**UNITED
                STATES**
 **SECURITIES
                AND EXCHANGE COMMISSION**
 **Washington,
                D.C.  20549**
 **______________**
 
 **Form
                10-K**
 (Mark
                One)
 [ x ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934
 For
                the
                fiscal year ended **March
                31, 2007**
 
 [   ]  TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934
 For
                the
                transition period from _____________________to____________________
 Commission
                file number **000-12196**
 
 
 **NVE
                Corporation**
 (Exact
                name of registrant as specified in its charter)
 
 **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)
  Registrant’s telephone number, including area code **(952)** **829-9217**
 
 Securities registered pursuant to Section 12(b) of the Act:
  Title
                            of each
                            class
                        Name
                            of each exchange on which
                            registered**Common
                            stock, $0.01 par value (“Common
                            Stock”)**
                        **The
                            NASDAQ Stock Market
                            LLC**
 
 Indicate
                by check mark if the registrant is a well-known seasoned issuer,
                as defined in
                Rule 405 of the Securities Act.
 Yes [   ]No
                [ x ]
 Indicate
                by check mark if the registrant is not required to file reports pursuant
                to
                Section 13 or Section 15(d) of the Act.
 Yes [   ]No
                [ x ]
  Indicate
                by check mark whether the registrant (1) has filed all reports required
                to be
                filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
                during the
                preceding 12 months (or for such shorter period that the registrant
                was required to file
                such
                reports), and (2) has been subject to such filing requirements for
                the past 90
                days.
 Yes [ x
                ] No
                [   ]
  Indicate
                by check mark if disclosure of delinquent filers pursuant to Item 405 of
                Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
                be contained, to the best of the registrant’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. [ x ]
  Indicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, or a non-accelerated filer. See definition of
“accelerated
                filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
                one):
 
 Large
                            accelerated filer
                            [   ]
                        Accelerated filer [ x ]
                        Non-accelerated
                            filer
                            [   ]
 
 Indicate
                by check mark whether the registrant is a shell company (as defined
                in Rule
                12b-2 of the Act).
 Yes [   ] No [ x ]
 The
                aggregate market value of the voting and non-voting common equity
                held by
                non-affiliates as of the last business day of the registrant’s most recently
                completed second fiscal quarter was approximately $138 million based on the
                last sale price of $29.99 per share as reported by the NASDAQ Stock Market
                for September 30, 2006.
  The
                number of shares of the registrant’s Common Stock (par value $0.01) outstanding
                as of May 15, 2007 was 4,632,383.
 **______________**
 
 **DOCUMENTS
                INCORPORATED BY REFERENCE**
 
 Portions of our Proxy Statement for our 2007 Annual Meeting of Stockholders
                are
                incorporated by reference into Items 10, 11, 12, and 14 of Part III
                hereof.
  
  **NVE
                CORPORATION**
 **INDEX
                TO FORM 10-K**
  **PART
                I**
 Item
                1. Business.
 Our
                Strategy
 Our
                Products and Markets
 Sensor
                Products and Markets
 Coupler
                Products and Markets
 MRAM
                Products and Markets
 Product
                Manufacturing
 Sales
                and Product
                Distribution
 New
                Product Status
 Our
                Competition
 Principal
                Suppliers and Raw
                Materials
 Intellectual
                Property
 Working
                Capital Items
 Major
                Customers
 Backlog
 Seasonality
 Research
                and Development
                Activities
 Government
                Regulations
 Number
                of Employees
 Financial
                Information About Geographical
                Areas
 Available
                Information
 Item
                1A. Risk Factors.
 Item
                2. Properties.
 Item
                3. Legal Proceedings.
 Item
                4. Submission of Matters to a Vote of Security
                Holders.
  **PART
                II**
 Item
                5. Market for Common Equity and Related Stockholder
                Matters.
 Stock
                Price Performance
                Graph
 Item
                6. Selected Financial Data.
 Item
                7. Management’s Discussion and Analysis of Financial
                Condition and Results of Operation.
 Results
                of Operations
 Liquidity
                and Capital Resources
 Outlook
 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**
 Report
                of Independent Registered Public
                Accounting Firm
 Balance
                Sheets
 Statements
                of Income
 Statements
                of Shareholders’ Equity
 Statements
                of Cash Flows
 Notes
                to Financial
                Statements
  
  **PART
                I**
 
 **FORWARD-LOOKING
                STATEMENTS**
 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 (“SEC”) 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 adverse economic conditions,
                competition
                including entry of new competitors, progress in research and development
                activities by us and others, variations in costs that are beyond
                our control,
                adverse legal proceedings, lower sales, failure of suppliers to meet
                our
                requirements, failure to obtain new customers, inability to carry
                out marketing
                and sales plans, inability to meet customer technical requirements,
                inability to
                consummate license agreements, ineligibility for SBIR awards, loss
                of key
                executives, and other specific risks that may be alluded to in this
                Report. For
                further information regarding our risks and uncertainties, see Item
                1A “Risk
                Factors” of this Report.
 
 **ITEM
                1. BUSINESS.**
 **In
                General**
 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.
 
 **NVE
                History and Background**
 NVE
                is a
                Minnesota corporation headquartered in a suburb of Minneapolis. We
                were founded
                in 1989 primarily as a government contract research company. Our
                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 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 31.
 
 **Our
                Enabling Technology**
 Our
                designs use one of two nano-scale spintronic structures: giant magnetoresistors
                or spin-dependent tunnel junctions. Both structures produce a large
                change in
                electrical resistance depending on the electron spin orientation
                in a free
                layer.
 
 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 are generally less than two nanometers or five atomic layers
                thick.
  The
                second type of spintronic structure we use is spin-dependent tunnel
                junctions,
                which are also known as SDT junctions, Magnetic Tunnel Junctions
                (MTJs), or
                Tunneling Magnetic Junctions (TMJs). SDT junctions use tunnel barriers
                that are
                so thin that electrons can “tunnel” through a normally insulating material to
                cause a resistance change. SDT barrier thicknesses are in the range
                of one to
                four nanometers (less than ten molecules). Technological advances
                in recent
                years have made it practical to manufacture such small dimensions.
 
 In
                our
                products the spintronic elements are connected to integrated circuitry
                and
                packaged in much the same way as conventional integrated circuits.
 
 **Industry
                Background**
 Much
                of
                the electronics industry is devoted to the acquisition, storage and
                transmission
                of information. Global trends such as richer data, more video, and
                remote data
                collection test the speed and capacity of conventional electronics.
 
 We
                believe spintronics represents the first major change in microelectronic
                technology since the advent of these devices a generation ago. The
                1970s brought
                microelectronic devices including Hall-effect sensors for data acquisition,
  3
 semiconductor
                random access memory (commonly known as RAM) for data storage, and
                light-emitting diode-based optical couplers for data transmission.
                There have
                been incremental improvements to these devices over the years, but
                the inherent
                limitations of charge-based electronics remain. We believe spintronics
                can
                address these significant markets.
  Memories
                are a critical part of almost every electronic device. For some electronic
                device functions speed is required; others require a large amount
                of memory; and
                some require nonvolatility. No single semiconductor memory meets
                all three of
                these requirements. For example, a cellphone requires the bit density
                of DRAM
                for the operating software, the speed of SRAM for digital signal
                processing, and
                the nonvolatility of flash memory for phone books, ring tones, and
                other
                permanent storage. The three memories consume power and space. Because
                they use
                incompatible materials, the three memories are difficult to combine
                with each
                other or with other cellphone circuitry in a single integrated
                circuit.
 
 Near-term
                potential MRAM applications include mission-critical storage such
                as military
                and industrial applications. As its density increases and cost per
                bit
                decreases, MRAM could replace semiconductor memories in cellphones,
                computers,
                and other electronic devices enabling smaller, faster, and more power-efficient
                electronics.
 
 Our
                sensors are used to detect small changes in magnetic fields. We believe
                our
                spintronic sensors are smaller, more precise, and more reliable than
                competing
                devices. They can be used to detect the position or speed of robotics
                and
                mechanisms, or to acquire information in medical devices or automobiles.
                As
                factories become more automated, there is a need for more precise
                position
                sensing. Better sensors could also enable smaller, more reliable
                medical devices
                and more efficient automobiles.
 
 Like
                sensors, couplers are widely used in factory automation. Couplers
                provide
                reliable digital communication between the various 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.
 
 **Our
                Strategy**
 Our
                vision is to become the leading developer of practical spintronics
                technology
                and devices. We plan to do that by selling products and licensing
                MRAM
                technology. Our strategy is to continue to reduce our dependence
                on government
                contracts and transition toward product sales and licensing as our
                principal
                revenue sources.
 
 ***Grow
                Product Sales***
 We
                plan
                to broaden our sensor and coupler product lines, expand our distribution
                network, and promote our products with advertising or direct mail
                campaigns.
 
 ***Monetize
                MRAM Intellectual Property Through Licensing***
 Because
                of the large capital investment required to make large-scale memories,
                our
                strategy is to monetize our MRAM intellectual property by licensing
                other
                companies to make devices using our technology. We intend to pursue
                new license
                agreements, although there can be no assurance as to when or if we
                will
                consummate additional agreements. For a discussion regarding our
                existing
                license agreements, see Item 1 “Business -Intellectual
                Property-
                Licenses.”
 
 ***Transition
                to Product Sales and License Revenue from Contract
                Research***
 Government
                research and development contracts were the source of some of our
                patents and
                product developments, and our primary source of revenue for much
                of our history.
                We have redeployed personnel from contract research to company-funded
                product
                research because we believe product sales have higher profit and
                growth
                potential, and that company-funded research will have a higher rate
                of
                return.
 
 **Our
                Products and
                Markets**
 We
                operate in one reportable segment. For financial information concerning
                this
                segment see “Note 7 - Segment Information” of the Financial Statements
                included elsewhere in this Report.
 
 ***Sensor
                Products and
                Markets***
 Our
                sensor products detect the presence of a magnet or metal 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’ exact requirements. Our sensors are quite small, very sensitive to
                magnetic fields, precise, and reliable. These advantages have allowed
                us to
                establish a presence in the industrial, scientific, and medical (ISM)
                market.
  4
 *Standard
                sensors*
 Our
                standard or catalog sensors are generally used to detect the presence
                of a
                magnet or metal 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.
 
 *Custom
                and medical sensors*
 Our
                primary custom products are sensors for medical devices, which are
                customized to
                our customers’ requirements and manufactured in accordance with 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.
                Anticipated future custom sensor markets include consumer and automotive
                markets.
 
 ***Coupler
                Products and
                Markets***
 Our
                spintronic couplers add an “IsoLoop” integrated microscopic coil to our basic
                GMR sensor element. The coil creates a small magnetic field that
                is picked up by
                the spintronic sensor, transmitting data almost instantly. Couplers
                are also
                known as “isolators” because they electrically isolate the coupled systems. Our
                IsoLoop couplers are much faster than the fastest optical couplers.
 
 We
                have
                two main series of couplers: the original IsoLoop 700 Series, and the
                newer, award-winning IsoLoop 600 Series. The newer couplers use spintronic
                input
                stages while our original products use semiconductor input stages.
                Our couplers
                are sold primarily for factory and industrial networks. Automotive
                and medical
                applications are possible in the future.
 
 ***MRAM
                Products and
                Markets***
 MRAM
                uses
                spintronics to store data, combining the speed of semiconductor memory
                with the
                nonvolatility of magnetic disk drives. MRAM is inherently nonvolatile,
                meaning
                the data remains even if power is removed. MRAM has been called the
                ideal or
                universal memory because it has the 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. In MRAMs, the spin of the electrons
                is set
                with tiny bursts of energy. We have invented several types of MRAM
                memory cells
                and modes of operation.
 
 Advanced
                MRAM designs that we are developing or have developed include Vertical
                transport
                MRAM (also known as VMRAM), magnetothermal MRAM, and spin-momentum
                transfer
                MRAM. We believe such design approaches have the potential to increase
                the
                scalability of MRAM.
 
 In
                the
                near term, MRAM could replace battery-backed-up SRAMs in mission-critical
                systems such as military, factory control, point-of-sale terminals,
                and gaming
                electronics. MRAM has the potential advantages of being simpler,
                lower cost, and
                more reliable than battery/memory systems. Long term, MRAM could
                address the
                market for ubiquitous high-density memory.
 
 **Product
                Manufacturing**
 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 wafers or foundry wafers.
                Foundry
                wafers contain conventional electronics that perform housekeeping
                functions such
                as voltage regulation and signal conditioning in our products.
 
 Each
                wafer may include thousands of devices. We build spintronics structures
                on
                wafers in our fabrication facility and send the completed wafers
                to Asia for
                dicing and packaging. The packaged parts are returned to us to be
                tested,
                inventoried, and shipped.
 
 **Sales
                and Product
                Distribution**
 We
                rely
                primarily on distributors who stock and sell our products in more
                than 75
                countries. Our distributors include Digi-Key Corporation and Newark
                InOne, two
                of the largest electronic component distributors in the U.S. Our
                agreements with
                distributors generally renew annually. In addition, Avago Technologies,
                one of
                the world’s leading suppliers of solid-state couplers, distributes Agilent-
                and
                Avago-branded versions of some of our couplers under an agreement
                between
                Agilent Technologies, Inc. and us that expires in June 2007. Avago
                is comprised
                of the former Agilent Semiconductor Product Group. We believe we
                are less
                dependent on Avago than in past years because we have expanded our
                own
                distribution. We do not know whether we will reach an agreement for
                Avago to
                continue to distribute our products.
  5
 **New
                Product Status**
 In
                the past year we began selling several new products including:
 ·
                    new
                        custom spintronic sensors for certain medical device
                        manufacturers; ·
                    a
                        new signal coupler combining spintronic coupling with RS-422
                        network
                        protocol functions in a small package; ·
                    additional
                        coupler models in Micro-Small Outline Packages (MSOPs);
                        and ·
                    a
                        new series of spintronic couplers called the IsoLoop 700S-Series,
                        which
                        transmit up to two channels of data at up to 150 million
                        bits per
                        second. 
 **Our
                Competition**
 
 ***Industrial
                Sensor Competition***
 A
                limited
                number of other companies claim to either make or have the capability
                to make
                GMR sensors. Several competitors also 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
                or precise
                as our GMR sensors.
 
 ***Medical
                Sensor Competition***
 Our
                medical sensors face competition from electromechanical magnetic
                sensors such as
                reed switches. Reed switches have been in use for several decades.
                A reed switch
                uses a pair of contacts that pull together when subjected to a magnetic
                field,
                closing an electrical circuit. Our medical sensor competitors include
                Hermetic
                Switch, Inc., which manufactures miniature magnetically operated
                reed switches.
                Additionally, Meder Electronic AG (Engen/Welschingen, Germany) and
                Memscap SA (Grenoble, France) manufacture microelectromechanical system
                (MEMS) reed switches. Because our sensors have no moving parts, we
                believe they
                are inherently more reliable than miniature and MEMS reed switches.
                We also
                believe our sensors are smaller than the smallest reed switches,
                more precise in
                their magnetic switch points, and more sensitive to small magnetic
                fields.
 
 ***Coupler
                Competition***
 Competing
                digital coupler technologies include optical couplers, inductive
                couplers
                (transformers), and capacitive couplers.
 
 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 faster than optical
                couplers.
 
 Inductive
                couplers are made by a number of companies including Analog Devices,
                Inc. and
                Silicon Laboratories Inc. Unlike our IsoLoop couplers, inductive
                couplers
                require special encoding to transmit logic signals. Furthermore,
                IsoLoop
                couplers require much less board space than most optical or inductive
                couplers.
                MEMS inductive couplers are smaller than other inductive couplers,
                but we
                believe our devices generally have higher channel density per area,
                higher
                speed, less signal distortion, and generate less noise. Manufacturers
                of
                capacitive couplers include Texas Instruments Incorporated. We believe
                we have a
                broader product line and higher channel density than is available
                for capacitive
                couplers.
 
 We
                make
                several network signal couplers that combine spintronics coupling
                with network
                protocol functions such as RS-485 (also known as TIA-485 or EIA-485),
                in a
                single package. Competitive network signal couplers are available
                from Analog
                Devices; Linear Technology Corporation; and Maxim Integrated Products,
                Inc.
                Based on a comparison of published specifications, we believe our
                devices have
                speed, input voltage range, and product-line breadth advantages over
                other
                network signal couplers.
 
 ***MRAM
                Competition***
 Most
                currently available memories are volatile, meaning data is lost when
                power is
                removed. Memories in this category include dynamic random access
                memory (DRAM)
                and static random access memory (SRAM). MRAM has the potential to
                match or
                exceed the speed of such memories without the volatility. Currently
                available
                nonvolatile memories include flash memory and ferroelectric random
                access memory
                (FRAM). MRAM is potentially faster and uses less power than existing
                nonvolatile
                memories. Furthermore, existing nonvolatile memories can be written
                only a
                limited number of times before they wear out, while MRAM has virtually
                unlimited
                life. Additionally, flash memory may be subject to scalability limitations
                that
                could limit its density in coming years. We do not believe MRAM is
                subject to
                those limitations.
 
 There
                are
                many flash memory manufacturers, most of which are large semiconductor
                companies. Silicon-oxide-nitride-oxide-silicon (SONOS) and thin-film
                storage
                (TFS) have been proposed as improvements to flash memories. Simtek
                Corporation
                and Cypress Semiconductor Corporation are among companies reported
                to be
                developing SONOS memory; Freescale Semiconductor, Inc. has said it is
                developing TFS memory. Both types of memory appear to have many of
                the
                limitations of conventional flash memory such as limited speed and
                endurance.
  6
 Battery-backed-up
                SRAM manufacturers include Maxim. We believe that MRAM has the potential
                of
                being simpler, lower cost, and more reliable than battery-backed-up
                SRAM.
 
 Emerging
                technologies competing with MRAM include carbon nanotubes, phase-change
                memory
                (PCM; also known as PRAM, chalcogenide, CRAM, or Ovonic memory),
                polymer memory,
                and polymeric ferroelectric random access memory (PFRAM). We believe
                that MRAM
                has advantages over these technologies in some or all of the following
                areas:
                degree of commercialization, manufacturability, speed, and endurance.
                Companies
                developing carbon nanotube memory include Nantero, Inc. Companies
                developing PCM
                include Elpida Memory, Inc.; IBM Corporation; Infineon; Intel; Macronix
                International Company, Ltd.; Ovonyx, Inc.; Philips; Samsung Electronics
                Company
                Ltd.; and STMicroelectronics. Companies developing polymer memory
                include Thin
                Film Electronics ASA and Coatue.
 
 Other
                companies that may compete with us for MRAM research and development
                or service
                business, or that may be attempting to develop MRAM intellectual
                property with
                the intention of licensing to others, include Crocus Technology SA
                (Grenoble, France), Grandis, Inc., Spintec (Grenoble, France), and
                Spintron
                (Marseille, France).
 
 **Principal
                Suppliers****and Raw Materials**
 Our
                principal suppliers include manufacturers of semiconductor wafers
                that are
                incorporated into our products. These include Advanced Semiconductor
                Manufacturing Corporation of Shanghai (China); AMI Semiconductor,
                Inc.; Intersil
                Corporation; Silicon
                Quest International, Inc.; Taiwan Semiconductor Manufacturing Corporation;
                and
                Texas Instruments Inc. Other companies supply our device packaging
                services,
                including CIRTEK Electronics Corporation (Laguna, The Philippines);
                Circuit
                Electronics Industries (Ayutthaya, Thailand); NS Electronics Bangkok
                (Thailand),
                Ltd.; and SPEL Semiconductor Limited (Chennai, India).
 
 **Intellectual
                Property**
 
 ***Patents***
 As
                of
                March 31, 2007 we had 41 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. Our technology is protected by
                more than 100
                patents worldwide either issued, pending or licensed from others.
                We are
                continuing to develop inventions and expect to add to our patent
                portfolio.
                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.
  Much
                of our intellectual property has been developed with U.S. Government
                support. In
                accordance with federal legislation, companies normally may retain
                the principal
                worldwide patent rights to any invention developed with U.S. Government
                support.
  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 “Spin
                Dependent Tunneling Memory,” 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.
 
 ***Trademarks***
 Our
                trademarks include “AT-MRAM,” “GMR Switch,” and “GT Sensor.” “IsoLoop” is our
                registered trademark.
 
 ***Licenses***
 We
                have
                licensed certain MRAM intellectual property to several companies,
                including
                Cypress, Honeywell, Union Semiconductor Technology Corporation, and
                Motorola,
                Inc.
 
 *Agreements
                with Honeywell*
 We
                have
                agreements and amendments to agreements with Honeywell dating back
                approximately
                to our founding. Under these agreements we have not paid royalties
                to Honeywell
                for the use of their intellectual property, and Honeywell has intellectual
                property rights to certain of our earlier-developed MRAM
                technology.
 
 *Motorola
                License*
 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. Motorola
                and
                Freescale asked us to consent to Motorola’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.
  7
 *Royalty
                Agreement*
 We
                have
                licensed rights to another organization’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 not been material to date. The
                agreement
                remains in forceuntilthe
                expiration of the last patent, which is in 2009, or until cumulative
                royalties
                of $1.2 million have been paid, whichever is earlier.
 
 **Working
                Capital Items**
 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 historically deployed
                significant
                capital in inventories to have products available from stock, to
                receive more
                favorable pricing for raw materials, and to guard against raw material
                shortages.
 
 **Major
                Customers**
 We
                rely on several large customers for a large percentage of our revenue;
                these
                include Avago Technologies (the company comprised of the former Agilent
                Technologies, Inc. Semiconductor Product Group); St. Jude Medical,
                Inc.; Starkey
                Laboratories, Inc.; the U.S. Government; and certain distributors.
                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.
 
 **Backlog**
 As
                of March 31, 2007 we had $1,417,844 of contract research and development
                backlog we believed to be firm, compared to $682,685 as of March 31, 2006.
                We expect most of the firm backlog as of March 31, 2007 to be filled within
                fiscal 2008. Approximately 98%
                of
                our backlog as of March 31, 2007 and 90% as of March 31, 2006 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,
                however of additional contracts or follow-on contracts for expired
                or completed
                U.S. Government contracts.
  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 for delivery of standard products. 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 needs. In light of 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.
 
 **Seasonality**
 In
                each of the past three fiscal years our product sales have been less
                in quarters
                ended December 31 than the immediately preceding or subsequent quarters.
                This may have been due in part to distributor ordering patterns or
                customer
                vacations and shutdowns late in calendar years. We do not know if
                this pattern
                will continue.
 
 **Research
                and Development
                Activities**
 We
                spent $1,789,844 for
                fiscal 2007, $1,096,970 for fiscal 2006, and $841,731 for fiscal
                2005 in company-sponsored research
                and development activities .
                Over
                the past three fiscal years these activities have included development
                of new
                sensors and couplers, and lower-cost product designs. Additionally,
                we spent
                $2,090,200 during fiscal 2007 , $3,817,378 during fiscal 2006, and $5,018,469 during fiscal 2005
                on
                customer-sponsored research and development contract activities.
                These research
                and development contracts were with various agencies of the U.S.
                Government as
                well as other companies.
 
 **Government
                Regulations**
 We
                are
                subject to various local, state, and federal laws, regulations and
                agencies that
                affect businesses generally. These include regulations promulgated
                by federal
                and state environmental and health agencies, the federal Occupational
                Safety and
                Health Administration, and laws pertaining to the hiring, treatment,
                safety, and
                discharge of employees. Compliance with these laws and regulations
                has not had a
                material effect on our capital expenditures, earnings, or competitive
                position.
 
 **Number
                of Employees**
 We
                had 48
                employees as of March 31, 2007 compared to 50 as of March 31,
                2006 .
                The
                decrease in employees was primarily due to a shift in revenue mix
                toward product
                sales and increased manufacturing productivity. These changes allowed
                us to
                increase our revenue per employee. Our employment can fluctuate due
                to a variety
                of factors. None of our employees is represented by a labor union
                or is subject
                to a collective bargaining agreement, and we believe we maintain
                good relations
                with our employees.
  8
 **Financial
                Information About Geographical
                Areas**
 Foreign
                sales accounted for approximately 40% of our revenue in fiscal 2007,
                32% in
                fiscal 2006, and 24% in fiscal 2005. The increases in the proportion
                of
                international sales is due in part to a shift in our revenue mix
                toward product
                sales, which tend to be worldwide, from contract research and development,
                which
                is primarily from the U.S. More information about geographical areas
                is
                contained in “Note 7 - Segment Information” of the Financial
                Statements included elsewhere in this Report.
 
 **Environmental
                Matters**
 We
                are
                subject to environmental laws and regulations, particularly with
                respect to
                industrial waste. Compliance with these laws and regulations has
                not had a
                material impact on our capital expenditures, earnings, or competitive
                position.
 
 **Available
                Information**
 All
                reports we file with the SEC, including our annual reports on Form
                10-K,
                quarterly reports on Form 10-Q, current reports on Form 8-K, and
                proxy
                statements on Form 14A, as well as any amendments to those reports,
                are
                accessible at no cost through the “Investors” section of our Website
                (www.nve.com). These filings are also accessible through the SEC’s Website
                (www.sec.gov).
 
 **ITEM
                1A. RISK FACTORS.**
 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.
 
 **Risks
                Related to Our Business**
 ***We
                may lose revenue if any of our large customers cancel, postpone,
                or reduce their
                purchases.***
 We
                rely
                on several large customers for a large percentage of our revenue.
                These large
                customers include Avago Technologies; St. Jude Medical, Inc.; Starkey
                Laboratories, Inc.; the U.S. Government; and certain distributors.
                Orders from
                these large customers can be cancelled, postponed, or reduced without
                cause, and
                the loss of any of these customers could have a significant impact
                on our
                revenue and our profitability.
 
 ***We
                may lose revenue if we are unable to renew agreements with large
                customers.***
 The
                agreement between Agilent Technologies, Inc. and us, as amended, expires
                June 26, 2007 and our Supplier Partnering Agreement with St. Jude
                Medical expires December 31, 2007. Avago Technologies purchases components
                from us under the Agilent agreement. We cannot predict if either
                the Agilent or
                St. Jude agreements will be renewed, or if renewed, under what terms.
                The
                inability to agree on mutually acceptable terms or the loss of either
                of these
                large customers could have a significant adverse impact on our revenue
                and our
                profitability.
 
 ***We
                rely on government contracts for a significant percentage of our
                revenue and we
                will lose revenue if government funding is reduced or
                eliminated.***
 U.S.
                Government contracts accounted for the majority of our fiscal 2005
                revenue.
                While U.S. Government contract revenue decreased as a percentage
                of our revenues
                in fiscal 2006 and was less than 10% of our total revenue in fiscal
                2007, such
                contracts remain important to us. A material decrease in U.S. Government
                funding
                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. U.S. Government funding is dependent upon adequate
                continued
                funding of the agencies and their programs. A significant portion
                of our U.S.
                Government funding is through Small Business Innovation Research
                (SBIR)
                contracts. SBIR program budgets may be changed by legislation or
                by agencies
                such as the Department of Defense. Other government spending priorities
                over
                which we have no control, such as the wars in Iraq and Afghanistan,
                may affect
                availability of U.S. Government funds in general and SBIR funds in
                particular.
 
 ***Failure
                to qualify as a small business under federal regulations could make
                us
                ineligible for some government-funded research grants, which could
                have a
                significant adverse impact on our revenue and our ability to make
                research and
                development progress.***
 We
                received approximately $1.43 million in Small Business Innovation
                Research
                (SBIR) contract awards in fiscal 2007. 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.
  9
 ***Our
                backlog may not result in future revenue.***
 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.
 
 ***We
                face an uncertain economic environment in our industry that could
                adversely
                affect our business and operations.***
 The
                semiconductor market, which is the primary market for our products,
                has been
                subject to sudden downturns in the past. Any future downturn in the
                economic
                environment would likely have a material adverse impact on our business
                and
                revenue.
 
 ***Our
                reputation could be damaged and we could lose revenue if we fail
                to meet
                technical challenges required to produce marketable
                products.***
 Our
                products use new technology and we are continually researching and
                developing
                product designs and production processes. Our production processes
                require
                control of magnetic and other parameters that are not required in
                conventional
                semiconductor processes. If we are unable to develop stable designs
                and
                production processes, we may not be able to produce products that
                meet our
                customers’ requirements, which could cause damage to our reputation and loss
                of
                revenue.
 
 ***Our
                failure to meet stringent customer technical requirements could result
                in the
                loss of key customers and potentially reduce our
                sales.***
 Some
                of
                our customers, includingAvago
                Technologies, St. Jude Medical, and Starkey Laboratories, have stringent
                technical requirements which require our products to pass certain
                test and
                qualification criteria before they are accepted by such customers.
                Failure to
                meet those criteria could result in the loss of current sales revenue,
                customers
                and future sales.
  ***Our
                sensors are incorporated into medical devices, which could expose
                us to a risk
                of product liability claims and such claims could seriously harm
                our business
                and financial condition.***
 Certain
                of our sensor products are used in medical devices, including cardiac
                pacemakers
                and implantable cardioverter defibrillators (ICDs) made by St. Jude
                Medical, which help sustain human life. We are also marketing our
                sensor
                technology to other manufacturers of cardiac pacemakers and ICDs.
                Although we
                have an indemnification agreement with a St. Jude Medical company with
                provisions designed to limit our exposure to product liability claims,
                there can
                be no assurance that we will not be subject to losses, claims, damages,
                liabilities, or expenses resulting from bodily injury or property
                damage arising
                from the incorporation of our sensors in products sold by St. Jude Medical
                or others. Existing or future laws or unfavorable judicial decisions
                could limit
                or invalidate the provisions of our indemnification agreement, or
                the agreement
                may not be enforceable in all instances. A successful product liability
                claim
                could require us to pay, or contribute to payment of, substantial
                damage awards,
                which would have a significant negative effect on our business and
                financial
                condition.
 
 ***Federal
                legislation may not protect us against liability for the use of our
                sensors in
                medical devices and a successful liability claim could seriously
                harm our
                business and financial condition.***
 Although
                the Biomaterials Access Assurance Act of 1998 may provide us some
                protection
                against potential liability claims, that Act includes significant
                exceptions to
                supplier immunity provisions, including limitations relating to negligence
                or
                willful misconduct. A successful product liability claim could require
                us to
                pay, or contribute to payment of, substantial damage awards, which
                would have a
                significant negative effect on our business and financial condition.
                Any product
                liability claim against us, with or without merit, could result in
                costly
                litigation, divert the time, attention and resources of our management
                and have
                a material adverse impact on our business.
 
 ***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.***
 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’ products and harm our
                results of operations.
 
 ***We
                may lose business and revenue if our critical production equipment
                fails.***
 Our
                production process relies on certain critical pieces of equipment
                for defining,
                depositing, and modifying the magnetic properties of very thin metal
                films. Some
                of this equipment was designed or customized by us, and some may
                no longer be in
                production. While we have 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.
  10
 ***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.***
 Our
                critical suppliers include suppliers of certain raw silicon and semiconductor
                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. Any supply
                interruptions could seriously jeopardize our ability to provide products
                that
                are critical to our business and operations and may cause us to lose
                revenue.
 
 ***The
                loss of supply of any critical chemicals or supplies could impact
                our ability to
                produce and deliver products and cause loss of
                revenue.***
 There
                are
                a number of critical chemicals and supplies that we require to make
                products.
                These include certain photoresists, polymers, metals, and alloys.
                We maintain
                inventory of critical chemicals and materials, but in many cases
                we are
                dependant on single sources, and some of the materials could be discontinued
                by
                their suppliers at any time. Any supply interruptions could seriously
                jeopardize
                our ability to provide products that are critical to our business
                and operations
                and may cause us to lose revenue.
 
 ***The
                loss of supply from any of our single-source packaging vendors could
                impact our
                ability to produce and deliver products and cause loss of
                revenue.***
 We
                are
                dependent on our packaging vendors including Circuit Electronic Industries
                Public Co., Ltd. (“CEI,” 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 beenoperating
                under voluntary debt rehabilitation under Thailand law. We have identified
                alternate vendors in case CEI’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. Any supply interruptions or loss of inventory could seriously
                jeopardize our ability to provide products that are critical to our
                business and
                operations and may cause us to lose revenue. Higher packaging costs
                with an
                alternate vendor could have a significant adverse impact on our
                profitability.
 
 ***We
                are subject to risks inherent in doing business in foreign countries
                that could
                impair our results of operations.***
 Foreign
                sales have been an increasing portion of our revenue, and we expect
                foreign
                sales to continue to represent a significant portion of our revenue
                in the
                future. Approximately 40% of our revenue for fiscal 2007, 32% for
                fiscal 2006,
                and 24% for fiscal 2005 was from foreign countries. We also rely
                on vendors in
                China, India, Taiwan, Thailand, The Philippines, 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;
                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.
 
 ***Because
                we are significantly smaller than the majority of our competitors,
                we may lack
                the financial resources needed to increase our market share and future
                revenue.***
 Our
                known
                competitors and potential competitors includeAvago
                Technologies, Analog Devices, Inc.; Fairchild Semiconductor International;
                Fujitsu Limited, Grandis, Inc.; Hermetic Switch, Inc.; IBM Corporation;
                Infineon
                Technologies AG; Intel Corporation; Linear Technology Inc.; Macronix
                International Co., Ltd.; Maxim Integrated Products, Inc.; Meder
                Electronic AG; Memscap SA; Nantero, Inc.; NEC Corporation;
                Ovonyx, Inc.; Ramtron International Corporation; Silicon
                Laboratories, Inc.; Simtek Corporation; Spintec; Spintron; Texas
                Instruments Inc.; Thin Film Electronics ASA; Toshiba Corporation;
                Vishay
                Intertechnology; and others. We believe that our competition is increasing
                as
                the technology matures. 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 our
                future
                competitiveness will depend on our ability to develop new products
                and reduce
                our product costs. Most of our competitors and potential competitors
                are
                established companies that have significantly greater financial,
                technical, and
                marketing resources than us. While we believe that our products have
                important
                competitive advantages, our competitors may succeed in developing
                and marketing
                products that perform better or are less expensive than ours, or
                that would
                render our products and technology obsolete or
                noncompetitive.
 
 ***Our
                business may suffer because we have limited influence over the rate
                of adoption
                of our technology, and MRAM technology may not build into a large
                or significant
                market.***
 A
                significant portion of our future revenue and profits is dependent
                on our
                licensees introducing MRAM products. Production difficulties, technical
                barriers, high production costs, poor market reception or other problems,
                almost
                all of which are outside our control, could prevent the deployment
                of MRAM or
                limit its market potential. In addition, our licensees may have other
                priorities
                that detract attention and resources from introduction of MRAM products
                using
                our technology. Furthermore, competing technologies could prevent
                or supplant
                MRAM from becoming an important memory technology.
  11
 ***Our
                future business may suffer because we may not be able to consummate
                additional
                MRAM license agreements.***
 Although
                there are potential licensees for our MRAM intellectual property
                in addition to
                our current licensees, we may never be able to consummate additional
                license
                agreements. Potential licensees for our MRAM intellectual property
                might not be
                interested unless and until the commercial viability of the technology
                is
                demonstrated. Potential licensees could also use their own or a third
                party’s
                MRAM intellectual property rather than ours. In addition, our existing
                agreements place restrictions on future license agreements. Specifically,
                one of
                our agreements allows one of our licensees to approve licenses with
                certain
                other potential licensees. Each of these limitations could hinder
                our ability to
                consummate additional MRAM license agreements.
 
 ***We
                may not be able to enforce our intellectual property rights or our
                technology
                may prove to infringe upon patents or rights owned by others, which
                may prevent
                the future sale of our products or increase the cost of such
                sales.***
 We
                protect our proprietary technology and intellectual property by seeking
                patents,
                trademarks, and copyrights, and by maintaining trade secrets through
                entering
                into confidentiality agreements with employees, suppliers, customers,
                and
                prospective customers depending on the circumstances. We hold patents
                or are the
                licensee of others owning patented technology covering certain aspects
                of our
                sensor, coupler, and MRAM technology. These patent rights may be
                challenged,
                rendered unenforceable, invalidated or circumvented. In addition,
                rights granted
                under the patents or under licensing agreements may not provide a
                competitive
                advantage to us. At least several potential MRAM competitors have
                described
                designs that we believe would infringe on our patents if such designs
                were to be
                commercialized. Efforts to legally enforce patent rights can involve
                substantial
                expense, which we may not be able to afford and in any case may not
                be
                successful. Further, others may independently develop similar, superior,
                or
                parallel technologies to any technology developed by us, or our technology
                may
                prove to infringe upon patents or rights owned by others. Thus the
                patents held
                by or licensed to us may not afford us any meaningful competitive
                advantage.
                Also, our confidentiality agreements may not provide meaningful protection
                of
                our proprietary information. Our inability to maintain our proprietary
                rights
                could have a material adverse effect on our business, financial condition
                and
                results of operations.
 
 ***We
                may not be able to negotiate a new MRAM licensing agreement with
                Freescale.***
 Our
                Patent License Option Agreement with Motorola provided for termination
                on
                December 31, 2005 or on the date Motorola ceases manufacturing MRAM
                Products whichever is later. We believe such a termination is likely
                to have
                occurred as a result of Motorola apparently having eliminated its
                ability to
                manufacture MRAM Products through its spinoff of Freescale. We believe
                we are
                free to negotiate a new agreement with Freescale or an assignment
                of the
                Motorola Patent License Option Agreement to Freescale, 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 that any such agreement with Freescale
                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.
 
 ***Our
                future business may suffer if we are unable to enforce our intellectual
                property
                rights with existing licensees.***
 Our
                existing license agreements have not generated royalties and may
                never become
                active or generate significant royalties. Furthermore, our success
                in enforcing
                our intellectual property rights may be dependent on our ability
                to enforce our
                contract rights under existing license agreements. Our existing licensees
                could
                claim without merit that they do not use our intellectual property
                or claim that
                one or more of our patents are invalid. In 2000 we were forced to
                resort to
                litigation to enforce our intellectual property rights with Motorola,
                and we
                plan to continue to vigorously defend our intellectual property rights.
                Our
                limited capital resources could put us at a disadvantage if we take
                legal action
                to enforce our intellectual property rights.
 
 ***Our
                business success may be adversely affected if we are unable to attract
                and
                retain highly qualified management and technical
                employees.***
 We
                have
                no employment agreements with any of our management other than our
                Chief
                Executive Officer and Chief Financial Officer, and have no key-person
                insurance
                covering employees. Competition for highly qualified management and
                technical
                personnel is generally intense and we may not be able to attract
                and retain the
                personnel necessary for the development and operation of our business.
                The loss
                of the services of key personnel could have a material adverse effect
                on our
                business, financial condition and results of operations. While our
                founder,
                Dr. James M. Daughton, no longer generally works full time, he makes
                his technical, intellectual property, and contract development expertise
                available to us. If that arrangement terminates we may not be able
                to replace
                his expertise.
 
 12
 ***We
                are required to evaluate our internal control over financial reporting
                under
                Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from
                such evaluation could result in a loss of investor confidence in
                our financial
                reports and have an adverse affect on our financial results and the
                market price
                of our common stock.***
 As
                required by Section 404 of the Sarbanes-Oxley Act of 2002, this Report
                includes a management report assessing the effectiveness of our internal
                control
                over financial reporting and related attestation from our independent
                registered
                public accounting firm auditing our financial statements. We are
                subject to this
                requirement because we are filing this Report as an “accelerated filer” as
                defined in Rule 12b-2 of the Exchange Act. While we were able to implement
                the requirements relating to compliance with Section 404 for this Report,
                we cannot be certain that we will meet the requirements in subsequent
                years if
                we are required to do so. We have incurred significant expenses in
                order to
                comply with the requirements and could incur significant ongoing
                expenses. If we
                are not able to comply with the requirements of Section 404 in the future,
                investors could lose confidence in the reliability of our financial
                statements,
                which could result in a decrease in the market price of our common
                stock. In
                addition, to the extent we or our independent registered public accounting
                firm
                identify a significant deficiency in our internal control over financial
                reporting, the resources and costs required to remediate such deficiency
                could
                have a material adverse impact on our future results of
                operations.
 
 ***We
                are presently involved in class action litigation.***
 On
                February 10, 2006 a lawsuit was filed against NVE and certain of its
                current and former executive officers and directors in the U.S. District
                Court
                for the District of Minnesota by an individual shareholder seeking
                to represent
                a class of purchasers of our common stock during the period from
                May 22,
                2003 through February 11, 2005. On March 6 and March 7, 2006, two
                additional lawsuits were filed in the same court by two additional
                NVE
                shareholders, with the same proposed class period, purporting to
                represent the
                same class. These lawsuits were subsequently consolidated into a
                single case and
                a consolidated complaint was filed. The consolidated complaint generally
                alleges
                that the defendants violated the Securities Exchange Act by issuing
                material
                misrepresentations concerning NVE’s projected revenues and product technology,
                which artificially inflated the market price of our common stock.
                Two related
                actions brought by individual shareholders who seek to represent
                NVE
                derivatively have been filed in Hennepin County District Court. These
                related
                actions were subsequently consolidated into a single case and an
                amended
                derivative complaint was filed. The amended derivative complaint
                generally
                alleges that certain officers and directors violated their fiduciary
                duties to
                the company. We believe the lawsuits are wholly without merit and
                intend to
                vigorously defend the actions. We have incurred and expect to continue
                to incur
                legal expenses related to these lawsuits. Although insurance may
                cover portions
                of legal expenses and of any judgments, if we do not prevail in these
                lawsuits
                we may be required to pay substantial amounts which could have a
                material
                adverse impact on our future results of operation and financial
                condition.
 
 
 **Risks
                Related to Buying Our Stock**
 ***Our
                stock has been more volatile than other technology sector
                stocks.***
 The
                market price of our common stock has experienced significant fluctuations
                and
                may continue to fluctuate in the future. We believe these fluctuations
                have been
                greater on a percentage basis than other technology sector
                stocks.
 
 ***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.***
 Although
                our stock price increased in fiscal 2007, it decreased in each of
                fiscal 2005
                and 2006 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:
 ·
                    technological
                        innovations by us, our licensees, or our
                        competitors; ·
                    the
                        announcement of new products, product enhancements, contracts,
                        or license
                        agreements by us, our licensees, or our
                        competitors; ·
                    changes
                        in requirements or demands for our
                        products; ·
                    changes
                        in prices of our products and services or our competitors’ products and
                        services; ·
                    quarterly
                        variations in our operating results; ·
                    changes
                        in our revenue and revenue growth rates; ·
                    changes
                        in revenue estimates, earnings estimates, or market projections
                        by market
                        analysts, speculation in the press or analyst
                        community; ·
                    short
                        selling and covering of short positions in our stock;
                        and ·
                    general
                        market conditions or market conditions specific to particular
                        industries. 
 
 **ITEM
                1B. UNRESOLVED STAFF COMMENTS.**
 None.
  13
 
 **ITEM
                2. PROPERTIES.**
 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 is leased to
                us under an
                agreement expiring December 31, 2008. We believe the building is adequately
                insured. We believe our facility is adequate to support our needed
                production
                capacity and we have no significant near-term facility expansion
                plans. We hold
                no investments in real estate.
  **ITEM
                3. LEGAL PROCEEDINGS.**
 On
                February 10, 2006 a lawsuit was filed against NVE and certain of its
                current and former executive officers and directors in the U.S. District
                Court
                for the District of Minnesota by an individual shareholder seeking
                to represent
                a class of purchasers of our common stock during the period from
                May 22,
                2003 through February 11, 2005. On March 6 and March 7, 2006, two
                additional lawsuits were filed in the same court by two additional
                NVE
                shareholders, with the same proposed class period, purporting to
                represent the
                same class. These lawsuits were subsequently consolidated into a
                single case and
                a consolidated complaint was filed. The consolidated complaint generally
                alleges
                that the defendants violated the Securities Exchange Act by issuing
                material
                misrepresentations concerning NVE’s projected revenues and product technology,
                which artificially inflated the market price of our common stock.
                Two related
                actions brought by individual shareholders who seek to represent
                NVE
                derivatively have been filed in Hennepin County District Court. These
                related
                actions were subsequently consolidated into a single case and an
                amended
                derivative complaint was filed. The amended derivative complaint
                generally
                alleges that certain officers and directors violated their fiduciary
                duties to
                the company. We believe the lawsuits are wholly without merit and
                intend to
                vigorously defend the actions.
 
 **ITEM
                4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                HOLDERS.**
 No
                matters were submitted to our shareholders during the quarter ended
                March 31, 2007.
 
 **PART
                II**
 
 **ITEM
                5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS.**
  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 Capital Market for each quarter
                within
                the two most recent fiscal years:
  **Quarter
                            Ended****3/31/07**
                        
                        
                        **12/31/06**
                        
                        
                        **9/30/06**
                        
                        
                        **6/30/06**
                        
                        
                        **3/31/06**
                        
                        
                        **12/31/05**
                        
                        
                        **9/30/05**
                        
                        
                        **6/30/05**High
                        
                        $
                        32.30
                        
                        $
                        46.35
                        
                        $
                        39.85
                        
                        $
                        17.75
                        
                        $
                        18.86
                        
                        $
                        17.90
                        
                        $
                        19.91
                        
                        $
                        22.23Low
                        
                        $
                        20.75
                        
                        $
                        26.82
                        
                        $
                        14.06
                        
                        $
                        12.36
                        
                        $
                        14.57
                        
                        $
                        12.81
                        
                        $
                        13.55
                        
                        $
                        11.50
  **Shareholders
                and Dividends**
 We
                had
                approximately 128 shareholders of record and 8,327 total shareholders
                as of
                April 30, 2007. 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 and for the possible defense of our intellectual
                property.
 
 **Stock
                Price Performance****Graph**
 The
                graph
                and table below compare the performance of our Common Stock to the
                cumulative
                five-year performance of theNASDAQ
                IndustrialIndex
                and the Merrill Lynch Nanotech Index. NVE is included in both indices.
                TheNASDAQ
                IndustrialIndex
                includesNASDAQ
                domestic and international based common type stocks.The
                Merrill Lynch Nanotech Index is quoted on the American Stock Exchange
                under the
                symbol NNZ. Prior to January 22, 2003, our Common Stock was quoted on the
                Over-the-Counter Bulletin Board. The graph and table assume $100
                was invested on
                March 31, 2002 in each of our Common Stock, theNASDAQ
                IndustrialIndex,
                and the
                Merrill Lynch Nanotech Index, with reinvestment of
                dividends.
  
  **3/31/2002**
                        
                        
                        **3/31/2003**
                        
                        
                        **3/31/2004**
                        
                        
                        **3/31/2005**
                        
                        
                        **3/31/2006**
                        
                        
                        **3/31/2007**NVE
                            Corporation
                        
                        $
                        100.00
                        
                        $
                        70.30
                        
                        $
                        476.80
                        
                        $
                        190.20
                        
                        $
                        160.20
                        
                        $
                        272.80NASDAQ
                            Industrial Index
                        
                        $
                        100.00
                        
                        $
                        72.51
                        
                        $
                        118.30
                        
                        $
                        121.40
                        
                        $
                        142.85
                        
                        $
                        152.15Merrill
                            Lynch Nanotech Index
                        
                        $
                        100.00
                        
                        $
                        47.87
                        
                        $
                        103.74
                        
                        $
                        81.97
                        
                        $
                        103.41
                        
                        $
                        88.57
  14
 
  **ITEM
                      6.****SELECTED
                      FINANCIAL DATA****.**
  The
                  selected financial data presented below should be read in conjunction
                  with the
                  our financial statements and notes included in Item 8 of this Report with
“Management’s Discussion and Analysis of Financial Condition and Results of
                  Operation” included in Item 7 of this Report. The data are derived from our
                  financial statements:
  **Balance
                              Sheet Data as of March 31****2007**
                          
                          
                          **2006**
                          
                          
                          **2005**
                          
                          
                          **2004**
                          
                          
                          **2003**Cash,
                              cash equivalents, andmarketable
                              securities
                          
                          $
                          18,289,191
                          
                          $
                          10,891,326
                          
                          $
                          7,717,264
                          
                          $
                          7,544,643
                          
                          $
                          6,475,865Working
                              capital andmarketable
                              securities
                          
                          $
                          22,850,508
                          
                          $
                          15,535,200
                          
                          $
                          11,342,300
                          
                          $
                          9,394,741
                          
                          $
                          6,535,004Total
                              assets
                          
                          $
                          25,010,494
                          
                          $
                          17,758,919
                          
                          $
                          14,190,004
                          
                          $
                          12,419,727
                          
                          $
                          9,681,752Capital
                              lease obligations,less
                              current portion
                          
                          $
                          -
                          
                          $
                          -
                          
                          $
                          33,281
                          
                          $
                          100,711
                          
                          $
                          223,191Total
                              liabilities
                          
                          $
                          1,122,239
                          
                          $
                          980,808
                          
                          $
                          1,153,423
                          
                          $
                          1,686,483
                          
                          $
                          2,203,438Total
                              shareholders’ equity
                          
                          $
                          23,888,255
                          
                          $
                          16,778,111
                          
                          $
                          13,036,581
                          
                          $
                          10,733,244
                          
                          $
                          7,478,314**Income
                              Statement Data for Years Ended March 31****2007**
                          
                          
                          **2006**
                          
                          
                          **2005**
                          
                          
                          **2004**
                          
                          
                          **2003**RevenueProduct
                              sales
                          
                          $
                          14,425,632
                          
                          $
                          8,345,967
                          
                          $
                          5,522,250
                          
                          $
                          5,393,540
                          
                          $
                          2,503,096Contract
                              researchand
                              development
                          
                          
                          2,035,198
                          
                          
                          3,824,559
                          
                          
                          6,093,320
                          
                          
                          6,617,311
                          
                          
                          6,552,730License
                              revenue
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          391,664Total
                              revenue
                          
                          $
                          16,460,830
                          
                          $
                          12,170,526
                          
                          $
                          11,615,570
                          
                          $
                          12,010,851
                          
                          $
                          9,447,490Gross
                              profit
                          
                          $
                          10,673,172
                          
                          $
                          5,951,993
                          
                          $
                          4,604,836
                          
                          $
                          4,565,945
                          
                          $
                          3,536,110Income
                              before taxes
                          
                          $
                          7,191,803
                          
                          $
                          2,840,779
                          
                          $
                          1,619,850
                          
                          $
                          1,874,698
                          
                          $
                          646,850Net
                              income
                          
                          $
                          4,780,783
                          
                          $
                          1,797,746
                          
                          $
                          1,758,254
                          
                          $
                          2,107,720
                          
                          $
                          646,850Net
                              income per share –diluted
                          
                          $
                          1.00
                          
                          $
                          0.39
                          
                          $
                          0.37
                          
                          $
                          0.45
                          
                          $
                          0.15Weighted
                              average sharesoutstanding
                              – diluted
                          
                          
                          4,771,297
                          
                          
                          4,667,994
                          
                          
                          4,733,955
                          
                          
                          4,726,759
                          
                          
                          4,324,493
 15
  **ITEM
                    7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
                    CONDITION AND RESULTS**
 **OF
                    OPERATION.**
 You
                    should read this discussion together with our financial statements
                    and the notes
                    to those financial statements included 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 1A of this Report.
 
 **General**
 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. We manufacture high-performance spintronic products
                    including
                    sensors and couplers to revolutionize data sensing and transmission.
                    We are also
                    a licensor of spintronic magnetoresistive random access memory
                    technology,
                    commonly known as MRAM.
 
 **Application
                    of Critical Accounting Policies and Estimates**
 In
                    accordance with SEC guidance, those material accounting policies
                    that we believe
                    are the most critical to an investor’s understanding of our financial results
                    and condition and require complex management judgment are discussed
                    below.
 
 ***Research
                    and Development Contract Percentage of Completion
                    Estimation***
 We
                    recognize research and development contract revenue and gross
                    profit as work is
                    performed, based on actual costs incurred. We apply the percentage-of-completion
                    method to firm-fixed-price contracts. This requires us to make
                    estimates of the
                    percentage of completion of firm-fixed-price contracts. 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 fiscal years
                    2007, 2006, or 2005. Increases in projected costs to complete
                    contracts could
                    materially impact our future results, however.
  ***Product
                    Warranty Estimation***
 We
                    maintain a reserve for warranty claims based on the trend in
                    the historical
                    ratio of claims to sales, releases of new products and other
                    factors. The
                    warranty period for our products is generally one year. Although
                    we believe the
                    likelihood to be relatively low, claims experience could be materially
                    different
                    from actual results because of the introduction of new products,
                    manufacturing
                    changes that could impact product quality, or as yet unrecognized
                    defects in
                    products sold. As of March 31, 2007 and 2006 our reserves for estimated
                    warranty claims were not material to our financial
                    statements.
 
 ***Inventory
                    Reserves Estimation***
 We
                    maintain reserves for potentially excess, obsolete, and slow-moving
                    inventory.
                    The amounts of these reserves are based upon expected product
                    lives, competitive
                    conditions, industry conditions, and forecasted sales demand.
                    Our results could
                    be materially different if demand for our products decreased
                    because of economic
                    or competitive conditions, length of an industry downturn, or
                    if products become
                    obsolete because of technical advancements by us or in the industry.
                    Alternatively, if we are able to sell previously reserved inventory,
                    we reverse
                    a portion of the reserve. Changes in inventoryreserves
                    are recorded as a component of cost of sales. As of March 31, 2007 our
                    obsolescence reserve was $240,000 comparedto
                    $145,000 at March 31, 2006. The increase was due to additional product
                    considered slow moving.
 
 ***Allowance
                    for Doubtful Accounts Estimation***
 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 31,
                    2007 and 2006. We expect our allowance for doubtful accounts
                    to remain a
                    relatively small percentage of our accounts receivable because
                    much of our
                    receivables are with 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.
 
 ***Deferred
                    Tax Assets Estimation***
 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. In
                    fiscal 2005 we reduced the amount of our valuation allowances
                    based upon our
                    history and our expectations for taxable income.
  We
                    began recognizing tax expenses for reporting purposes in fiscal
                    2006 because we
                    had exhausted our net operating losses net of stock based compensation.
                    Under
                    Statement of Financial Accounting Standards (SFAS) No. 109, *Accounting
                    for Income Taxes,* stock-based compensation deductions for tax return purposes do
                    not reduce taxes
                    reported for book purposes but are credited to “Additional paid-in capital.” As
                    of March 31, 2007, our deferred tax assets were $1,328,106 with a related
                    valuation allowance of nil, compared to $3,432,320 with a valuation
                    allowance of
                    $1,855,848 as of March 31, 2006. Deferred tax assets included $527,442 of
                    stock-based compensation deductions as of March 31, 2007 compared to
                    $2,866,868 as of March 31, 2006. These amounts could be subject to an
                    Internal Revenue Code Section 382 limitation.
 
 16
 **Results
                    of Operations**
  The
                    table shown below summarizes the percentage of revenue and period-to-period
                    changes for various items for the periods indicated:
  **Period-to-Period
                                Change****Percentage
                                of Revenue**
                            
                            
                            **Years
                                Ended March 31****Year
                                Ended March 31**
                            
                            
                            **2006
                                to**
                            
                            
                            
                            
                            **2005
                                to****2007**
                            
                            
                            **2006**
                            
                            
                            **2005**
                            
                            
                            **2007**
                            
                            
                            
                            
                            **2006**RevenueProduct
                                sales
                            
                            
                            87.6
                            %
                            
                            68.6
                            %
                            
                            47.5
                            %
                            
                            72.8
                            %
                            
                            
                            
                            
                            51.1
                            %Contract
                                research and development
                            
                            
                            12.4
                            %
                            
                            31.4
                            %
                            
                            52.5
                            %
                            
                            (46.8
                            )%
                            
                            
                            
                            
                            (37.2
                            )%Total
                                revenue
                            
                            
                            100.0
                            %
                            
                            100.0
                            %
                            
                            100.0
                            %
                            
                            35.3
                            %
                            
                            
                            
                            
                            4.8
                            %Cost
                                of sales
                            
                            
                            35.2
                            %
                            
                            51.1
                            %
                            
                            60.4
                            %
                            
                            (6.9
                            )%
                            
                            
                            
                            
                            (11.3
                            )%Gross
                                profit
                            
                            
                            64.8
                            %
                            
                            48.9
                            %
                            
                            39.6
                            %
                            
                            79.3
                            %
                            
                            
                            
                            
                            29.3
                            %Total
                                expenses
                            
                            
                            25.1
                            %
                            
                            28.6
                            %
                            
                            28.1
                            %
                            
                            18.6
                            %
                            
                            
                            
                            
                            6.7
                            %Income
                                from operations
                            
                            
                            39.8
                            %
                            
                            20.3
                            %
                            
                            11.5
                            %
                            
                            164.9
                            %
                            
                            
                            
                            
                            83.9
                            %Net
                                interest and other income
                            
                            
                            3.9
                            %
                            
                            3.0
                            %
                            
                            2.4
                            %
                            
                            74.8
                            %
                            
                            
                            
                            
                            33.9
                            %Income
                                before taxes
                            
                            
                            43.7
                            %
                            
                            23.3
                            %
                            
                            13.9
                            %
                            
                            153.2
                            %
                            
                            
                            
                            
                            75.4
                            %Income
                                tax provision (benefit)
                            
                            
                            14.7
                            %
                            
                            8.5
                            %
                            
                            (1.2
                            )%Net
                                income
                            
                            
                            29.0
                            %
                            
                            14.8
                            %
                            
                            15.1
                            %
                            
                            165.9
                            %
                            
                            
                            
                            
                            2.2
                            %
  17
 Total
                      revenue for fiscal 2007 increased 35% to $ 16,460,830
                      compared to $12,170,526
                      in fiscal 2006, and increased 5% for fiscal 2006 compared to
                      $11,615,570 in
                      fiscal 2005. The increases in both fiscal years were due to
                      increases in product
                      sales partially offset by decreases in research and development
                      revenue.
  Product
                      sales increased 73% to $14,425,632 in fiscal 2007 from $8,345,967
                      in fiscal
                      2006. Fiscal 2006 product sales increased 51% from $5,522,250
                      in fiscal 2005.
                      The increases in both years were due to increased sales of
                      both spintronic
                      sensors and spintronic couplers.
  Contract
                      research and development revenue decreased 47% for fiscal 2007
                      compared to
                      fiscal 2006, and decreased 37% for fiscal 2006 compared to
                      fiscal 2005. Both
                      decreases were due to shifts to company-funded research from
                      contract-funded
                      research and decreases in U.S. Government contract awards to
                      us.
  Gross
                      profit margin increased to 65% of revenue for fiscal 2007 compared
                      to 49% for
                      fiscal 2006 and 40% for fiscal 2005. The increase in
                      gross
                      profit margin in fiscal 2007 from fiscal 2006 was due to a
                      more profitable
                      revenue mix consisting of a higher percentage of product sales,
                      and increased
                      product margins. The increased product margins in fiscal 2007
                      were due to price
                      increases and deployment of lower-cost coupler designs. Increased
                      gross profit
                      margin in fiscal 2006 from fiscal 2005 was due to a more profitable
                      revenue mix
                      consisting of a higher percentage of product sales and higher
                      product margins
                      due primarily to lower-cost coupler designs.
  Research
                      and development expense increased 26 %
                      for
                      fiscal 2007 compared to fiscal 2006 and 24% for fiscal 2006
                      compared to fiscal
                      2005. The increases in both years were due to efforts to develop
                      new and
                      improved products and a shift to company-funded research from
                      contract-funded
                      research. Company-funded research and development programs
                      included new
                      spintronic sensor and spintronic coupler products.
  Selling,
                      general, and administrative expense for fiscal 2007 increased
                      11% to $1,950,999
                      compared to $1,756,142 for fiscal 2006. The increase was primarily
                      due to
                      $136,370 in non-cash effects of stock-based compensation under
                      SFAS
                      No. 123(R), expenses related to preparation for a Sarbanes-Oxley
                      Act
                      Section 404 controls-based audit, and increased legal expenses. Increased
                      legal expenses were primarily related to class-action lawsuits.
                      Of the $136,370
                      effect of SFAS No. 123(R) in fiscal 2007, $126,094 was attributable to the
                      automatic award of options to our directors on their initial
                      election or
                      reelection at our Annual Meeting of Shareholders in August
                      2006. Selling,
                      general, and administrative expense for fiscal 2006 decreased
                      6% from fiscal
                      2005 due to a strategic shift to distributors selling our products
                      rather than
                      manufacturers’ representatives. This shift reduced commissions we paid and
                      expenses associated with supporting manufacturers’ representatives.
  Interest
                      income net of interest expense plus other income increased
                      75% to $646,234 for
                      fiscal 2007 compared to $369,753 for
                      fiscal 2006 and
                      34%
                      for fiscal 2006 compared to $276,073 for fiscal 2005. Both
                      yearly increases were
                      due to increases in interest-bearing marketable securities,
                      increases in
                      interest rates, and decreases in interest expense due to the
                      reduction and then
                      elimination of our debt.
  Income
                      before taxes increased 153% for fiscal 2007 compared to fiscal
                      2006 and 75% for
                      fiscal 2006 compared to fiscal 2005. Both increases were primarily
                      due to
                      increases in product revenue and gross profit margin.
  The
                      effective income tax rate in fiscal 2007 declined to 34% of
                      income before taxes
                      from 37% in fiscal 2006 due to our assessment that it was more
                      likely than not
                      that we would realize certain tax credits. Provisions for income
                      tax for fiscal
                      2007 and 2006 were due to the exhaustion of our net operating
                      losses during
                      fiscal 2005, although we did not pay significant cash taxes
                      for fiscal 2007 and
                      2006 because of stock-based compensation deductions. The income
                      tax benefit for
                      fiscal 2005 was from the reduction of our valuation allowances
                      relating to
                      deferred tax assets for tax return purposes.
  The
                      156% increase in net income in fiscal 2007 compared to fiscal
                      2006 was due to an
                      increase in income before taxes. The 2% increase in fiscal
                      2006 compared to
                      fiscal 2005 was due to an increase in income before taxes,
                      partially offset by a
                      provision for income tax in fiscal 2006 rather than an income
                      tax benefit in
                      fiscal 2005.
  The
                      increase in weighted-average diluted shares for fiscal 2007
                      compared to fiscal
                      2006 was primarily due to a higher share price at March 31, 2007 compared
                      to March 31, 2006, which increased the dilutive effect of options. The
                      decrease in weighted-average diluted shares for fiscal 2006
                      compared to fiscal
                      2005 was due to the expiration of a warrant issued to Cypress
                      Semiconductor
                      Corporation for the purchase of up to 400,000 shares of our
                      Common Stock,
                      partially offset by an increase in shares from stock options
                      issued and
                      exercised.
  18
 **Liquidity
                      and Capital
                      Resources**
 Our
                      primary sources of working capital for fiscal years 2005 through
                      2007 were
                      product sales and research and development contract revenue.
                      At March 31,
                      2007 we had $1 8,289,191
                      in cash plus short-term and long-term marketable securities
                      compared to
                      $10,891,326 at March 31, 2006. The increase in cash and marketable
                      securities was primarily due to cash generated by operations
                      in fiscal
                      2007.
 
 Capital
                      expenditures were $321,997 in fiscal 2007, $74,110 in fiscal
                      2006, and $846,281
                      in fiscal 2005. Capital expenditures in fiscal 2007 were primarily
                      for equipment
                      to increase our capabilities for processing and testing very
                      small components
                      that we sell as our product mix moves toward such smaller products.
                      The larger
                      expenditure in fiscal 2005 was primarily to improve manufacturing
                      efficiency,
                      increase manufacturing
                      capacity ,
                      and
                      provide redundancy for critical production equipment.
  Commitments
                      for capital expenditures were approximately $142,082 as of
                      March 31, 2007.
                      Such commitments are primarily for production equipment to
                      allow us to make
                      smaller products, increase manufacturing capacity, and provide
                      redundancy for
                      critical production equipment. We expect to meet such commitments
                      from cash,
                      marketable securities, or cash generated from operations.
  The
                      following table provides aggregate information about our contractual
                      payment
                      obligations and the periods in which payments are due:
  **Payments
                                  Due by Period****Contractual
                                  Obligations**
                              
                              
                              **Total**
                              
                              
                              **<1
                                  Year**
                              
                              
                              **1-3
                                  Years**
                              
                              
                              **3-5
                                  Years**
                              
                              
                              **>5
                                  Years**Operating
                                  Lease Obligations
                              
                              $
                              398,250
                              
                              $
                              225,807
                              
                              $
                              172,443
                              
                              $
                              -
                              
                              $
                              -Purchase
                                  Obligations
                              
                              $
                              142,082
                              
                              
                              142,082
                              
                              
                              -
                              
                              
                              -
                              
                              
                              -Total
                              
                              $
                              540,332
                              
                              $
                              367,889
                              
                              $
                              172,443
                              
                              $
                              -
                              
                              $
                              -
 
 We
                      believe our working capital and cash generated from operations
                      will be adequate
                      for our needs at least through fiscal 2008.
 
 **Outlook**
 In
                      fiscal
                      2008 we plan to continue our existing business strategy, including
                      developing
                      new sensors, couplers, and MRAM technology. We expect contract
                      research and development revenue to continue to decrease as
                      a percentage of
                      total revenue in fiscal 2008 as product sales increase and
                      our emphasis
                      continues to shift to company-funded from contract-funded research.
 
 We
                      may
                      exhaust our tax credits and stock-based compensation tax deductions
                      in fiscal
                      2008. We would then accrue obligations to pay cash taxes. For
                      more information
                      see “Note 6 - Income Taxes” of the Financial Statements included
                      elsewhere in this Report.
  We
                      currently expect capital expenditures to increase in fiscal
                      2008 compared to
                      fiscal 2007, as we increase our product manufacturing capacity
                      and add
                      capabilities to make smaller products. We plan to continue
                      to evaluate capital
                      expenditures as needs and opportunities arise, and our actual
                      capital
                      expenditures could vary significantly from our current
                      expectations.
 
 **Foreign
                      Currency Transactions**
 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.
 
 **Inflation**
 Inflation
                      has not had a significant impact on our operations since our
                      inception. Prices
                      for our products and for the materials and labor going into
                      those products are
                      governed by market conditions. It is possible that inflation
                      in future years
                      could impact both materials and labor in the production of
                      our
                      products.
 
 **Off-Balance
                      Sheet Arrangements**
 We
                      have
                      no off-balance sheet arrangements.
 
 **ITEM
                      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                      RISK.**
 The
                      primary objective of our investment activities is to preserve
                      principal while at
                      the same time maximizing 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 and
                      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 (loss), net of estimated tax. Our marketable
                      securities as
                      of March 31, 2007 had remaining maturities between seven and
                      59 months. Marketable securities had a market value of $17,891,768
                      at
                      March 31, 2007, representing approximately 72% of our total assets.
                      We have
                      not used derivative financial instruments in our investment
                      portfolio.
  19
 **ITEM
                        8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
                        DATA.**
 Financial
                        statements and accompanying notes are in this Report beginning
                        on page F-1.
                        Selected quarterly financial data for fiscal 2007 and 2006,
                        presented as
                        supplementary financial information, are as follows:
  **Unaudited;
                                    Quarter Ended****March
                                    31, 2007**
                                
                                
                                **Dec.
                                    31, 2006**
                                
                                
                                **Sept.
                                    30, 2006**
                                
                                
                                **June
                                    30, 2006**RevenueProduct
                                    sales
                                
                                $
                                4,192,307
                                
                                $
                                3,402,937
                                
                                $
                                3,777,060
                                
                                $
                                3,053,328Contract
                                    research and development
                                
                                
                                372,911
                                
                                
                                459,112
                                
                                
                                621,308
                                
                                
                                581,867Total
                                    revenue
                                
                                
                                4,565,218
                                
                                
                                3,862,049
                                
                                
                                4,398,368
                                
                                
                                3,635,195Cost
                                    of sales
                                
                                
                                1,563,493
                                
                                
                                1,385,163
                                
                                
                                1,439,181
                                
                                
                                1,399,821Gross
                                    profit
                                
                                
                                3,001,725
                                
                                
                                2,476,886
                                
                                
                                2,959,187
                                
                                
                                2,235,374ExpensesResearch
                                    and development
                                
                                
                                534,967
                                
                                
                                544,779
                                
                                
                                566,246
                                
                                
                                530,612Selling,
                                    general, and administrative
                                
                                
                                529,667
                                
                                
                                479,387
                                
                                
                                535,213
                                
                                
                                406,732Total
                                    expenses
                                
                                
                                1,064,634
                                
                                
                                1,024,166
                                
                                
                                1,101,459
                                
                                
                                937,344Income
                                    from operations
                                
                                
                                1,937,091
                                
                                
                                1,452,720
                                
                                
                                1,857,728
                                
                                
                                1,298,030Income
                                    before taxes
                                
                                
                                2,139,985
                                
                                
                                1,610,057
                                
                                
                                2,032,414
                                
                                
                                1,409,347Net
                                    income
                                
                                $
                                1,553,953
                                
                                $
                                1,051,553
                                
                                $
                                1,283,471
                                
                                $
                                891,806Net
                                    income per share – diluted
                                
                                $
                                0.33
                                
                                $
                                0.22
                                
                                $
                                0.27
                                
                                $
                                0.19**Unaudited;
                                    Quarter Ended****March
                                    31, 2006**
                                
                                
                                **Dec.
                                    31, 2005**
                                
                                
                                **Sept.
                                    30, 2005**
                                
                                
                                **June
                                    30, 2005**RevenueProduct
                                    sales
                                
                                $
                                2,797,882
                                
                                $
                                1,742,163
                                
                                $
                                2,021,672
                                
                                $
                                1,784,250Contract
                                    research and development
                                
                                
                                684,892
                                
                                
                                868,119
                                
                                
                                1,030,250
                                
                                
                                1,241,298Total
                                    revenue
                                
                                
                                3,482,774
                                
                                
                                2,610,282
                                
                                
                                3,051,922
                                
                                
                                3,025,548Cost
                                    of sales
                                
                                
                                1,600,990
                                
                                
                                1,308,752
                                
                                
                                1,627,673
                                
                                
                                1,681,118Gross
                                    profit
                                
                                
                                1,881,784
                                
                                
                                1,301,530
                                
                                
                                1,424,249
                                
                                
                                1,344,430ExpensesResearch
                                    and development
                                
                                
                                487,470
                                
                                
                                342,616
                                
                                
                                517,939
                                
                                
                                376,800Selling,
                                    general, and administrative
                                
                                
                                517,385
                                
                                
                                434,183
                                
                                
                                394,980
                                
                                
                                409,594Total
                                    expenses
                                
                                
                                1,004,855
                                
                                
                                776,799
                                
                                
                                912,919
                                
                                
                                786,394Income
                                    from operations
                                
                                
                                876,929
                                
                                
                                524,731
                                
                                
                                511,330
                                
                                
                                558,036Income
                                    before taxes
                                
                                
                                978,493
                                
                                
                                614,664
                                
                                
                                592,505
                                
                                
                                655,117Net
                                    income
                                
                                $
                                619,744
                                
                                $
                                401,385
                                
                                $
                                363,968
                                
                                $
                                412,649Net
                                    income per share – diluted
                                
                                $
                                0.13
                                
                                $
                                0.09
                                
                                $
                                0.08
                                
                                $
                                0.09
 
 **ITEM
                        9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                        ACCOUNTING AND FINANCIAL DISCLOSURE.**
 None.
 
 **ITEM
                        9** **A.Controls
                        and Procedures.**
 
 **Disclosure
                        Controls and Procedures**
 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 Rules 13a-15(e)
                        and
                        15d-15(e) 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’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 31, 2007, our disclosure
                        controls and procedures were effective.
  20
 **Management’s
                          Annual Report on Internal Control Over Financial Reporting**
 Our
                          management is responsible for establishing and maintaining
                          adequate internal
                          control over financial reporting, as such term is defined
                          in Rule 13a-15(f)
                          under the Exchange Act. Under the supervision and with
                          the participation of
                          management, including our Chief Executive Officer and Chief
                          Financial Officer,
                          we conducted an assessment of the effectiveness of our
                          internal control over
                          financial reporting asof
                          March 31, 2007. Inmaking
                          this assessment, management used the criteria set forth
                          by the Committee of
                          Sponsoring Organizations of the Treadway Commission (COSO)
                          in*Internal
                          Control - Integrated Framework*.
  Based
                          on our assessment using the criteria set forth by COSO
                          in *Internal
                          Control - Integrated Framework* ,
                          management concluded that our internal control over financial
                          reporting was
                          effective as of March 31 ,
                          2007. The
                          attestation report concerning management’s assessment of the effectiveness of
                          our internal control over financial reporting as of March 31, 2007, issued
                          by Ernst & Young, LLP, Independent Registered Public Accounting Firm,
                          appears in this Report.
 
 **Changes
                          in Internal Control Over Financial Reporting**
 There
                          were no changes in our internal control over financial
                          reporting during the
                          fourth quarter of fiscal 2007 that have materially affected,
                          or were reasonably
                          likely to materially affect, our internal control over
                          financial
                          reporting.
 
 **ITEM
                          9B. OTHER INFORMATION.**
 None.
 
 
 **PART
                          III**
 
 **ITEM
                          10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
                          GOVERNANCE.**
 **Shareholder
                          Proposals for Nominations to Our Board**
 The
                          discussion under the section titled “Corporate Governance - Shareholder
                          Nominees” to be included in our Proxy Statement for our 2007 Annual
                          Meeting of
                          Shareholdersis
                          incorporated by reference in this section.
 
 **Directors
                          and Executive Officers**
 Each
                          director is elected annually and serves for a term of approximately
                          one year or
                          until his or her successor is duly elected and qualified.
                          The section titled
“ Proposal
                          1. Election of Directors ”
to
                          be
                          included in our Proxy Statement for our 2007 Annual Meeting
                          of Shareholders sets
                          forth certain information regarding our directors required
                          by Item 10, and
                          the section titled “Executive Compensation - Executive
                          Officers of the Company” sets forth information regarding our executive officers
                          required by Item 10. Both sections are incorporated by
                          reference in this section.
 
 **Audit
                          Committee Financial Expert** **s**
 Our
                          Board
                          of Directors has determined that Terrence W. Glarner, James D.
                          Hartman, and Patricia M. Hollister qualify as “audit committee financial
                          experts” as that term is defined under Section 407 of the Sarbanes-Oxley
                          Act of 2002 and the rules promulgated by the SEC in furtherance
                          of
                          Section 407. Furthermore, Ms. Hollister, Mssrs. Glarner and
                          Hartman, and Robert H. Irish are “independent” as that term is defined
                          under the corporate governance rules of the NASDAQ Stock
                          Market.
 
 **Audit
                          Committee**
 The
                          discussion under the section titled “Corporate Governance - Audit
                          Committee” to be included in our Proxy Statement for our 2007 Annual
                          Meeting of
                          Shareholdersis
                          incorporated by reference in this section.
 
 **Code
                          of Ethics**
 We
                          have
                          adopted aPolicy
                          on
                          Ethics and Business Conductthat
                          applies to all officers, directors and employees of the
                          Company. The Policy is
                          available from the “Investors” section of our Website (www.nve.com). We intend
                          to disclose future amendments to thePolicy,
                          or
                          waivers of such provisions granted to executive officers
                          and directors, on our
                          Web site within four business days following the date of
                          such amendment or
                          waiver.
  The
                          discussion under the section titled “Corporate Governance - Code of Ethics”
to be included in our Proxy Statement for our 2007 Annual
                          Meeting of
                          Shareholders is incorporated by reference in this section.
 
 **Section
                          16(a) Beneficial Ownership Reporting Compliance**
 The
                          discussion under the section titled “Security Ownership -
                          Section 16(a) Beneficial Ownership Reporting Compliance” to be included in
                          our Proxy Statement for our 2007 Annual Meeting of Shareholdersis
                          incorporated by reference in this section.
  21
 **ITEM
                          11. EXECUTIVE COMPENSATION.**
 The
                          information appearing under the sections “Executive
                          Compensation,” “Compensation Discussion and Analysis,” “Corporate
                          Governance - Board Committees - Compensation Committee Interlocks and
                          Insider Participation,” “Compensation Committee Report,” and
“Directors Compensation ”
to
                          be
                          included in our Proxy Statement for our 2007 Annual Meeting
                          of Shareholders is
                          incorporated by reference in this section.
 
 
 **ITEM
                          12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                          MANAGEMENT** **AND RELATED STOCKHOLDER MATTERS.**
 The
                          information to be included in our Proxy Statement for our
                          2007 Annual Meeting of
                          Shareholders in the section titled “Security Ownership” is incorporated by
                          reference in this section.
  The
                          following table summarizes Common Stock that may be issued
                          as of March 31,
                          2007 on the exercise of options under our 2000 Stock Option
                          Plan, as amended.
                          Information regarding the material features of the Plan
                          is contained in
                          Note 5 to the Financial Statements included elsewhere in this
                          Report.
 
 ****
                                  **Number
                                      of Securities to be Issued Upon Exercise of Outstanding
                                      Options,Warrants, and Rights**
                                  
                                  
                                  **Weighted-Average
                                          Exercise Price of Outstanding Options,
                                          Warrants, and
                                          Rights**
                                  
                                  
                                  **Number
                                      of Securities Remaining Available for Future
                                      Issuance Under Equtiy
                                      Compensation Plans (Excluding Securities Reflected in Column
                                      (A))****Plan
                                      Category**
                                  
                                  
                                  **(A)**
                                  
                                  
                                  **(B)**
                                  
                                  
                                  **(C)**Equity
                                      compensation plansapproved
                                      by security holders
                                  
                                  
                                  311,700
                                  
                                  
                                  $15.18
                                  
                                  
                                  186,230Equity
                                      compensation plans notapproved
                                      by security holders
                                  
                                  
                                  -
                                  
                                  
                                  -
                                  
                                  
                                  -Total
                                      at March 31, 2007
                                  
                                  
                                  311,700
                                  
                                  
                                  $15.18
                                  
                                  
                                  186,230
 
 **ITEM
                          13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
                          DIRECTOR INDEPENDENCE.**
 The
                          information to be included in our Proxy Statement for our
                          2007 Annual Meeting in
                          the sections titled “Security Ownership - Transactions With Related
                          Persons, Promoters, and Certain Control Persons” and Corporate Governance -
                          Board Composition, Independence, and Meeting Attendance”is
                          incorporated by reference in this section.
 
 
 **ITEM
                          14.PRINCIPAL ACCOUNTANT FEES AND
                          SERVICES.**
 The
                          information to be included in our Proxy Statement for our
                          2007 Annual Meeting of
                          Shareholders in the sections titled “Audit
                          Committee Disclosure - Fees Billed to Us by Ernst & Young During
                          Fiscal 2007 and 2006” and“Audit
                          Committee Disclosure - Audit Committee Pre-Approval Policy”is
                          incorporated by reference in this section.
 
 **PART
                          IV**
 
 **ITEM
                          15.EXHIBITS AND FINANCIAL STATEMENT
                          SCHEDULES.**
 
 **(a)
                          Financial Statements and Schedules**
 The
                          financial statements are provided pursuant to Item 8 of this Report.
                          Financial statement schedules have been omitted since they
                          are either not
                          required or not applicable, or the required information
                          is shown in the
                          financial statements
 
 22
 **(b)
                          Exhibits**
 **Exhibit
                          #**        **Description**
  3.1
                                Amended
                                    and Restated Articles of Incorporation of the
                                    company as amended by the
                                    Board of Directors effective November 21, 2002
                                    (incorporated by reference
                                    to our Quarterly Report on Form 10-QSB for the
                                    period ended December 31,
                                    2002).
 
 3.2
                                By-laws
                                    of the company as amended by the Board of Directors,
                                    May 31, 2002
                                    (incorporated by reference to our Annual Report
                                    on Form 10-KSB for the
                                    year ended March 31, 2002).
 
 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 Report
                                    on Form 10-QSB for the
                                    period ended September 30, 2002).
 
 10.2
                                First
                                    amendment to lease between the company and Glenborough
                                    Properties, L.P.
                                    dated September 18, 2002 (incorporated by reference
                                    to our Quarterly
                                    Report on Form 10-QSB for the period ended September
                                    30,
                                    2002).
 
 10.3
                                Second
                                    amendment to lease between the company and Glenborough
                                    Properties, L.P.
                                    dated December 1, 2003 (incorporated by reference
                                    to our Quarterly Report
                                    on Form 10-QSB for the period ended December
                                    31,
                                    2003).
 
 10.4
                                Notification
                                    from Glenborough Properties, L.P. 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 Current
                                    Report on Form 8-K
                                    filed October 11, 2005).
 
 10.6*
                                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).
 
 10.7*
                                NVE
                                    Corporation 2000 Stock Option Plan as Amended
                                    July 19, 2001 by the
                                    shareholders (incorporated by reference to our
                                    Registration Statement on
                                    Form S-8 filed July 20, 2001).
 
 10.8+
                                Agreement
                                    between the company and Agilent Technologies,
                                    Inc. dated September 27,
                                    2001 (incorporated by reference to our Quarterly
                                    Report on Form 10-QSB for
                                    the period ended September 30,
                                    2001).
 
 10.9
                                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 31,
                                    2002).
 
 10.10
                                Notification
                                    from Agilent Technologies of planned sale of
                                    Agilent’s Semiconductor
                                    Product Group (incorporated by reference to our
                                    Current Report on Form 8-K
                                    filed October 19, 2005).
 
 10.11
                                Report
                                    of completion of the divestiture of Agilent’s Semiconductor Products
                                    business (incorporated by reference to our Current
                                    Report on Form 8-K/A
                                    filed December 6, 2005).
 
 10.12*
                                Amendment
                                    No. 1 dated March 28, 2005 to Stock Option Agreement
                                    dated May 7, 2004
                                    between the Company and Daniel A. Baker (incorporated
                                    by reference to our
                                    Current Report on Form 8-K filed March 30,
                                    2005).
 
 10.13
                                Amendment
                                    No. 1 dated March 28, 2005 to Stock Option Agreement
                                    dated August 17, 2004
                                    between the Company and Patricia M. Hollister
                                    (incorporated by reference
                                    to our Current Report on Form 8-K filed March
                                    30,
                                    2005).
 
 10.14
                                Indemnification
                                    Agreement by and between Pacesetter, Inc., a
                                    St. Jude Medical Company,
                                    d.b.a. St. Jude Medical Cardiac Rhythm Management
                                    Division, and the
                                    company (incorporated by reference to our Current
                                    Report on Form 8-K filed
                                    September 27, 2005).
 
 10.15+
                                Supplier
                                    Partnering Agreement by and between Pacesetter,
                                    Inc., a St. Jude Medical
                                    Company, d.b.a. St. Jude Medical Cardiac Rhythm
                                    Management Division, and
                                    the company (incorporated by reference to our
                                    Current Report on Form 8-K
                                    filedJanuary
                                    4, 2006).
 
 10.16*
                                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).
 
 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. Section
                                    1350, as adopted pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of
                                    2002.
 __________
 *
                                Indicates
                                    a management contract or compensatory plan or
                                    arrangement.
 
 +
                                Confidential
                                    treatment has been requested with respect to
                                    portions of this exhibit, and
                                    such confidential portions have been deleted
                                    and separately filed with the
                                    SEC pursuant to Rule 24b-2 or Rule
                                    406.
  Copies
                          of documents filed as exhibits to our Form 10 -K
                          may be
                          accessed from the “Investors” section of our Website (www.nve.com), or obtained
                          by making a written request to Curt A. Reynders, our Chief Financial
                          Officer.
  23
 **SIGNATURES**
 
 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.
 
 
 **NVE
                          CORPORATION**
 (Registrant)
 
 /s/
                          Daniel A. Baker
 by
                          Daniel
                          A. Baker
 President
                          and Chief Executive Officer
 
 Date  May
                          25,
                          2007
 
 
 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.
 
 **Name**
                                **Title**
                                **Date**/s/
                                    Terrence W. Glarner
                                  Terrence
                                    W. Glarner
                                Director
                                    and
                                  Chairman
                                    of the Board
                                May
                                    25, 2007/s/
                                    Daniel A. Baker
                                  Daniel
                                    A. Baker
                                Director,
                                  President
                                    & Chief Executive Officer
                                  (Principal
                                    Executive Officer)
                                May
                                    25, 2007/s/
                                    Curt A. Reynders
                                  Curt
                                    A. Reynders
                                Treasurer
                                    and
                                  Chief
                                    Financial Officer
                                  (Principal
                                    Financial and
                                  Accounting
                                    Officer)
                                May
                                    25, 2007/s/
                                    James D. Hartman
                                  James
                                    D. Hartman
                                Director
                                May
                                    25, 2007/s/
                                    Patricia M. Hollister
                                  Patricia
                                    M. Hollister
                                Director
                                May
                                    25, 2007/s/
                                    Robert H. Irish
                                  Robert
                                    H. Irish
                                Director
                                May
                                    25, 2007
  
 24
 
 **NVE
                          CORPORATION**
 **INDEX
                          TO**
 **FINANCIAL
                          STATEMENTS**
  Reports
                                    of Independent Registered Public
                                    Accounting Firm
                                  F-2Balance
                                    Sheets
                                  F-4Statements
                                    of Income
                                  F-5Statements
                                    of Shareholders’
                                    Equity
                                  F-6Statements
                                    of Cash Flows
                                  F-7Notes
                                    to Financial
                                    Statements
                                  F-8
  
 F-1
 **REPORT
                          OF INDEPENDANT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 Board
                          of
                          Directors and Shareholders of NVE Corporation
 
 We
                          have
                          audited the accompanying balance sheets of NVE Corporation
                          as of March 31,
                          2007 and 2006, and the related statements of income, shareholders’ equity, and
                          cash flows for each of the three years in the period ended
                          March 31, 2007.
                          These financial statements are the responsibility of the
                          Company’s management.
                          Our responsibility is to express an opinion on these financial
                          statements based
                          on our audits.
 
 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.
 
 In
                          our
                          opinion, the financial statements referred to above present
                          fairly, in all
                          material respects, the financial position of NVE Corporation
                          at March 31,
                          2007 and 2006, and the results of its operations and its
                          cash flows for each of
                          the three years in the period ended March 31, 2007, in conformity with U.S.
                          generally accepted accounting principles.
 
 As
                          discussed in Note 2, Summary of Significant Accounting
                          Policies, to the
                          financial statements, effective April 1, 2006, the Company
                          adopted Statement of
                          Financial Accounting Standards No. 123 (revised 2004), *Share-Based
                          Payment* .
 
 We
                          also
                          have audited, in accordance with the standards of the Public
                          Company Accounting
                          Oversight Board (United States), the effectiveness of NVE
                          Corporation’s internal
                          control over financial reporting as of March 31, 2007, based on criteria
                          established in *Internal
                          Control - Integrated Framework* issued
                          by the Committee of Sponsoring Organizations of the Treadway
                          Commission and our
                          report dated April 28, 2007 expressed an unqualified opinion
                          thereon.
 
 /s/
                          Ernst
& Young LLP
 
 
 Minneapolis,
                          Minnesota
 April
                          28,
                          2007
 
 F-2
 
 **REPORT
                          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 Board
                          of
                          Directors and Shareholders of NVE Corporation
 
 We
                          have
                          audited management’s assessment, included in the accompanying Management’s
                          Annual Report on Internal Control Over Financial Reporting
                          in Item 9A, that
                          NVE Corporation maintained effective internal control over
                          financial reporting
                          as of March 31, 2007, based on criteria established in Internal Control
                          -
                          Integrated Framework issued by the Committee of Sponsoring
                          Organizations of the
                          Treadway Commission (the COSO criteria). NVE Corporation’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. Our responsibility is to express an opinion
                          on management’s
                          assessment and an opinion on the effectiveness of the company’s internal control
                          over financial reporting based on our audit.
 
 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, evaluating management’s assessment, testing and evaluating
                          the design and operating effectiveness of internal control,
                          and performing such
                          other procedures as we considered necessary in the circumstances.
                          We believe
                          that our audit provides a reasonable basis for our opinion.
 
 A
                          company’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’s internal control over
                          financial reporting includes those policies and procedures
                          that (1) 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) 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) provide reasonable assurance
                          regarding prevention or timely detection of unauthorized
                          acquisition, use, or
                          disposition of the company’s assets that could have a material effect on the
                          financial statements.
 
 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.
 
 In
                          our
                          opinion, management’s assessment that NVE Corporation maintained effective
                          internal control over financial reporting as of March 31, 2007, is fairly
                          stated, in all material respects, based on the COSO criteria.
                          Also, in our
                          opinion, NVE Corporation maintained, in all material respects,
                          effective
                          internal control over financial reporting as of March 31, 2007, based on
                          the COSO criteria.
 
 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 31, 2007 and 2006, and the related statements of income,
                          shareholders’ equity, and cash flows for each of the three years in the
                          period
                          ended March 31, 2007 and our report dated April 28, 2007 expressed
                          an
                          unqualified opinion thereon.
 
 /s/
                          Ernst
& Young LLP
 
 
 Minneapolis,
                          Minnesota
 April
                          28,
                          2007
  F-3
 
 **NVE
                              CORPORATION**
 **BALANCE
                              SHEET** **S**
 **MARCH
                              31, 2007 and 2006**
 **March
                                      31****2007**
                                  
                                  
                                  **2006**ASSETSCurrent
                                      assetsCash
                                      and cash equivalents
                                  
                                  $
                                  397,423
                                  
                                  $
                                  1,288,362Marketable
                                      securities
                                  
                                  
                                  982,415
                                  
                                  
                                  1,248,103Accounts
                                      receivable, net of allowance foruncollectible
                                      accounts of $15,000
                                  
                                  
                                  2,005,005
                                  
                                  
                                  1,667,029Inventories
                                  
                                  
                                  2,016,858
                                  
                                  
                                  2,149,769Deferred
                                      tax assets
                                  
                                  
                                  1,328,106
                                  
                                  
                                  1,576,472Prepaid
                                      expenses and other assets
                                  
                                  
                                  333,587
                                  
                                  
                                  231,412Total
                                      current assets
                                  
                                  
                                  7,063,394
                                  
                                  
                                  8,161,147Fixed
                                      assetsMachinery
                                      and equipment
                                  
                                  
                                  4,458,948
                                  
                                  
                                  4,149,080Leasehold
                                      improvements
                                  
                                  
                                  413,482
                                  
                                  
                                  413,4824,872,430
                                  
                                  
                                  4,562,562Less
                                      accumulated depreciation
                                  
                                  
                                  3,834,683
                                  
                                  
                                  3,319,651Net
                                      fixed assets
                                  
                                  
                                  1,037,747
                                  
                                  
                                  1,242,911Marketable
                                      securities, long term
                                  
                                  
                                  16,909,353
                                  
                                  
                                  8,354,861Total
                                      assets
                                  
                                  $
                                  25,010,494
                                  
                                  $
                                  17,758,919LIABILITIES
                                      AND SHAREHOLDERS’ EQUITYCurrent
                                      liabilitiesAccounts
                                      payable
                                  
                                  $
                                  502,595
                                  
                                  $
                                  399,762Accrued
                                      payroll and other
                                  
                                  
                                  590,287
                                  
                                  
                                  470,392Deferred
                                      revenue
                                  
                                  
                                  29,357
                                  
                                  
                                  77,373Capital
                                      lease obligations
                                  
                                  
                                  -
                                  
                                  
                                  33,281Total
                                      current liabilities
                                  
                                  
                                  1,122,239
                                  
                                  
                                  980,808Shareholders’
                                      equityCommon
                                      stock
                                  
                                  
                                  46,274
                                  
                                  
                                  46,150Additional
                                      paid-in capital
                                  
                                  
                                  18,289,248
                                  
                                  
                                  16,042,637Accumulated
                                      other comprehensive loss
                                  
                                  
                                  (84,282
                                  )
                                  
                                  (166,908
                                  )Retained
                                      earnings
                                  
                                  
                                  5,637,015
                                  
                                  
                                  856,232Total
                                      shareholders’ equity
                                  
                                  
                                  23,888,255
                                  
                                  
                                  16,778,111Total
                                      liabilities and shareholders’ equity
                                  
                                  $
                                  25,010,494
                                  
                                  $
                                  17,758,919
 See
                            accompanying notes.
  F-4
 **NVE
                            CORPORATION**
 **STATEMENTS
                            OF INCOME**
 **YEARS
                            ENDED MARCH 31, 2007, 2006, and 2005**
  **Year
                                      Ended March 31****2007**
                                  
                                  
                                  **2006**
                                  
                                  
                                  **2005**RevenueProduct
                                      sales
                                  
                                  $
                                  14,425,632
                                  
                                  $
                                  8,345,967
                                  
                                  $
                                  5,522,250Contract
                                      research and development
                                  
                                  
                                  2,035,198
                                  
                                  
                                  3,824,559
                                  
                                  
                                  6,093,320Total
                                      revenue
                                  
                                  
                                  16,460,830
                                  
                                  
                                  12,170,526
                                  
                                  
                                  11,615,570Cost
                                      of sales
                                  
                                  
                                  5,787,658
                                  
                                  
                                  6,218,533
                                  
                                  
                                  7,010,734Gross
                                      profit
                                  
                                  
                                  10,673,172
                                  
                                  
                                  5,951,993
                                  
                                  
                                  4,604,836ExpensesResearch
                                      and development
                                  
                                  
                                  2,176,604
                                  
                                  
                                  1,724,825
                                  
                                  
                                  1,393,503Selling,
                                      general, and administrative
                                  
                                  
                                  1,950,999
                                  
                                  
                                  1,756,142
                                  
                                  
                                  1,867,556Total
                                      expenses
                                  
                                  
                                  4,127,603
                                  
                                  
                                  3,480,967
                                  
                                  
                                  3,261,059Income
                                      from operations
                                  
                                  
                                  6,545,569
                                  
                                  
                                  2,471,026
                                  
                                  
                                  1,343,777Interest
                                      income
                                  
                                  
                                  621,577
                                  
                                  
                                  332,784
                                  
                                  
                                  235,341Interest
                                      expense
                                  
                                  
                                  (589
                                  )
                                  
                                  (6,051
                                  )
                                  
                                  (13,256
                                  )Other
                                      income
                                  
                                  
                                  25,246
                                  
                                  
                                  43,020
                                  
                                  
                                  53,988Income
                                      before taxes
                                  
                                  
                                  7,191,803
                                  
                                  
                                  2,840,779
                                  
                                  
                                  1,619,850Provision
                                      (benefit) for income taxes
                                  
                                  
                                  2,411,020
                                  
                                  
                                  1,043,033
                                  
                                  
                                  (138,404
                                  )Net
                                      income
                                  
                                  $
                                  4,780,783
                                  
                                  $
                                  1,797,746
                                  
                                  $
                                  1,758,254Net
                                      income per share – basic
                                  
                                  $
                                  1.03
                                  
                                  $
                                  0.39
                                  
                                  $
                                  0.39Net
                                      income per share – diluted
                                  
                                  $
                                  1.00
                                  
                                  $
                                  0.39
                                  
                                  $
                                  0.37Weighted
                                      average shares outstandingBasic
                                  
                                  
                                  4,620,371
                                  
                                  
                                  4,580,684
                                  
                                  
                                  4,512,247Diluted
                                  
                                  
                                  4,771,297
                                  
                                  
                                  4,667,994
                                  
                                  
                                  4,733,955
  See
                            accompanying notes.
 F-5
 **NVE
                            CORPORATION**
 **STATEMENTS
                            OF****SHAREHOLDERS’ EQUITY**
 **YEARS
                            ENDED MARCH 31, 2007, 2006, and 2005**
 
 **Accumulated
                                        Other****Additional**
                                    
                                    
                                    **Comprehen-**
                                    
                                    
                                    **Retained****Common
                                        Stock**
                                    
                                    
                                    **Paid-In**
                                    
                                    
                                    **sive
                                        Income**
                                    
                                    
                                    **Earnings****Shares**
                                    
                                    
                                    **Amount**
                                    
                                    
                                    **Capital**
                                    
                                    
                                    **(Loss)**
                                    
                                    
                                    **(Deficit)**
                                    
                                    
                                    **Total**Balance
                                        at March 31, 2004
                                    
                                    
                                    4,488,895
                                    
                                    $
                                    44,889
                                    
                                    $
                                    13,297,753
                                    
                                    $
                                    90,370
                                    
                                    $
                                    (2,699,768
                                    )
                                    $
                                    10,733,244Exercise
                                        of stockoptions
                                        and warrants
                                    
                                    
                                    73,880
                                    
                                    
                                    739
                                    
                                    
                                    221,869
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    222,608Shares
                                        issued pursuantto
                                        employee stockpurchase
                                        plan
                                    
                                    
                                    7,009
                                    
                                    
                                    70
                                    
                                    
                                    165,833
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    165,903Comprehensive
                                        income:Unrealized
                                        loss oninvestment
                                        securities
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    (222,598
                                    )
                                    
                                    
                                    
                                    
                                    (222,598
                                    )Net
                                        income
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    1,758,254
                                    
                                    
                                    1,758,254Total
                                        comprehensiveincome
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,535,656Deferred
                                        tax assetfrom
                                        stock-basedcompensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    379,170
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    379,170Balance
                                        at March 31, 2005
                                    
                                    
                                    4,569,784
                                    
                                    
                                    45,698
                                    
                                    
                                    14,064,625
                                    
                                    
                                    (132,228
                                    )
                                    
                                    (941,514
                                    )
                                    
                                    13,036,581Exercise
                                        of stockoptions
                                        and warrants
                                    
                                    
                                    38,720
                                    
                                    
                                    387
                                    
                                    
                                    173,547
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    173,934Shares
                                        issued pursuantto
                                        employee stockpurchase
                                        plan
                                    
                                    
                                    6,449
                                    
                                    
                                    65
                                    
                                    
                                    79,967
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    80,032Comprehensive
                                        income:Unrealized
                                        loss oninvestment
                                        securities
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    (34,680
                                    )
                                    
                                    
                                    
                                    
                                    (34,680
                                    )Net
                                        income
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    1,797,746
                                    
                                    
                                    1,797,746Total
                                        comprehensiveincome
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,763,066Deferred
                                        tax assetfrom
                                        stock-basedcompensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,724,498
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    1,724,498Balance
                                        at March 31, 2006
                                    
                                    
                                    4,614,953
                                    
                                    
                                    46,150
                                    
                                    
                                    16,042,637
                                    
                                    
                                    (166,908
                                    )
                                    
                                    856,232
                                    
                                    
                                    16,778,111Exercise
                                        of stockoptions
                                        and warrants
                                    
                                    
                                    12,430
                                    
                                    
                                    124
                                    
                                    
                                    26,355
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    26,479Comprehensive
                                        income:Unrealized
                                        gain oninvestment
                                        securities
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    82,626
                                    
                                    
                                    
                                    
                                    
                                    82,626Net
                                        income
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    -
                                    
                                    
                                    4,780,783
                                    
                                    
                                    4,780,783Total
                                        comprehensiveincome
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    4,863,409Stock-based
                                        compensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    136,370
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    136,370Deferred
                                        tax assetfrom
                                        stock-basedcompensation
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    2,083,886
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    2,083,886Balance
                                        at March 31, 2007
                                    
                                    
                                    4,627,383
                                    
                                    $
                                    46,274
                                    
                                    $
                                    18,289,248
                                    
                                    $
                                    (84,282
                                    )
                                    $
                                    5,637,015
                                    
                                    $
                                    23,888,255
 See
                            accompanying notes.
 F-6
 **NVE
                            CORPORATION**
 **STATEMENTS
                            OF CASH FLOW****S**
 **YEARS
                            ENDED MARCH 31, 2007, 2006, and 2005**
  **Year
                                      Ended March 31****2007**
                                  
                                  
                                  **2006**
                                  
                                  
                                  **2005**OPERATING
                                      ACTIVITIESNet
                                      income
                                  
                                  $
                                  4,780,783
                                  
                                  $
                                  1,797,746
                                  
                                  $
                                  1,758,254Adjustments
                                      to reconcile net income to net cashprovided
                                      by operating activities:Depreciation
                                      and amortization
                                  
                                  
                                  530,050
                                  
                                  
                                  569,886
                                  
                                  
                                  573,443Gain
                                      on sale of fixed assets
                                  
                                  
                                  -
                                  
                                  
                                  (24,581
                                  )
                                  
                                  -Stock
                                      based compensation
                                  
                                  
                                  136,370
                                  
                                  
                                  -
                                  
                                  
                                  -Excess
                                      tax benefits
                                  
                                  
                                  (2,083,886
                                  )
                                  
                                  -
                                  
                                  
                                  -Deferred
                                      income taxes
                                  
                                  
                                  2,289,687
                                  
                                  
                                  990,083
                                  
                                  
                                  (126,904
                                  )Changes
                                      in operating assets and liabilities:Accounts
                                      receivable
                                  
                                  
                                  (337,976
                                  )
                                  
                                  618,443
                                  
                                  
                                  (545,993
                                  )Inventories
                                  
                                  
                                  132,911
                                  
                                  
                                  (577,010
                                  )
                                  
                                  (422,905
                                  )Prepaid
                                      expenses and other
                                  
                                  
                                  (102,175
                                  )
                                  
                                  (100,539
                                  )
                                  
                                  165,664Accounts
                                      payable and accrued expenses
                                  
                                  
                                  222,728
                                  
                                  
                                  84,797
                                  
                                  
                                  (253,759
                                  )Deferred
                                      revenue
                                  
                                  
                                  (48,016
                                  )
                                  
                                  (189,982
                                  )
                                  
                                  (156,821
                                  )Net
                                      cash provided by operating activities
                                  
                                  
                                  5,520,476
                                  
                                  
                                  3,168,843
                                  
                                  
                                  990,979INVESTING
                                      ACTIVITIESProceeds
                                      from the sale of fixed assets
                                  
                                  
                                  -
                                  
                                  
                                  25,500
                                  
                                  
                                  -Purchases
                                      of fixed assets
                                  
                                  
                                  (321,997
                                  )
                                  
                                  (74,110
                                  )
                                  
                                  (846,281
                                  )Maturities
                                      of marketable securities
                                  
                                  
                                  1,340,019
                                  
                                  
                                  -
                                  
                                  
                                  -Purchases
                                      of marketable securities
                                  
                                  
                                  (9,506,521
                                  )
                                  
                                  (3,258,612
                                  )
                                  
                                  (226,320
                                  )Net
                                      cash used in investing activities
                                  
                                  
                                  (8,488,499
                                  )
                                  
                                  (3,307,222
                                  )
                                  
                                  (1,072,601
                                  )FINANCING
                                      ACTIVITIESNet
                                      proceeds from sale of common stock
                                  
                                  
                                  26,479
                                  
                                  
                                  253,966
                                  
                                  
                                  388,511Excess
                                      tax benefits
                                  
                                  
                                  2,083,886
                                  
                                  
                                  -
                                  
                                  
                                  -Repayment
                                      of note payable and capitallease
                                      obligations
                                  
                                  
                                  (33,281
                                  )
                                  
                                  (67,430
                                  )
                                  
                                  (122,480
                                  )Net
                                      cash provided by financing activities
                                  
                                  
                                  2,077,084
                                  
                                  
                                  186,536
                                  
                                  
                                  266,031(Decrease)
                                      increase in cash and cash equivalents
                                  
                                  
                                  (890,939
                                  )
                                  
                                  48,157
                                  
                                  
                                  184,409Cash
                                      and cash equivalents at beginning of year
                                  
                                  
                                  1,288,362
                                  
                                  
                                  1,240,205
                                  
                                  
                                  1,055,796Cash
                                      and cash equivalents at end of year
                                  
                                  $
                                  397,423
                                  
                                  $
                                  1,288,362
                                  
                                  $
                                  1,240,205Supplemental
                                      disclosures of cash flow information:Cash
                                      paid (refunded) during the year for:Interest
                                  
                                  $
                                  589
                                  
                                  $
                                  6,051
                                  
                                  $
                                  13,256Income
                                      taxes
                                  
                                  $
                                  44,300
                                  
                                  $
                                  52,950
                                  
                                  $
                                  (11,500
                                  )
  See
                            accompanying notes.
  F-7
 **NVE
                            CORPORATION**
 **NOTES
                            TO FINANCIAL STATEMENTS**
 
 **NOTE**  **1.
                            DESCRIPTION OF BUSINESS**
 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.
 
 **NOTE**  **2.
                            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 **Cash
                            and Cash Equivalents**
 We
                            consider all highly liquid investments with maturities
                            of three months or less
                            when purchased to be cash equivalents.
 
 **Fair
                            Value of Financial Instruments**
 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.
 
 **Marketable
                            Securities**
 We
                            classify and account for debt and equity securities in
                            accordance with Financial
                            Accounting Standards Board (FASB) Statement of Financial
                            Accounting Standards
                            (SFAS) No. 115,*Accounting
                            for Certain**Investments
                            in Debt and Equity Securities*.
                            Securities with original maturities greater than three
                            months and remaining
                            maturities less than one year are classified as marketable
                            securities;
                            securities with remaining maturities greater than one
                            year are classified as
                            marketable securities, long-term. Securities not due
                            at a single maturity date,
                            such as mortgage-backed securities, 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’ equity,
“Accumulated other comprehensive income.”
 
 **Concentration
                            of Credit Risk**
 We
                            invest
                            our excess cash in U.S. Government agency securities,
                            high-grade
                            corporate-backed notes and bonds , investment grade commercial
                            paper, and other
                            money market instruments and have established guidelines
                            relative to
                            diversification and maturities in an effort to maintain
                            safety and liquidity.
                            These guidelines are periodically reviewed to take advantage
                            of trends in yields
                            and interest rates. We have not experienced any significant
                            losses on our cash,
                            cash equivalents, or marketable securities. 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.
 
 **Accounts
                            Receivable and Allowance for Doubtful Accounts**
 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
                            credit-worthiness when evaluating the adequacy of the
                            allowance. Charges and
                            provisions to our allowance for doubtful accounts were
                            nil for fiscal 2007, $157
                            for fiscal 2006, and $430 for fiscal 2005.
 
 **Inventories**
 Inventories
                            are stated at the lower of cost or market determined
                            by the first in, first out
                            method, or net realizable value. We record reserves for
                            potentially excess,
                            obsolete and slow-moving inventory. The amounts of these
                            reserves are based on
                            expected product lives, competitive conditions, industry
                            conditions, and
                            forecasted sales demand.
 
 **Product
                            Warranty**
 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.
 
 **Fixed
                            Assets**
 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’ carrying amount.
 
 **Revenue
                            Recognition**
 We
                            recognize product revenue in accordance with SEC Staff
                            Accounting Bulletin (SAB)
                            No. 101, *Revenue
                            Recognition in Financial Statements* ,
                            as
                            amended by SAB No. 104 and codified in SAB Topic 13, *Revenue
                            Recognition* .
  F-8
 ***Product
                            Revenue Recognition***
 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.
  Shipping
                            charges billed to customers are included in product sales
                            and the related
                            shipping costs are included in Selling, general, and
                            administrative expense.
                            Such costs were $18,219 for fiscal 2007.
  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.
  Under
                            our agreement with Agilent Technologies, Inc. to distribute
                            our couplers under
                            its brand, Agilent provided a refundable prepayment of
                            $500,000. The prepayment
                            was fully satisfied during fiscal 2007. In accordance
                            with SAB No. 101 and
                            SAB Topic 13A as amended by SAB No. 104, we classified the prepayment
                            as “Deferred revenue.” In accordance with the agreement, we recognized the
                            prepayment as revenue at a rate equal to a percentage
                            of the sale price to
                            Agilent when we shipped products to Agilent or Avago,
                            and reduced deferred
                            revenue by a corresponding amount. Inventory costs associated
                            with amortization
                            of the prepayment were recognized as “Costs of sales” as revenue was
                            recognized.
 
 ***Accounting
                            for Commissions and Discounts***
 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.
  Our
                            stocking distributors take title and assume the risks
                            and rewards of product
                            ownership. We recognize discounts to our distributors
                            in accordance with
                            Emerging Issues Task Force Issue No. 01-09, *Accounting
                            for Consideration Given by a Vendor to a Customer* .
                            EITF 01-09 addresses whether a vendor should recognize consideration
                            given
                            to a customer as an expense or as an offset to revenue
                            being recognized from
                            that same customer. We presume consideration given to
                            a customer is a reduction
                            in revenue unless both of the following conditions are
                            met: (a) we receive
                            an identifiable benefit in exchange for the consideration
                            and the identifiable
                            benefit is sufficiently separable from the customer’s purchase of our products
                            such that we could have purchased the products or services
                            from a third party;
                            and (b) we can reasonably estimate the fair value of the benefit
                            received.
                            Under EITF 01-09 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.
 
 ***Research
                            and Development Contract Revenue Recognition***
 We
                            recognize government contract revenue in accordance with
                            Accounting Research
                            Bulletin No. 43, Chapter 11,*Government
                            Contracts*.
                            Revenue
                            and gross profit are recognized as work is performed,
                            based on actual costs
                            incurred.
  Our
                            government research and development contracts may be
                            either firm-fixed-price or
                            cost-plus-fixed-fee. 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. Cost-plus-fixed-fee
                            contracts normally require
                            us to complete and deliver the specified end product
                            (such as a final report of
                            research accomplishing the goal or target) within the
                            estimated cost, if
                            possible, as a condition for payment of the entire fixed
                            fee. Our research and
                            development contracts do not contain post-shipment obligations.
  Our
                            commercial research and development contracts are generally
                            firm-fixed-price
                            contracts. Firm-fixed-price contracts provide for a price
                            that is not subject to
                            any adjustment on the basis of our cost in performing
                            the contract. We apply the
                            percentage-of-completion method to these contracts for
                            revenue
                            recognition.
 
 F-9
 ***Revenue
                            Recognition of Up-Front Fees***
 We
                            account for nonrefundable up-front fees from licensing
                            and technology
                            development programs in accordance with SAB Topic 13A. Revenue from
                            up-front fees is deferred and recognized over the periods
                            that the fees are
                            earned. We recognize revenue from licensing and technology
                            development programs
                            which is refundable, recoupable against future royalties,
                            or for which future
                            obligations exist over the term of the agreement.
 
 **Income
                            Taxes**
 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 more likely than not
                            that we will not be able
                            to utilize the deferred tax assets.
 
 **Research
                            and Development Expense Recognition**
 Research
                            and development costs are expensed as they are incurred.
 
 **Stock-Based
                            Compensation**
 Effective
                            April 1, 2006 we adopted the provisions of, and account for
                            stock-based
                            compensation in accordance with, Financial Accounting
                            Standards Board (FASB)
                            Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004),*Share-Based
                            Payment*.
                            Under
                            the fair value recognition provisions of SFAS No. 123(R), 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. We elected the modified-prospective
                            method
                            of adopting SFAS No. 123(R), under which prior periods are not
                            retroactively revised. The valuation provisions of SFAS
                            No. 123(R) apply to
                            awards granted after the April 1, 2006 effective date. Stock-based
                            compensation expense for awards that were granted prior
                            to the effective date
                            but remain unvested on the effective date is being recognized
                            over the remaining
                            service period using the compensation cost estimated
                            for our SFAS No. 123
                            pro forma disclosures.
 
 **Net
                            Income per Common Share**
 We
                            calculate our net income per share pursuant to SFAS No. 128, *Earnings
                            per Share* .
                            Basic
                            earnings per share are computed based upon the weighted-average
                            number of common
                            shares issued and outstanding during each year. Diluted
                            net income per share
                            amounts assume conversion, exercise or issuance of all
                            potential common stock
                            instruments (stock options and warrants). Stock options
                            totaling 46,000 and
                            stock warrants totaling 2,000 were not included in the
                            computation of diluted
                            earnings per share because the exercise prices of the
                            options and warrants were
                            greater than the market price of the common stock. The
                            following table reflects
                            the components of common shares outstanding in accordance
                            with SFAS
                            No. 128:
  **Year
                                        Ended March 31****2007**
                                    
                                    
                                    **2006**
                                    
                                    
                                    **2005**Weighted
                                        average common shares outstanding – basic
                                    
                                    
                                    4,620,371
                                    
                                    
                                    4,580,684
                                    
                                    
                                    4,512,247Effect
                                        of dilutive securities:Stock
                                        options
                                    
                                    
                                    146,154
                                    
                                    
                                    81,927
                                    
                                    
                                    130,178Warrants
                                    
                                    
                                    4,772
                                    
                                    
                                    5,383
                                    
                                    
                                    91,530Shares
                                        used in computing net income per common share
– diluted
                                    
                                    
                                    4,771,297
                                    
                                    
                                    4,667,994
                                    
                                    
                                    4,733,955
  **Use
                              of Estimates**
 The
                              preparation of financial statements in conformity with
                              accounting principles
                              generally accepted in the United States 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.
 
 **Recent
                              Accounting Pronouncements**
 In
                              February 2007 the FASB issued SFAS No. 159,*The
                              Fair Value Option for Financial Assets and Financial
                              Liabilities - Including an
                              amendment of FASB Statement No. 115*,which
                              permits entities to choose to measure many financial
                              instruments and certain
                              other items at fair value*.*SFAS
                              No. 159 is effective for us as of the beginning of fiscal
                              2009. Early
                              adoption is permitted beginning in our fiscal 2007.
                              We currently do not expect
                              the adoption of SFAS No. 159 to have a material impact our financial
                              statements.
  In
                              July 2006 the FASB
                              issued Interpretation No. 48, *Accounting
                              for Uncertainty in Income Taxes* - *an
                              interpretation of FASB Statement No. 109* ,
                              which
                              prescribes a recognition threshold and measurement
                              attribute for the financial
                              statement recognition and measurement of a tax position
                              taken or expected to be
                              taken in a tax return. We are required to adopt the
                              provisions of FIN 48 in
                              fiscal 2008. We are currently evaluating the effects,
                              if any, that FIN 48
                              may have on our financial statements.
 
 F-10
  **NOTE
                              3. MARKETABLE SECURITIES**
 As
                              of
                              March 31, 2007 and 2006 our marketable securities
                              were as follows:
  **Adjusted**
                                      
                                      
                                      **Gross
                                          Unrealized**
                                      
                                      
                                      **Gross**
                                        **Unrealized**
                                      
                                      
                                      **Fair
                                          Market****Cost**
                                      
                                      
                                      **Gains**
                                      
                                      
                                      **Losses**
                                      
                                      
                                      **Value**As
                                          of March 31, 2007U.S.
                                          Treasury and agency securities
                                      
                                      $
                                      9,862,712
                                      
                                      $
                                      4,031
                                      
                                      $
                                      (122,620
                                      )
                                      $
                                      9,744,123Corporate
                                          notes and bonds
                                      
                                      
                                      8,156,755
                                      
                                      $
                                      21,735
                                      
                                      
                                      (30,845
                                      )
                                      
                                      8,147,645Total
                                          marketable securities
                                      
                                      $
                                      18,019,467
                                      
                                      $
                                      25,766
                                      
                                      $
                                      (153,465
                                      )
                                      $
                                      17,891,768As
                                          of March 31, 2006U.S.
                                          Treasury and agency securities
                                      
                                      $
                                      7,907,880
                                      
                                      $
                                      -
                                      
                                      $
                                      (201,660
                                      )
                                      $
                                      7,706,220Corporate
                                          notes and bonds
                                      
                                      
                                      1,947,975
                                      
                                      $
                                      -
                                      
                                      
                                      (51,231
                                      )
                                      
                                      1,896,744Total
                                          marketable securities
                                      
                                      $
                                      9,855,855
                                      
                                      $
                                      -
                                      
                                      $
                                      (252,891
                                      )
                                      $
                                      9,602,964
  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 maturities
                                of our marketable securities as
                                of March 31, 2007 were as follows:
  **Estimated
                                            Fair Market Value of Investment Securities
                                            as of March 31, 2007, Maturing
                                            in:****Total**
                                        
                                        
                                        **<1
                                            Year**
                                        
                                        
                                        **1-2
                                            Years**
                                        
                                        
                                        **2-3
                                            Years**
                                        
                                        
                                        **>3
                                            Years**$
                                            17,891,768
                                        
                                        $
                                        982,415
                                        
                                        $
                                        3,533,270
                                        
                                        $
                                        983,200
                                        
                                        $
                                        12,392,883
 In
                                  accordance with our policy, we reviewed our investment
                                  portfolio for declines
                                  that may be other than temporary, and we have determined
                                  that no write-downs
                                  were required on available-for-sale securities
                                  during fiscal 2007, 2006, or
                                  2005.
 
 **NOTE**  **4.
                                  INVENTORIES**
 Inventories
                                  consisted of the following:
  **March
                                              31****2007**
                                          
                                          
                                          **2006**Raw
                                              materials
                                          
                                          $
                                          862,440
                                          
                                          $
                                          703,407Work-in-process
                                          
                                          
                                          811,261
                                          
                                          
                                          740,578Finished
                                              goods
                                          
                                          
                                          583,157
                                          
                                          
                                          850,7842,256,858
                                          
                                          
                                          2,294,769Less
                                              obsolescence reserve
                                          
                                          
                                          (240,000
                                          )
                                          
                                          (145,000
                                          )Total
                                              inventories
                                          
                                          $
                                          2,016,858
                                          
                                          $
                                          2,149,769
  **NOTE
                                    5. STOCK-BASED COMPENSATION**
 On
                                    April 1, 2006 we adopted SFAS 123(R), which requires the measurement
                                    and recognition of compensation expense for all
                                    share-based payment awards made
                                    to employees and directors. The awards include
                                    employee stock options,
                                    restricted stock units and restricted stock awards,
                                    based on estimated fair
                                    values. SFAS 123(R) supersedes APB 25, which we previously applied,
                                    for periods beginning in fiscal 2007.
  We
                                    adopted SFAS 123(R) using the modified prospective transition
                                    method, which
                                    requires application of the accounting standard
                                    as of April 1, 2006, the
                                    first day of our fiscal year 2007. Our Financial
                                    Statements as of and for the
                                    fiscal year ended March 1, 2007 reflect the impact of SFAS 123(R). In
                                    accordance with the modified prospective transition
                                    method, our Financial
                                    Statements for prior periods have not been restated
                                    to reflect the impact of
                                    SFAS 123(R). Therefore, the results for fiscal 2007
                                    are not directly
                                    comparable to the prior years.
 
 **Stock
                                    Option Plan**
 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.
 
 F-11
 
  On
                                      March 28, 2005, in anticipation of the impact of
                                      SFAS No. 123(R), the
                                      Compensation Committee of our Board of Directors
                                      approved an immediate and full
                                      acceleration of vesting of all stock options
                                      outstanding under our Stock Option
                                      Plan with an exercise price greater than $20
                                      per share. As a result of the
                                      acceleration, out-of-the-money options to purchase
                                      42,125 shares of our Common
                                      Stock became immediately exercisable as of
                                      March 28,
                                      2005.
  On
                                    January 1, 2006 we terminated our Employee Stock Purchase
                                    Plan in
                                    anticipation of SFAS No. 123(R), which we believed would have required
                                    recognizing expenses under SFAS No. 123(R) associated with the issuance of
                                    shares.
 
 **Valuation
                                    assumptions**
 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:
  **Year
                                                Ended March 31****2007**
                                            
                                            **2006**
                                            
                                            **2005**Risk-free
                                                interest rate
                                            
                                            
                                            4.9
                                            %
                                            
                                            3.9
                                            %
                                            
                                            4.1
                                            %Expected
                                                volatility
                                            
                                            
                                            81
                                            %
                                            
                                            85
                                            %
                                            
                                            99
                                            %Expected
                                                life (years)
                                            
                                            
                                            6.5
                                            
                                            
                                            10
                                            
                                            
                                            10Dividend
                                                yield
                                            
                                            
                                            0
                                            %
                                            
                                            0
                                            %
                                            
                                            0
                                            %
  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.
 ***Expected
                                      life***
 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. Prior to adopting
                                      SFAS No. 123(R), we estimated that the expected life
                                      was equal to the
                                      option term. For determining the fair value
                                      of options under SFAS
                                      No. 123(R) we use different expected lives for
                                      officers and directors than
                                      we use for our general employee population.
                                      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.
 
 ***Risk-free
                                      interest rate***
 The
                                      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.
 
 ***Volatility***
 We
                                      use
                                      historical volatility to estimate the expected
                                      volatility of our common
                                      stock.
 
 ***Dividend
                                      yield***
 We
                                      assume
                                      a dividend yield of zero because we do not
                                      anticipate paying dividends in the
                                      foreseeable future.
 
 **Expenses
                                      related to share-based payments**
 The
                                      following table shows the effect of our adoption
                                      of SFAS No. 123(R) on our
                                      net income and earning per share for fiscal
                                      2007. Expenses and costs related to
                                      share-based payments are presented in the same
                                      line or lines as cash
                                      compensation paid to the same employees. The
                                      effect of SFAS No. 123(R) is
                                      included in “Selling, general, and administrative expenses” and presented in the
                                      line titled “Stock-based compensation” on our Statements of Cash
                                      Flows:
  **Year
                                                  Ended****March
                                                  31, 2007**Effect
                                                  of SFAS No. 123(R) on net income
                                              
                                              $
                                              (136,370
                                              )Effect
                                                  of SFAS No. 123(R) on net income
                                                  per share:Basic
                                              
                                              $
                                              (0.03
                                              )Diluted
                                              
                                              $
                                              (0.03
                                              )
  F-12
 Prior
                                        to the adoption of SFAS No. 123(R), we presented all tax benefits of
                                        deductions resulting from the exercise of
                                        stock options as operating cash flows
                                        in the Statement of Cash Flows. SFAS No. 123(R) requires the cash flows
                                        resulting from the tax benefits resulting
                                        from tax deductions in excess of the
                                        compensation cost recognized for those options
                                        (excess tax benefits) to be
                                        classified as financing cash flows.
  Prior
                                        to April 1, 2006 we accounted for our stock-based
                                        employee compensation
                                        plans under the recognition and measurement
                                        principles of APB Opinion
                                        No. 25 and related interpretations. The following
                                        table illustrates the
                                        effect on net earnings and net earnings per
                                        share for fiscal 2006 and 2005 if we
                                        had applied the fair value recognition provisions
                                        of SFAS No. 123 to our
                                        stock-based employee compensation:
  **Year
                                                    Ended March 31****2006**
                                                
                                                
                                                **2005**Net
                                                    income:As
                                                    reported
                                                
                                                $
                                                1,797,746
                                                
                                                $
                                                1,758,254Pro
                                                    forma adjustment for stock options
                                                
                                                
                                                (478,549
                                                )
                                                
                                                (2,744,836
                                                )Pro
                                                    forma net (loss) income
                                                
                                                $
                                                1,319,197
                                                
                                                $
                                                (986,582
                                                )Net
                                                    income per share:Basic
                                                    – as reported
                                                
                                                $
                                                0.39
                                                
                                                $
                                                0.39Basic
                                                    – pro forma
                                                
                                                $
                                                0.29
                                                
                                                $
                                                (0.22
                                                )Diluted
                                                    – as reported
                                                
                                                $
                                                0.39
                                                
                                                $
                                                0.37Diluted
                                                    – pro forma
                                                
                                                $
                                                0.28
                                                
                                                $
                                                (0.21
                                                )
  **Tax
                                          effects of stock-based compensation**
 Stock-based
                                          compensation increased deferred taxes for
                                          fiscal 2007 by
                                          $46,082.
 
 **General
                                          stock option information**
 A
                                          summary
                                          of the status of our nonvested shares at
                                          March 31, 2007 and changes during
                                          fiscal 2007 is presented below:
  **Nonvested
                                                      Shares**
                                                  
                                                  
                                                  **Shares**
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  **Weighted
                                                      Average Grant-Date Fair Value**Nonvested
                                                      at March 31, 2006
                                                  
                                                  
                                                  3,500
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  6.05Granted
                                                  
                                                  
                                                  12,000
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  20.12Vested
                                                  
                                                  
                                                  (9,250
                                                  )
                                                  
                                                  
                                                  
                                                  $
                                                  17.46Forfeited
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  -Nonvested
                                                      at March 31, 2007
                                                  
                                                  
                                                  6,250
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  16.18
 The
                                            following table summarizes information
                                            about options outstanding and options
                                            exercisable at March 31, 2007:
  **Options
                                                      Outstanding**
                                                  
                                                  
                                                  **Options
                                                      Exercisable****Weighted****Weighted**
                                                  
                                                  
                                                  **Remaining**
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  **Weighted****Average**
                                                  
                                                  
                                                  **Contractual**
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  **Average****Ranges
                                                      of**
                                                  
                                                  
                                                  **Number**
                                                  
                                                  
                                                  **Exercise**
                                                  
                                                  
                                                  **Life**
                                                  
                                                  
                                                  **Number**
                                                  
                                                  
                                                  **Exercise****Exercise
                                                      Prices**
                                                  
                                                  
                                                  **Outstanding**
                                                  
                                                  
                                                  **Price**
                                                  
                                                  
                                                  **(years)**
                                                  
                                                  
                                                  **Outstanding**
                                                  
                                                  
                                                  **Price**$
                                                      0.86 - 10.00
                                                  
                                                  
                                                  95,950
                                                  
                                                  $
                                                  6.25
                                                  
                                                  
                                                  3.7
                                                  
                                                  
                                                  94,200
                                                  
                                                  $
                                                  6.2510.01
                                                      - 20.12
                                                  
                                                  
                                                  165,750
                                                  
                                                  
                                                  15.53
                                                  
                                                  
                                                  7.6
                                                  
                                                  
                                                  161,250
                                                  
                                                  
                                                  15.4021.99
                                                      - 58.27
                                                  
                                                  
                                                  50,000
                                                  
                                                  
                                                  31.16
                                                  
                                                  
                                                  7.1
                                                  
                                                  
                                                  50,000
                                                  
                                                  
                                                  31.16311,700
                                                  
                                                  $
                                                  15.18
                                                  
                                                  
                                                  6.3
                                                  
                                                  
                                                  305,450
                                                  
                                                  $
                                                  15.16
  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.
 
 F-13
 A
                                                summary of our incentive stock options
                                                and warrants are shown in the following
                                                table:
  **Weighted
                                                          Average**
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      **Weighted
                                                          Average****Option**
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      **Option
                                                          Exercise**
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      **Warrant
                                                          Exercise********Shares
                                                          Reserved******
                                                      
                                                      **Options****Outstanding**
                                                      
                                                      
                                                      
                                                      
                                                      **Price
                                                          per Share**
                                                      
                                                      **Warrants****Outstanding**
                                                      
                                                      
                                                      **Price
                                                          per Share**Balance
                                                          at March 31, 2004
                                                      
                                                      
                                                      361,530
                                                      
                                                      
                                                      261,430
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      5.99
                                                      
                                                      
                                                      411,889
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      14.81Granted
                                                      
                                                      
                                                      (121,000
                                                      )
                                                      
                                                      121,000
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      22.30
                                                      
                                                      
                                                      2,000
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      37.38Exercised
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      (73,880
                                                      )
                                                      
                                                      
                                                      
                                                      $
                                                      3.01
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      -Terminated
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      -
                                                      
                                                      $
                                                      -Balance
                                                          at March 31, 2005
                                                      
                                                      
                                                      240,530
                                                      
                                                      
                                                      308,550
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      13.10
                                                      
                                                      
                                                      413,889
                                                      
                                                      $
                                                      14.92Granted
                                                      
                                                      
                                                      (56,500
                                                      )
                                                      
                                                      56,500
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      15.48
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      0.00Exercised
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      (38,720
                                                      )
                                                      
                                                      
                                                      
                                                      $
                                                      4.49
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      0.00Terminated
                                                      
                                                      
                                                      14,200
                                                      
                                                      
                                                      (14,200
                                                      )
                                                      
                                                      
                                                      
                                                      $
                                                      15.95
                                                      
                                                      
                                                      (401,292
                                                      )
                                                      
                                                      $
                                                      14.96Balance
                                                          at March 31, 2006
                                                      
                                                      
                                                      198,230
                                                      
                                                      
                                                      312,130
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      14.47
                                                      
                                                      
                                                      12,597
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      13.51Granted
                                                      
                                                      
                                                      (12,000
                                                      )
                                                      
                                                      12,000
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      20.12
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      -Exercised
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      (12,430
                                                      )
                                                      
                                                      
                                                      
                                                      $
                                                      2.13
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      -Terminated
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      0.00
                                                      
                                                      
                                                      (2,597
                                                      )
                                                      
                                                      $
                                                      2.86Balance
                                                          at March 31, 2007
                                                      
                                                      
                                                      186,230
                                                      
                                                      
                                                      311,700
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      15.18
                                                      
                                                      
                                                      10,000
                                                      
                                                      $
                                                      16.28
  Exercisable
                                                options were outstanding covering
                                                305,450 shares at March 31, 2007; 308,630
                                                shares at March 31, 2006; and 266,858 shares at March 31, 2005 at
                                                weighted-average exercise prices
                                                of $15.16, $14.56, and $14.08 per
                                                share. The
                                                remaining weighted-average exercisable
                                                life was 6.3, 7.1, and 6.5 years.
                                                The
                                                average fair-market value of grants
                                                was $15.18 in fiscal 2007, $15.48
                                                in fiscal
                                                2006, and $19.65 in fiscal 2005.
 
 Exercisable
                                                warrants covering 10,000; 12,597;
                                                and 412,389 shares were outstanding
                                                at
                                                March 31, 2007, 2006, and 2005 at weighted-average
                                                exercise prices of
                                                $16.28, $13.51, and $14.94 per share.
                                                Remaining weighted-average exercisable
                                                life was 5.9, 5.6, and 0.2 years.
                                                The average fair-market value of
                                                warrants
                                                issued was nil in fiscal 2007 and
                                                2006, and $37.38 in fiscal 2005.
  The
                                                total intrinsic value of options
                                                exercised during fiscal 2007 was
                                                $399,989. At
                                                March 31, 2007 the total intrinsic value
                                                of options outstanding was
                                                $3,988,157 of which $3,917,695 were
                                                exercisable. The total intrinsic
                                                value at
                                                March 31, 2007 is based on our closing
                                                stock price on the last trading day
                                                of the fiscal year for in-the-money
                                                options.
  The
                                                total fair value of grants was $179,160
                                                in fiscal 2007. At March 31, 2007,
                                                there was $54,760 of total unrecognized
                                                stock-based compensation expense,
                                                adjusted for estimated forfeitures,
                                                which is expected to be recognized
                                                over a
                                                weighted-average period of 28 months and will be adjusted for any
                                                future
                                                changes in estimated forfeitures.
 
 **NOTE
                                                6. INCOME TAXES**
 Provision
                                                (benefit) for income tax for fiscal
                                                2005 through 2007 consisted of the
                                                following:
  **Year
                                                            Ended March 31****2007**
                                                        
                                                        
                                                        **2006**
                                                        
                                                        
                                                        **2005**Current
                                                            taxesFederal
                                                        
                                                        $
                                                        2,338,592
                                                        
                                                        $
                                                        852,969
                                                        
                                                        $
                                                        (13,500
                                                        )State
                                                        
                                                        
                                                        278,309
                                                        
                                                        
                                                        104,531
                                                        
                                                        
                                                        2,000Deferred
                                                            taxesFederal
                                                        
                                                        
                                                        (188,476
                                                        )
                                                        
                                                        76,196
                                                        
                                                        
                                                        (126,904
                                                        )State
                                                        
                                                        
                                                        (17,405
                                                        )
                                                        
                                                        9,337
                                                        
                                                        
                                                        -Income
                                                            tax provision (benefit)
                                                        
                                                        $
                                                        2,411,020
                                                        
                                                        $
                                                        1,043,033
                                                        
                                                        $
                                                        (138,404
                                                        )
 A
                                                  reconciliation of income tax provisions
                                                  provided to income tax expense
                                                  at the
                                                  U.S. statutory rate for fiscal
                                                  2005 through 2007 is as
                                                  follows:
 **Year
                                                                Ended March 31****2007**
                                                            
                                                            
                                                            **2006**
                                                            
                                                            
                                                            **2005**Tax
                                                                expense at U.S. statutory
                                                                rate
                                                            
                                                            $
                                                            2,445,214
                                                            
                                                            $
                                                            929,165
                                                            
                                                            $
                                                            550,749State
                                                                income taxes, net
                                                                of Federal benefit
                                                            
                                                            
                                                            179,984
                                                            
                                                            
                                                            113,868
                                                            
                                                            
                                                            40,496Other
                                                            
                                                            
                                                            (50,311
                                                            )
                                                            
                                                            -
                                                            
                                                            
                                                            (4,231
                                                            )Benefit
                                                                of tax credits
                                                            
                                                            
                                                            (61,302
                                                            )
                                                            
                                                            -
                                                            
                                                            
                                                            (143,374
                                                            )Change
                                                                in valuation allowance
                                                            
                                                            
                                                            (102,565
                                                            )
                                                            
                                                            -
                                                            
                                                            
                                                            (582,044
                                                            )Income
                                                                tax provision (benefit)
                                                            
                                                            $
                                                            2,411,020
                                                            
                                                            $
                                                            1,043,033
                                                            
                                                            $
                                                            (138,404
                                                            )
  F-14
  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 31, 2007 and 2006 were as
                                                      follows:
  **March
                                                                  31****2007**
                                                              
                                                              
                                                              **2006**Deferred
                                                                  tax assetsDeferred
                                                                  revenue
                                                              
                                                              $
                                                              10,729
                                                              
                                                              $
                                                              26,307Vacation
                                                                  accrual
                                                              
                                                              
                                                              86,498
                                                              
                                                              
                                                              76,047Inventory
                                                                  reserve
                                                              
                                                              
                                                              87,711
                                                              
                                                              
                                                              49,300Tax
                                                                  credits
                                                              
                                                              
                                                              481,534
                                                              
                                                              
                                                              275,376Stock-based
                                                                  compensation deductions
                                                              
                                                              
                                                              573,524
                                                              
                                                              
                                                              2,866,868Unrealized
                                                                  loss
                                                              
                                                              
                                                              46,669
                                                              
                                                              
                                                              85,983Other
                                                              
                                                              
                                                              41,441
                                                              
                                                              
                                                              52,4391,328,106
                                                              
                                                              
                                                              3,432,320Valuation
                                                                  allowance
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              (1,855,848
                                                              )Net
                                                                  deferred tax assets
                                                              
                                                              $
                                                              1,328,106
                                                              
                                                              $
                                                              1,576,472
 We
                                                        had tax credits totaling
                                                        $481,534 at
                                                        March 31, 2007 and
                                                        $275,376 at March 31, 2006, which could be
                                                        used to offset future taxable
                                                        income. Tax
                                                        provisions of $2,083,886
                                                        for fiscal 2007 and $990,083
                                                        for fiscal 2006 were
                                                        credited to “Additional paid-in capital.” We also had $1,443,223 at
                                                        March 31, 2007, and $8,431,966
                                                        at March 31, 2006 in stock-based
                                                        compensation deductions that
                                                        could be used to offset future
                                                        income. Realizations
                                                        of stock-based compensation
                                                        deductions are credited to
“Additional paid-in
                                                        capital.”
 
 During
                                                        fiscal 2005 we reversed $595,462
                                                        of our valuation allowance
                                                        due to the
                                                        utilization of net operating
                                                        loss carryforwards and tax
                                                        credits, and $506,074 of
                                                        the remaining valuation allowance
                                                        was reversed due to our assessment
                                                        that it was
                                                        more likely than not that
                                                        we would earn sufficient
                                                        operating income to realize
                                                        $756,074 of the remaining
                                                        deferred tax assets.
 
 We
                                                        began
                                                        recognizing tax expenses
                                                        for reporting purposes in
                                                        fiscal 2006 because under
                                                        SFAS No. 109, *Accounting
                                                        for Income Taxes* ,
                                                        our
                                                        stock-based compensation
                                                        deductions do not reduce
                                                        the provision for income
                                                        taxes
                                                        reported for book purposes.
                                                        During fiscal 2006 we reversed
                                                        $990,083 of our
                                                        valuation allowance due to
                                                        the utilization of net operating
                                                        loss carryforwards
                                                        from stock based compensation,
                                                        and $820,398 of the remaining
                                                        valuation allowance
                                                        was reversed due to our assessment
                                                        that it was more likely than
                                                        not that we
                                                        would earn sufficient operating
                                                        income to realize $1,576,472
                                                        of the remaining
                                                        deferred tax assets. We provided
                                                        a valuation allowance of
                                                        $1,855,848 as of
                                                        March 31, 2006 because we did not
                                                        believe that it was more
                                                        likely than not
                                                        that we would utilize the
                                                        remaining deferred tax assets
                                                        before they
                                                        expire.
 
 During
                                                        fiscal 2007 we reversed $1,855,848 of our
                                                        valuation allowance due to
                                                        our assessment that it was
                                                        more likely than not that
                                                        we would earn sufficient
                                                        operating income to realize
                                                        the remaining deferred tax
                                                        assets.
 
 Although
                                                        there can be no assurance
                                                        that we will generate any
                                                        specific level of earnings
                                                        in fiscal 2008, if our operating
                                                        income during fiscal 2008
                                                        were similar to our
                                                        operating income during comparable
                                                        periods of fiscal 2007, we
                                                        would exhaust our
                                                        existing tax credits and
                                                        stock-based compensation
                                                        deductions during fiscal
                                                        2008.
 
 **NOTE**  **7.
                                                        SEGMENT INFORMATION**
 We
                                                        operate in one reportable
                                                        segment. In addition to licensing
                                                        MRAM technology, we
                                                        receive research and development
                                                        contracts and we manufacture
                                                        and sell two
                                                        product lines: sensors to
                                                        acquire information and data
                                                        couplers to transmit
                                                        information.
  U.S.
                                                        Government Agencies accounted
                                                        for approximately 10%
                                                        of
                                                        our total revenue in fiscal 2007,
                                                        22% in
                                                        fiscal
                                                        2006 ,
                                                        and 45% in
                                                        fiscal 2005. A second customer
                                                        accounted for approximately 23% of
                                                        total
                                                        revenue in fiscal 2007 ,
                                                        18% in
                                                        fiscal 2006 , and
                                                        10%
                                                        in fiscal 2005.
                                                        A
                                                        third customer accounted
                                                        for approximately 11% of
                                                        total revenue in fiscal 2007.
                                                        Revenue by geographic region
                                                        was as follows:
 **Year
                                                                    Ended March 31****2007**
                                                                
                                                                
                                                                **2006**
                                                                
                                                                
                                                                **2005**United
                                                                    States
                                                                
                                                                $
                                                                9,901,667
                                                                
                                                                $
                                                                8,254,566
                                                                
                                                                $
                                                                8,783,590Europe
                                                                
                                                                
                                                                3,568,014
                                                                
                                                                
                                                                2,160,473
                                                                
                                                                
                                                                1,758,848Asia
                                                                
                                                                
                                                                2,577,961
                                                                
                                                                
                                                                1,451,903
                                                                
                                                                
                                                                945,429Other
                                                                
                                                                
                                                                413,188
                                                                
                                                                
                                                                303,584
                                                                
                                                                
                                                                127,703Total
                                                                    Revenue
                                                                
                                                                $
                                                                16,460,830
                                                                
                                                                $
                                                                12,170,526
                                                                
                                                                $
                                                                11,615,570
  F-15
 **NOTE
                                                          8. COMMITMENTS AND CONTINGENCIES**
 **Leases**
 We
                                                          lease
                                                          our facility under an operating
                                                          lease that expires December 31, 2008. We
                                                          pay operating expenses
                                                          including maintenance,
                                                          utilities, real estate
                                                          taxes, and
                                                          insurance in addition to
                                                          rental payments. We also
                                                          lease equipment under
                                                          operating leases that expire
                                                          September 2009 and with
                                                          payments due quarterly.
                                                          Total rent expense for
                                                          operating leases, including
                                                          building and equipment,
                                                          was
                                                          $207,462 for fiscal 2007,
                                                          $215,873 for fiscal 2006,
                                                          and $220,070 for fiscal
                                                          2005. Our future commitments
                                                          under operating leases
                                                          total $398,250, of which
                                                          $225,807 is due in fiscal
                                                          2008, $171,768 in fiscal
                                                          2009, and $675 in fiscal
                                                          2010. We had no capital
                                                          lease obligations as of
                                                          March 31, 2007 after
                                                          retiring a capital lease
                                                          for production equipment
                                                          in June 2006. At
                                                          March 31, 2006 the payable amount
                                                          under that capital lease
                                                          was $33,281, the
                                                          equipment cost basis was
                                                          $310,000, and the accumulated
                                                          amortization was
                                                          $273,833.
 
 **Other
                                                          Contingencies**
 On
                                                          February 10, 2006 a lawsuit was
                                                          filed against NVE and certain
                                                          of its
                                                          current and former executive
                                                          officers and directors
                                                          in the U.S. District Court
                                                          for the District of Minnesota
                                                          by an individual shareholder
                                                          seeking to represent
                                                          a class of purchasers of
                                                          our common stock during
                                                          the period from May 22,
                                                          2003 through February 11, 2005. On March 6 and March 7, 2006, two
                                                          additional lawsuits were
                                                          filed in the same court
                                                          by two additional NVE
                                                          shareholders, with the
                                                          same proposed class period,
                                                          purporting to represent
                                                          the
                                                          same class. These lawsuits
                                                          were subsequently consolidated
                                                          into a single case and
                                                          a consolidated complaint
                                                          was filed. The consolidated
                                                          complaint generally alleges
                                                          that the defendants violated
                                                          the Securities Exchange
                                                          Act by issuing material
                                                          misrepresentations concerning
                                                          NVE’s projected revenues and
                                                          product technology,
                                                          which artificially inflated
                                                          the market price of our
                                                          common stock. Two related
                                                          actions brought by individual
                                                          shareholders who seek to
                                                          represent NVE
                                                          derivatively have been
                                                          filed in Hennepin County
                                                          District Court. These related
                                                          actions were subsequently
                                                          consolidated into a single
                                                          case and an amended
                                                          derivative complaint was
                                                          filed. The amended derivative
                                                          complaint generally
                                                          alleges that certain officers
                                                          and directors violated
                                                          their fiduciary duties
                                                          to
                                                          the company. We believe
                                                          the lawsuits are wholly
                                                          without merit and intend
                                                          to
                                                          vigorously defend the actions.
                                                          We have incurred and expect
                                                          to continue to incur
                                                          legal expenses related
                                                          to these lawsuits. Insurance
                                                          may cover portions of legal
                                                          expenses and of any judgments. Based
                                                          on
                                                          our evaluation of the likelihood
                                                          of prevailing we have not
                                                          recorded a liability
                                                          on our balance sheet. In
                                                          addition to these lawsuits,
                                                          we are subject to various
                                                          litigation matters from
                                                          time to time in the normal
                                                          course of our business.
                                                          We
                                                          currently believe that
                                                          the ultimate outcome of
                                                          these proceedings will
                                                          not have a
                                                          material adverse affect
                                                          on our financial position
                                                          or results of operations.
                                                          However, because of the
                                                          nature and inherent uncertainties
                                                          of litigation, should
                                                          the outcome of these actions
                                                          be unfavorable, our business,
                                                          financial position,
                                                          and results of operations
                                                          could be materially and
                                                          adversely
                                                          affected.
 
 **NOTE**  **9.
                                                          COMMON STOCK**
 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.
 
 **NOTE**  **10.
                                                          LICENSE AGREEMENTS**
 We
                                                          have
                                                          entered into two separate
                                                          license agreements, which
                                                          provided for royalties
                                                          to us
                                                          based upon revenue generated
                                                          by the respective parties.
                                                          As of March 31,
                                                          2007 no royalties had been
                                                          recognized under either
                                                          agreement.
 
 We
                                                          have
                                                          acquired rights to another
                                                          organization’s GMR-related patents in
                                                          exchange for
                                                          payment of royalties by
                                                          us of 1.5% of the sales
                                                          of certain of our products.
                                                          Total payments under this
                                                          license agreement were
                                                          less than $5,000 for each
                                                          of
                                                          fiscal years 2005 through
                                                          2007.
 
 **NOTE**  **11.
                                                          TECHNOLOGY EXCHANGE AGREEMENT**
 In
                                                          2002
                                                          we executed a technology
                                                          exchange agreement accompanied
                                                          by an investment by
                                                          Cypress Semiconductor Corporation.
                                                          Cypress purchased 686,849
                                                          shares of our
                                                          Common Stock for $6,228,000.
                                                          Cypress also received a
                                                          warrant for the purchase
                                                          of
                                                          up to an additional 400,000
                                                          shares of Common Stock
                                                          at $15 per share, which
                                                          expired in April 2005 with no shares exercised.
 
 **NOTE**  **12.
                                                          INFORMATION AS TO EMPLOYEE
                                                          STOCK PURCHASE, SAVINGS,
                                                          AND SIMILAR
                                                          PLANS**
 **401(k)
                                                          Employee Savings Plan**
 All
                                                          of
                                                          our employee s
                                                          are
                                                          eligible to participate
                                                          in our 401(k) savings plan
                                                          the first quarter after
                                                          reaching age 21. Employees
                                                          may contribute up to the
                                                          Internal Revenue Service
                                                          maximum. In calendar years
                                                          2005 and 2004 we made matching
                                                          contributions equal to
                                                          100% of the first 2% of
                                                          elective salary deferral
                                                          contributions made by eligible
                                                          participants. In 2006 we
                                                          began making matching contributions
                                                          of 100% of the
                                                          first 3% of participants’ salary deferral contributions.
                                                          Our matching
                                                          contributions were $97,674
                                                          for fiscal 2007, $93,606
                                                          for fiscal 2006, and $81,704
                                                          for fiscal 2005.
 
 **Employee
                                                          Stock Purchase Plan**
 In
                                                          2001
                                                          our shareholders approved
                                                          and we implemented an Employee
                                                          Stock Purchase Plan,
                                                          which allowed us to issue
                                                          up to 200,000 shares of
                                                          Common Stock. We issued
                                                          6,449
                                                          shares of Common Stock
                                                          under the plan for fiscal
                                                          2006 and 7,009 shares for
                                                          fiscal 2005.The
                                                          Plan
                                                          was terminated effective
                                                          January 1, 2006 in anticipation
                                                          of the impact of
                                                          SFAS No. 123(R), which would have
                                                          required us to recognize
                                                          expenses
                                                          associated with the issuance
                                                          of shares under the plan.
  F-16
 **EXHIBIT
                                                            INDEX**
 
 **Exhibit
                                                            #**      **Description**
 
 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. Section
                                                                      1350, as Adopted
                                                                      Pursuant to
                                                                      Section 906
                                                                      of the Sarbanes-Oxley
                                                                      Act of
                                                                      2002.