10-Q
1
NVE_Q1_FY2021_10Q.htm
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2020
or
[ ] 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)
(952)
829-9217
(Registrants
telephone number, including area code)
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.
[X] Yes [ ] No
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required
to submit such files).
[X] Yes [ ] No
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of large
accelerated filer, accelerated filer, smaller reporting
company, and emerging growth company in Rule 12b-2 of the Exchange
Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [X]
Smaller reporting company [X]
Emerging growth company [ ]
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is
a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
NVEC
The NASDAQ Stock Market, LLC
Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value 4,835,038 shares outstanding as of July 17, 2020
NVE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance
Sheets
Statements
of Income for the Quarters Ended June 30, 2020 and 2019
Statements
of Comprehensive Income for the Quarters Ended June 30, 2020 and 2019
Statements
of Shareholders Equity for the Period Ended June 30, 2020
Statements
of Shareholders Equity for the Period Ended June 30, 2019
Statements
of Cash Flows
Notes
to Financial Statements
Item 2. Managements Discussion
and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 4. Mine Safety Disclosures
Item 6. Exhibits
SIGNATURES
2
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of Contents
PART IFINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEETS
(Unaudited)
June 30, 2020
March
31, 2020*
ASSETS
Current assets
Cash and cash equivalents
$
6,402,983
$
8,065,594
Marketable securities, short-term
19,179,495
19,084,814
Accounts receivable, net of allowance for uncollectible
accounts of $15,000
2,297,850
2,694,018
Inventories
3,943,738
3,884,450
Prepaid expenses and other assets
718,122
655,835
Total current assets
32,542,188
34,384,711
Fixed assets
Machinery and equipment
9,280,062
9,280,062
Leasehold improvements
1,797,245
1,797,245
11,077,307
11,077,307
Less accumulated depreciation and amortization
10,571,515
10,494,840
Net fixed assets
505,792
582,467
Deferred tax assets
-
108,119
Marketable securities, long-term
45,049,578
43,606,495
Right-of-use asset operating lease
784,774
816,358
Total assets
$
78,882,332
$
79,498,150
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Accounts payable
$
180,338
$
186,993
Accrued payroll and other
492,243
482,074
Income taxes payable
406,326
-
Operating lease
120,429
127,134
Total current liabilities
1,199,336
796,201
Deferred tax liabilities
189,523
-
Operating lease
675,928
706,600
Total liabilities
2,064,787
1,502,801
Shareholders equity
Common stock, $0.01 par value,
6,000,000 shares authorized; 4,835,038 issued
and outstanding as of June 30, 2020 and March 31, 2020
48,350
48,350
Additional paid-in capital
19,386,663
19,383,956
Accumulated other comprehensive income
1,759,185
516,523
Retained earnings
55,623,347
58,046,520
Total shareholders equity
76,817,545
77,995,349
Total liabilities and shareholders equity
$
78,882,332
$
79,498,150
*The March 31, 2020 Balance Sheet is derived from the audited financial statements
contained in our Annual Report on Form 10-K
for the fiscal year ended March 31, 2020.
See accompanying notes.
3
Table of Contents
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited )
Quarter Ended June 30
2020
2019
Revenue
Product sales
$
4,358,635
$
6,085,364
Contract research and development
230,627
209,332
Total revenue
4,589,262
6,294,696
Cost of sales
836,422
1,092,037
Gross profit
3,752,840
5,202,659
Expenses
Research and development
880,983
973,067
Selling, general, and administrative
355,011
330,009
Total expenses
1,235,994
1,303,076
Income from operations
2,516,846
3,899,583
Interest income
399,212
459,039
Income before taxes
2,916,058
4,358,622
Provision for income taxes
504,193
751,203
Net income
$
$2,411,865
$
3,607,419
Net income per share basic
$
0.50
$
0.74
Net income per share diluted
$
0.50
$
0.74
Cash dividends declared per common share
$
1.00
$
1.00
Weighted average shares outstanding
Basic
4,835,038
4,846,010
Diluted
4,835,157
4,850,388
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended June 30
2020
2019
Net income
$
2,411,865
$
3,607,419
Unrealized gain from marketable securities, net of tax
1,242,662
570,063
Comprehensive income
$
3,654,527
$
4,177,482
See accompanying notes.
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NVE CORPORATION
STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited)
Additional
Paid-In
Capital
Accumulated
Other
Comprehen-
sive
Income
Retained
Earnings
Common
Stock
Shares
Amount
Total
Balance as of March 31, 2020
4,835,038
$
48,350
$
19,383,956
$
516,523
$
58,046,520
$
77,995,349
Comprehensive income:
Unrealized gain on
marketable securities,
net of tax
1,242,662
1,242,662
Net income
2,411,865
2,411,865
Total comprehensive income
3,654,527
Stock-based compensation
2,707
2,707
Cash dividends declared
($1.00 per share of
common stock)
(4,835,038
)
(4,835,038
)
Balance as of June 30, 2020
4,835,038
$
48,350
$
19,386,663
$
1,759,185
$
55,623,347
$
76,817,545
See accompanying notes.
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NVE CORPORATION
STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited)
Additional
Paid-In
Capital
Accumulated
Other
Comprehen-
sive (Loss)
Income
Retained
Earnings
Common
Stock
Shares
Amount
Total
Balance as of March 31, 2019
4,846,010
$
48,460
$
19,910,558
$
(82,725
)
$
62,903,918
$
82,780,211
Comprehensive income:
Unrealized gain on
marketable securities,
net of tax
570,063
570,063
Net income
3,607,419
3,607,419
Total comprehensive income
4,177,482
Cash dividends declared
($1.00 per share of
common stock)
(4,846,010
)
(4,846,010
)
Balance as of June 30, 2019
4,846,010
$
48,460
$
19,910,558
$
487,338
$
61,665,327
$
82,111,683
See accompanying notes.
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NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter
Ended June 30
2020
2019
OPERATING ACTIVITIES
Net income
$
2,411,865
$
3,607,419
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
129,620
134,733
Stock-based compensation
2,707
-
Deferred income taxes
(50,405
)
(664
)
Changes in operating assets and liabilities:
Accounts receivable
396,168
248,955
Inventories
(59,288
)
45,093
Prepaid expenses and other assets
(30,703
)
205,399
Accounts payable and other liabilities
372,463
296,693
Net cash provided by operating activities
3,172,427
4,537,628
INVESTING ACTIVITIES
Purchases of fixed assets
-
(16,100
)
Purchases of marketable securities
-
(3,013,530
)
Proceeds from maturities of marketable securities
-
9,500,000
Cash provided by investing activities
-
6,470,370
FINANCING ACTIVITIES
Payment of dividends to shareholders
(4,835,038
)
(4,846,010
)
Cash used in financing activities
(4,835,038
)
(4,846,010
)
(Decrease) increase in cash and cash equivalents
(1,662,611
)
6,161,988
Cash and cash equivalents at beginning of period
8,065,594
6,877,304
Cash and cash equivalents at end of period
$
6,402,983
$
13,039,292
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes
$
-
$
-
See accompanying notes.
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NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements
of NVE Corporation are prepared consistent with accounting principles generally
accepted in the United States and in accordance with Securities and Exchange Commission
rules and regulations. In the opinion of management, these financial statements
reflect all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the financial statements. Although we believe
that the disclosures are adequate to make the information presented not misleading,
certain disclosures have been omitted as allowed, and it is suggested that these
unaudited financial statements be read in conjunction with the audited financial
statements and the notes included in our latest annual financial statements included
in our Annual Report on Form 10-K for
the fiscal year ended March 31, 2020. The results of operations for the quarter
ended June 30, 2020 are not necessarily indicative of the results that may
be expected for the full fiscal year ending March 31, 2021.
Significant Accounting Policies
Revenue Recognition
We recognize revenue when we satisfy performance obligations
by the transfer of control of products or services to our customers, in an amount
that reflects the consideration we expect to be entitled to in exchange for those
products or services. Revenue is disaggregated into product sales and contract
research and development to depict the nature, amount, timing of revenue recognition
and economic characteristics of our business, and is represented within the financial
statements.
We recognize revenue from product sales to customers
and distributors when we satisfy our performance obligation, at a point in time,
upon product shipment or delivery to our customer or distributor as determined
by agreed upon shipping terms. Shipping charges billed to customers are included
in product sales and the related shipping costs are included in cost of sales.
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.
We recognize discounts provided to our distributors as reductions in revenue.
We recognize contract research and development revenue
over a period of time as the performance obligation is satisfied over a period
of time rather than a point in time. Contracts have specifications unique to each
customer and do not create an asset with an alternate use, and we have an enforceable
right to payment for performance completed to date. We recognize revenue over
a period of time using costs incurred as the measurement of progress towards completion.
Accounts receivable is recognized when we have transferred
a good or service to a customer and our right to receive consideration is unconditional
through the completion of our performance obligation. A contract asset is recognized
when we have a right to consideration from the transfer of goods or services to
a customer but have not completed our performance obligation. A contract liability
is recognized when we have been paid by a customer but have not yet satisfied
the performance obligation by transferring goods or services. We had no material
contract assets or contract liabilities as of June 30, 2020 or March 31,
2020.
Our performance obligations related to product sales
and contract research and development contracts are satisfied in one year or less.
Unsatisfied performance obligations represent contracts with an original expected
duration of one year or less. As permitted under Accounting Standards Codification
(ASC) Topic 606, Revenue from Contracts with Customers ,
we are using the practical expedient not to disclose the value of these unsatisfied
performance obligations. We also use the practical expedient in which we do not
assess whether a contract has a significant financing component if the expectation
at contract inception is such that the period between payment by the customer
and the transfer of the promised goods or services to the customer will be one
year or less.
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NOTE
3. RECENTLY ISSUED ACCOUNTING STANDARDS
New Accounting Standards Not Yet Adopted
In December 2019, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU)
No. 2019-12, Income Taxes (Topic 740)Simplifying the Accounting for Income
Taxes . ASU 2019-12 is intended to simplify accounting for income taxes.
It removes certain exceptions to the general principles in Topic 740 and amends
existing guidance to improve consistent application. ASU 2019-12 is effective
for fiscal years beginning after December 15, 2020 and interim periods within
those fiscal years, which is fiscal 2022 for us, with early adoption permitted.
We do not expect adoption of the new guidance to have a significant impact on
our financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial InstrumentsCredit Losses (Topic 326), Measurement of Credit
Losses on Financial Statements . ASU 2016-13 requires a financial asset
(or a group of financial assets) measured at amortized cost basis to be presented
at the net amount expected to be collected. The allowance for credit losses is
a valuation account that is deducted from the amortized cost basis of the financial
asset(s) to present the net carrying value at the amount expected to be collected
on the financial asset. In November 2018 the FASB issued ASU No. 2018-19,
Codification Improvements to Topic 326, Financial InstrumentsCredit
Losses , which clarifies codification and corrects unintended application of
the guidance, and in November 2019, the FASB issued ASU No. 2019-11, Codification
Improvements to Topic 326, Financial Instruments-Credit Losses , which clarifies
or addresses specific issues about certain aspects of ASU 2016-13. In November 2019
the FASB issued ASU No. 2019-10, Financial InstrumentsCredit Losses
(Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):
Effective Dates , and in February 2020 the FASB issued ASU No. 2020-02,
Financial InstrumentsCredit Losses (Topic 326) and Leases (Topic
842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119
and Update to SEC Section on Effective Date Related to Accounting Standards Update
No. 2016-02, Leases (Topic 842) , both of which delay the effective
date of ASU 2016-13 by three years for certain Smaller Reporting Companies
such as us. We were unaffected by the change in the effective date of the ASU
related to Leases (Topic 842) because we have already adopted that ASU. In
March 2020, the FASB issued ASU No. 2020-03, Codification Improvements
to Financial Instruments ; which modifies the measurement of expected credit
losses of certain financial instruments. In accordance with ASU 2019-10 and
ASU 2020-02, ASU 2016-13 is effective for certain Smaller Reporting
Companies for financial statements issued for fiscal years beginning after December 15,
2022 and interim periods within those fiscal years, which will be fiscal 2024
for us if we continue to be classified as a Smaller Reporting Company, with early
adoption permitted. We do not expect adoption of the new guidance to have a significant
impact on our financial statements.
NOTE 4. NET INCOME PER SHARE
Net income per basic share is computed based on
the weighted-average number of common shares issued and outstanding during each
period. Net income per diluted share amounts assume exercise of all stock options.
The following tables show the components of diluted shares:
Quarter
Ended June 30
2020
2019
Weighted average common shares outstanding basic
4,835,038
4,846,010
Dilutive effect of stock options
119
4,378
Shares used in computing net income per share diluted
4,835,157
4,850,388
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NOTE 5.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our corporate bonds and money market funds are classified
as available-for-sale securities and carried at estimated fair value. Unrealized
holding gains and losses are included in accumulated other comprehensive income
(loss) in the statement of shareholders equity. Corporate bonds 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. We consider all
highly-liquid investments with maturities of three months or less when purchased,
including money market funds, to be cash equivalents. Gains and losses on marketable
security transactions are reported on the specific-identification method.
Contractual maturities of available-for-sale securities as of June 30, 2020 are as follows:
Total
<1
Year
13
Years
35
Years
$
70,315,124
$
25,265,545
$
33,132,700
$
11,916,879
Total available-for-sale securities represented
approximately 89% of our total assets. Marketable securities as of June 30,
2020 had remaining maturities between four and 44 months.
Generally accepted accounting principles establish
a framework for measuring fair value, provide a definition of fair value, and
prescribe required disclosures about fair-value measurements. Generally accepted
accounting principles define fair value as the price that would be received to
sell an asset or paid to transfer a liability. Fair value is a market-based measurement
that should be determined using assumptions that market participants would use
in pricing an asset or liability. Generally accepted accounting principles utilize
a valuation hierarchy for disclosure of fair value measurements. The categorization
within the valuation hierarchy is based on the lowest level of input that is significant
to the fair value measurement. The categories within the valuation hierarchy are
described as follows:
Level
1 Financial instruments with quoted prices in active markets for identical
assets or liabilities.
Level 2 Financial instruments with quoted
prices in active markets for similar assets or liabilities. Level 2 fair
value measurements are determined using either prices for similar instruments
or inputs that are either directly or indirectly observable, such as interest
rates.
Level 3 Inputs to the fair value measurement
are unobservable inputs or valuation techniques.
Money market funds are included on the balance sheets
in Cash and cash equivalents. Corporate bonds are included on the
balance sheets in Marketable securities, short term and Marketable
securities, long term.
The following table shows the estimated fair value
of assets that were accounted for at fair value on a recurring basis:
As of
June 30, 2020
As of
March 31, 2020
Level
1
Level
2
Total
Level
1
Level
2
Total
Money market funds
$
6,086,051
$
-
$
6,086,051
$
7,903,433
$
-
$
7,903,433
Corporate bonds
-
64,229,073
64,229,073
-
62,691,309
62,691,309
Total
$
6,086,051
$
64,229,073
$
70,315,124
$
7,903,433
$
62,691,309
$
70,594,742
Our available-for-sale securities as of June 30
and March 31, 2020, aggregated into classes of securities, were as follows:
As
of June 30, 2020
As
of March 31, 2020
Amortized
Cost
Gross
Unrealized
Holding Gains
Gross
Unrealized
Holding Losses
Estimated
Fair
Value
Amortized
Cost
Gross
Unrealized
Holding Gains
Gross
Unrealized
Holding Losses
Estimated
Fair
Value
Money market
funds
$
6,086,051
$
-
$
-
$
6,086,051
$
7,903,433
$
-
$
-
$
7,903,433
Corporate bonds
61,977,175
2,251,898
-
64,229,073
62,030,120
752,621
(91,432
)
62,691,309
Total
$
68,063,226
$
2,251,898
$
-
$
70,315,124
$
69,933,553
$
752,621
$
(91,432
)
$
70,594,742
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NOTE 6.
INVENTORIES
Inventories are shown in the following table:
June
30,
2020
March
31,
2020
Raw materials
$
907,618
$
1,017,451
Work in process
2,026,032
1,863,000
Finished goods
1,010,088
1,003,999
Total inventories
$
3,943,738
$
3,884,450
NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation expense was $2,707 for
the first quarter of fiscal 2021. There were no stock-based compensation expenses
for the first quarter of fiscal 2020. We calculate the share-based compensation
expense using the Black-Scholes standard option-pricing model.
NOTE 8.
INCOME TAXES
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.
We had no unrecognized tax benefits as of June 30,
2020, and we do not expect any significant unrecognized tax benefits within 12 months
of the reporting date. We recognize interest and penalties related to income tax
matters in income tax expense. As of June 30, 2020 we had no accrued interest
related to uncertain tax positions. The tax years 2016 through 2019 remain open
to examination by the major taxing jurisdictions to which we are subject.
NOTE 9. LEASES
We conduct our operations in a leased facility under a
non-cancellable lease expiring March 31, 2026. Our lease does not provide an implicit rate,
so we used our incremental borrowing rate to determine the present value of lease payments.
Lease expense is recognized on a straight-line basis over the lease term. Variable lease costs
consist primarily of common area maintenance and real estate taxes which are paid
based on actual costs incurred by the lessor. Details of our operating lease are
as follows:
Quarter Ended
June 30, 2020
Operating lease cost
$
38,641
Variable lease cost
30,608
Total
$
69,249
Cash paid for amounts included in the measurement
of lease liabilities
Operating cash flows for leases
$
44,433
Remaining lease term
69 months
Discount rate
3.5
%
The following table presents the maturities
of lease liabilities as of June 30, 2020:
Year Ending March 31
Operating Leases
2021
84,104
2022
152,703
2023
156,121
2024
159,592
2025
163,224
2026
165,947
Total lease payments
881,691
Imputed lease interest
(85,334
)
Total lease liabilities
$
796,357
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NOTE 10.
STOCK REPURCHASE PROGRAM
On January 21, 2009 we announced that our Board
of Directors authorized the repurchase of up to $2,500,000 of our Common Stock
from time to time in open market, block, or privately negotiated transactions.
The timing and extent of any repurchases depends on market conditions, the trading
price of the companys stock, and other factors, and subject to the restrictions
relating to volume, price, and timing under applicable law. On August 27,
2015, we announced that our Board of Directors authorized up to $5,000,000 of
additional repurchases. Our repurchase program does not have an expiration date
and does not obligate us to purchase any shares. The Program may be modified or
discontinued at any time without notice. We intend to finance any stock repurchases
with cash provided by operating activities or maturating marketable securities.
The remaining authorization was $3,853,459 as of June 30, 2020. We did
not repurchase any of our Common Stock during the first quarter of fiscal 2021.
NOTE 11.
INFORMATION AS TO EMPLOYEE STOCK PURCHASE, SAVINGS, AND SIMILAR PLANS
All of our employees 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 Code maximum. We make matching contributions
of 100% of the first 3% of participants salary deferral contributions. Our
matching contributions were $25,381 for the first quarter of fiscal 2021 and $24,066
for the first quarter of fiscal 2020.
NOTE 12.
SUBSEQUENT EVENTS
On July 22, 2020 we announced that our Board
had declared a quarterly cash dividend of $1.00 per share of Common Stock to be
paid August 31, 2020 to shareholders of record as of the close of business
August 3, 2020.
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations.
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 risks related
to our reliance on several large customers for a significant percentage of revenue,
uncertainties related to the economic environments in the industries we serve,
uncertainties related to future sales and revenues, risks
related to the COVID-19 pandemic, risks and uncertainties related to future
stock repurchases and dividend payments, 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,
2020.
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.
Critical accounting policies
A description of our critical accounting policies
is provided in Managements Discussion and Analysis of Financial Condition
and Results of Operations in our Annual Report on Form
10-K for the year ended March 31, 2020. As of June 30, 2020 our
critical accounting policies and estimates continued to include investment valuation,
inventory valuation, and deferred tax assets estimation.
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Quarter ended June 30, 2020 compared to quarter ended June 30, 2019
The table shown below summarizes the percentage
of revenue and quarter-to-quarter changes for various items:
Percentage
of Revenue
Quarter Ended June 30
Quarter-
to-Quarter
Change
2020
2019
Revenue
Product sales
95.0
%
96.7
%
(28.4
)%
Contract research and development
5.0
%
3.3
%
10.2
%
Total revenue
100.0
%
100.0
%
(27.1
)%
Cost of sales
18.2
%
17.3
%
(23.4
)%
Gross profit
81.8
%
82.7
%
(27.9
)%
Expenses
Research and development
19.2
%
15.5
%
(9.5
)%
Selling, general, and administrative
7.7
%
5.2
%
7.6
%
Total expenses
26.9
%
20.7
%
(5.1
)%
Income from operations
54.9
%
62.0
%
(35.5
)%
Interest income
8.7
%
7.2
%
(13.0
)%
Income before taxes
63.6
%
69.2
%
(33.1
)%
Provision for income taxes
11.0
%
11.9
%
(32.9
)%
Net income
52.6
%
57.3
%
(33.1
)%
Total revenue for the quarter ended June 30,
2020 (the first quarter of fiscal 2021) decreased 27% compared to the quarter
ended June 30, 2019 (the first quarter of fiscal 2020). The decrease was
due to a 28% decrease in product sales partially offset by a 10% increase in contract
research and development revenue.
The decrease in product sales from the prior-year
quarter was primarily due to decreased purchases by existing customers. The increase
in contract research and development revenue the first quarter of fiscal 2021
was due to the timing of progress towards contract completion.
Total expenses decreased 5% in the first quarter
of fiscal 2021 compared to the first quarter of fiscal 2020 due to a 9% decrease
in research and development expense, partially offset by a 8% increase in selling,
general, and administrative expense. The decrease in research and development
expense was primarily due to staffing changes and the completion of certain product
development activities. The increase in selling, general, and administrative expense
was primarily due to staffing changes.
Interest income for the first quarter of fiscal
2021 decreased 13% due to a decrease in the average interest rates on our marketable
securities and money market funds.
The 33% decrease in net income in the first quarter
of fiscal 2021 compared to the prior-year quarter was primarily due to a decrease
in product sales.
The Impact of the COVID-19 Pandemic
We believe the COVID-19 pandemic had a significant
impact on total revenue and net income for the quarter ended June 30, 2020
compared to the prior-year quarter due to its effects on market conditions in
certain industries, especially medical devices. Total revenue and net income will
likely continue to decrease for future quarters compared to prior-year quarters
due to the effects of the COVID-19 pandemic.
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Liquidity
and Capital Resources
Overview
Cash and cash equivalents were $6,402,983 as of
June 30, 2020 compared to $8,065,594 as of March 31, 2020. The $1,662,611
decrease in cash and cash equivalents was due to $4,835,038 of cash used in financing
activities consisting of cash dividends paid to shareholders, partially offset
by $3,172,427 in net cash provided by operating activities.
Investing Activities
We had no maturities or purchases of debt securities
and no capital expenditures during the quarter ended June 30, 2020. Capital
expenditures can vary from quarter to quarter depending on our needs and equipment
purchasing opportunities.
Financing Activities
In addition to cash dividends to shareholders paid
in fiscal 2021, on July 22, 2020 we announced that our Board had declared
a cash dividend of $1.00 per share of Common Stock, or $4,835,038 based on shares
outstanding as of July 17, 2020, to be paid August 31, 2020. We plan
to fund dividends through cash provided by operating activities and proceeds from
maturities of marketable securities. All future dividends will be subject to Board
approval and subject to the companys results of operations, cash and marketable
security balances, estimates of future cash requirements, the impacts of the COVID-19
pandemic, and other factors the Board may deem relevant. Furthermore, dividends
may be modified or discontinued at any time without notice.
We currently believe our working capital and cash
generated from operations will be adequate for our needs at least for the next
12 months.
Off-Balance-Sheet Arrangements
Our off-balance sheet arrangements consist of purchase
commitments. We believe such arrangements have no material current or anticipated
future effect on our profitability, cash flows, or financial position.
14
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Item 4. 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 that are defined in Rules
13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934 (the 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 SECs 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 June 30, 2020, our disclosure controls and procedures
were effective.
Changes in Internal Controls
During the quarter ended June 30, 2020, there
was no change in our internal control over financial reporting that materially
affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART IIOTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of business we may become
involved in litigation. At this time we are not aware of any material pending
or threatened legal proceedings or other proceedings contemplated by governmental
authorities that we expect would have a material adverse impact on our future
results of operation and financial condition.
Item 1A. Risk Factors.
There have been no material changes from the risk
factors disclosed in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2020, except the following two risk factors are replaced in their
entirety by the following to reflect the expiration of certain COVID-19 related
restrictions:
Public health crises could have an adverse effect on our operations and
financial results.
Public health crises could adversely affect our
ongoing business operations. In particular, the COVID-19 pandemic has severely
impacted global economic activity and caused many of our important customers to
delay or cancel orders. We were allowed to operate under Minnesota Emergency Executive
Orders because the Company is in several Critical Sectors as defined
in the Orders, however there can be no assurance we will be exempted from any
future restrictions imposed by Federal, State, or local authorities in response
to possible future surges or waves of COVID-19. Such restrictions
could limit or prohibit our operations. Furthermore, if one or more of our employees
become infected with COVID-19, we could be forced to curtail or cease operations
to protect the health of our employees or to prevent the spread of the disease.
Additionally, any customer or supplier disruptions could affect our ability to
operate. These and other impacts of COVID-19 pandemic or other public health crises
could have a material adverse effect on our results of operations or our financial
condition.
The loss of supply from any of our packaging vendors could impact our ability
to produce and deliver products and cause loss of revenue.
We are dependent on our packaging vendors. Because
of the unique materials our products use, the complexity of some of our products,
unique magnetic requirements, and high isolation voltage specifications, many
of our products are more challenging to package than conventional integrated circuits.
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 due to vendors business
decisions, business condition, or acts of God, including floods, typhoons, earthquakes,
or pandemics. One of our packaging vendors was forced to suspend its factory operations
from late March 2020 until mid-May, and has been permitted only limited operation
since mid-May pursuant to COVID-19 government orders. The COVID-19 pandemic has
also caused shortages of materials and subassemblies our packaging vendors need
for the packaging process. Additionally, certain of our packaging vendors are
in flood-susceptible areas. Flooding risks to such vendors may increase in the
future due to possible higher ocean levels, extreme weather, and other potential
effects of climate change. We have alternate vendors or potential alternate vendors
for the majority of our products, but it can be expensive, time-consuming, and
technically challenging to convert to alternate vendors. Furthermore, we may not
be able to recover work in process or finished goods at a packaging vendor in
the event of a disruption. 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.
Item 4. Mine Safety Disclosures.
Not applicable.
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Item 6. Exhibits.
Exhibit #
Description
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.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
SIGNATURES
Pursuant to the requirements 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)
July 22, 2020
/s/ DANIEL A. BAKER
Date
Daniel A. Baker
President and Chief Executive Officer
July 22, 2020
/s/ CURT A. REYNDERS
Date
Curt A. Reynders
Chief Financial Officer
16
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.