Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information and Dividends
Our Common Stock trades on the Capital Market tier
of the NASDAQ Stock Market under the symbol NVEC.
Dividends have been funded from net cash provided
by operating activities and proceeds from maturities of marketable securities.
Our dividend policy is subject to change at any time, and future dividends will
be subject to Board approval and subject to the companys results of operations,
cash and marketable security balances, our forecasts of future cash requirements,
and other factors our Board may deem relevant.
Shareholders
We have approximately 61 shareholders of record
as of April 16, 2021. There are also several thousand beneficial holders
of our common stock in street name, whose shares of record are held by
banks, brokers, and other financial institutions.
Securities Authorized for Issuance Under Equity Compensation
Plans
Information regarding our securities authorized
for issuance under equity compensation plans will be included in the section Equity
Compensation Plan Information of our Proxy Statement for our 2021 Annual
Meeting of Shareholders, and is incorporated by reference into Item 12 of
this Report.
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.
We repurchased 1,806 shares of our Common Stock in fiscal 2021 and 12,972 shares
in fiscal 2020. The remaining authorization was $3,762,040 as of
March 31, 2021. Common Stock repurchases during each quarter of
fiscal 2021, all of which were made as part of our publicly announced program,
were as follows:
Total number of
Max. approximate
Period
Total
Average
shares purchased
dollar value of
number
price
as part of publicly
shares that may
of shares
paid
announced
yet be purchased
purchased
per share
program
under the program
April 1, 2020 June 30, 2020
-
$
-
-
$
3,853,459
July 1, 2020 September 30, 2020
1,806
$
50.62
1,806
$
3,762,040
October 1, 2020 December 31, 2020
-
$
-
-
$
3,762,040
January 1, 2021 March 31, 2021
-
$
-
-
$
3,762,040
1,806
1,806
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ITEM
7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
You should read this discussion together with our
financial statements and notes included elsewhere in this Report. In addition
to historical information, the following discussion contains forward-looking information
that involves risks and uncertainties. Our actual future results could differ
materially from those presently anticipated due to a variety of factors, including
those discussed in Item 1A of this Report.
General
We develop and sell devices that use spintronics,
a nanotechnology that relies on electron spin rather than electron charge to acquire,
store, and transmit information. We manufacture high-performance spintronic products
including sensors and couplers to revolutionize data sensing and transmission.
We also receive contracts for research and development and are a licensor of spintronic
magnetoresistive random access memory technology, commonly known as MRAM.
Application of Critical Accounting Policies and Estimates
In accordance with SEC guidance, those material
accounting policies that we believe are the most critical to an investors
understanding of our financial results and condition and require complex management
judgment are discussed below.
Investment Valuation
Our investments consist primarily of corporate obligations.
We have generally invested excess cash in high-quality investment grade long-term
marketable securities with less than five years to maturity. We classify all of
our marketable securities as available-for-sale, thus securities are recorded
at fair value and any associated unrealized gain or loss, net of tax, is included
as a separate component of shareholders equity, Accumulated other
comprehensive income. If we judged a decline in fair value for any security
to be other than temporary, the cost basis of the individual security would be
written down and a charge recognized to net income. The fair values for our securities
are determined based on quoted market prices as of the valuation date and observable
prices for similar assets. We consider a number of factors in determining whether
other-than-temporary impairment exists, including: credit market conditions; the
credit ratings of the securities; historical default rates for securities of comparable
credit rating; the presence of insurance of the securities and, if insured, the
credit rating and financial condition of the insurer; 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.
If any of these conditions and estimates change in the future, or, if different
estimates are used, the fair value of the investments may change significantly
and could result in other-than-temporary decline in value, which could have an
adverse impact on our results of operations.
Inventory Valuation
Inventories are stated at the lower of cost or net
realizable value. Cost is determined by the first in, first out method. Where
there is evidence that inventory could be disposed of at less than carrying value,
the inventory is written down to the net realizable value in the current period.
Additionally, we periodically examine our inventory in the context of inventory
turnover, sales trends, competition and other market factors, and we record provisions
to inventory reserve when we determine certain inventory is unlikely to be sold.
If reserved inventory is subsequently sold, corresponding reductions in inventory
and inventory reserves are made. Our inventory reserve was $230,000
as of March 31, 2021 and $210,000 as of March 31, 2020.
Deferred Tax Assets Estimation
In determining the carrying value of our net deferred
tax assets, we must assess the likelihood of sufficient future taxable income
in certain tax jurisdictions, based on estimates and assumptions to realize the
benefit of these assets. We evaluate the realizability of the deferred assets
quarterly and assess the need for valuation allowances or reduction of existing
allowances quarterly. No valuation allowance was recorded as we believe it is
more likely than not that all of the deferred tax assets will be realized.
We had $73,538 of net deferred tax assets as of
March 31, 2021 and $108,119 as of March 31, 2020. Net deferred tax assets
included $75,189 in deferred tax assets for stock-based compensation deductions
as of March 31, 2021 and $65,218 as of March 31, 2020.
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Results of Operations
The following table summarizes the percentage of
revenue and year-to-year changes for various items for the last two fiscal years:
Percentage
of Revenue
Year Ended March 31
Year-
to-Year
Change
2021
2020
Revenue
Product sales
96.1
%
96.0
%
(15.8
)%
Contract research and development
3.9
%
4.0
%
(18.4
)%
Total revenue
100.0
%
100.0
%
(15.9
)%
Cost of sales
19.3
%
19.2
%
(15.7
)%
Gross profit
80.7
%
80.8
%
(16.0
)%
Expenses
Research and development
14.9
%
14.5
%
(13.7
)%
Selling, general, and administrative
6.2
%
5.2
%
(0.1
)%
Total expenses
21.1
%
19.7
%
(10.1
)%
Income from operations
59.6
%
61.1
%
(17.9
)%
Interest income
7.1
%
7.0
%
(16.2
)%
Income before taxes
66.7
%
68.1
%
(17.7
)%
Income tax provision
12.0
%
10.9
%
(8.2
)%
Net income
54.7
%
57.2
%
(19.5
%
Total revenue for fiscal 2021 decreased 16% compared
to fiscal 2020 due to a 16% decrease in product sales and a 18% decrease in contract
research and development revenue. The decrease in product sales was primarily
due to decreased purchases by existing customers. The decrease in contract research
and development revenue was due to the completion of certain contracts.
Total expenses decreased 10% for fiscal 2021 compared
to fiscal 2020 due primarily to a 14% decrease in research and development expense.
The decrease in research and development expense was primarily due to the completion
of certain new-product development projects.
Interest income for fiscal 2021 decreased 16% due
to a decrease in our available-for-sale securities and a decrease in the average
interest rates on those securities.
Our effective tax rate for fiscal 2021 was 18% of
income before taxes compared to 16% for fiscal 2020. The smaller effective rate
for fiscal 2020 was due to tax benefits from the Federal Tax Reform Act enacted
in 2017. We currently expect our tax rate for fiscal 2022 to be approximately
18%.
The decrease in net income in fiscal 2021 compared
to the prior year was primarily due to decreases in revenue and interest income,
partially offset by a decrease in total expenses.
The Impact of the COVID-19 Pandemic
We believe the COVID-19 pandemic had a significant
impact on total revenue and net income for fiscal 2021 due to its effects on market
conditions in certain industries, especially medical devices. We believe the effects
of the pandemic on our business began to subside in the second half of fiscal
2021.
Liquidity and Capital Resources
Overview
Cash and cash equivalents were $10,427,340 as of
March 31, 2021 compared to $8,065,594 as of March 31, 2020. The $2,361,746
increase in cash and cash equivalents was due to $13,364,832 in net cash provided
by operating activities and $8,424,873 net cash provided by investing activities,
partially offset by $19,427,959 net cash used in financing activities.
Operating Activities
Net cash provided by operating activities related
to product sales and research and development contract revenue as our primary
source of working capital for fiscal 2021 and 2020. Net cash provided by operating
activities was $13,364,832 for fiscal 2021 and $15,895,773 for fiscal 2020.
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Accounts receivable decreased $729,737 primarily
due to the timing of sales to and payments from customers.
Investing Activities
Net cash provided by investing activities in fiscal
2021 was due to marketable security maturities of $19,000,000, partially offset
by marketable security purchases of $10,512,400 and fixed assets purchases of
$62,727.
Purchases of fixed assets were $62,727 in fiscal
2021 and $52,041 in fiscal 2020. Purchases were primarily for capital equipment
and leasehold improvements and were financed with cash provided by operating activities.
Our capital expenditures have been significantly higher in prior years and can
vary from year to year depending on our needs and equipment purchasing opportunities.
Financing Activities
Net cash used in financing activities in fiscal
2021 was due to $19,336,540 in cash dividends to shareholders and $91,419 in repurchases
of our common stock.
In addition to cash dividends to shareholders paid
in fiscal 2021, on May 5, 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 April 30, 2021, to be paid May 31, 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 believe our working capital and cash generated
from operations will be adequate for our needs at least through fiscal 2022.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and accompanying notes are
included in this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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.