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BIG IDEAS


DEAR

SHAREHOLDERS INVESTMENTS IN R&D

Profits all four quarters of fiscal 2012 brought our history to forty consecutive profitable quarters. Products sales reached their highest level ever in the last quarter of the fiscal year, and we reported record operating cash flow for the fiscal year. Operating cash flow continued to strengthen our balance sheet, bringing you shareholders’ equity to $81.5 million. The solid financial results were despite challenges including a weak semiconductor industry, flooding in Thailand, and a difficult environment for Government contracts.

INVESTMENTS IN CAPACITY

We made significant investments in research and development, more than doubling our R&D expenditures from the prior year. We developed technologies for the future including magnetic compassing, biosensors, and Magnetoresistive Random Access Memory (MRAM). Our building lease was extended through 2020, allowing us to more effectively plan long-term production and capacity expansion. We completed a key element of our expansion strategy with an addition to our production cleanroom space. The new space increases capacity for important operations and provides room for new equipment. Capital expenditures also increases significantly from the prior year as we increase our production capacity. Process engineering improvement enhanced our production efficiency, as we continue to make our manufacturing process as cost-effective and scalable as possible. Qualification of additional packaging vendors will reduce the risk of future supply interruptions such as those caused by last year’s flooding in Thailand.

RECOGNITION

A BRIGHT FUTURE

Our performance earned NVE a place on Forbes’ list of the 200 Best Small Companies in America for the fourth consecutive year, and our return on revenue ranked third among the 100 largest companies in Minnesota according to the Star Tribune’s 2012 rankings. We entered fiscal 2013 with products in demand, products in development, and a strong balance sheet. We look forward to continuing to lead a spintronics revolution.

Sincerely,

President and CEO

Daniel A. Baker of NVE Nanotechnology Jan. 2001 – Present

02 NVE 2012

DANIEL A. BAKER

President and Chief Executive Officer

NVE 2012 03


SO WHAT’S THE

BIG DEAL ABOUT

ATOMS? 04 NVE 2012

NVE 2012 05


This is an

ATOM Here’s just a quick guide to help you understand us a little bit better. Atom comes from the Greek word which means “uncuttable.”

A. PROTONS

Protons are positively charged and are located in the center of the atom with neutrons. Protons are held together by a strong nuclear force. The number of protons in an atom determine its atomic number, the carbon atom has six protons so its atomic number is six.

C. ELECTRONS

Electrons are negatively charged subatomic particles that orbit the protons and neutrons of an atom. Electrons are the smallest part of the atom, they are approximately 1/836 the weight of a proton. The exchange of electrons between two atoms is the cause of chemical bonding. Electrons are extremely useful; they have been used in lasers, radiation therapy and particle accelerators.

06 NVE 2012

B. NEUTRONS

Neutrons have no net charge and are also located in the center of the atom. Protons and neutrons are often referred to as nucleons. When a single neutron becomes free of its proton it decays quickly in an average time of 15 minutes. Neutrons are the key to nuclear power.

A

B

D. ORBITAL

Orbitals are the paths that electrons follow around the center of an atom; orbitals cannot actually be seen.

SPIN

Spin is the theory that describes the way in which particles (protons, neutrons, and electrons) move. It is a theory already being used in technology today; for example, the internet, MRI scanners, and all of our products use this theory!

C D

The Atom

Did you know you never actually touch anything? At least on the subatomic level, this is because electrons are negatively charged and repel other electrons, much like two magnets will repel each other.

NVE 2012 07


WELL, ELECTRON GREENER! THE SPIN OF AN SPINTRONICS ARE

I’M GLAD YOU ASKED

LASTS A LONG TIME, SO LONG THAT OUR ISO LOOP ISOLATORS HAVE BEEN PREDICTED TO FAIL IN

THIS METHOD OF UTILIZING THE

ATOM

USES

MUCH LESS ENERGY THAN TRADITIONAL

FIVE MILLION TECHNOLOGIES, WHICH MAKES YEARS, FRANCISCO IS EXPECTED TO OUR PLANET SPINTRONICS EMPLOYS THE SPIN OF AN VERY HAPPY. BREAK APART FROM NORTH AMERICA, BUT BY THEN SAN

SO WHAT EXACTLY IS SPINTRONICS?

ELECTRON ITS GOOD TO KNOW OUR PRACTICAL ISOLATORS FOR

AND

USEFUL

TECHNOLOGIES.

WILL STILL BE WORKING.

IT IS

VERY, VERY,

WE USE SPINTRONICS TO MAKE

SENSORS,

COUPLERS,

VERY FAST, MRAMS SPINTRONICS NEARLY AS FAST AS ARE THE NEXT BIG GATHER, THE SPEED MOVEMENT TRANSMIT AND

THAT

IN TECHNOLOGY.

08 NVE 2012

OF LIGHT.

AND STORE INFORMATION.

NVE 2012 09


FOR YEARS PEOPLE STORED MEMORY ON THE

CHARGE

OF AN ATOM, WE KNEW THERE WAS A BETTER SOLUTION, SO WE USED THE

SPIN INSTEAD, AND

SPINTRONICS WAS BORN

10 NVE 2012

NVE 2012 11


SPINTRONICS AND ARE IMPOSSIBLY,

NANOTECHNOLOGY MICROSCOPICALLY

SMALL, A SINGLE COFFEE

SO SMALL CUP

THAT,

CAN HOLD

700 000 SENSORS.

THE OXIDIZED ALUMINUM OR MAGNESIUM WE USE IS TYPICALLY

ONE TO FOUR MILLION THE CRITICAL COPPER LAYERS IN

NVE SPINTRONIC GMR DEVICES ARE NEARLY A

TIMES THINNER THAN A

PENNY 12 NVE 2012

SOME OF OUR

AN

ALTOIDS BOX SENSORS COULD HOLD UP TO

500,000 OF OUR SENSORS...

The Original Celebrated

CURIOUSLY STRONG

PEPPERMINTS

MADE IN GRE AT BRITAIN

NEATLY STACKED OF COURSE.

ONE TENTH THE WEIGHT OF A

HOUSEFLY.

SOME OF OUR CRITICAL CONDUCTION

LAYERS ARE APPROXIMATELY

1.8 NANOMETERS THICK, WHICH IS FIVE ATOMIC LAYERS, WHICH IS LESS THAN

ONE-TEN THOUSANDTH

NANOMETERS THICK. BY COMPARISON,

THE THICKNESS OF

CHIP BAGS IS 0.0002 INCHES (5,000 NANOMETERS) THICK.

THAT’S PRETTY THIN !

THE ALUMINUM LINING OF POTATO

ARE LESS THAN

TISSUE PAPER.

NVE 2012 13


WELL YOU SEE, THE WORD

SPIN BECAUSE IN FACT THE

UP

IS VERY MISLEADING

“SPIN” DOES NOT ROTATE

CLOCKWISE OR COUNTER

CLOCKWISE BUT RATHER

14 NVE 2012

OR


IT MEANS THAT THERE ARE

SO WHAT DOES ALL OF THIS MEAN?

18 NVE 2012

FASTER GREENER CHEAPER AND CLEANER NEW POSSIBILITIES

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HERE ARE JUST A FEW SAVING LIVES

Organ transplants will be much easier for doctors to preform, less painful, and the risks involved will be much lower.

Electric car battery management for more efficient vehicles

CLEAN WATER AND AIR

FASTER COMPUTERS

FEEDING THE WORLD

STOP CANCER IN ITS TRACKS

Better filtration techniques will help bring purer water and air to people all over the world.

Makes agriculture more efficient and safer for consumption.

20 NVE 2012

GETTING FROM A TO B

Since the spin of at atom is so much faster than the charge, computers will have no start up time at all.

Spintronic scanning devices helps doctors detect cancer much earlier in patients, making it much more treatable and easier to manage.

STOPS THIEVES

Tamper detection for more secure transaction and identification cards.

A GOOD CAUSE

We’ve partnered with St. Jude, now patients will see faster test results, with more accurate measurements, allowing doctors to heal people better than ever.

MORE MEMORY

Spintronics allows hard drives to store much more information than ever before.

CARING FOR OUR HOME

Greater steps towards renewable energy and lowering greenhouse gas emissions.

NO MORE GUESS WORK

Nanomedicine will allow doctors to give patients more specific and efficient medications patients.

FASTER TEST RESULTS

Spintronic biosensors for better, faster, and more compact medical testing

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WE WILL BE ABLE TO

STORE MORE INFORMATION, HAVE MORE RELIABLE TECHNOLOGY, SO BASICALLY...

FASTER DEVICES AND COMPUTERS,

AND HAVE CLEANER SOURCES

OF ENERGY FOR EVERYONE 22 NVE 2012

NVE 2012 23


EXECRANK’S

“TOP SMALL

STANDING OUT TOP 25 LIST OF

HARDEST IS WHAT CAP CEOS”

WE DO DANIEL BAKER,

AWARDED TO 2012

PRODUCT OF THE MONTH, NVE’S

WORKING BOARD DIRECTORS, AWARDED TO NVE CHAIRMAN

TERRENCE GLARNER, 2011

1.1 X 1.1 X 0.45 MM TOP 25 LIST OF

INDUSTRIAL RANKED 12TH

HARDEST GMR MAGNETIC ON LIST OF TOP 25

SENSORS, WORKING KONSTRUKTION FASTEST AND GROWING ENGINEERING PUBLIC COMPANIES TERRENCE GLARNER,

HERE’S JUST A FEW AWARDS WE’VE RECEIVED

BOARD DIRECTORS, AWARDED TO CHAIRMAN

IN MINNESOTA RANKED BY

RANKED # 15 ON LIST OF THE MINNEAPOLIS/ST. PAUL

TOP 20 COMMITTEE SMALL DEFYING THE ODDS BUSINESS JOURNAL, 2011 “IN A STRUGGLING ECONOMY, THESE COMPANIES ARE

RANKED FIRST IN TOTAL

ACTIVITY BY FORBES —IN A BIG WAY.” PUBLIC COMPANIES IN AMERICA

AND FIRST IN AVERAGE TENURE 24 NVE 2012

NVE 2012 25


NVE CORPORATION

STATEMENTS OF INCOME For Years Ending In March 31

FINANCIAL STATEMENTS

REVENUE Product Sales Contract Research Development Total Revenue Cost of Sales Gross Profit EXPENSES Selling, General, and Administrative Research and Development Total Expenses Income from Operations Interest Income Income Before Taxes Provision for Income Taxes Net Income Net Income Per Share – Basic Net income Per Share – Diluted WEIGHTED AVERAGE SHARES OUTSTANDING Basic Diluted

26 NVE 2012

2012

2011

2010

$25,151,822 3,427,398

$26,024,823 5,172,240

$22,665,860 5,481,325

28,579,220 9,325,511 19,253,709

31,197,063 9,783,698 21,413,365

28,147,185 8,313,015 19,834,170

2,380,603

2,474,468

2,4114,584

2,600,058

1,269,127

1,121,050

4,980,661 14,273,048 2,350,191 16,623,239 5,242,144 $11,381,095 $2.37

3,743,595 17,669,770 2,021,426 19,691,196 6,330,251 $13,360,945 $2.83

3,535,634 16,298,536 1,617,880 17,916,416 5,917,072 $11,999,344 $2.56

$2.34

$2.76

$2.47

4,796,227 4,863,471

4,729,035 4,844,266

4,692,496 4,857,044

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NVE CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1 NOTE 2

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.

Our customers include agencies of the U.S. Government and other customers throughout the world. We generally do not require collateral from our customers, but we preform ongoing credit evaluations of their financial condition. More information on accounts receivable is contained in the paragraph titled “Accounts Receivable and Allowance for Doubtful Accounts” of this note. 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.

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.

Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable and recorded net of an allowance for doubtful accounts. We make estimate of the unaccountability of accounts receivable. We specifically analyze accounts receivable, historical bad debts, and customer creditworthiness when evaluating the adequacy of the allowance. We had no charges or provisions to our allowance for doubtful accounts in fiscal 2012, 2011 or 2010.

Fair Value of Financial Investments The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value because of the short maturity of these investments. Fair values f marketable securities are based on quoted market prices. Marketable Securities We classify securities with original maturities greater than three months and remaining maturities less than one year as short-term marketable securities, and securities with remaining maturities greater than one year as long-term marketable securities. Securities not due at a single maturity that are classified by their average life. We classify all of our marketable securities as avalible-for-sale, thus securities are recorded as fair market value and any associated unrealized gain or loss, not of tax, is included as a separate component of shareholders’ equity, “Accumulated other comprehensive income (loss),” We use a specific-identification cost basis to determine gains and losses. The amortized cost of marketable securities adjusted for amortization of premiums and accretion of discounts to maturity, both of which are included an interest income. We consider an other-than-temporary impairment of our marketable securities to exist if we determine it is probable that we will be unable to collect all amounts due according to the contractual terms of a debt security. If we judged a decline in fair value for any security to be other than temporary, the cost of the individual security would be written down and a charge recognized net income. We consider a number of factors in determining wether other-than-temporary impairment exists, including: credit market conditions, the credit ratings of the securities; historical default rates for securities of comparable credit ratings, the presence of insurance of the securities and, if insured, the credit ratings and financial condition of the insurers : the effect of market interest rates on the value of the securities: and the duration and extent of any unrealized losses. We also consider the likelihood that we will be required to sell the securities prior to maturity based on our financial condition and anticipated cash flows. We determined that no write-downs were required on avalible-for-sale securities during fiscal 2012, 2011 or 2010. Concentration of Risk and Financial Instruments Financial instruments potentially subject to significant concentrations of credit risk consist principally of cash equivalents, marketable securities, and accounts receivable. We have invested our excess cash in corporate-backed and municipal-backed bonds and other money market instruments. Our investment policy prescribes purchases of only high-grade securities, and limits the amount of credit exposure to any one issuer.

28 NVE 2012

Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first in, first out method. We record inventory reserves when we determine certain inventory is unlikely to be sold based on sale trends, turnover, competition, and other market factors. 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.

NOTE 3

REVENUE RECOGNITION 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 on shipment. Our customers may return defective products for refund or replacement under warranty, and every other very limited rights of return. We maintain reserves based on historical returns. Shipping charges billed to customers are included product sales and the related shipping costs are included in selling general, and administrative expense. Such shipping costs were $40, 185 for fiscal 2012, $39,427 for fiscal 2011, and $34,694 for fiscal 2010.

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NVE Annual Report