10-Q
1
NVE_Q3_FY2021_10Q.htm
QUARTERLY REPORT FOR THE PERIOD ENDED DEC. 31, 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 December 31, 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 4,833,232 shares outstanding as
of January 15, 2021
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 December 31, 2020 and 2019
Statements
of Comprehensive Income for the Quarters Ended December 31, 2020 and 2019
Statements
of Income for the Nine Months Ended December 31, 2020 and 2019
Statements
of Comprehensive Income for the Nine Months Ended December 31, 2020 and 2019
Statements
of Shareholders Equity for the Period Ended December 31, 2020
Statements
of Shareholders Equity for the Period Ended December 31, 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
Table
of Contents
PART IFINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEETS
(Unaudited)
December 31, 2020
March
31, 2020*
ASSETS
Current assets
Cash and cash equivalents
$
13,988,308
$
8,065,594
Marketable securities, short-term
11,115,094
19,084,814
Accounts receivable, net of allowance for uncollectible
accounts of $15,000
3,161,308
2,694,018
Inventories
3,842,477
3,884,450
Prepaid expenses and other assets
570,018
655,835
Total current assets
32,677,205
34,384,711
Fixed assets
Machinery and equipment
9,280,062
9,280,062
Leasehold improvements
1,810,872
1,797,245
11,090,934
11,077,307
Less accumulated depreciation and amortization
10,724,866
10,494,840
Net fixed assets
366,068
582,467
Deferred tax assets
-
108,119
Marketable securities, long-term
40,656,967
43,606,495
Right-of-use asset operating lease
720,618
816,358
Total assets
$
74,420,858
$
79,498,150
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Accounts payable
$
136,673
$
186,993
Accrued payroll and other
505,428
482,074
Operating lease
106,843
127,134
Total current liabilities
748,944
796,201
Deferred tax liabilities
89,420
-
Operating lease
613,775
706,600
Total liabilities
1,452,139
1,502,801
Shareholders equity
Common stock, $0.01 par value,
6,000,000 shares authorized; 4,833,232 issued
and outstanding as of December 31, 2020 and 4,835,038 as of March 31,
2020
48,332
48,350
Additional paid-in capital
19,333,852
19,383,956
Accumulated other comprehensive income
1,483,409
516,523
Retained earnings
52,103,126
58,046,520
Total shareholders equity
72,968,719
77,995,349
Total liabilities and shareholders equity
$
74,420,858
$
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 December 31
2020
2019
Revenue
Product sales
$
6,332,349
$
6,160,967
Contract research and development
201,013
303,629
Total revenue
6,533,362
6,464,596
Cost of sales
1,075,048
1,263,806
Gross profit
5,458,314
5,200,790
Expenses
Research and development
702,216
771,468
Selling, general, and administrative
311,356
327,989
Total expenses
1,013,572
1,099,457
Income from operations
4,444,742
4,101,333
Interest income
365,498
443,478
Income before taxes
4,810,240
4,544,811
Provision for income taxes
884,531
814,147
Net income
$
3,925,709
$
3,730,664
Net income per share basic
$
0.81
$
0.77
Net income per share diluted
$
0.81
$
0.77
Cash dividends declared per common share
$
1.00
$
1.00
Weighted average shares outstanding
Basic
4,833,232
4,846,010
Diluted
4,833,261
4,847,436
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended December 31
2020
2019
Net income
$
3,925,709
$
3,730,664
Unrealized (loss) gain from marketable securities, net of tax
(145,452
)
31,237
Comprehensive income
$
3,780,257
$
3,761,901
See accompanying notes.
4
Table of Contents
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Dec. 31
2020
2019
Revenue
Product sales
$
14,850,157
$
18,434,039
Contract research and development
653,252
827,198
Total revenue
15,503,409
19,261,237
Cost of sales
2,852,757
3,701,941
Gross profit
12,650,652
15,559,296
Expenses
Research and development
2,399,164
2,671,131
Selling, general, and administrative
1,024,549
1,026,448
Total expenses
3,423,713
3,697,579
Income from operations
9,226,939
11,861,717
Interest income
1,166,102
1,358,826
Income before taxes
10,393,041
13,220,543
Provision for income taxes
1,833,127
2,060,398
Net income
$
8,559,914
$
11,160,145
Net income per share basic
$
1.77
$
2.30
Net income per share diluted
$
1.77
$
2.30
Cash dividends declared per common share
$
3.00
$
3.00
Weighted average shares outstanding
Basic
4,834,324
4,846,010
Diluted
4,834,411
4,848,506
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Nine Months Ended Dec. 31
2020
2019
Net income
$
8,559,914
$
11,160,145
Unrealized gain from marketable securities, net of tax
966,886
780,016
Comprehensive income
$
9,526,800
$
11,940,161
See accompanying notes.
5
Table of Contents
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
Repurchase of common stock
(1,806
)
(18
)
(91,401
)
(91,419
)
Comprehensive income:
Unrealized loss on
marketable securities,
net of tax
(130,324
)
(130,324
)
Net income
2,222,340
2,222,340
Total comprehensive income
2,092,016
Stock-based compensation
34,315
34,315
Cash dividends declared
($1.00 per share of
common stock)
(4,835,038
)
(4,835,038
)
Balance as of September 30, 2020
4,833,232
48,332
19,329,577
1,628,861
53,010,649
74,017,419
Comprehensive income:
Unrealized loss on
marketable securities,
net of tax
(145,452
)
(145,452
)
Net income
3,925,709
3,925,709
Total comprehensive income
3,780,257
Stock-based compensation
4,275
4,275
Cash dividends declared
($1.00 per share of
common stock)
(4,833,232
)
(4,833,232
)
Balance as of December 31, 2020
4,833,232
$
48,332
$
19,333,852
$
1,483,409
$
52,103,126
$
72,968,719
See accompanying notes.
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Table
of Contents
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
Comprehensive income:
Unrealized gain on
marketable securities,
net of tax
178,716
178,716
Net income
3,822,062
3,822,062
Total comprehensive income
4,000,778
Stock-based compensation
48,360
48,360
Cash dividends declared
($1.00 per share of
common stock)
(4,846,010
)
(4,846,010
)
Balance as of September 30, 2019
4,846,010
48,460
19,958,918
666,054
60,641,379
81,314,811
Comprehensive income:
Unrealized gain on
marketable securities,
net of tax
31,237
31,237
Net income
3,730,664
3,730,664
Total comprehensive income
3,761,901
Cash dividends declared
($1.00 per share of
common stock)
(4,846,010
)
(4,846,010
)
Balance as of December 31, 2019
4,846,010
$
48,460
$
19,958,918
$
697,291
$
59,526,033
$
80,230,702
See accompanying notes.
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Table
of Contents
NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine
Months Ended Dec. 31
2020
2019
OPERATING ACTIVITIES
Net income
$
8,559,914
$
11,160,145
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
386,968
403,691
Stock-based compensation
41,297
48,360
Deferred income taxes
(73,269
)
71,800
Changes in operating assets and liabilities:
Accounts receivable
(467,290
)
876,601
Inventories
41,973
105,134
Prepaid expenses and other assets
181,557
80,746
Accounts payable and other liabilities
(140,082
)
(210,172
)
Net cash provided by operating activities
8,531,068
12,536,305
INVESTING ACTIVITIES
Purchases of fixed assets
(13,627
)
(26,076
)
Purchases of marketable securities
-
(7,196,330
)
Proceeds from maturities of marketable securities
12,000,000
12,500,000
Cash provided by investing activities
11,986,373
5,277,594
FINANCING ACTIVITIES
Repurchase of common stock
(91,419
)
-
Payment of dividends to shareholders
(14,503,308
)
(14,538,030
)
Cash used in financing activities
(14,594,727
)
(14,538,030
)
Increase in cash and cash equivalents
5,922,714
3,275,869
Cash and cash equivalents at beginning of period
8,065,594
6,877,304
Cash and cash equivalents at end of period
$
13,988,308
$
10,153,173
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes
$
1,636,788
$
1,931,661
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
and nine months ended December 31, 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 December 31, 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.
9
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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 Dec. 31
2020
2019
Weighted average common shares outstanding basic
4,833,232
4,846,010
Dilutive effect of stock options
29
1,426
Shares used in computing net income per share
diluted
4,833,261
4,847,436
Nine Months Ended Dec. 31
2020
2019
Weighted average common shares outstanding basic
4,834,324
4,846,010
Dilutive effect of stock options
87
2,496
Shares used in computing net income per share
diluted
4,834,411
4,848,506
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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 December 31, 2020 are as follows:
Total
<1
Year
13
Years
35
Years
$
65,694,022
$
25,037,055
$
34,142,192
$
6,514,775
Total available-for-sale securities represented
approximately 88% of our total assets. Marketable securities as of
December 31, 2020 had remaining maturities between eight
weeks and 38 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
December 31, 2020
As of
March 31, 2020
Level 1
Level 2
Total
Level 1
Level 2
Total
Money market funds
$
13,921,961
$
-
$
13,921,961
$
7,903,433
$
-
$
7,903,433
Corporate bonds
-
51,772,061
51,772,061
-
62,691,309
62,691,309
Total
$
13,921,961
$
51,772,061
$
65,694,022
$
7,903,433
$
62,691,309
$
70,594,742
Our available-for-sale securities as of December 31
and March 31, 2020, aggregated into classes of securities, were as follows:
As
of December 31, 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
$
13,921,961
$
-
$
-
$
13,921,961
$
7,903,433
$
-
$
-
$
7,903,433
Corporate bonds
49,873,178
1,898,883
-
51,772,061
62,030,120
752,621
(91,432
)
62,691,309
Total
$
63,795,139
$
1,898,883
$
-
$
65,694,022
$
69,933,553
$
752,621
$
(91,432
)
$
70,594,742
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NOTE 6.
INVENTORIES
Inventories are shown in the following table:
Dec. 31,
2020
March
31,
2020
Raw materials
$
839,102
$
1,017,451
Work in process
1,959,692
1,863,000
Finished goods
1,043,683
1,003,999
Total inventories
$
3,842,477
$
3,884,450
NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation expense was $4,275 for
the third quarter of fiscal 2021, $41,297 for the first nine months of fiscal
2021, and $48,360 for the first nine months of fiscal 2020. There was no Stock-based
compensation expense in the third 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 December 31,
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 December 31, 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
Dec. 31, 2020
Nine Months Ended
Dec. 31, 2020
Operating lease cost
$
38,641
$
115,923
Variable lease cost
30,608
91,824
Total
$
69,249
$
207,747
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for leases
$
44,433
$
133,299
Remaining lease term
63 months
Discount rate
3.5
%
The following table presents the maturities of lease
liabilities as of December 31, 2020:
Year Ending March 31
Operating Leases
2021
$
(4,762
)
2022
152,703
2023
156,121
2024
159,592
2025
163,224
2026
165,947
Total lease payments
792,825
Imputed lease interest
(72,207
)
Total lease liabilities
$
720,618
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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 $3,762,040 as of December 31, 2020.
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 $22,571 for the
third quarter of fiscal 2021, $22,456 for the third quarter of fiscal 2020,
$69,227 for the first nine months of fiscal 2021, and $68,512 for the first
nine months of fiscal 2020.
NOTE 12.
SUBSEQUENT EVENTS
On January 20, 2021 we announced that our Board
had declared a quarterly cash dividend of $1.00 per share of Common Stock to be
paid February 26, 2021 to shareholders of record as of the close of business
February 1, 2021.
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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 as updated in our Quarterly Reports on Form 10-Q for the quarters ended June 30,
2020, September 30, 2020, and Item 1A herein.
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 December 31, 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 December 31, 2020 compared to quarter ended December 30,
2019
The table shown below summarizes the percentage
of revenue and quarter-to-quarter changes for various items:
Percentage
of Revenue
Quarter Ended December 31
Quarter-
to-Quarter
Change
2020
2019
Revenue
Product sales
96.9
%
95.3
%
2.8
%
Contract research and development
3.1
%
4.7
%
(33.8
)%
Total revenue
100.0
%
100.0
%
1.1
%
Cost of sales
16.5
%
19.5
%
(14.9
)%
Gross profit
83.5
%
80.5
%
5.0
%
Expenses
Research and development
10.7
%
12.0
%
(9.0
)%
Selling, general, and administrative
4.8
%
5.1
%
(5.1
)%
Total expenses
15.5
%
17.1
%
(7.8
)%
Income from operations
68.0
%
63.4
%
8.4
%
Interest income
5.6
%
6.9
%
(17.6
)%
Income before taxes
73.6
%
70.3
%
5.8
%
Provision for income taxes
13.5
%
12.6
%
8.6
%
Net income
60.1
%
57.7
%
5.2
%
Total revenue for the quarter ended December 31,
2020 (the third quarter of fiscal 2021) increased 1% compared to the quarter ended
December 31, 2019 (the third quarter of fiscal 2020). The increase was due
to a 3% increase in product sales, partially offset by a 34% decrease in contract
research and development revenue. The increase in product sales from the prior-year
quarter was primarily due to increased purchases by existing customers. The decrease
in contract research and development revenue in the third quarter of fiscal 2021
was due to the completion of certain contracts.
Gross profit margin increased to 84% of revenue
for the third quarter of fiscal 2021 compared to 80% of revenue for the third
quarter of fiscal 2020 due to a more profitable revenue mix.
Total expenses decreased 8% in the third quarter
of fiscal 2021 compared to the third quarter of fiscal 2020 due to a 9% decrease
in research and development expense and a 5% decrease in selling, general, and
administrative expense. The decrease in research and development expense was primarily
due to the completion of certain product development activities. The decrease
in selling, general, and administrative expense was primarily due to staffing
changes.
Interest income for the third quarter of fiscal
2021 decreased 18% due to a decrease in our marketable securities and money market
funds and a decrease in the average interest rates on those securities and funds.
The 5% increase in net income in the third quarter
of fiscal 2021 compared to the prior-year quarter was primarily due to increased
product sales, increased gross profit margin, and decreased expenses, partially
offset by decreased contract research and development revenue and decreased interest
income.
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Nine months
ended December 31, 2020 compared to nine months ended December 31, 2019
The table shown below summarizes the percentage
of revenue and period-to-period changes for various items:
Percentage
of Revenue
Nine Months Ended Dec. 31
Period-
to-Period
Change
2020
2019
Revenue
Product sales
95.8
%
95.7
%
(19.4
)%
Contract research and development
4.2
%
4.3
%
(21.0
)%
Total revenue
100.0
%
100.0
%
(19.5
)%
Cost of sales
18.4
%
19.2
%
(22.9
)%
Gross profit
81.6
%
80.8
%
(18.7
)%
Expenses
Research and development
15.5
%
13.9
%
(10.2
)%
Selling, general, and administrative
6.6
%
5.3
%
(0.2
)%
Total expenses
22.1
%
19.2
%
(7.4
)%
Income from operations
59.5
%
61.6
%
(22.2
)%
Interest income
7.5
%
7.0
%
(14.2
)%
Income before taxes
67.0
%
68.6
%
(21.4
)%
Provision for income taxes
11.8
%
10.7
%
(11.0
)%
Net income
55.2
%
57.9
%
(23.3
)%
Total revenue for the nine months ended December 31,
2020 decreased 20% compared to the nine months ended December 31, 2019, due
to a 19% decrease in product sales and a 21% decrease in contract research and
development revenue.
The decrease in product sales from the prior-year
period was due to decreased purchase volumes by existing customers. The decrease
in contract research and development revenue was due to the completion of certain
contracts.
Total expenses decreased 7% for the first nine months
of fiscal 2021 compared to the first nine months of fiscal 2020 primarily due
to a 10% decrease in research and development expense. The decrease in research
and development expense was due to the completion of certain product development
activities.
Interest income for the first nine months of fiscal
2021 decreased 14% due to a decrease in our marketable securities and money market
funds and a decrease in the average interest rates on those securities and funds.
The 23% decrease in net income in the first
nine months of fiscal 2021 compared to the prior-year period was primarily due
to a decrease in revenue.
The Impact of the COVID-19 Pandemic
The pandemic had a significant impact on total revenue
and net income for the nine months ended December 31, 2020 compared to the
prior-year period due to its effects on market conditions in certain industries,
especially medical devices. We believe the effects of the pandemic on our business
subsided in the quarter ended December 31, 2020, however.
16
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Liquidity
and Capital Resources
Overview
Cash and cash equivalents were $13,988,308 as of
December 31, 2020 compared to $8,065,594 as of March 31, 2020. The $5,922,714
increase in cash and cash equivalents was due to $8,531,068 in net cash provided
by operating activities and $11,986,373 of cash provided by investing activities,
partially offset by $14,594,727 of cash used in financing activities.
Investing Activities
Cash provided by investing activities in the nine
months ended December 31, 2020 was due to $12,000,000 of marketable security
maturities, partially offset by $13,627 of fixed asset purchases. Capital expenditures
can vary from period to period depending on our needs and equipment purchasing
opportunities.
Financing Activities
We paid $14,503,308 in cash dividends and repurchased
$91,419 of our Common Stock in the first nine months of fiscal 2021. In addition
to cash dividends paid in the first nine months of fiscal 2021, on January 20,
2021 we announced that our Board had declared a cash dividend of $1.00 per share
of Common Stock, or $4,833,232 based on shares outstanding as of January 15,
2021, to be paid February 26, 2021. 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.
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Table
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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 December 31, 2020, our disclosure controls and
procedures were effective.
Changes in Internal Controls
During the quarter ended December 31, 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 as updated in our Quarterly Report on Form 10-Q for the quarters
ended June 30, 2020 and September 30, 2020, except the following risk
factors are replaced in their entirety by the following to update the effects
of the COVID-19 pandemic:
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. Leadtimes for packaging services have increased during the
COVID-19 pandemic and there have been shortages
of raw materials our packaging vendors need for their process. One of our packaging vendors
was forced to suspend its factory operations from late March 2020 until mid-May 2020
and was permitted only limited
operation from mid-May through August 2020 pursuant to COVID-19 government orders,
and restrictions could be reimposed in the future. 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.
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 impacted
global economic activity and caused many of our important customers to delay or
cancel orders. We have been allowed to operate under Minnesota emergency executive
orders in effect since March 27, 2020, however future orders could be imposed
by State or Federal authorities that could limit or prohibit our normal operation.
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.
Item 4. Mine Safety Disclosures.
Not applicable.
18
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Item 6. Exhibits.
Exhibit #
Description
10
Amendment No. 6 to Supplier Partnering Agreement
between Abbott and the company (incorporated by reference to the Form 8-K/A filed
December 21, 2020).
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
19
Table
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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)
January 20, 2021
/s/ DANIEL A. BAKER
Date
Daniel A. Baker
President and Chief Executive Officer
January 20, 2021
/s/ CURT A. REYNDERS
Date
Curt A. Reynders
Chief Financial Officer
20
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.