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 or in the documents incorporated by reference in this Report. Further information regarding our risks and uncertainties are contained in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended March 31, 2008 as updated in our subsequently-filed Quarterly Reports on Form 10-Q.

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.

Critical Accounting Policies
A description of our critical accounting policies is provided in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2008. At December 31, 2008 our critical accounting policies and estimates continued to include research and development contract percentage of completion estimation, product warranty estimation, inventory valuation, allowance for doubtful accounts estimation, and deferred tax assets estimation.

Quarter ended December 31, 2008 compared to quarter ended December 31, 2007 The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

                                         Percentage of Revenue        Quarter-
                                         Quarter Ended Dec. 31       to-Quarter
                                         2008               2007       Change
Revenue
Product sales                             78.1 %             89.2 %       8.2  %
Contract research and development         21.9 %             10.8 %     149.6  %
Total revenue                            100.0 %            100.0 %      23.5  %
Cost of sales                             30.0 %             34.9 %       6.0  %
Gross profit                              70.0 %             65.1 %      32.8  %
Expenses
Selling, general, and administrative       8.6 %             10.3 %       3.3  %
Research and development                   4.4 %              7.3 %     (25.4 )%
Total expenses                            13.0 %             17.6 %      (8.6 )%
Income from operations                    57.0 %             47.5 %      48.2  %
Interest and other income                  5.2 %              6.7 %      (4.7 )%
Income before taxes                       62.2 %             54.2 %      41.6  %
Provision for income taxes                20.2 %             18.5 %      35.0  %
Net income                                42.0 %             35.7 %      45.0  %

Total revenue for the quarter ended December 31, 2008 (the third quarter of fiscal 2009) increased 23% to $5,884,113 compared to $4,765,525 for the quarter ended December 31, 2007 (the third quarter of fiscal 2008). The increase was due to an 8% increase in product sales and a 150% increase in contract research and development revenue. The increase in product sales was due to increased volume from the addition of new customers and increased purchase volume by existing customers. The increase in research and development revenue was due to new contracts. The increase in research and development revenue may not be representative of future trends and there can be no assurance of additional or follow-on contracts for expired or completed contracts.

Gross profit margin increased to 70% of revenue for the third quarter of fiscal 2009 compared to 65% for the third quarter of fiscal 2008. The increase was due to higher margins on both product sales and research and development revenue.

Research and development expense decreased 25% for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008 due to the completion of certain research and development projects and an increase in contract research and development obligations. This decrease may not be representative of future expense trends. Our research and development expense can fluctuate significantly depending on staffing, project requirements, and contract research and development obligations.

Interest income increased 18% to $306,814 for the third quarter of fiscal 2009 compared to $259,865 for the third quarter of fiscal 2008. The increase was due to an increase in interest-bearing marketable securities. Other income was $800 for the third quarter of fiscal 2009 compared to $62,930 for the third quarter of fiscal 2008. Other income for the third quarter of fiscal 2008 consisted primarily of a $61,430 net gain on maturities and sales of marketable securities.

The provision for income taxes was $1,192,282, or 33% of income before taxes, for the third quarter of fiscal 2009 compared to $882,867, or 34% of income before taxes, for the third quarter of fiscal 2008. The decrease in the effective tax rate may not be representative of future trends because the effective tax rate can fluctuate from quarter to quarter due to a number of factors, some of which are outside our control.

The 45% increase in net income in the third quarter of fiscal 2009 compared to the prior-year quarter was primarily due to increases in total revenue and gross profit margin, and a decrease in research and development expense.

Nine months ended December 31, 2008 compared to nine months ended December 31, 2007
The table shown below summarizes the percentage of revenue and period-to-period changes for various items:

                                             Percentage of Revenue           Period-
                                           Nine Months Ended Dec. 31        to-Period
                                          2008                     2007       Change
Revenue
Product sales                               85.1 %                  88.6 %      9.2  %
Contract research and development           14.9 %                  11.4 %     49.2  %
Total revenue                              100.0 %                 100.0 %     13.8  %
Cost of sales                               29.9 %                  34.2 %     (0.8 )%
Gross profit                                70.1 %                  65.8 %     21.4  %
Expenses
Selling, general, and administrative         9.8 %                  11.3 %     (0.5 )%
Research and development                     5.6 %                   8.1 %    (20.8 )%
Total expenses                              15.4 %                  19.4 %     (9.0 )%
Income from operations                      54.7 %                  46.4 %     34.0  %
Interest and other income                    5.1 %                   5.5 %      6.1  %
Income before taxes                         59.8 %                  51.9 %     31.1  %
Provision for income taxes                  19.3 %                  17.8 %     23.2  %
Net income                                  40.5 %                  34.1 %     35.2  %

Total revenue for the nine months ended December 31, 2008 increased 14% to $16,475,689 compared to $14,479,428 for the nine months ended December 31, 2007. The increase was due to a 9% increase in product sales and a 49% increase in research and development revenue. The increase in product sales was due to increased volume from the addition of new customers and increased purchase volume by existing customers. The increase in research and development revenue was due to new contracts.

Gross profit margin increased to 70% of revenue for the first nine months of fiscal 2009 compared to 66% for the first nine months of fiscal 2008. The increase was due to higher margins on both product sales and research and development revenue.

Research and development expense decreased 21% for the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008 due to the completion of certain research and development projects and an increase in contract research and development obligations.

Interest and other income increased 6% to $842,523 for the first nine months of fiscal 2009 compared to $794,173 for the nine months ended December 31, 2007. The increase was primarily due to an increase in interest-bearing marketable securities. Other income for the nine months ended December 31, 2007 consisted primarily of a $61,430 net gain on maturities and sales of marketable securities.

The provision for income taxes was $3,178,968 or 32% of income before taxes for the first nine months of fiscal 2009 compared to $2,581,272 or 34% of income before taxes for the first nine months of fiscal 2008. The decrease in the effective tax rate may not be representative of future trends because the effective tax rate can fluctuate from quarter to quarter due to a number of factors, some of which are outside our control.

The 35% increase in net income in the first nine months of fiscal 2009 compared to the prior-year period was primarily due to increases in total revenue and gross profit margin, and a decrease in research and development expense.

Seasonality
Product sales for the third quarter of fiscal 2009 were less than the immediately preceding quarter, which is the same pattern as each of the three previous fiscal years. This pattern may be 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, and we do not know if product sales will increase in the fourth quarter of fiscal 2009 compared to the third quarter of fiscal 2009 as they have in the three previous fiscal years.

Liquidity and capital resources
At December 31, 2008 we had $32,115,947 in cash plus short-term and long-term marketable securities compared to $24,736,874 at March 31, 2008. Our entire portfolio of short-term and long-term marketable securities is classified as available for sale. The increase in cash plus marketable securities in the first nine months of fiscal 2009 was primarily due to $7,398,263 in net cash provided by operating activities.

Accounts receivable decreased $526,681 in the first nine months of fiscal 2009 due to collection of receivables related to revenue late in the fiscal year ended March 31, 2008.

Purchases of fixed assets were $400,560 for the first nine months of fiscal 2009 compared to $642,170 for the first nine months of fiscal 2008. Purchases during both periods were primarily for capital equipment to increase our production capacity and were financed with cash provided by operating activities.

We currently believe our working capital is adequate for our needs at least for the next 12 months.