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| **Minnesota**                                                | **41-1424202**                      |
|--------------------------------------------------------------|-------------------------------------|
| State or other jurisdiction of incorporation or organization | (I.R.S.Employer Identification No.) |
|                                                         |
| **11409 Valley View Road, Eden Prairie, Minnesota**          | **55344**                           |
| (Address of principal executive offices)                     | (Zip Code)                          |

|                          Titleof each class                                  | Name of each exchange on which registered |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|
| **Common stock, $0.01 par value (“Common Stock”)**                                                                                                                                                                                                                                                                                                                   | **The NASDAQ Stock Market, LLC**          |

|      Large accelerated filer [   ]                                                                                     | Accelerated filer [X]                                |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|
|      Non-accelerated filer [   ] (Do not check if a smaller reporting company)      | Smaller reporting company [   ]  |

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PART I

Item 1. Business.

Our StrategyOur Products and Markets

Sensor Products and MarketsCoupler Products and MarketsMRAM Products and Markets

Product ManufacturingSales and Product DistributionNew Product StatusOur CompetitionPrincipal Suppliers and Raw MaterialsIntellectual PropertyWorking Capital ItemsMajor CustomersBacklogSeasonalityResearch and Development ActivitiesGovernment RegulationsNumber of EmployeesFinancial Information About Geographical AreasAvailable Information

Item 1A. Risk Factors.Item 2. Properties.Item 3. Legal Proceedings.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Shareholders and DividendsStock Price Performance GraphStock Repurchase Program

Item 6. Selected Financial Data.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of OperationsLiquidity and Capital Resources

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Item 8. Financial Statements and Supplementary Data.Item 9A. Controls and Procedures.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.Item 11. Executive Compensation.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Item 13. Certain Relationships and Related Transactions, and Director Independence.Item 14. Principal Accountant Fees and Services.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

SIGNATURES

FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting FirmBalance SheetsStatements of IncomeStatements of Shareholders’ EquityStatements of Cash FlowsNotes to Financial Statements

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**Table of Contents**

PART I

ITEM 1. BUSINESS.

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|            | •                                                                                                                               | technological innovations by us, our licensees, or our competitors; |
|--------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|
| •                                                       | the announcement of new products, product enhancements, contracts, or license agreements by us, our licensees, or our competitors;        |
| •                                                       | the announcement of changes in strategy or discontinuation of products by us or licensees;                                                |
| •                                                       | changes in requirements or demands for our products or technology;                                                                        |
| •                                                       | changes in prices of our products and services or our competitors’ products andservices;                                             |
| •                                                       | quarterly variations in our operating results;                                                                                            |
| •                                                       | changes in our revenue or revenue growth rates;                                                                                           |
| •                                                       | changes in revenue estimates, earnings estimates, or market projections by market analysts,speculation in the press or analyst community; |
| •                                                       | short selling and covering of short positions in our stock; and                                                                           |
| •                                                       | general market conditions or market conditions specific to particular industries servedby us, our customers, or our licensees.            |

ITEM 2. PROPERTIES.

ITEM 3. LEGAL PROCEEDINGS.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

|                  | **Quarter Ended** |
|------------------|-------------------|
| **3/31/09**      |                   | **12/31/08** |  | **9/30/08** |  | **6/30/08** |  | **3/31/08** |  | **12/31/07** |  | **9/30/07** |  | **6/30/07** |
| High   | $                 | 34.93 |   | $ | 29.35 |   | $ | 35.00 |   | $ | 39.60 |  | $ | 31.73 |  | $ | 32.70 |  | $ | 41.95 |  | $ | 37.67 |
| Low              | $                 | 20.11 |   | $ | 16.56 |   | $ | 26.01 |   | $ | 24.99 |  | $ | 19.50 |  | $ | 22.44 |  | $ | 29.44 |  | $ | 25.30 |

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**Table of Contents**

|                                                  | **Balance Sheet Data as of March 31** |
|--------------------------------------------------|---------------------------------------|
| **2009**                                         |                                       | **2008** |  | **2007** |  | **2006** |  |  **2005** |
| Cash, cash equivalents,and marketable securities | $                                     | 34,321,811 |  | $ | 24,736,874 |  | $ | 18,289,191 |  | $ | 10,891,326 |  | $ | 7,717,264 |
| Total assets                                     | $                                     | 42,566,440 |  | $ | 32,768,128 |  | $ | 25,010,494 |  | $ | 17,758,919 |  | $ | 14,190,004 |
| Capital lease obligations, less current portion  | $                                     | - |   | $ | - |  | $ | - |  | $ | 33,281 |  | $ | 100,711 |
| Total shareholders’ equity                  | $                                     | 41,567,571 |   | $ | 31,513,482 |  | $ | 23,888,255 |  | $ | 16,778,111 |  | $ | 13,036,581 |

|                                     | ** Income Statement Data for Years Ended March 31** |
|-------------------------------------|----------------------------------------------------------|
| **2009**                            |                                                          | **2008** |  | **2007** |  | **2006** |  | **2005** |
| Revenue                             |
| Product sales                       | $                                                        | 19,715,311 |  | $ | 18,505,650 |  | $ | 14,425,632 |  | $ | 8,345,967 |  | $ | 5,522,250 |
| Contract research and development   | 3,656,958                                                |  | 2,023,162 |  | 2,035,198 |  | 3,824,559 |  | 6,093,320 |
| Total revenue                       | $                                                        | 23,372,269 |  | $ | 20,528,812 |  | $ | 16,460,830 |  | $ | 12,170,526 |  | $ | 11,615,570 |
|                                |
| Gross profit                        | $                                                        | 16,648,027 |  | $ | 13,695,504 |  | $ | 10,673,172 |  | $ | 5,951,993 |  | $ | 4,604,836 |
| Income from operations              | $                                                        | 13,251,590 |  | $ | 10,048,779 |  | $ | 6,545,569 |  | $ | 2,471,026 |  | $ | 1,343,777 |
| Net income                          | $                                                        | 9,782,895 |  | $ | 7,187,384 |  | $ | 4,780,783 |  | $ | 1,797,746 |  | $ | 1,758,254 |
| Net income per share – diluted | $                                                        | 2.04 |  | $ | 1.51 |  | $ | 1.00 |  | $ | 0.39 |  | $ | 0.37 |

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**Table of Contents**
Results of Operations

|                                                                                      | **Percentage of RevenueYear Ended March 31** |     | **Year-to-Year ChangeYears Ended March 31** |
|--------------------------------------------------------------------------------------|----------------------------------------------|----------|-----------------------------------------------------------------|
| **2009**                                                                             |                                              | **2008** |                                                                 | **2007** | **2008 to2009** |  | **2007to2008** |
| Revenue                                                                              |
| Product sales                                                                        | 84.4                                         | %        |                                                                 | 90.1 | % |  | 87.6 | % |  | 6.5 | % |  | 28.3 | % |
| Contract research and development       | 15.6                                         | %        |                                                                 | 9.9 | % |  | 12.4 | % |  | 80.8 | % |  | (0.6 | )% |
| Total revenue                                                                        | 100.0                                        | %        |                                                                 | 100.0 | % |  | 100.0 | % |  | 13.9 | % |  | 24.7 | % |
| Cost of sales                                                                        | 28.8                                         | %        |                                                                 | 33.3 | % |  | 35.2 | % |  | (1.6 | )% |  | 18.1 | % |
| Gross profit                                                                         | 71.2                                         | %        |                                                                 | 66.7 | % |  | 64.8 | % |  | 21.6 | % |  | 28.3 | % |
| Expenses                                                                             |
| Selling, general, and administrative                                                 | 9.3                                          | %        |                                                                 | 10.5 | % |  | 11.9 | % |  | 0.9 | % |  | 10.7 | % |
| Research and development                                                   | 5.2                                          | %        |                                                                 | 7.2 | % |  | 13.2 | % |  | (18.1 | )% |  | (31.6 | )% |
| Total expenses                                                                       | 14.5                                         | %        |                                                                 | 17.7 | % |  | 25.1 | % |  | (6.9 | )% |  | (11.7 | )% |
| Income from operations                                                               | 56.7                                         | %        |                                                                 | 49.0 | % |  | 39.8 | % |  | 31.9 | % |  | 53.5 | % |
| Net interest and other income                                                        | 5.0                                          | %        |                                                                 | 5.0 | % |  | 3.9 | % |  | 14.0 | % |  | 59.6 | % |
| Income before taxes                                                                  | 61.7                                         | %        |                                                                 | 54.0 | % |  | 43.7 | % |  | 30.2 | % |  | 54.1 | % |
| Income tax provision                                                                 | 19.9                                         | %        |                                                                 | 19.0 | % |  | 14.7 | % |  | 19.3 | % |  | 61.5 | % |
| Net income                                                                           | 41.8                                         | %        |                                                                 | 35.0 | % |  | 29.0 | % |  | 36.1 | % |  | 50.3 | % |

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**Table of Contents**

|                                       | **Payments Due by Period** |
|---------------------------------------|----------------------------|
| **Contractual obligations**      |                            | **Total** |  | **<1 Year** |  | **1–3 Years** |  | **3–5 Years** |  | **>5 Years** |
| Operating lease obligations |                            | $ | 1,717,427 |   | $ | 244,387 |   | $ | 499,348 |   | $ | 775,506 |   | $ | 198,186 |
| Purchase obligations             |                            |   | 269,995 |   |   | 269,995 |   |   | - |   |   | - |   |   | - |
| Total                                 |                            | $ | 1,987,422 |   | $ | 514,382 |   | $ | 499,348 |   | $ | 775,506 |   | $ | 198,186 |

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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**Table of Contents**

|                                                              | **Unaudited; Quarter Ended** |
|--------------------------------------------------------------|------------------------------|
| **March 31, 2009**                                 |                              | **Dec. 31, 2008** |  | **Sept. 30, 2008** |  |  **June 30, 2008** |
| Revenue                                                      |
| Product sales                                                | $                            | 5,699,660 |  | $ | 4,596,948 |  | $ | 4,871,381 |  | $ | 4,547,322 |
| Contract research and development             |                         | 1,196,920 |  |   | 1,287,165 |  |   | 856,409 |  |   | 316,464 |
| Total revenue                                                |                              | 6,896,580 |  |  | 5,884,113 |  |  | 5,727,790 |  |  | 4,863,786 |
| Cost of sales                                                |                         | 1,806,102 |  |   | 1,763,090 |  |   | 1,747,618 |  |   | 1,407,432 |
| Gross profit                                                 |                              | 5,090,478 |  |  | 4,121,023 |  |  | 3,980,172 |  |  | 3,456,354 |
| Expenses                                                     |
| Selling, general, and administrative          |                              | 554,055 |  |  | 508,953 |  |  | 585,373 |  |  | 529,484 |
| Research and development                           |                         | 292,679 |  |   | 258,998 |  |   | 280,863 |  |   | 386,032 |
| Total expenses                                               |                              | 846,734 |  |  | 767,951 |  |  | 866,236 |  |  | 915,516 |
| Income from operations                                       |                              | 4,243,744 |  |  | 3,353,072 |  |  | 3,113,936 |  |  | 2,540,838 |
| Income before taxes                                          |                         | 4,577,231 |  |   | 3,660,686 |  |   | 3,391,010 |  |   | 2,798,673 |
| Net income                                                   | $                            | 3,111,494 |  | $ | 2,468,404 |  | $ | 2,300,381 |  | $ | 1,902,616 |
| Net income per share – basic   | $                            | 0.67 |  | $ | 0.53 |  | $ | 0.49 |  | $ | 0.41 |
| Net income per share – diluted | $                            | 0.65 |  | $ | 0.52 |  | $ | 0.48 |  | $ | 0.40 |
|                                                              | **Unaudited; Quarter Ended** |
|                                                              | **March 31, 2008**      |  | **Dec. 31, 2007** |  | **Sept. 30, 2007** |  |  **June 30, 2007** |
| Revenue                                                      |
| Product sales                                                | $                            | 5,674,879 |  | $ | 4,249,809 |  | $ | 4,311,862 |  | $ | 4,269,100 |
| Contract research and development             |                         | 374,505 |  |   | 515,716 |  |   | 692,758 |  |   | 440,183 |
| Total revenue                                                |                              | 6,049,384 |  |  | 4,765,525 |  |  | 5,004,620 |  |  | 4,709,283 |
| Cost of sales                                                |                         | 1,876,335 |  |   | 1,663,045 |  |   | 1,850,960 |  |   | 1,442,968 |
| Gross profit                                                 |                              | 4,173,049 |  |  | 3,102,480 |  |  | 3,153,660 |  |  | 3,266,315 |
| Expenses                                                     |
| Selling, general, and administrative          |                              | 526,882 |  |  | 492,771 |  |  | 575,422 |  |  | 563,743 |
| Research and development                           |                         | 318,889 |  |   | 347,344 |  |   | 314,037 |  |   | 507,637 |
| Total expenses                                               |                              | 845,771 |  |  | 840,115 |  |  | 889,459 |  |  | 1,071,380 |
| Income from operations                                       |                              | 3,327,278 |  |  | 2,262,365 |  |  | 2,264,201 |  |  | 2,194,935 |
| Income before taxes                                          |                         | 3,564,330 |  |   | 2,585,160 |  |   | 2,511,058 |  |   | 2,419,456 |
| Net income                                                   | $                            | 2,252,982 |  | $ | 1,702,293 |  | $ | 1,644,774 |  | $ | 1,587,335 |
| Net income per share – basic   | $                            | 0.49 |  | $ | 0.37 |  | $ | 0.35 |  | $ | 0.34 |
| Net income per share – diluted | $                            | 0.47 |  | $ | 0.36 |  | $ | 0.34 |  | $ | 0.33 |

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PART III

ITEM 10. 

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**Table of Contents**
ITEM 11.

ITEM 12. 

| **Plan Category**             |        | **NumberofSecurities to beIssued UponExercise ofOutstanding Options,Warrants, and Rights(A)** |   | ** Weighted-AverageExercise Price ofOutstandingOptions, Warrants,and Rights(B)** |   | **Number of SecuritiesRemaining Available forFuture Issuance UnderEquity Compensation Plans(Excluding SecuritiesReflected in Column (A))(C)** |
|-------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity compensation plans     |
| approved by security holders  |        | 281,750                                                                                                 |   | $17.10                                                                                     |   | 174,230                                                                                                                                                 |
|                          |
| Equity compensation plans not |
| approved by security holders  |        | -                                                                                                       |   | -                                                                                          |   | -                                                                                                                                                       |
|                          |   |                                                                                                    |   |                                                                                       |   |                                                                                                                                                    |
| Total at March 31, 2009       |        | 281,750                                                                                                 |   | $17.10                                                                                     |   | 174,230                                                                                                                                                 |

ITEM 14. 

PART IV

ITEM 15. 

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Table of Contents

| **Exhibit #** | **Description**                                                                                                                                                                                                                                                                                                   |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   3.1    | Amended and Restated Articles of Incorporation of the company as amended by theBoard of Directors effective November 21, 2002 (incorporated by referenceto our Quarterly Report on Form 10-QSB for the period ended December 31, 2002).                                                                      |
|   3.2    | Bylaws of the company as amended by the Board of Directors effective December18, 2007 (incorporated by reference to our Current Report on Form 8-Kfiled December 19, 2007).                                                                                                                                       |
|   4      | Form of Common Stock Certificate (incorporated by reference to our Registration Statement on Form S-8 filed July 20, 2001).                                                                                                                                                                                  |
|   10.1   | Lease dated October 1, 1998 between the company and Glenborough Properties, L.P. (incorporated by reference to our Quarterly Reporton Form 10-QSB for the period ended September 30, 2002).                                                                                                                       |
|   10.2   | First amendment to lease between the company and Glenborough Properties,LP dated September 18, 2002 (incorporated by reference to our QuarterlyReport on Form 10-QSB for the period ended September 30, 2002).                                                                                          |
|   10.3   | Second amendment to lease between the company and Glenborough Properties, LP dated December 1, 2003 (incorporated by reference to our QuarterlyReport on Form 10-QSB for the period ended December 31, 2003).                                                                                                     |
|   10.4   | Notification from Glenborough Properties, LP relating to change in building ownership(incorporated by reference to our Current Report on Form 8-K filed October 11, 2005).                                                                                                                                   |
|   10.5   | Notification from Carlson Real Estate Company, Inc. relating to change in building ownership (incorporated by reference to our CurrentReport on Form 8-K filed October 11, 2005).                                                                                                                            |
|   10.6   | 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).                                                                                                                |
|   10.7*  | Employment Agreement between the company and Daniel A. Baker dated January 29,2001 (incorporated by reference to our Annual Report on Form 10-KSB for the year ended March 31, 2001).                                                                                                                   |
|   10.8*  | NVE Corporation 2000 Stock Option Plan as Amended July 19, 2001 by theshareholders (incorporated by reference to our Registration Statement on Form S-8 filed July 20, 2001).                                                                                                                           |
|   10.9+  | Agreement between the company and Agilent Technologies, Inc. dated September 27, 2001 (incorporated by reference to our QuarterlyReport on Form 10-QSB for the period ended September 30, 2001).                                                                                                   |
|   10.10  | Amendment dated October 18, 2002 to Agreement between the company and AgilentTechnologies, Inc. (incorporated by reference to our Quarterly Report onForm 10-QSB for the period ended December 31, 2002).                                                                                                    |
|   10.11  | Notification from Agilent Technologies of planned sale of Agilent’s SemiconductorProduct Group (incorporated by reference to our Current Report on Form 8-K filed October 19, 2005).                                                                                                                    |
|   10.12  | Report of completion of the divestiture of Agilent’s Semiconductor Productsbusiness (incorporated by reference to our Current Report on Form 8-K/A filed December 6, 2005).                                                                                                                             |
|   10.13  | Amendment Number 2 to OEM Purchase Agreement dated September 10, 2007 to Agreement between AgilentTechnologies, Inc. (and subsequently assigned to Avago Technologies, Inc.) and the company (incorporated byreference to our Exhibit 10.5 filed with our Current Report on Form 8-K/A filed September 11, 2007). |
|   10.14* | Amendment No. 1 dated March 28, 2005 to Stock Option Agreement dated May 7, 2004between the Company and Daniel A. Baker (incorporated by reference to our Current Report on Form 8-K filed March 30, 2005).                                                                              |
|   10.15  | Amendment No. 1 dated March 28, 2005 to Stock Option Agreement dated August 17, 2004between the Company and Patricia M. Hollister (incorporated by referenceto our Current Report on Form 8-K filed March 30, 2005).                                                                     |
|   10.16  | Indemnification Agreement by and between Pacesetter, Inc., a St. Jude Medical Company,d.b.a. St. Jude Medical Cardiac Rhythm Management Division (“St. Jude”), and the company (incorporated by reference to our CurrentReport on Form 8-K filed September 27, 2005).                              |
|   10.17+ | Supplier Partnering Agreement by and between St. Jude andthe company (incorporated by reference to our Current Report on Form 8-Kfiled January 4, 2006).                                                                                                                                                |
|   10.18+ | Amendment Number 1 to Supplier Partnering Agreement dated September 6, 2007 between St. Jude and the company(incorporated by reference to our Current Report on Form 8-K/A filed September 10, 2007).                                                                                                        |
|   10.19* | Verbal agreement with Curt A. Reynders (incorporated by reference to Item 1.01 of our Current Report on Form 8-K filed January 18, 2006).                                                                                                                                                                    |
|   10.20  | Supply Agreement by and between the company and Phonak AG (incorporated by reference to our Current Report on Form 8-K filed May 6, 2009).                                                                                                                                                                   |
|   23     | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                 |
|   31.1   | Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                            |
|   31.2   | Certification by Curt A. Reynders pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                           |
|   32     | Certification by Daniel A. Baker and Curt A. Reynders pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                               |

|   |
|--------|
|   |

| * | Indicates a management contract or compensatory plan or arrangement.                                                                                                     |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| + | Confidential portions of this exhibit have been deleted and filed separately with the SEC under a request for confidentialtreatment pursuant to Rule 24b-2 or Rule 406.  |

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SIGNATURES

|                                                                          | **NVE CORPORATION** |
|--------------------------------------------------------------------------|---------------------|
|           (Registrant) |
|                                                                     |
| /s/Daniel A. Baker                                                       |
| by Daniel A. Baker                                                       |
| President and Chief Executive Officer                                    |
|                                                                     |
| Date    May 6, 2009                                  |

| **Name**                                                  |  **Title**                                                                     | **Date**  |
|-----------------------------------------------------------|-------------------------------------------------------------------------------------|----------------|
| /s/Terrence W. GlarnerTerrence W. Glarner                 | Director andChairman of the Board                                         | May 6, 2009    |
| /s/Daniel A. BakerDaniel A. Baker                         | Director,President & Chief Executive Officer(Principal Executive Officer)  | May 6, 2009    |
| /s/Curt A. ReyndersCurt A. Reynders                       | Treasurer andChief Financial Officer(Principal Financial andAccounting Officer)     | May 6, 2009    |
| /s/James D. HartmanJames D. Hartman             | Director                                                                            | May 6, 2009    |
| /s/Patricia M. HollisterPatricia M. Hollister   | Director                                                                            | May 6, 2009    |
| /s/Robert H. IrishRobert H. Irish                         | Director                                                                            | May 6, 2009    |

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**Table of Contents**

| Reports of Independent Registered Public Accounting Firm | F-2 |
|----------------------------------------------------------|-----|
| Balance Sheets                                           | F-4 |
| Statements of Income                                     | F-5 |
| Statements of Shareholders’ Equity                  | F-6 |
| Statements of Cash Flows                                 | F-7 |
| Notes to Financial Statements                            | F-8 |

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**Table of Contents**

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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NVE CORPORATION

|                                                                             | **March 31** |
|-----------------------------------------------------------------------------|--------------|
| **2009**                                                                    |              | **2008** |
| ASSETS                                                                      |
| Current assets                                                              |
| Cash and cash equivalents                                                   | $            | 1,875,063 |  |  | $ | 1,885,867 |  |
| Marketable securities, short term                                           |              | - |  |  |  | 795,728 |  |
| Accounts receivable, net of allowance for uncollectible accounts of $15,000 |              | 3,366,698 |  |  |  | 3,226,027 |  |
| Inventories                                                                 |              | 2,247,621 |  |  |  | 2,456,804 |  |
| Deferred tax assets                                                         |              | 667,729 |  |  |  | 453,405 |  |
| Prepaid expenses and other assets                                           |         | 669,307 |   |  |   | 529,616 |   |
| Total current assets                                                        |              | 8,826,418 |  |  |  | 9,347,447 |  |
| Fixed assets                                                                |
| Machinery and equipment                                                |              | 5,328,237 |  |  |  | 5,205,288 |  |
| Leasehold improvements                                                      |         | 450,546 |   |  |   | 436,794 |   |
|                                                                        |              | 5,778,783 |  |  |  | 5,642,082 |  |
| Less accumulated depreciation                                          |         | 4,485,509 |   |  |   | 4,276,680 |   |
| Net fixed assets                                                            |              | 1,293,274 |  |  |  | 1,365,402 |  |
| Marketable securities, long term                                            |         | 32,446,748 |   |  |   | 22,055,279 |   |
| Total assets                                                                | $            | 42,566,440 |   |  | $ | 32,768,128 |   |
|                                                                        |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                   |
| Current liabilities                                                         |
| Accounts payable                                                            | $            | 257,239 |  |  | $ | 434,808 |  |
| Accrued payroll and other                                              |              | 637,463 |  |  |  | 632,338 |  |
| Deferred revenue                                                            | 104,167      |  |  | 187,500 |  |
| Total current liabilities                                                   |              | 998,869 |  |  |  | 1,254,646 |  |
|                                                                        |
| Shareholders’ equity                                                   |
| Common stock                                                                |              | 46,693 |  |  |  | 46,387 |  |
| Additional paid-in capital                                                  |              | 19,166,524 |  |  |  | 18,539,538 |  |
| Accumulated other comprehensive (loss) income                               |              | (252,940 | ) |  |  | 103,158 |   |
| Retained earnings                                                           |         | 22,607,294 |   |  |   | 12,824,399 |   |
| Total shareholders’ equity                                             |         | 41,567,571 |   |  |   | 31,513,482 |   |
| Total liabilities and shareholders’ equity                             | $            | 42,566,440 |   |  | $ | 32,768,128 |   |

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**Table of Contents**

NVE CORPORATION

|                                      |  **Year Ended March 31** |
|--------------------------------------|-------------------------------|
| **2009**                             |                               | **2008** |  |  **2007** |
| Revenue                              |
| Product sales                        | $                             | 19,715,311 |  |  | $ | 18,505,650 |  |  | $ | 14,425,632 |  |
| Contract research and development    |                          | 3,656,958 |   |  |   | 2,023,162 |   |  |   | 2,035,198 |   |
| Total revenue                        |                               | 23,372,269 |  |  |  | 20,528,812 |  |  |  | 16,460,830 |  |
| Cost of sales                        |                          | 6,724,242 |   |  |   | 6,833,308 |   |  |   | 5,787,658 |   |
| Gross profit                         |                               | 16,648,027 |  |  |  | 13,695,504 |  |  |  | 10,673,172 |  |
| Expenses                             |
| Selling, general, and administrative |                               | 2,177,865 |  |  |  | 2,158,818 |  |  |  | 1,950,999 |  |
| Research and development             |                          | 1,218,572 |   |  |   | 1,487,907 |   |  |   | 2,176,604 |   |
| Total expenses                       |                          | 3,396,437 |   |  |   | 3,646,725 |   |  |   | 4,127,603 |   |
| Income from operations               |                               | 13,251,590 |  |  |  | 10,048,779 |  |  |  | 6,545,569 |  |
| Interest income                      |                               | 1,171,810 |  |  |  | 974,990 |  |  |  | 621,577 |  |
| Interest expense                     |                               | - |  |  |  | - |  |  |  | (589 | ) |
| Other income                         |                          | 4,200 |   |  |   | 56,235 |   |  |   | 25,246 |   |
| Income before taxes                  |                               | 14,427,600 |  |  |  | 11,080,004 |  |  |  | 7,191,803 |  |
| Provision for income taxes           |                          | 4,644,705 |   |  |   | 3,892,620 |   |  |   | 2,411,020 |   |
| Net income                           | $                             | 9,782,895 |   |  | $ | 7,187,384 |   |  | $ | 4,780,783 |   |
| Net income per share – basic    | $                             | 2.10 |   |  | $ | 1.55 |   |  | $ | 1.03 |   |
| Net income per share – diluted  | $                             | 2.04 |   |  | $ | 1.51 |   |  | $ | 1.00 |   |
| Weighted average shares outstanding  |
| Basic                                |                               | 4,659,486 |  |  |  | 4,635,470 |  |  |  | 4,620,371 |  |
| Diluted                              |                               | 4,785,565 |  |  |  | 4,763,101 |  |  |  | 4,771,297 |  |

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|                                           |     |       | **AdditionalPaid-InCapital** |   | **AccumulatedOtherComprehen-sive Income(Loss)** |   | **RetainedEarnings(Deficit)** |   |        |
|-------------------------------------------|--------------------|------------|------------------------------|--------|-------------------------------------------------|--------|-------------------------------|--------|--------|
| **Common Stock**                          |
| **Shares**                                |               | **Amount** | **Total**                    |
| Balance at March 31, 2006                 | 4,614,953          |            | $                            | 46,150 |                                                 |        | 16,042,637                    |        | $      | (166,908 | ) |  | $ | 856,232 |  |  | $ | 16,778,111 |  |
| Exercise of stockoptions and warrants     | 12,430             |            |                              | 124    |                                                 |        | 26,355                        |        |        | - |  |  |  | - |  |  |  | 26,479 |  |
| Comprehensive income:                     |
| Unrealized gain onmarketable securities   | -                  |            |                              | -      |                                                 |        | -                             |        |        | 82,626 |  |  |  |  |  |  |  | 82,626 |  |
| Net income                                | -                  |            |                              | -      |                                                 |        | -                             |        |        | - |  |  |  | 4,780,783 |  |  |  | 4,780,783 |  |
| Total comprehensive income                |                    | 4,863,409  |                              |
| Stock-based compensation                  |                    |            |                              |        |                                                 |        | 136,370                       |        |        |  |  |  |  |  |  |  |  | 136,370 |  |
| Tax benefit of stock-based compensation   |               | 2,083,886  |                         |   | 2,083,886                                       |   |
| Balance at March 31, 2007                 | 4,627,383          |            |                         | 46,274 |                                                 |   | 18,289,248                    |        |   | (84,282 | ) |  |   | 5,637,015 |  |  |   | 23,888,255 |   |
| Exercise of stockoptions and warrants     | 11,300             |            |                              | 113    |                                                 |        | 46,911                        |        |        | - |  |  |  | - |  |  |  | 47,024 |  |
| Comprehensive income:                     |
| Unrealized gain onmarketable securities   | -                  |            |                              | -      |                                                 |        | -                             |        |        | 187,440 |  |  |  |  |  |  |  | 187,440 |  |
| Net income                                | -                  |            |                              | -      |                                                 |        | -                             |        |        | - |  |  |  | 7,187,384 |   |   |   | 7,187,384 |  |
| Total comprehensive income                |                    | 7,374,824  |                              |
| Stock-based compensation                  |                    |            |                              |        |                                                 |        | 169,606                       |        |        |  |  |  |  |  |  |  |  | 169,606 |  |
| Tax benefit of stock-based compensation   |               | 33,773     |                         |   | 33,773                                          |   |
| Balance at March 31, 2008                 | 4,638,683          |       |                         | 46,387 |                                            |   | 18,539,538                    |   |   | 103,158 |   |  |   | 12,824,399 |   |   |   | 31,513,482 |  |
| Exercise of stockoptions and warrants     | 30,650             |       |                         | 306    |                                            |   | 269,901                       |   |   | - |   |   |   | - |   |   |   | 270,207 |  |
| Comprehensive income:                     |
| Unrealized (loss) onmarketable securities | -                  |       |                         | -      |                                            |   | -                             |   |   | (356,098 | ) |   |   |   |   |   |   | (356,098 | ) |
| Net income                                | -                  |       |                         | -      |                                            |   | -                             |   |   | - |   |   |   | 9,782,895 |   |   |   | 9,782,895 |  |
| Total comprehensive income                |               | 9,426,797  |                              |
| Stock-based compensation                  |               |       |                         |   |                                            |   | 86,672                        |   |   |   |   |   |   |   |   |   |   | 86,672 |  |
| Tax benefit of stock-based compensation   |               | 270,413    |                         |   | 270,413                                         |   |
| Balance at March 31, 2009                 | 4,669,333          |       | $                            | 46,693 |                                            | $      | 19,166,524                    |   | $      | (252,940 | ) |   | $ | 22,607,294 |   |   | $ | 41,567,571 |   |

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NVE CORPORATION

|                                                                                  | **Year Ended March 31** |
|----------------------------------------------------------------------------------|-------------------------|
| **2009**                                                                         |                         | **2008** |  | **2007** |
| OPERATING ACTIVITIES                                                             |
| Net income                                                                       | $                       | 9,782,895 |  |  | $ | 7,187,384 |  |  | $ | 4,780,783 |  |
| Adjustments to reconcile net income to net cashprovided by operating activities: |
| Depreciation                                                                     | 473,740                 |  |  | 560,528 |  |  | 530,050 |  |
| Stock-based compensation                                                         | 86,672                  |  |  | 169,606 |  |  | 136,370 |  |
| Excess tax benefits                                                              | (270,413                | ) |  | (33,773 | ) |  | (2,083,886 | ) |
| (Gain) loss on sale of fixed assets                                              | (4,200                  | ) |  | 601 |  |  | - |  |
| Gain on marketable securities, net                                               | -                       |   |  | (56,837 | ) |  | - |  |
| Deferred income taxes                                                            | 256,376                 |  |  | 806,307 |  |  | 2,289,687 |  |
| Changes in operating assets and liabilities                                      |
| Accounts receivable                                                              | (140,671                | ) |  | (1,221,022 | ) |  | (337,976 | ) |
| Inventories                                                                      | 209,183                 |   |  | (439,946 | ) |  | 132,911 |  |
| Prepaid expenses and other assets                                                | (139,691                | ) |  | (196,029 | ) |  | (102,175 | ) |
| Accounts payable and accrued expenses                                            | (172,444                | ) |  | (25,736 | ) |  | 222,728 |  |
| Deferred revenue                                                                 | (83,333                 | ) |  | 158,143 |   |  | (48,016 | ) |
| Net cash provided by operating activities                                        | 9,998,114               |  |  | 6,909,226 |  |  | 5,520,476 |  |
|                                                                             |
| INVESTING ACTIVITIES                                                             |
| Purchases of fixed assets                                                        | (401,612                | ) |  | (817,596 | ) |  | (321,997 | ) |
| Proceeds from sale of fixed assets                                               | 4,200                   |  |  | 1,500 |  |  | - |  |
| Purchases of marketable securities                                               | (12,137,160             | ) |  | (16,518,287 | ) |  | (9,506,521 | ) |
| Proceeds from maturities and sales of marketable securities                      | 1,985,034               |   |  | 11,832,804 |   |  | 1,340,019 |   |
| Net cash used in investing activities                                            | (10,549,538             | ) |  | (5,501,579 | ) |  | (8,488,499 | ) |
|                                                                             |
| FINANCING ACTIVITIES                                                             |
| Net proceeds from sale of common stock                                           | 270,207                 |  |  | 47,024 |  |  | 26,479 |  |
| Excess tax benefits                                                              | 270,413                 |  |  | 33,773 |  |  | 2,083,886 |  |
| Repayment of capital lease obligations                                           | -                       |   |  | - |   |  | (33,281 | ) |
| Net cash provided by financing activities                                        | 540,620                 |   |  | 80,797 |   |  | 2,077,084 |   |
|                                                                             |
| (Decrease) increase in cash and cash equivalents                                 | (10,804                 | ) |  | 1,488,444 |  |  | (890,939 | ) |
| Cash and cash equivalents at beginning of year                                   | 1,885,867               |   |  | 397,423 |   |  | 1,288,362 |   |
|                                                                             |
| Cash and cash equivalents at end of year                                         | $                       | 1,875,063 |   |  | $ | 1,885,867 |   |  | $ | 397,423 |   |
|                                                                             |
| Supplemental disclosures of cash flow information:                               |
| Cash paid during the year for:                                                   |
| Interest                                                                         | $                       | - |  |  | $ | - |  |  | $ | 589 |  |
| Income taxes                                                                     | $                       | 4,356,000 |  |  | $ | 3,254,313 |  |  | $ | 44,300 |  |

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|                                                              | **Year Ended March 31** |
|--------------------------------------------------------------|-------------------------|
| **2009**                                                     |                         | **2008** |  | **2007** |
| Weighted average common shares outstanding – basic      | 4,659,486               |  | 4,635,470 |  | 4,620,371 |
| Effect of dilutive securities:                               |
| Stock options                                                | 121,135                 |  | 123,195 |  | 146,154 |
| Warrants                                                     | 4,944                   |  | 4,436 |  | 4,772 |
| Shares used in computing net income per share – diluted | 4,785,565               |  | 4,763,101 |  | 4,771,297 |

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**Table of Contents****Recent Accounting Pronouncements**     In April 2009, FASB released FASB Staff Position(FSP) SFAS Nos. 107-1, 115-2,and 157-4. FSP SFAS No. 107-1 requires publicly-traded companies to include disclosures aboutthe fair value of their financial instruments when issuing summarized financialinformation for interim reporting purposes. FSP SFAS No. 115-2 amends the other-than-temporary impairment guidance for debt securitiesto make the guidance more operational and to improve the presentation and disclosureof other-than-temporary impairments of debt and equity securities in the financialstatements. FSP SFAS No. 157-4 providesadditional guidance for estimating fair value in accordance with SFAS No. 157,*Fair Value Measurements*, when the volume and level of activity for theasset or liability have significantly decreased and includes guidance on identifyingcircumstances that indicate a transaction is not orderly. We adopted theStaff Positions at the beginning of fiscal 2010 and do not expect theadoption to have a significant impact on our financial statements.     In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*. SFAS No. 157 establishes a framework formeasuring fair value, clarifies the definition of fair value, and requires additionaldisclosures about fair-value measurements. SFAS No. 157 applies only tofair value measurements that are already required or permitted by other accountingstandards (except for measurements of share-based payments) and is expectedto increase the consistency of those measurements. SFAS No. 157, as issued,was effective for fiscal years beginning after November 15, 2007. In February2008, the FASB issued FSP SFAS No. 157-2,*Effective Date of FASB Statement No. 157*, that deferred the effectivedate of SFAS No. 157 for one year for certain nonfinancial assets and nonfinancialliabilities. Accordingly, we adopted certain parts of SFAS No. 157 at thebeginning of fiscal 2009 and the remaining parts at thebeginning of fiscal 2010. Partial adoption of SFAS No. 157 in fiscal 2009 did not resultin a material impact to our financial statements, and we do not expect adoptionof the remaining parts to have a significant impact on our financial statements.**NOTE 3. FAIR VALUE MEASUREMENTS**     As discussed in Note 2, we adopted the provisionsof SFAS No. 157 at the beginning of fiscal 2009. The adopted provisionsof SFAS No. 157 apply to all financial assets and liabilities that are beingmeasured at fair value on a recurring basis. We adopted the remaining provisionsof SFAS No. 157 at thebeginning of fiscal 2010, which apply to all non-financial assetsand liabilities that are being measured at fair value on a non-recurring basis.     SFAS No. 157 establishes a framework for measuring fair value, clarifies the definition offair value and expands disclosures about fair-value measurements. SFAS No. 157defines fair value as the price that would be received to sell an asset or paidto transfer a liability. Fair value is a market-based measurement that shouldbe determined using assumptions that market participants would use in pricingan asset or liability. SFAS No. 157 establishes a valuation hierarchy for disclosureof fair value measurements. The categorization within the valuation hierarchyis based on the lowest level of input that is significant to the fair valuemeasurement. The categories within the valuation hierarchy are described below:     Level 1 – Financial instruments with quoted prices in active markets for identicalassets or liabilities. Our Leve1 1 financial instruments consist of publicly-tradedmarketable debt securities that are classified as available-for-sale. On the balance sheets, available-for-sale securities are classifiedas “Marketable securities, short term” and “Marketable securities,long term.” The fair value of our available-for-sale securities was $32,446,748at March 31, 2009 and $22,851,007 at March 31, 2008.     Level 2 – Financial instruments with quoted prices in active markets for similarassets or liabilities. Level 2 fair value measurements are determined usingeither prices for similar instruments or inputs that are either directly orindirectly observable, such as interest rates. We do not have any financialassets or liabilities being measured at fair value that are classified as Level 2 financial instruments.     Level 3 – Inputs to the fair value measurement are unobservable inputs or valuationtechniques. We do not have any financial assets or liabilities being measuredat fair value that are classified as Level 3 financial instruments.**NOTE 4. MARKETABLE SECURITIES**     Marketable securities with remaining maturitiesless than one year are classified as short-term, and those with remaining maturitiesgreater than one year are classified as long-term. The maturities of our marketablesecurities as of March 31, 2009 were as follows:**Total****<1 Year****1–3 Years****3–5 Years****>5 Years**$32,446,748 $- $9,561,007 $22,885,741 $-F-11**Tableof Contents**     As of March 31, 2009 and 2008 our marketablesecurities were as follows: **As of March 31, 2009****As of March 31, 2008****AdjustedCost****GrossUnrealizedGains****GrossUnrealizedLosses****EstimatedFair MarketValue****AdjustedCost****GrossUnrealizedGains****GrossUnrealizedLosses****EstimatedFair MarketValue**U.S. agencysecurities$955,827  $30,647  $-    $986,474  $2,435,145  $8,018  $(11,308)  $2,431,855Corporate bonds13,983,202  54,085 (942,514)  13,094,7737,094,79358,702(9,157)7,144,338Municipal bonds   17,902,196 489,802 (26,497) 18,365,501 13,159,161 149,104 (33,451) 13,274,814Total$32,841,225 $574,534$(969,011) $32,446,748$22,689,099$215,824$(53,916)$22,851,007     The following table shows the gross unrealized lossesand fair value of our investments with unrealized losses, aggregated by investmentcategory and length of time that individual securities had been in a continuousunrealized loss position as of March 31, 2009 and 2008:**Less Than 12 Months****12 Months or Greater****Total****FairMarketValue****GrossUnrealizedLosses****FairMarketValue****GrossUnrealizedLosses****FairMarketValue****GrossUnrealizedLosses**As of March 31, 2009U.S. agency securities $- $-   $- $-   $- $-   Corporate bonds 7,278,810  (796,441)1,902,698(146,073)9,181,508(942,514) Municipal bonds 901,213  (6,436)  947,043  (20,061)   1,848,256  (26,497) Total$8,180,023 $(802,877) $2,849,741 $(166,134) $11,029,764 $(969,011)As of March 31, 2008U.S. agency securities $847,586$(6,193)$494,885$(5,115)$1,342,471$(11,308) Corporate bonds 3,506,909(9,157)- -3,506,909(9,157) Municipal bonds 3,323,926 (33,451) - -  3,323,926 (33,451) Total$7,678,421$(48,801)$494,885$(5,115)$8,173,306$(53,916)      Gross unrealized losses were attributable to our corporateand municipal bonds. The gross unrealized losses were primarily due to creditrating downgrades, interest rate fluctuations and market-price movements in anunstable bond market environment. Although a number of our bonds were downgradedduring fiscal 2009, all of the bonds that were rated by Moody’s or Standardand Poor’s had investment-grade credit ratings, and a substantial majoritywere rated A3/A- or better. For each bond with an unrealized loss, we determinedthat it was not probable that we would not collect all amounts due. In reachingthis determination, we considered factors including the credit ratings of thebonds, the underlying rating of insured bonds, whether the bonds were prefunded,and historical default rates for securities of comparable credit rating. Becausewe determined that it was not probable that we would not collect all amounts due,and because we have the ability and intent to hold our bonds until a recoveryof fair value, which may be maturity, we did not consider our any of our investmentsto be other-than temporarily impaired at March 31, 2009.**NOTE 5. INVENTORIES**     Inventories consisted of the following:**March 31****2009****2008**Raw materials$564,630$741,361 Work-in-process1,082,2901,184,062Finished goods 900,701  811,381 2,547,6212,736,804Less inventory reserve (300,000) (280,000)Total inventories$2,247,621 $2,456,804 F-12**Table of Contents****NOTE 6. STOCK-BASED COMPENSATION****Stock Option Plan**     Our 2000 Stock Option Plan, as amended, providesfor issuance to employees, directors, and certain service providers of incentivestock options and nonstatutory stock options. Generally, the options may beexercised at any time prior to expiration, subject to vesting based on termsof employment. The period ranges from immediate vesting to vesting over a five-yearperiod. The options have exercisable lives ranging from one year to ten yearsfrom the date of grant, and are generally not eligible to vest early in theevent of retirement, death, disability, or change in control. Exercise pricesare not less than fair market value of the underlying Common Stock at the datethe options are granted.**Valuation assumptions**     We use the Black-Scholes standard option-pricingmodel to determine the fair value of stock options. The following assumptionswere used to estimate the fair value of options granted:**Year Ended March 31****2009****2008****2007**Risk-free interest rate3.2%4.2%4.9%Expected volatility68%70%81%Expected life (years)3.7 3.56.5Dividend yield0%0%0%      The determination of the fair value of theawards on the date of grant using the Black-Scholes model is affected by ourstock price as well as assumptions of other variables, including projected employeestock option exercise behaviors, risk-free interest rate, and expected volatilityof our stock price in future periods. Our estimates and assumptions affect theamounts reported in the financial statements and accompanying notes.***Expected life***     We analyze historical employee exercise and terminationdata to estimate the expected life assumption. We believe historical data currentlyrepresents the best estimate of the expected life of a new employee option.Prior to adopting SFAS No. 123(R), we estimated that the expected lifewas equal to the option term. For determining the fair value of options underSFAS No. 123(R) we use different expected lives for officers and directorsthan we use for our general employee population. We examined the historicalpattern of option exercises to determine if there was a discernible patternas to how different classes of employees exercised their options. Our analysisshowed that officers and directors held their stock options for a longer periodof time before exercising compared to the rest of our employee population.***Risk-free interest rate***     The risk-free rate is based on the yield of U.S.Treasury securities on the grant date for maturities similar to the expectedlives of the options.***Volatility***     We use historical volatility to estimate the expectedvolatility of our common stock.***Dividend yield***     We assume a dividend yield of zero because wedo not anticipate paying dividends in the foreseeable future.**Expenses related to share-based payments**     The following table shows the effect of our adoptionof SFAS No. 123(R) on our net income and earning per share for fiscal 2009and 2008. Expenses and costs related to share-based payments are presented inthe same line or lines as cash compensation paid to the same employees. Theeffect of SFAS No. 123(R) is included in “Selling, general, and administrativeexpenses” and presented in the line titled “Stock-based compensation”on our Statements of Cash Flows:**Year Ended March 31****2009****2008****2007**Effect of SFAS No. 123(R) on net income$(86,672)$(169,606) $(136,370)Effect of SFAS No. 123(R) on net income per share:  Basic$(0.02)$(0.04) $(0.03)Diluted$(0.02)$(0.04) $(0.03) **Tax effects of stock-based compensation**     Stock-based compensation increased deferred taxesby $31,098 for fiscal 2009 and $60,599 for fiscal 2008.F-13**Table of Contents****General stock option information**     A summary of the status of our nonvested sharesat March 31, 2009 and changes during fiscal 2009 is presented below:**Nonvested Shares****Shares** **Weighted AverageGrant-DateFair Value**Nonvested at March 31, 20083,000 $       20.12Granted4,000  $       31.27Vested(5,500) $       28.23Forfeited-  - Nonvested at March 31, 20091,500  $       20.12      The following table summarizes information aboutoptions outstanding and options exercisable at March 31, 2009:**Options Outstanding** **Options Exercisable****Ranges of  Exercise Prices  ****NumberOutstanding****WeightedAverageExercisePrice****WeightedRemainingContractual Life(years)****NumberOutstanding****WeightedAverageExercisePrice**$    5.10 -   7.35 72,000 $6.56 1.8 72,000 $6.5610.01 - 20.12 147,750  16.13 6.0 146,250  16.0921.99 - 58.27 62,000  31.62 5.8 62,000  31.62   281,750 $17.10 4.9 280,250 $17.08      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.     A summary of our incentive stock options and warrants are shown in the following table:**Option Shares Reserved****OptionsOutstanding****Weighted AverageOption ExercisePrice per Share****WarrantsOutstanding****Weighted AverageWarrant ExercisePrice per Share**Balance at March 31, 2006198,230312,130$14.4712,597$13.51Granted(12,000)12,000$20.12--Exercised-(12,430)$2.13--Terminated- -  -(2,597)$2.86 Balance at March 31, 2007186,230311,700$15.1810,000$16.28Granted(8,000)8,000$34.71--Exercised-(11,300)$4.16--Terminated- -  --  - Balance at March 31, 2008178,230308,400$16.0910,000$16.28Granted(4,000) 4,000  $31.27 -    -Exercised-  (30,650) $8.82 -  -Terminated-  -   - -   - Balance at March 31, 2009174,230  281,750  $17.10 10,000  $16.28       Exercisable options were outstanding covering 280,250shares at March 31, 2009; 305,400 shares at March 31, 2008; and 305,450shares at March 31, 2007 at weighted-average exercise prices of $17.08, $16.05,and $15.16 per share. The remaining weighted-average exercisable life was 4.9,5.6, and 6.3 years.     No warrants were issued in the past three fiscal years.Exercisable warrants covering 10,000 shares with a weighted-average exerciseprice of $16.28 were outstanding at March 31, 2009, 2008 and 2007. Remainingweighted-average exercisable life was 3.9, 4.9, and 5.9 years at March 31,2009, 2008, and 2007.F-14**Table of Contents**     The total intrinsic value of options exercised duringfiscal 2009 was $788,587. At March 31, 2009 the total intrinsic value ofoptions outstanding was $3,501,688, of which $3,478,213 were exercisable. Intrinsicvalue is based on our closing stock price on the last trading day of the fiscalyear for in-the-money options.     The total fair value of grants was $64,280 in fiscal2009. At March 31, 2009, there was $8,282 of total unrecognized stock-basedcompensation expense, adjusted for estimated forfeitures, which is expected tobe recognized over a weighted-average period of five months and will be adjustedfor any future changes in estimated forfeitures.**NOTE 7. INCOME TAXES**     Income tax provisions for fiscal 2007 through 2009consisted of the following:**Year Ended March 31****2009****2008****2007**Current taxesFederal$4,304,330$2,808,433$2,338,592State351,625314,904278,309 Deferred taxesFederal(17,880)719,197(188,476)State 6,630  50,086  (17,405)Income tax provision$4,644,705 $3,892,620 $2,411,020       A reconciliation of income tax provisions at theU.S. statutory rate for fiscal 2007 through 2009 is as follows: **Year Ended March 31****2009****2008****2007**Tax expense at U.S. statutory rate$4,905,384 $3,767,201$2,445,214State income taxes, net of Federal benefit271,307 238,861179,984Domestic manufacturing deduction(238,679)-- Municipal interest(197,065)-- Other(96,242)87,512(50,311)Benefit of tax credits- -(61,302)Change in valuation allowance -  (200,954) (102,565)Income tax provision$4,644,705 $3,892,620 $2,411,020       Deferred income taxes reflect the net tax effectsof temporary differences between the carrying amount of assets and liabilitiesfor financial reporting purposes and the amounts used for income tax purposes.Significant components of our deferred tax assets and liabilities as of March 31,2009 and 2008 were as follows: **March 31****2009****2008**Deferred tax assetsDeferred revenue$37,375$68,035Vacation accrual107,51795,301Inventory reserve107,640101,598Depreciation67,90168,668Stock-based compensation deductions136,587106,681Unrealized loss (gain)141,538 (58,748)Other 69,171  71,870 Net deferred tax assets$667,729 $ 453,405 F-15**Table of Contents**     Realizations of stock-based compensation deductionsare credited to “Additional paid-in capital” and included in “Taxbenefit of stock-based compensation” on our statements of shareholders’equity. Credits of $270,413 in fiscal 2009 were attributed to stock-based compensationdeductions. Credits of $33,773 in fiscal 2008, and $2,083,886 in fiscal 2007 to“Additional paid-in capital” were due principally to the reversal ofvaluation allowances against deferred tax assets for carryforwards of net operatinglosses that were attributable to stock-based compensation deductions. The reversalsoccurred as a result of the actual utilization of such net operating loss carryforwardsin those respective years. The “Additional paid-in capital” creditsalso included the tax benefit of stock-based compensation deductions in thoseyears. The amounts credited to “Additional paid-in capital” were thetax benefits of the deductions to the extent they exceeded the corresponding compensationexpense recognized for financial reporting purposes, in accordance with paragraph 62of SFAS No. 123(R) “Tax benefitof stock-based compensation” represented: (i) in accordance with paragraph 62of SFAS No. 123(R), the tax benefitsof deductions for stock-based compensation to the extent they exceeded the correspondingcompensation expense recognized for financial reporting purposes, and (ii) reversalsof valuation allowances against deferred tax assets for net operating loss carryforwardsattributable to stock-based compensation deductions. Cash we received from theexercise of stock options related to excess tax benefits is included in “Netproceeds from sale of common stock” in the statement of cash flows for theyear in which the option was exercised and cash received by us.     During fiscal 2007 we reversed a $1,855,848 valuationallowance due to our assessment that it was more likely than not that we wouldearn sufficient operating income to realize the remaining deferred tax assets.We exhausted our stock-based compensation deductions during fiscal 2008.     We have $311,584 of Federal net operating lossesand $255,433 of state net operating losses. These netoperating losses expire in fiscal 2020 and are subject to limitation including limitation under Section 382 of the InternalRevenue Code.    We record all income tax accruals in accordance with FinancialAccounting Standards Board Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes – an interpretation of FASB Statement No. 109*.At March 31, 2009 we had no unrecognized tax benefits, and we do not believeunrecognized tax benefits will significantly change within 12 months of the reportingdate. We recognize interest and penalties related to income tax matters in incometax expense. As of March 31, 2009 we had no accrued interest related to uncertaintax positions. The tax years 1999 through 2008 remain open to examination by themajor taxing jurisdictions to which we are subject.**NOTE 8. SEGMENT INFORMATION**     We operate in one reportable segment. We manufactureand sell spintronic products, and we receive contracts for research and development.     The following table summarizes customers comprising10% or more of revenue for fiscal 2009, 2008, and 2007: **% of Revenue forYear Ended March 31****2009****2008****2007**U.S. Government agencies* * 10% Customer A19%17%23% Customer B *  10%11% Customer C11%* * Customer D10%* *    *Less than 10%     Revenue by geographic region was as follows: **Year Ended March 31****2009****2008****2007**United States$12,445,164$10,792,550$9,901,667Europe8,154,2615,981,9403,568,014Asia2,314,6263,274,7002,577,961Other 458,218 479,622 413,188Total Revenue$23,372,269$20,528,812$16,460,830F-16**Table of ContentsNOTE 9. COMMITMENTS AND CONTINGENCIESLeases**     Lease payments were $234,368 for fiscal 2009, $224,712for fiscal 2008, and $193,010 for fiscal 2007. In fiscal 2008 we executed a thirdamendment extending the operating lease for our facility through December 31,2015. We pay operating expenses including maintenance, utilities, real estatetaxes, and insurance in addition to rental payments. We also lease a piece ofoffice equipment under an operating lease expiring July 2014 with payments duequarterly. Our future minimum lease payments are shown in the following table: **Year Ending March 31****2010****2011****2012****2013****2014****2015****2016****Total**$244,387 $247,858 $251,490 $255,121 $258,806 $261,579 $198,186 $1,717,427 **NOTE 10. COMMON STOCK**     Our authorized stock is stated as six millionshares 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 preferencesto 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 remains available.**NOTE 11. INFORMATION AS TO EMPLOYEE STOCK PURCHASE, SAVINGS, AND SIMILAR PLANS**     All of our employees are eligible to participatein our 401(k) savings plan the first quarter after reaching age 21. Employeesmay contribute up to the Internal Revenue Service maximum. We make matching contributionsof 100% of the first 3% of participants’ salary deferral contributions. Ourmatching contributions were $95,289 for fiscal 2009, $94,585 for fiscal 2008,and $97,674 for fiscal 2007.F-17**Table of Contents****EXHIBIT INDEX****Exhibit #****Description**   23Consent of Ernst & Young LLP.   31.1Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).   31.2Certification by Curt A. Reynders pursuant to Rule 13a-14(a)/15d-14(a).   32Certification 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.