b></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Fair<br>
Market<br>
Value</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="3"><b>Gross<br>
Unrealized<br>
Losses</b></td><td style="border-bottom: 1px solid black;" align="center" colspan="2"><b>Fair<br>
Market<br>
Value</b></td><td></td><td style="border-bottom: 1px solid black;" align="center" colspan="3"><b>Gross<br>
Unrealized<br>
Losses</b></td></tr>
<tr>
<td colspan="22">As of March 31, 2010</td></tr>
<tr bgcolor="#ccdaef">
<td width="9pt"></td><td>U.S.&nbsp;agency&nbsp;securities&nbsp;</td><td width="1%">$</td><td align="right" width="9%">-</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">-</td><td width="1%"></td><td width="4%">&nbsp;</td><td width="1%">$</td><td align="right" width="9%">-</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">-</td><td width="1%"></td><td width="4%">&nbsp;</td><td width="1%">$</td><td align="right" width="9%">-</td><td width="2%">&nbsp;</td><td width="1%">$</td><td align="right" width="8%">-</td><td width="1%">&nbsp; </td></tr>
<tr>
<td></td><td>Corporate bonds</td><td colspan="2" align="right">2,032,306</td><td colspan="3" align="right">(23,601</td><td>)</td><td colspan="3" align="right">-</td><td colspan="3" align="right">-</td><td>&nbsp;</td><td colspan="3" align="right">2,032,306</td><td colspan="3" align="right">(23,601</td><td>
)</td></tr>
<tr bgcolor="#ccdaef">
<td></td><td width="122">Municipal bonds</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,564,416</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(5,542</td><td style="border-bottom: 1px solid black; valign="bottom>)</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">-</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">-</td><td style="border-bottom: 1px solid black; valign="bottom>&nbsp;</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,564,416</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(5,542</td><td style="border-bottom: 1px solid black; valign="bottom>
)</td></tr>
<tr>
<td></td><td width="122" valign="top">Total</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">3,596,722</td><td valign="top">&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">(29,143</td><td style="border-bottom: 3px double black;" valign="top">)</td><td valign="top">&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">-</td><td valign="top">&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">-</td><td style="border-bottom: 3px double black;" valign="top">&nbsp;</td><td valign="top">&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">3,596,722</t
d><td valign="top">&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">(29,143</td><td style="border-bottom: 3px double black;" valign="top">)</td></tr>
<tr bgcolor="#ccdaef">
<td colspan="22">As of March 31, 2009</td></tr>
<tr>
<td></td><td>U.S.&nbsp;agency&nbsp;securities&nbsp;</td><td>$</td><td align="right" width="9%">-</td><td>&nbsp;</td><td>$</td><td align="right" width="8%">-</td><td>&nbsp; </td><td width="4%">&nbsp;</td><td>$</td><td align="right" width="9%">-</td><td width="2%">&nbsp;</td><td>$</td><td align="right" width="8%">-</td><td>&nbsp; </td><td width="4%">&nbsp;</td><td>$</td><td align="right" width="9%">-</td><td>&nbsp;</td><td width="1%">$</td><td align="right" width="8%">-</td><td>&nbsp; </td></tr>
<tr bgcolor="#ccdaef">
<td></td><td>Corporate&nbsp;bonds</td><td>&nbsp;</td><td align="right">7,278,810</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">(796,441</td><td>)</td><td colspan="3" align="right">1,902,698</td><td colspan="3" align="right">(146,073</td><td width="1%">)</td><td colspan="3" align="right">9,181,508</td><td colspan="3" align="right">(942,514</td><td>
)</td></tr>
<tr>
<td></td><td width="122">Municipal bonds</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">901,213</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(6,436</td><td style="border-bottom: 1px solid black; valign="bottom>)</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">947,043</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(20,061</td><td style="border-bottom: 1px solid black; valign="bottom>)</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">1,848,256</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(26,497</td><td style="border-bottom: 1px solid black; valign="bottom>)</td></tr>
<tr bgcolor="#ccdaef">
<td></td><td width="122" valign="top">Total</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">8,180,023</td><td>&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">(802,877</td><td style="border-bottom: 3px double black;" valign="top">)</td><td>&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">2,849,741</td><td valign="top">&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">(166,134</td><td style="border-bottom: 3px double black;" valign="top">)</td><td valign="top">&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">11,029,764</td><td valign="
top">&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">(969,011</td><td style="border-bottom: 3px double black;" valign="top">
)</td></tr>
</table><br>
<font style="font-size: 10pt; font-family: Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross unrealized losses totaled $29,143 as of March&nbsp;31, 2010,
and were attributable to five corporate and municipal bonds out of a
portfolio of 49 bonds. The gross unrealized losses were due to market-price decreases
after the bonds were purchased. All of the bonds with an unrealized loss were
rated A1/A+ or better by Moody&#146;s or Standard and Poor&#146;s, none had been
downgraded since they were purchased, and none had been in a continuous unrealized
loss position for 12 months or more. For each bond with an unrealized loss, we
expect to recover the entire cost basis of each security based on our consideration
of factors including their credit ratings, the underlying ratings of insured bonds,
and historical default rates for securities of comparable credit rating. Because
we expect to recover the entire cost basis of the securities,
and because we do not intend to sell the securities and it is not more likely
than not that we will be required to sell the securities before recovery of the
cost basis, which may be maturity, we did not consider any of our marketable securities
to be other-than-temporarily impaired at March&nbsp;31,
2010.<br>
<br>
<b>NOTE 5. INVENTORIES</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories consisted of the following:<br>
&nbsp;<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="50%" align="center">
<tr>
<td rowspan="2"></td><td colspan="7" style="border-bottom: 1px solid black;" align="center">
<b>March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2010</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2009</b></td></tr>
<tr bgcolor="#ccdaef">
<td>Raw materials</td><td width="1%">$</td><td align="right" width="22%">595,032</td><td width="1%"></td><td width="4%"></td><td width="1%">$</td><td align="right" width="22%">564,630</td><td width="1%"></td></tr>
<tr>
<td>Work in process</td><td></td><td align="right">794,091</td><td></td><td></td><td></td><td align="right">1,082,290</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Finished goods</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">617,304</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">900,701</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td></td><td></td><td align="right">2,006,427</td><td></td><td></td><td></td><td align="right">2,547,621</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Less inventory reserve</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(300,000</td><td style="border-bottom: 1px solid black;">
)</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(300,000</td><td style="border-bottom: 1px solid black;">
)</td></tr>
<tr valign="top">
<td>
Total inventories</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">1,706,427</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">2,247,621</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
</table><div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<br>
F-10</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table
of Contents</b></a><br>
<br>
</font><font style="font-size: 10pt; font-family: Times New Roman"><b>NOTE 6. STOCK-BASED COMPENSATION<br>
Stock Option Plan</b>
<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 2000 Stock Option Plan, as amended, provides
for issuance to employees, directors, and certain service providers of incentive
stock options and nonstatutory stock options. Generally, the options may be
exercised at any time prior to expiration, subject to vesting based on terms
of employment. The period ranges from immediate vesting to vesting over a five-year
period. The options have exercisable lives ranging from one year to ten years
from the date of grant, and are generally not eligible to vest early in the
event of retirement, death, disability, or change in control. Exercise prices
are not less than fair market value of the underlying Common Stock at the date
the options are granted.<br>
<br>
<b>Valuation assumptions</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use the Black-Scholes standard option-pricing
model to determine the fair value of stock options. The following assumptions
were used to estimate the fair value of options granted:<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="50%" align="center">
<tr>
<td rowspan="2"></td><td colspan="8" style="border-bottom: 1px solid black;" align="center">
<b>Year Ended March 31</b></td></tr>
<tr>
<td colspan="2" style="border-bottom: 1px solid black;" align="center">
<b>2010</b></td><td width="4%"></td><td colspan="2" style="border-bottom: 1px solid black;" align="center">
<b>2009</b></td><td width="4%"></td><td colspan="2" style="border-bottom: 1px solid black;" align="center">
<b>2008</b></td></tr>
<tr bgcolor="#ccdaef">
<td>
Risk-free interest rate</td><td align="right" width="11%">2.7</td><td width="2%">%</td><td></td><td align="right" width="11%">3.2</td><td width="2%">%</td><td></td><td align="right" width="11%">4.2</td><td width="2%">%</td></tr>
<tr>
<td>
Expected volatility</td><td align="right">55</td><td>%</td><td></td><td align="right">68</td><td>%</td><td></td><td align="right">
70</td><td>%</td></tr>
<tr bgcolor="#ccdaef">
<td>
Expected life (years)</td><td align="right">4.1</td><td>&nbsp;</td><td></td><td align="right">3.7</td><td>&nbsp;</td><td></td><td align="right">
3.5</td><td></td></tr>
<tr>
<td>Dividend yield</td><td align="right">0</td><td>%</td><td></td><td align="right">0</td><td>%</td><td></td><td align="right">0</td><td>%</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The determination of the fair value of the
awards on the date of grant using the Black-Scholes model is affected by our
stock price as well as assumptions of other variables, including projected employee
stock option exercise behaviors, risk-free interest rate, and expected volatility
of our stock price in future periods. Our estimates and assumptions affect the
amounts reported in the financial statements and accompanying notes.<br>
<br>
<b><i>Expected life</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We analyze historical employee exercise and termination
data to estimate the expected life assumption. We believe historical data currently
represents the best estimate of the expected life of a new employee option.
We examined the historical
pattern of option exercises to determine if there was a discernible pattern
as to how different classes of employees exercised their options. Our analysis
showed that officers and directors held their stock options for a longer period
of time before exercising compared to the rest of our employee population. Therefore we use different expected lives for officers and directors
than we use for our general employee population for determining the fair value of options.<br>
<br>
<b><i>Risk-free interest rate</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The risk-free rate is based on the yield of U.S.
Treasury securities on the grant date for maturities similar to the expected
lives of the options.<br>
<br>
<b><i>Volatility</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use historical volatility to estimate the expected
volatility of our common stock.<b><i><br>
<br>
Dividend yield</i></b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We assume a dividend yield of zero because we
do not anticipate paying dividends in the foreseeable future.<br>
<br>
<b>Expenses related to stock-based compensation</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the effect of stock-based compensation on our net income and earning per share for fiscal 2008
through 2010. Stock-based compensation expenses and costs are included in
the same line or lines as cash compensation paid to the same employees. Therefore the
effect of stock-based compensation is included in &#147;Selling, general, and administrative
expenses&#148; and presented in the line titled &#147;Stock-based compensation&#148;
on our Statements of Cash Flows:<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" border="0" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td rowspan="2"></td><td style="border-bottom: 1px solid black;" colspan="11" align="center">
<b>Year Ended March 31</b></td></tr>
<tr>
<td colspan="3" style="border-bottom: 1px solid black;" align="center">
<b>2010</b></td><td width="2%"></td><td colspan="3" style="border-bottom: 1px solid black;" align="center">
<b>2009</b></td><td width="2%"></td><td colspan="3" style="border-bottom: 1px solid black;" align="center">
<b>2008</b></td></tr>
<tr bgcolor="#ccdaef">
<td>Effect of stock-based compensation on net income</td><td width="1%">$</td><td align="right" width="11%">(100,842</td><td width="1%">)</td><td></td><td width="1%">$</td><td align="right" width="11%">(86,672</td><td width="1%">)</td><td></td><td width="1%">$</td><td align="right" width="11%">
(169,606</td><td width="1%">)</td></tr>
<tr>
<td colspan="12">Effect of stock-based compensation on net income per share:</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Basic</div></td><td>$</td><td align="right">(0.02</td><td>)</td><td></td><td>$</td><td align="right">(0.02</td><td>)</td><td></td><td>$</td><td align="right">(0.04</td><td>)</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Diluted</div></td><td>$</td><td align="right">(0.02</td><td>)</td><td></td><td>$</td><td align="right">(0.02</td><td>)</td><td></td><td>$</td><td align="right">(0.04</td><td>)</td></tr>
</table><br>
<font style="font-size: 10pt; font-family: Times New Roman"><b>Tax effects of stock-based compensation</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation increased deferred taxes
by $36,364 for fiscal 2010 and $31,098 for fiscal 2009.<br>
</font>
<div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman"><br><br>
F-11</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
</font><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
</font><font style="font-size: 10pt; font-family: Times New Roman"><b>General stock option information</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had no nonvested shares
as of March&nbsp;31, 2010. Changes in nonvested shares during fiscal 2010 are presented below:<br>
<br></font>
<table style="font-size: 10pt; font-family: Times New Roman" border="0" cellpadding="0" cellspacing="0" width="67%" align="center">
<tr>
<td style="border-bottom: 1px solid black;" valign="bottom">
<b>Nonvested Shares</b></td><td width="8%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="2" valign="bottom">
<b>Shares</b></td><td width="8%">&nbsp;</td><td style="border-bottom: 1px solid black;" align="center" colspan="2" valign="bottom">
<b>Weighted&nbsp;Average<br>
Grant-Date<br>
Fair Value</b></td></tr>
<tr bgcolor="#ccdaef">
<td>Nonvested at March 31, 2009</td><td></td><td align="right" width="20%">
1,500</td><td width="1%">&nbsp;</td><td>&nbsp;</td><td align="right" width="20%">
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.12</td><td width="1%"></td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Granted</div></td><td></td><td align="right">4,000</td><td></td><td></td><td align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;51.04</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Vested</div></td><td></td><td style="border-bottom: 1px solid black;" align="right">(5,500</td><td style="border-bottom: 1px solid black;">)</td><td></td><td style="border-bottom: 1px solid black;" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;42.61</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td valign="top">Nonvested at March 31, 2010</td><td></td><td style="border-bottom: 3px double black;" align="right" valign="top">-</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;" align="right" valign="top">-</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes information about
options outstanding at March&nbsp;31, 2010, all of which were exercisable:<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" border="0" cellpadding="0" cellspacing="0" width="67%" align="center">
<tr>
<td style="border-bottom: 1px solid black;" valign="bottom" align="center">
<b>Ranges of<br>
Exercise&nbsp;Prices</b></td><td width="4%">&nbsp;&nbsp;&nbsp;&nbsp;</td><td style="border-bottom: 1px solid black;" valign="bottom" align="center">
<b>Number<br>
Outstanding</b></td><td width="4%">&nbsp;&nbsp;&nbsp;&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" valign="bottom" align="center">
<b>Weighted&nbsp;Average<br>
Exercise&nbsp;Price</b></td><td width="4%">&nbsp;&nbsp;&nbsp;&nbsp;</td><td style="border-bottom: 1px solid black;" valign="bottom" align="center">
<b>Weighted&nbsp;Remaining<br>
Contractual&nbsp;Life&nbsp;(years)</b></td></tr>
<tr bgcolor="#ccdaef">
<td width="10%" align="right">$&nbsp;&nbsp;&nbsp;&nbsp;6.58&nbsp;-&nbsp;16.93</td><td></td><td align="right" width="10%">192,500</td><td></td><td width="1%">$</td><td align="right" width="9%">12.78</td><td></td><td align="right" width="10%">3.6</td></tr>
<tr>
<td align="right"> 20.12&nbsp;-&nbsp;29.65</td><td></td><td align="right">43,000</td><td></td><td></td><td align="right">27.88</td><td></td><td align="right">4.5</td></tr>
<tr bgcolor="#ccdaef">
<td align="right"> 31.27&nbsp;-&nbsp;58.27</td><td></td><td style="border-bottom: 1px solid black;" align="right">19,000</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">38.94</td><td></td><td style="border-bottom: 1px solid black;" align="right">7.5</td></tr>
<tr>
<td></td><td></td><td style="border-bottom: 3px double black;" align="right" valign="top">254,500</td><td></td><td valign="top">$</td><td align="right" valign="top">17.28</td><td></td><td style="border-bottom: 3px solid rgb(255, 255, 255);" align="right" valign="top">4.0</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 2000 Stock Option Plan, as amended, provides for issuance to employees, directors, and certain service providers of incentive stock options and nonstatutory stock options. Generally, the options may be exercised at any time prior to expiration, subject to vesting based on terms of employment. The period ranges from immediate vesting to vesting over a five-year period. The options have exercisable lives ranging from one year to ten years from the date of grant. Exercise prices are not less than fair market value as determined by our Board at the date the options are granted.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A summary of our stock options and warrants are shown in the following table:<br>
&nbsp;<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td></td><td colspan="2" style="border-bottom: 1px solid black;" width="8%" align="center"><b>Option&nbsp;Shares<br>
Reserved</b></td><td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td><td style="border-bottom: 1px solid black;" align="center" colspan="2">
<b>Options<br>
Outstanding</b></td><td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td><td colspan="2" style="border-bottom: 1px solid black;" align="center"><b>Weighted Average<br>
Option&nbsp;Exercise&nbsp;Price</b></td><td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td><td style="border-bottom: 1px solid black;" align="center">
<b>Warrants<br>
Outstanding</b></td><td>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>Weighted Average<br>
Warrant&nbsp;Exercise&nbsp;Price</b></td></tr>
<tr bgcolor="#ccdaef">
<td width="21%">At March 31, 2007</td><td align="right" width="9%">186,230</td><td width="1%"></td><td></td><td align="right" width="10%">311,700</td><td width="1%"></td><td></td><td width="1%">$</td><td align="right" width="18%">15.18</td><td></td><td align="right" width="10%">10,000</td><td></td><td width="1%">$</td><td align="right" width="18%">16.28</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Granted</div></td><td align="right">(8,000</td><td>)</td><td></td><td align="right">8,000</td><td></td><td></td><td>$</td><td align="right">34.71</td><td></td><td align="right">-</td><td></td><td></td><td align="right">-</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Exercised</div></td><td style="border-bottom: 1px solid black;" align="right">-</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" align="right">(11,300</td><td style="border-bottom: 1px solid black;">)</td><td></td><td style="border-bottom: 1px solid black;">$</td><td style="border-bottom: 1px solid black;" align="right">4.16</td><td></td><td style="border-bottom: 1px solid black;" align="right">-</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">-</td></tr>
<tr>
<td>At March 31, 2008</td><td align="right">178,230</td><td></td><td></td><td align="right">308,400</td><td></td><td></td><td>$</td><td align="right">16.09</td><td></td><td align="right">10,000</td><td></td><td>$</td><td align="right">16.28</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Granted</div></td><td align="right">(4,000</td><td>)</td><td>&nbsp;</td><td align="right">4,000</td><td>&nbsp;</td><td>&nbsp;</td><td>$</td><td align="right">31.27</td><td>&nbsp;</td><td align="right">-</td><td>&nbsp;</td><td>&nbsp; </td><td align="right">-</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Exercised</div></td><td style="border-bottom: 1px solid black;" align="right">-</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" align="right">(30,650</td><td style="border-bottom: 1px solid black;">)</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;">$</td><td style="border-bottom: 1px solid black;" align="right">8.82</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" align="right">-</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">-</td></tr>
<tr bgcolor="#ccdaef">
<td>At March 31, 2009</td><td align="right" valign="top">174,230</td><td valign="top">&nbsp;</td><td valign="top">&nbsp;</td><td align="right" valign="top">281,750</td><td valign="top">&nbsp;</td><td valign="top">&nbsp;</td><td valign="top">$</td><td align="right" valign="top">17.10</td><td valign="top">&nbsp;</td><td align="right" valign="top">10,000</td><td valign="top">&nbsp;</td><td valign="top">$</td><td align="right" valign="top">16.28</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Granted</div></td><td align="right">(4,000</td><td>)</td><td></td><td align="right">4,000</td><td>&nbsp;</td><td></td><td>$</td><td align="right">51.04</td><td>&nbsp;</td><td align="right">-</td><td>&nbsp;</td><td>&nbsp;</td><td align="right">-</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Exercised</div></td><td style="border-bottom: 1px solid black;" align="right">-</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" align="right">(31,250</td><td style="border-bottom: 1px solid black;">)</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;">$</td><td style="border-bottom: 1px solid black;" align="right">19.92</td><td>&nbsp;</td><td style="border-bottom: 1px solid black;" align="right">-</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">-</td></tr>
<tr>
<td valign="top">At&nbsp;March&nbsp;31,&nbsp;2010&nbsp;&nbsp;&nbsp;&nbsp;</td><td style="border-bottom: 3px double black;" align="right" valign="top">170,230</td><td style="border-bottom: 3px double black;" valign="top">&nbsp;</td><td>&nbsp;</td><td style="border-bottom: 3px double black;" align="right" valign="top">254,500</td><td style="border-bottom: 3px double black;" valign="top">&nbsp;</td><td>&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">17.28</td><td>&nbsp;</td><td style="border-bottom: 3px double black;" align="right" valign="top">10,000</td><td>&nbsp;</td><td style="border-bottom: 3px double black;" valign="top">$</td><td style="border-bottom: 3px double black;" align="right" valign="top">16.28</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The remaining weighted-average exercisable life
was 4.0 years at March&nbsp;31, 2010; 4.9 years at March&nbsp;31, 2009; and 5.6
years at March&nbsp;31, 2008. All outstanding options were exercisable as of March&nbsp;31,
2010. Exercisable options were outstanding covering 280,250 shares at March&nbsp;31,
2009 and 305,400 shares at March&nbsp;31, 2008 at weighted-average exercise prices
of $17.08 at March&nbsp;31, 2009 and $16.05 per share at March&nbsp;31, 2008.
The total intrinsic value of options exercised during fiscal 2010 was $863,292, based on the difference
between the exercise price and stock price at the time of exercise for in-the-money
options. The total intrinsic value of options outstanding March&nbsp;31,
2010, based on our closing stock price for that day, was $7,165,640, all of which
were exercisable. The total fair value of option grants was $92,560 in fiscal 2010.
There was no unrecognized stock-based compensation at March&nbsp;31, 2010.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No warrants were issued in the past three fiscal years.
Remaining weighted-average exercisable warrant life was 2.9 years at March&nbsp;31,
2010; 3.9 years at March&nbsp;31, 2009; and 4.9 years at March&nbsp;31, 2008.<br>
</font>
<div id="PN" style="page-break-after: always;">
<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<br>
F-12</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
<b>NOTE 7. INCOME TAXES</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax provisions for fiscal 2008 through 2010
consisted of the following:<br>
<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="67%" align="center">
<tr>
<td rowspan="2"></td><td colspan="11" style="border-bottom: 1px solid black;" align="center">
<b>Year Ended March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2010</b></td><td width="3%"></td><td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2009</b></td><td width="3%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="3">
<b>2008</b></td></tr>
<tr>
<td colspan="12" bgcolor="#ccdaef">Current taxes</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">Federal</div></td><td width="1%">$</td><td align="right" width="16%">5,375,724</td><td width="1%"></td><td width="3%"></td><td width="1%">$</td><td align="right" width="16%">4,304,330</td><td width="1%"></td><td width="3%"></td><td width="1%">$</td><td align="right" width="16%">2,808,433</td><td width="1%"></td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">State</div></td><td colspan="2" align="right">550,146</td><td></td><td></td><td colspan="2" align="right">351,625</td><td></td><td colspan="3" align="right">314,904</td><td></td></tr>
<tr>
<td colspan="12">Deferred taxes</td></tr>
<tr bgcolor="#ccdaef">
<td>
<div style="margin-left: 9pt;">Federal</div></td><td colspan="2" align="right">(6,109</td><td>)</td><td></td><td colspan="2" align="right">(17,880</td><td>)</td><td colspan="3" align="right">719,197</td><td>&nbsp;</td></tr>
<tr>
<td>
<div style="margin-left: 9pt;">State</div></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(2,689</td><td style="border-bottom: 1px solid black;">)</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">6,630</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">50,086</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Income tax provision</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">5,917,072</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">4,644,705</td><td style="border-bottom: 3px double black;">&nbsp;</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">3,892,620</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A reconciliation of income tax provisions at the
U.S. statutory rate for fiscal 2008 through 2010 is as follows:<br>
&nbsp;</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%" align="center">
<tr>
<td rowspan="2"></td><td colspan="11" style="border-bottom: 1px solid black;" align="center">
<b>Year Ended March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2010</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2009</b></td><td width="2%"></td><td style="border-bottom: 1px solid black;" align="center" colspan="3">
<b>2008</b></td></tr>
<tr bgcolor="#ccdaef">
<td>Tax expense at U.S. statutory rate</td><td width="1%">$</td><td align="right" width="11%">6,091,581</td><td width="1%">&nbsp;</td><td></td><td width="1%">$</td><td align="right" width="11%">4,905,384</td><td width="1%">&nbsp;</td><td></td><td width="1%">$</td><td align="right" width="11%">3,767,201</td><td width="1%"></td></tr>
<tr>
<td>State income taxes, net of Federal benefit</td><td></td><td align="right">369,754</td><td>&nbsp;</td><td></td><td></td><td align="right">271,307</td><td>&nbsp;</td><td></td><td></td><td align="right">238,861</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Domestic manufacturing deduction</td><td></td><td align="right">(309,222</td><td>)</td><td></td><td></td><td align="right">(238,679</td><td>)</td><td></td><td></td><td align="right">-</td><td></td></tr>
<tr>
<td>Municipal interest</td><td></td><td align="right">(225,695</td><td>)</td><td></td><td></td><td align="right">(197,065</td><td>)</td><td></td><td></td><td align="right">-</td><td></td></tr>
<tr bgcolor="#ccdaef">
<td>Other</td><td></td><td align="right">(9,346</td><td>)</td><td></td><td></td><td align="right">(96,242</td><td>)</td><td></td><td></td><td align="right">87,512</td><td></td></tr>
<tr>
<td>Change in valuation allowance</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">-</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">-</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">(200,954</td><td style="border-bottom: 1px solid black;">)</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Income tax provision</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">5,917,072</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px double black;"></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">4,644,705</td><td style="border-bottom: 3px double black;">&nbsp;</td><td style="border-bottom: 3px double black;"></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">3,892,620</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our deferred tax assets and liabilities as of March&nbsp;31,
2010 and 2009 were as follows:<br>
&nbsp;<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="67%" align="center">
<tr>
<td rowspan="2"></td><td colspan="7" style="border-bottom: 1px solid black;" align="center"><b>March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2010</b></td><td></td><td style="border-bottom: 1px solid black;" colspan="3" align="center"><b>2009</b></td></tr>
<tr bgcolor="#ccdaef">
<td>Deferred revenue</td><td width="1%">$</td><td align="right" width="16%">7,513</td><td width="1%"></td><td width="3%"></td><td width="1%">$</td><td align="right" width="16%">37,375</td><td width="1%">&nbsp;</td></tr>
<tr>
<td>Vacation accrual</td><td colspan="2" align="right">121,788</td><td colspan="4" align="right">107,517</td><td>&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Inventory reserve</td><td colspan="2" align="right">108,180</td><td colspan="4" align="right">107,640</td><td>&nbsp;</td></tr>
<tr>
<td>Depreciation</td><td colspan="2" align="right">65,443</td><td colspan="4" align="right">67,901</td><td>&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Stock-based compensation deductions</td><td colspan="2" align="right">162,869</td><td colspan="4" align="right">136,587</td><td>&nbsp;</td></tr>
<tr>
<td>Unrealized (gain) loss on marketable securities</td><td colspan="2" align="right">(637,127</td><td>)</td><td colspan="3" align="right">141,538</td><td>&nbsp;</td></tr>
<tr bgcolor="#ccdaef">
<td>Other</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">69,196</td><td style="border-bottom: 1px solid black;">&nbsp;</td><td></td><td style="border-bottom: 1px solid black;" align="right" colspan="2">69,171</td><td style="border-bottom: 1px solid black;">&nbsp;</td></tr>
<tr>
<td>Net deferred tax (liabilities) assets</td><td style="border-bottom: 3px double black;" width="1%">$</td><td style="border-bottom: 3px double black;" align="right">(102,138</td><td style="border-bottom: 3px double black;">)</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">667,729</td><td style="border-bottom: 3px double black;">&nbsp;</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Realizations of stock-based compensation deductions
are credited to &#147;Additional paid-in capital&#148; and included in &#147;Tax
benefit of stock-based compensation&#148; on our statements of shareholders&#146;
equity. Credits of $280,448 in fiscal 2010 and $270,413 in fiscal 2009 were attributed
to stock-based compensation deductions. Credits of $33,773 in fiscal 2008 to &#147;Additional
paid-in capital&#148; were due principally to the reversal of valuation allowances
against deferred tax assets for carryforwards of net operating losses that were
attributable to stock-based compensation deductions. The reversal occurred as
a result of the actual utilization of such net operating loss carryforwards in
those respective years. The &#147;Additional paid-in capital&#148; credits also
included the tax benefit of stock-based compensation deductions in those years.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amounts credited to &#147;Additional paid-in capital&#148; were the
tax benefits of the deductions to the extent they exceeded the corresponding compensation
expense recognized for financial reporting purposes. &#147;Tax
benefit of stock-based compensation&#148; represented (i)&nbsp;the tax benefits
of deductions for stock-based compensation to the extent they exceeded the corresponding
compensation expense recognized for financial reporting purposes, and (ii)&nbsp;reversals
of valuation allowances against deferred tax assets for net operating loss carryforwards
attributable to stock-based compensation deductions. Cash we received from the
exercise of stock options related to excess tax benefits is included in &#147;Net
proceeds from sale of common stock&#148; in the statement of cash flows for the
year in which the option was exercised and cash received.
<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had $257,484 of Federal net operating losses and
$211,081 of state net operating losses at March&nbsp;31, 2010. These net operating
losses expire in fiscal 2020 and are subject to limitation including limitation
under the Internal Revenue Code.<br>
<br>
<br></font>
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</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;We had no unrecognized tax benefits as of March&nbsp;31,
2010, and we do not expect any significant unrecognized tax benefits within 12&nbsp;months
of the reporting date. We recognize interest and penalties related to income tax
matters in income tax expense. As of March&nbsp;31, 2010 we had no accrued interest
related to uncertain tax positions. The tax years 1999 through
2009 remain open to examination by the major taxing jurisdictions to which we
are subject.<br>
<br>
<b>NOTE 8. SEGMENT INFORMATION</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate in one reportable segment. We manufacture
and sell spintronic products, and receive research and development contracts.<br>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes customers comprising
10% or more of revenue for fiscal 2010, 2009, and 2008:<br>
&nbsp;<br>
</font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="50%" align="center">
<tr>
<td rowspan="2"></td><td colspan="5" style="border-bottom: 1px solid black;" align="center">
<b><font style="white-space: nowrap;">% of Revenue for Year Ended March 31</font></b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" align="center">
<b>2010</b></td><td width="4%"></td><td style="border-bottom: 1px solid black;" align="center">
<b>2009</b></td><td width="4%"></td><td style="border-bottom: 1px solid black;" align="center">
<b>2008</b></td></tr>
<tr bgcolor="#ccdaef">
<td>Customer A</td><td align="center" width="12%">16%</td><td></td><td align="center" width="12%">19%</td><td></td><td align="center" width="12%">17%</td></tr>
<tr>
<td>Customer B</td><td align="center">*</td><td></td><td align="center">*</td><td></td><td align="center">10%</td></tr>
<tr bgcolor="#ccdaef">
<td>Customer C</td><td align="center" width="11%">11%</td><td></td><td align="center" width="11%">11%</td><td></td><td align="center" width="11%">*</td></tr>
<tr>
<td>Customer D</td><td align="center" width="11%">15%</td><td></td><td align="center" width="11%">10%</td><td></td><td align="center" width="11%">*</td></tr>
</table><table style="font-size:4pt;" border="0" cellspacing="00" cellpadding="0" width="50%" align="center">
<tr>
<td style="border:none;border-bottom:solid windowtext 1.0pt;padding:0pt .7pt 0pt 0pt;" width="80">&nbsp;</td><td rowspan="2">&nbsp;</td></tr>
<tr>
<td style="padding:0pt .7pt 0pt 0pt;">&nbsp;</td></tr>
</table><table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="50%" align="center">
<tr>
<td>*Less than 10%</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue by geographic region was as follows:<br></font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="67%" align="center">
<tr>
<td rowspan="2"></td><td colspan="8" style="border-bottom: 1px solid black;" width="40%" align="center"><b>Year Ended March 31</b></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2010</b></td><td width="3%"></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2009</b></td><td width="3%"></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2008</b></td></tr>
<tr bgcolor="#ccdaef">
<td>United States</td><td width="1%">$</td><td align="right" width="16%">14,283,819</td><td></td><td width="1%">$</td><td align="right" width="16%">12,445,164</td><td></td><td width="1%">$</td><td align="right" width="16%">10,792,550</td></tr>
<tr>
<td>Europe</td><td></td><td align="right">9,334,742</td><td></td><td></td><td align="right">8,154,261</td><td></td><td></td><td align="right">5,981,940</td></tr>
<tr bgcolor="#ccdaef">
<td>Asia</td><td></td><td align="right">4,133,251</td><td></td><td></td><td align="right">2,314,626</td><td></td><td></td><td align="right">3,274,700</td></tr>
<tr>
<td>Other</td><td style="border-bottom: 1px solid black;" colspan="2" align="right">395,373</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">458,218</td><td></td><td style="border-bottom: 1px solid black;" colspan="2" align="right">479,622</td></tr>
<tr valign="top" bgcolor="#ccdaef">
<td>Total Revenue</td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">28,147,185</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">23,372,269</td><td></td><td style="border-bottom: 3px double black;">$</td><td style="border-bottom: 3px double black;" align="right">20,528,812</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman"><br>
<b>NOTE 9. COMMITMENTS AND CONTINGENCIES</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease payments were $237,317 for fiscal 2010,
$234,368 for fiscal 2009, and $224,712 for fiscal 2008. In fiscal 2008 we executed
a third amendment extending the operating lease for our facility through December&nbsp;31,
2015. We pay operating expenses including maintenance, utilities, real estate
taxes, and insurance in addition to rental payments. We also lease a piece of
office equipment under an operating lease expiring July&nbsp;2014 with payments
due quarterly. Our future minimum lease payments are shown in the following table:<br>
&nbsp;<br></font>
<table style="font-size: 10pt; font-family: Times New Roman" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td colspan="17" style="border-bottom: 1px solid black;" align="center"><b>Year Ending March 31</b></td><td colspan="3"></td></tr>
<tr>
<td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2011</b></td><td width="1%"></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2012</b></td><td width="1%"></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2013</b></td><td width="1%"></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2014</b></td><td width="1%"></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2015</b></td><td width="1%"></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>2016</b></td><td width="1%"></td><td style="border-bottom: 1px solid black;" colspan="2" align="center">
<b>Total</b></td></tr>
<tr bgcolor="#ccdaef">
<td width="1%">$</td><td align="right" width="5%">248,285</td><td>&nbsp;</td><td width="1%">$</td><td align="right" width="5%">251,917</td><td>&nbsp;</td><td width="1%">$</td><td align="right" width="5%">255,549</td><td>&nbsp;</td><td width="1%">$</td><td align="right" width="5%">259,234</td><td>&nbsp;</td><td width="1%">$</td><td align="right" width="5%">262,006</td><td>&nbsp;</td><td width="1%">$</td><td align="right" width="5%">198,506</td><td>&nbsp;</td><td width="1%">$</td><td align="right" width="5%">1,475,497</td></tr>
</table><font style="font-size: 10pt; font-family: Times New Roman">&nbsp;<br>
<b>NOTE 10. COMMON STOCK</b><br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our authorized stock is stated as six million
shares of common stock, $0.01 par value, and ten million shares of all types.
Our Board may designate any series and fix any relative rights and preferences
to authorized but undesignated stock. We have an outstanding authorization
from our Board to purchase up to $2,500,000 of our common stock, all of which
remained available as of March&nbsp;31, 2010.<br>
<br>
<b>NOTE 11. INFORMATION AS TO EMPLOYEE STOCK PURCHASE, SAVINGS, AND SIMILAR PLANS</b>
<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our employees are eligible to participate
in our 401(k) savings plan the first quarter after reaching age&nbsp;21. Employees
may contribute up to the Internal Revenue Code maximum. We make matching contributions
of 100% of the first 3% of participants&#146; salary deferral contributions. Our
matching contributions were $103,038 for fiscal 2010, $95,289 for fiscal 2009,
and $94,585 for fiscal 2008.<br>
<br>
<br></font>
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<div style="width: 100%; text-align: center;"><font style="font-size: 10pt; font-family: Times New Roman">F-14</font></div><hr>
</div><font style="font-size: 10pt; font-family: Times New Roman"><a href="#TOC"><b>Table of Contents</b></a><br>
<br>
</font>
<div align="center"><font style="font-size: 10pt; font-family: 'Arial','Helvetica';"><b>EXHIBIT INDEX</b></font></div><br>
<table style="font-size: 10pt; font-family: Times New Roman" align="center" border="0" cellpadding="0" cellspacing="0" width="100%">
<tr>
<td style="border-bottom: 1px solid black;"><b>Exhibit&nbsp;#</b></td><td style="border-bottom: 1px solid black;" align="center">
<b>Description</b></td></tr>
<tr>
<td colspan="2">&nbsp;</td></tr>
<tr>
<td style="width: 27pt;" valign="top">&nbsp;&nbsp;23</td><td>Consent of Ernst &amp; Young LLP.<br>
&nbsp;
</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;31.1</td><td>Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).<br>
&nbsp;
</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;31.2</td><td>Certification by Curt A. Reynders pursuant to Rule 13a-14(a)/15d-14(a).<br>
&nbsp;
</td></tr>
<tr>
<td valign="top">&nbsp;&nbsp;32</td><td>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.<br>
<br><br><br>
</td></tr>
</table><hr>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>2
<FILENAME>ex23.htm
<DESCRIPTION>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
<TEXT>
<html>
<div>
<p align="right"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit 23</font></b></p>
<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</font></b><p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">We
consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the NVE Corporation 2000 Stock Option Plan (as amended
by the shareholders on July 19, 2001) and the NVE Corporation 2001 Employee
Stock Purchase Plan of our reports dated May 5, 2010, with respect to the financial statements of NVE Corporation, NVE Corporation
management&#146;s assessment of the effectiveness of internal control over financial
reporting, and the effectiveness of internal control over financial reporting
of NVE Corporation, included in the Annual Report (Form 10-K) for the year
ended March 31, 2010.</font></p>
<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  <table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
    <tr>
      <td width="100%" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">
        <p style="margin:0in 0in .0001pt;" align="right"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;/s/
          ERNST &amp; YOUNG LLP</font></p>
      </td>
    </tr>
    <tr>
      <td width="100%" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font>
	  </td>
    </tr>
    <tr>
      <td width="100%" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">
        <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Minneapolis,
          Minnesota</font></p>
      </td>
    </tr>
    <tr>
      <td width="100%" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">
<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">May 5, 2010</font></p>
      </td>
    </tr>
  </table>
</div>
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>ex31-dab.htm
<DESCRIPTION>CERTIFICATION BY DANIEL A. BAKER PURSUANT TO RULE 13A-14(A)/15D-14(A)
<TEXT>
<html>
<div style="font-size: 10pt; font-family: Times New Roman;">
<p align="right"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit 31.1</font></b>
<p align="center"><b>CERTIFICATION</b>
<p>I, Daniel A. Baker, certify that:<br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">1.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>&#160;&#160;&#160;&#160;&#160; </font> I have reviewed this Annual Report
on Form 10-K of NVE Corporation;
<p style="margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">&nbsp;
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">2.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>&#160;&#160;&#160;&#160;&#160; </font> 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;
<p style="margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">&nbsp;
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">3.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>&#160;&#160;&#160;&#160;&#160; </font> 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;
<p style="margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">&nbsp;
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">4.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>&#160;&#160;&#160;&#160;&#160; </font>
    The registrant&#146;s other certifying officer(s) and I are responsible
    for establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
    reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
    registrant and have:
<br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(a)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>
    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;
  <br>
<br>

<p style="margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(b)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>
    Designed such internal control over financial reporting, or caused such internal control
    over financial reporting to be designed under our supervision, to provide
    reasonable assurance regarding the reliability of financial reporting and
    the preparation of financial statements for external purposes in accordance
    with generally accepted accounting principles;&nbsp;
  <br>
<br>

<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(c)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>Evaluated the effectiveness of the registrant&#146;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
  <br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(d)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>
    Disclosed in this report any change in the registrant&#146;s internal
    control over financial reporting that occurred during the registrant&#146;s
    most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in
    the case of an annual report) that has materially affected, or is reasonably
    likely to materially affect, the registrant&#146;s internal control over financial
    reporting; and
<br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">5.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>&#160;&#160;&#160;&#160;&#160; </font> The registrant&#146;s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of the registrant&#146;s board of directors (or persons performing
the equivalent functions):
<br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(a)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font> 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&#146;s ability to record, process, summarize and report financial
information; and
<p style="margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">&nbsp;
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(b)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Any fraud, whether or not material,
that involves management or other employees who have a significant role in the
registrant&#146;s internal control over financial reporting.
<p>Date: May 5, 2010

<p>&nbsp;
<table style="font-size: 10pt; font-family: Times New Roman;" border="0" cellspacing="0" cellpadding="0" width="100%">
 <tr>
  <td valign="top" style="padding:0in 0in 0in 0in;width:50%;">
  </td>
  <td valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:25%;">
/s/ DANIEL A. BAKER
  </td>
  <td valign="top" style="padding:0in 0in 0in 0in;">
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in 0in 0in 0in;width:54.62%;">
  </td>
  <td width="45%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:45.38%;">
Daniel A. Baker
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in 0in 0in 0in;width:54.62%;">
  </td>
  <td width="45%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:45.38%;">
President and Chief Executive Officer
  </td>
 </tr>
</table>
</div>
</body>
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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>4
<FILENAME>ex31-car.htm
<DESCRIPTION>CERTIFICATION BY CURT A. REYNDERS PURSUANT TO RULE 13A-14(A)/15D-14(A)
<TEXT>
<html>
<div style="font-size: 10pt; font-family: Times New Roman;">
<p align="right"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit 31.2</font></b>
<p align="center"><b>CERTIFICATION</b>
<p>I, Curt A. Reynders, certify that:<br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">1.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>&#160;&#160;&#160;&#160;&#160; </font> I have reviewed this Annual Report
on Form 10-K of NVE Corporation;
<p style="margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">&nbsp;
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">2.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>&#160;&#160;&#160;&#160;&#160; </font> 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;
<p style="margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">&nbsp;
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">3.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>&#160;&#160;&#160;&#160;&#160; </font> 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;
<p style="margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">&nbsp;
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">4.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>&#160;&#160;&#160;&#160;&#160; </font>
    The registrant&#146;s other certifying officer(s) and I are responsible
    for establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
    reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
    registrant and have:
<br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(a)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>
    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;
  <br>
<br>

<p style="margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(b)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>
    Designed such internal control over financial reporting, or caused such internal control
    over financial reporting to be designed under our supervision, to provide
    reasonable assurance regarding the reliability of financial reporting and
    the preparation of financial statements for external purposes in accordance
    with generally accepted accounting principles;&nbsp;
  <br>
<br>

<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(c)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>Evaluated the effectiveness of the registrant&#146;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
  <br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(d)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>
    Disclosed in this report any change in the registrant&#146;s internal
    control over financial reporting that occurred during the registrant&#146;s
    most recent fiscal quarter (the registrant&#146;s fourth fiscal quarter in
    the case of an annual report) that has materially affected, or is reasonably
    likely to materially affect, the registrant&#146;s internal control over financial
    reporting; and
<br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;">5.<font size="1" style="font-size:3.0pt;"><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>&#160;&#160;&#160;&#160;&#160; </font> The registrant&#146;s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of the registrant&#146;s board of directors (or persons performing
the equivalent functions):
<br>
<br>
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(a)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font> 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&#146;s ability to record, process, summarize and report financial
information; and
<p style="margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">&nbsp;
<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.5in;text-indent:-.5in;">(b)<font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Any fraud, whether or not material,
that involves management or other employees who have a significant role in the
registrant&#146;s internal control over financial reporting.
<p>Date: May 5, 2010
<p>&nbsp;
<table style="font-size: 10pt; font-family: Times New Roman;" border="0" cellspacing="0" cellpadding="0" width="100%">
 <tr>
  <td valign="top" style="padding:0in 0in 0in 0in;width:50%;">
  <p>&nbsp;
  </td>

<td valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:25%;">
/s/ CURT A. REYNDERS</td>
  <td valign="top" style="padding:0in 0in 0in 0in;">
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in 0in 0in 0in;width:54.62%;">
  </td>
  <td width="45%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:45.38%;">
Curt A. Reynders
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in 0in 0in 0in;width:54.62%;">
  </td>
<td width="45%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:45.38%;">
Chief Financial Officer</td>
 </tr>
</table>
</div>
</body>
</html>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>5
<FILENAME>ex32.htm
<DESCRIPTION>CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
<TEXT>
<html>
<div style="font-family:Times New Roman;">
<p align="right"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit 32</font></b>
<p align="center"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CERTIFICATION PURSUANT TO SECTION 906</font></b>
<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C.
SECTION 1350)</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The undersigned certify pursuant to
18 U.S.C. Section 1350, that to the undersigned&#146;s knowledge:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;
    </font>The accompanying Annual Report of NVE Corporation (the &#147;Company&#148;)
    on Form 10-K for the year ended March&nbsp;31, 2010, fully complies with the requirements
    of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and</p>

<p style="margin:0in 0in .0001pt 1.0in;text-indent:-.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt 1.0in;text-indent:-.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date:
May 5, 2010</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
      <td valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:25%;">
        <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/
          DANIEL A. BAKER</font></p>
  </td>
      <td valign="top" style="padding:0in 0in 0in 0in;">
        <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
      <td colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">
        <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Daniel A. Baker</font></p>
  </td>
 </tr>
 <tr>
      <td colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">
        <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">President and
  Chief Executive Officer</font></p>
  </td>
 </tr>
</table>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
      <td valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:25%;">
        <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/
          CURT A. REYNDERS</font></p>
  </td>
      <td wvalign="top" style="padding:0in 0in 0in 0in;">
        <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="100%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Curt A. Reynders</font></p>
  </td>
 </tr>
 <tr>
  <td width="100%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:100.0%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Chief Financial
  Officer</font></p>
  </td>
 </tr>
</table>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">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.</font></div>
</html>
</TEXT>
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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
