Item 9A. Controls and Procedures
ITEM 9A. 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 of March 31, 2021, our disclosure controls and
procedures were effective.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) under the
Exchange Act. Our management, including our Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of our internal control over financial
reporting as of March 31, 2021. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in the 2013 Internal ControlIntegrated Framework .
Based on our assessment using the criteria set forth by COSO in the 2013 Internal
ControlIntegrated Framework , management concluded that our internal
control over financial reporting was effective as of March 31, 2021.
ITEM 9B. OTHER INFORMATION.
Effective as of April 30, 2021 we executed Amendment
No. 7 to our Supplier Partnering Agreement dated January 3, 2006 by
and between Pacesetter, Inc., now a subsidiary of Abbott Laboratories, and
us, as amended by Amendment No. 1 to the Agreement dated September 6,
2007, Amendment No. 2 dated December 15, 2009, Amendment No. 3 dated
September 13, 2010, Amendment No. 4 dated February 1, 2011, Amendment
No. 5 dated April 20, 2016, and Amendment No. 6 dated December 18,
2020. We supply products to Abbott Laboratories under the Supplier Partnering
Agreement as amended. The Amendment extends the Supplier Partnering Agreement
term through November 30, 2021. The Amendment is filed as Exhibit 10.18 to
this Annual Report on Form 10-K.
14
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Our management, including our Chief Executive Officer
and Chief Financial Officer, does not expect that our internal control over financial
reporting will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within NVE have
been detected. Our internal controls over financial reporting, however, are designed
to provide reasonable assurance that the objectives of internal control over financial
reporting are met.
Changes in Internal Controls
During the quarter ended March 31, 2021, 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
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The section titled Proposal 1. Election
of Board of Directors to be included in our Proxy Statement for our 2021
Annual Meeting of Shareholders sets forth certain information regarding our directors
and executive officers required by Item 10, the section titled Information
About Our Executive Officers sets forth information regarding our executive
officers required by Item 10, and the section titled Corporate Governance
sets forth information regarding our corporate governance and code of ethics required
by Item 10. The information in these sections to be included in our Proxy
Statement for our 2021 Annual Meeting of Shareholders are incorporated by reference
into this section.
ITEM 11. EXECUTIVE COMPENSATION.
The information in the sections Executive
Compensation, Compensation Discussion and Analysis, Corporate
Governance Board Committees Compensation Committee Interlocks
and Insider Participation, and Director Compensation to be included
in our Proxy Statement for our 2021 Annual Meeting of Shareholders is incorporated
by reference into this section.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information in the sections Equity Compensation
Plan Information and Security Ownership to be included in our
Proxy Statement for our 2021 Annual Meeting of Shareholders is incorporated by
reference into this section. Information regarding the material features of our
2000 Stock Option Plan, as amended, is contained in Note 5 to the Financial
Statements included elsewhere in this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE.
The information in the sections Security Ownership
Transactions With Related Persons, Promoters, and Certain Control Persons
and Corporate Governance Board Composition and Independence
to be included in our Proxy Statement for our 2021 Annual Meeting of Shareholders
is incorporated by reference into this section.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information in the sections Audit Committee
Disclosure Fees Billed to Us by Our Independent Registered Public
Accounting Firm During Fiscal 2020 and 2019 and Audit Committee Disclosure
Audit Committee Pre-Approval Policy to be included in our Proxy Statement
for our 2021 Annual Meeting of Shareholders is incorporated by reference into
this section.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) Financial Statements and Schedules
Financial statements are provided pursuant to Item 8
of this Report. Certain financial statement schedules have been omitted because
they are not required, not applicable, or the required information is provided
in other financial statements or the notes to the financial statements.
15
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(b) Exhibits
The following is a list of exhibits:
Exhibit #
Description
3.1
Amended
and Restated Articles of Incorporation of the company as amended by the Board
of Directors effective November 21, 2002 (incorporated by reference to the
Form 10-QSB for the period ended December 31, 2002).
3.2
Bylaws
of the company as amended by the Board of Directors effective May 6, 2020.
4
Description of the registrants securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
10.1
Lease
dated October 1, 1998 between the company and Glenborough Properties, LP (incorporated
by reference to the Form 10-QSB for the period ended September 30, 2002).
10.2
First
amendment to lease between the company and Glenborough dated September 18,
2002 (incorporated by reference to the Form 10-QSB for the period ended September 30,
2002).
10.3
Second
amendment to lease between the company and Glenborough dated December 1, 2003
(incorporated by reference to the Form 10-QSB
for the period ended December 31, 2003).
10.4
Third
amendment to lease between the company and Carlson Real Estate (incorporated by
reference to the Form 8-K/A filed December 20, 2007).
10.5
Fourth
amendment to lease between the company and the Barbara C. Gage Revocable Trust
(incorporated by reference to our Current Report on Form 8-K/A filed August 3,
2011).
10.6
Fifth
amendment to lease between the company and GRE Bryant Lake, LLC (incorporated
by reference to our Current Report on Form 8-K/A filed March 3, 2020).
10.7
Employment
Agreement between the company and Daniel A. Baker dated January 29, 2001
(incorporated by reference to the Form 10-KSB for the year ended March 31,
2001).
10.8
NVE
Corporation 2000 Stock Option Plan as Amended July 19, 2001 by the shareholders
(incorporated by reference to our Registration Statement on Form S-8 filed July 20,
2001).
10.9
Indemnification
Agreement by and between Pacesetter, Inc., a St. Jude Medical Company, d.b.a.
St. Jude Medical Cardiac Rhythm Management Division, and the company (incorporated
by reference to the Form 8-K filed September 27, 2005).
10.10+
Supplier
Partnering Agreement by and between St. Jude and the company (incorporated
by reference to the Form 8-K filed January 4,
2006).
10.11+
Amendment
No. 1 to Supplier Partnering Agreement between St. Jude and the company (incorporated
by reference to the Form 8-K/A filed September 10, 2007).
10.12+
Amendment
No. 2 to Supplier Partnering Agreement between St. Jude and the company (incorporated
by reference to the Form 8-K/A filed December 18, 2009).
10.13+
Amendment
No. 3 to Supplier Partnering Agreement between St. Jude and the company (incorporated
by reference to the Form 8-K/A filed September 16, 2010).
10.14
Amendment
No. 4 to Supplier Partnering Agreement between St. Jude and the company (incorporated
by reference to the Form 8-K/A filed February 7, 2011).
10.15
Supplier
Quality Agreement between St. Jude and the company (incorporated by reference
to the Form 8-K filed February 10, 2016).
10.16
Amendment
No. 5 to Supplier Partnering Agreement between St. Jude and the company (incorporated
by reference to the Form 8-K/A filed April 21, 2016).
10.17
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).
10.18
Amendment No. 7 to Supplier Partnering Agreement between
Abbott and the company (filed with this Annual Report on Form 10-K).
10.19+
Supply
Agreement by and between the company and Sonova AG (incorporated by reference
to the Form 8-K/A filed November 16,
2015).
10.20*
First
Amendment to Supply Agreement by and between the company and Sonova AG (incorporated
by reference to the Form 8-K/A filed
February 18, 2020).
23.1
Consent of Boulay PLLP.
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
Indicates a
management contract or compensatory plan or arrangement.
+Confidential portions deleted and filed separately with the SEC.
*Certain confidential portions redacted pursuant to Item 601(b)(10)(iv) of Regulation
S-K. The omitted information is (i) not material and (ii) would likely
cause us competitive harm if publicly disclosed. We agree to furnish supplementally
an unredacted copy of the exhibit to the Securities and Exchange Commission on
its request.
16
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ITEM 16. FORM 10-K SUMMARY.
We have elected not to include an optional Form
10-K Summary.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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)
/s/Daniel A. Baker
by Daniel A. Baker
President and Chief Executive Officer
Date May 5, 2021
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/Terrence W. Glarner
Terrence W. Glarner
Director and
Chairman of the Board
May 5, 2021
/s/Daniel A. Baker
Daniel A. Baker
Director,
President & Chief Executive Officer
(Principal Executive Officer)
May 5, 2021
/s/Curt A. Reynders
Curt A. Reynders
Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
May 5, 2021
/s/Patricia M. Hollister
Patricia M. Hollister
Director
May 5, 2021
/s/Richard W. Kramp
Richard W. Kramp
Director
May 5, 2021
/s/Gary R. Maharaj
Gary R. Maharaj
Director
May 5, 2021
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
NVE Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheets of NVE Corporation (the Company)
as of March 31, 2021 and 2020, and the related statements of income, comprehensive
income, shareholders' equity, and cash flows for each of the years in the
two-year period ended March 31, 2021, and the related notes (collectively referred
to as the financial statements). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of
March 31, 2021 and 2020, and the results of its operations and its cash flows
for each of the years in the two-year period ended March 31, 2021, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on the Companys financial statements
based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of
our audits, we are required to obtain an understanding of internal control over
financial reporting, but not for the purpose of expressing an opinion on the effectiveness
of the Companys internal control over financial reporting. Accordingly,
we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our
audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current
period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that: (1) related to accounts or disclosures
that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or
disclosures to which it relates.
Revenue Recognition Refer to Note 1 to the Financial
Statements
Description of the Matter
The Company recognizes revenue from product sales to customers and distributors
upon satisfaction of the performance obligation, at a point in time, upon product
shipment or delivery to its customer or distributor as determined by agreed upon
shipping terms. Additionally, the Company recognizes contract research and development
revenue over a period of time as the performance obligation is satisfied over
a period of time. Each research and development contract has specifications unique
to each customer and does not create an asset with an alternate use, and the Company
has an enforceable right to payment for performance completed to date. The Company
recognizes revenue over a period of time based on an input method using costs
incurred as the measurement of progress towards completion.
F-1
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Significant
judgment is exercised by the Company in determining revenue recognition for these
customer agreements, and includes the following:
Determination of whether products and services are considered distinct performance
obligations that should be accounted for separately versus together as it relates
to product sales and research and development contracts.
Determination of stand-alone selling prices for each distinct performance
obligation and for products and services that are not sold separately.
The pattern of delivery (i.e., timing of when revenue is recognized) for each
distinct performance obligation.
Estimation of variable consideration when determining the amount of revenue
to recognize (e.g., customer credits, incentives, and in certain instances, estimation
of customer usage of products and services).
Given these factors, the related audit effort in evaluating managements
judgments in determining revenue recognition for these customer agreements was
extensive and required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Companys revenue recognition
for these customer agreements included the following:
We evaluated the Companys accounting policies and related
disclosures for compliance with applicable revenue recognition accounting guidance.
We obtained an understanding of the design and implementation
of internal controls related to the Companys revenue recognition process,
including the identification of performance obligations and allocation of transaction
price.
We performed analytical procedures to test the reasonableness
of recorded balances.
We performed procedures to test the transactions were recorded
in the appropriate accounting period.
We selected a sample of product sales and contract research agreements
and performed the following procedures:
Tested the existence and accuracy of the transaction by obtaining and agreeing
terms to the underlying contract.
Evaluated managements identification of significant terms for completeness,
including the identification of distinct performance obligations and variable
consideration.
We evaluated the reasonableness of managements estimate of stand-alone
selling prices for products and services that are not sold separately.
Tested the underlying costs driving recognition of revenue related to contract
research and development contracts.
Evaluated whether the transaction was accounted for in accordance with the
Companys policies.
/s/ Boulay PLLP
We have served as the Companys auditor since May 8, 2019.
Minneapolis, Minnesota
May 5, 2021
F-2
Table
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NVE
CORPORATION
BALANCE SHEETS
March
31, 2021
March
31, 2020
ASSETS
Current assets
Cash and cash equivalents
$
10,427,340
$
8,065,594
Marketable securities, short-term
7,678,957
19,084,814
Accounts receivable, net of allowance for uncollectible
accounts of $15,000
1,964,281
2,694,018
Inventories
3,900,777
3,884,450
Prepaid expenses and other assets
391,278
655,835
Total current assets
24,362,633
34,384,711
Fixed assets
Machinery and equipment
9,254,664
9,280,062
Leasehold improvements
1,810,872
1,797,245
11,065,536
11,077,307
Less accumulated depreciation and amortization
10,728,853
10,494,840
Net fixed assets
336,683
582,467
Deferred tax assets
73,538
108,119
Marketable securities, long-term
47,038,669
43,606,495
Right-of-use asset operating lease
689,216
816,358
Total assets
$
72,500,739
$
79,498,150
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Accounts payable
$
336,591
$
186,993
Accrued payroll and other
540,474
482,074
Operating lease
150,273
127,134
Total current liabilities
1,027,338
796,201
Operating lease
581,459
706,600
Total liabilities
1,608,797
1,502,801
Shareholders equity
Common stock, $0.01 par value,
6,000,000 shares authorized; 4,833,232 issued
and outstanding as of March 31, 2021 and 4,835,038 as of March 31, 2020
48,332
48,350
Additional paid-in capital
19,338,127
19,383,956
Accumulated other comprehensive income
1,101,119
516,523
Retained earnings
50,404,364
58,046,520
Total shareholders equity
70,891,942
77,995,349
Total liabilities and shareholders equity
$
72,500,739
$
79,498,150
See accompanying notes.
F-3
Table
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NVE
CORPORATION
STATEMENTS OF INCOME
Year
Ended March 31
2021
2020
Revenue
Product sales
$
20,540,557
$
24,400,192
Contract research and development
825,689
1,011,971
Total revenue
21,366,246
25,412,163
Cost of sales
4,121,461
4,889,295
Gross profit
17,244,785
20,522,868
Expenses
Research and development
3,184,754
3,690,539
Selling, general, and administrative
1,316,427
1,317,543
Total expenses
4,501,181
5,008,082
Income from operations
12,743,604
15,514,786
Interest income
1,498,148
1,787,117
Income before taxes
14,241,752
17,301,903
Provision for income taxes
2,547,368
2,775,261
Net income
$
11,694,384
$
14,526,642
Net income per share basic
$
2.42
$
3.00
Net income per share diluted
$
2.42
$
3.00
Cash dividends declared per common share
$
4.00
$
4.00
Weighted average shares outstanding
Basic
4,834,054
4,845,627
Diluted
4,834,462
4,847,294
STATEMENTS OF COMPREHENSIVE INCOME
Year
Ended March 31
2021
2020
Net income
$
11,694,384
$
14,526,642
Unrealized gain from marketable securities, net of tax
584,596
599,248
Comprehensive income
$
12,278,980
$
15,125,890
See accompanying notes.
F-4
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NVE
CORPORATION
STATEMENTS OF SHAREHOLDERS EQUITY
Additional
Paid-In
Capital
Accumulated
Other
Comprehen-
sive Income
(Loss)
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
Exercise of stock
options
2,000
20
112,340
112,360
Repurchase of common stock
(12,972
)
(130
)
(687,302
)
(687,432
)
Comprehensive income:
Unrealized gain on
marketable securities,
net of tax
599,248
599,248
Net income
14,526,642
14,526,642
Total comprehensive income
15,125,890
Stock-based compensation
48,360
48,360
Cash dividends declared
($4.00 per share of
common stock)
(19,384,040
)
(19,384,040
)
Balance as of March 31, 2020
4,835,038
$
48,350
$
19,383,956
$
516,523
$
58,046,520
$
77,995,349
Repurchase of common stock
(1,806
)
(18
)
(91,401
)
(91,419
)
Comprehensive income:
Unrealized gain on
marketable securities,
net of tax
584,596
584,596
Net income
11,694,384
11,694,384
Total comprehensive income
12,278,980
Stock-based compensation
45,572
45,572
Cash dividends declared
($4.00 per share of
common stock)
(19,336,540
)
(19,336,540
)
Balance as of March 31, 2021
4,833,232
$
48,332
$
19,338,127
$
1,101,119
$
50,404,364
$
70,891,942
See accompanying notes.
F-5
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NVE
CORPORATION
STATEMENTS OF CASH FLOWS
Year
Ended March 31
2021
2020
OPERATING ACTIVITIES
Net income
$
11,694,384
$
14,526,642
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
542,926
549,969
Stock-based compensation
45,572
48,360
Deferred income taxes
(129,155
)
77,779
Changes in operating assets and liabilities:
Accounts receivable
729,737
301,620
Inventories
(16,327
)
380,426
Prepaid expenses and other assets
391,699
(394,504
)
Accounts payable and accrued expenses
105,996
405,481
Net cash provided by operating activities
13,364,832
15,895,773
INVESTING ACTIVITIES
Purchases of fixed assets
(62,727
)
(52,041
)
Purchases of marketable securities
(10,512,400
)
(7,196,330
)
Proceeds from maturities and sales of marketable securities
19,000,000
12,500,000
Net cash provided by investing activities
8,424,873
5,251,629
FINANCING ACTIVITIES
Proceeds from exercise of stock options
-
112,360
Repurchase of common stock
(91,419
)
(687,432
)
Payment of dividends to shareholders
(19,336,540
)
(19,384,040
)
Net cash used in financing activities
(19,427,959
)
(19,959,112
)
Increase in cash and cash equivalents
2,361,746
1,188,290
Cash and cash equivalents at beginning of year
8,065,594
6,877,304
Cash and cash equivalents at end of year
$
10,427,340
$
8,065,594
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes
$
2,438,788
$
2,586,661
See accompanying notes.
F-6
Table
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NVE
CORPORATION
NOTES TO FINANCIAL STATEMENTS
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. We operate in one reportable segment.
NOTE 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
We consider all highly liquid investments with maturities
of three months or less when purchased to be cash equivalents.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents,
accounts receivable, and accounts payable approximates fair value because of the
short maturity of these instruments. Fair values of marketable securities are
based on quoted market prices.
Concentration of Risk and Financial Instruments
Financial instruments potentially subject to significant
concentrations of credit risk consist principally of cash equivalents, marketable
securities, and accounts receivable.
Cash and cash equivalents have been maintained in
financial institutions we believe have high credit quality, however these accounts
are generally in excess of federally insured amounts.
We have invested our excess cash in corporate-backed
and municipal-backed bonds and money market instruments. Our investment policy
prescribes purchases of only high-grade securities, and limits the amount of credit
exposure to any one issuer. The effects of the COVID-19 pandemic have degraded
outlooks for some of our securities issuers, which may increase the risk
of default on one or more securities.
Our customers are throughout the world. We generally
do not require collateral from our customers, but we perform ongoing credit evaluations
of their financial condition. More information on accounts receivable is contained
in the paragraph titled Accounts Receivable and Allowance for Doubtful Accounts
of this note. The effects of the COVID-19 pandemic could increase our bad-debt
risk in the future.
Additionally, we are dependent on critical suppliers
including our packaging vendors and suppliers of certain raw silicon and semiconductor
wafers that are incorporated in our products. The effects of the COVID-19 pandemic
have increased the risk of supply interruptions.
Accounts Receivable and Allowance for Doubtful Accounts
We grant credit to customers in the normal course
of business and at times may require customers to prepay for an order prior to
shipment. Accounts receivable are recorded net of an allowance for doubtful accounts.
We make estimates of the uncollectibility of accounts receivable. We specifically
analyze accounts receivable, historical bad debts, and customer creditworthiness
when evaluating the adequacy of the allowance. We had no charges or provisions
to our allowance for doubtful accounts in fiscal 2021 or 2020.
Inventories
Inventories are stated at the lower of cost or net
realizable value. Cost is determined by the first in, first out method. We record
inventory reserves when we determine certain inventory is unlikely to be sold
based on sales trends, turnover, competition, and other market factors.
Product Warranty
In general we warranty our products to be free from
defects in material and workmanship for one year.
Fixed Assets
Fixed assets are stated at cost. Depreciation of
machinery and equipment is recorded over the estimated useful lives of the assets,
generally five years, using the straight-line method. Amortization of leasehold
improvements is recorded using the straight-line method over the lesser of the
lease term or five-year useful life. We record losses on long-lived assets used
in operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amount. We did not identify any indicators of impairment during fiscal
2021 or 2020. Depreciation and amortization expense related to fixed assets was
$308,511 for fiscal 2021 and $364,409 for fiscal 2020.
F-7
Table
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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,
on product shipment or delivery to our customer or distributor as determined
by agreed on 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 March 31, 2021 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.
Income Taxes
We account for income taxes using the asset and
liability method. Deferred income taxes are provided for temporary differences
between the financial reporting and tax bases of assets and liabilities. We provide
valuation allowances against deferred tax assets if we determine that it is less
likely than not that we will be able to utilize the deferred tax assets.
Research and Development Expense Recognition
Research and development costs are expensed as they
are incurred. Customer-sponsored research and development costs are included in
cost of sales.
Stock-Based Compensation
We measure stock-based compensation cost at the
grant date based on the fair value of the award and recognize the compensation
expense over the requisite service period, which is generally the vesting period.
We recognize any forfeitures as they occur.
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
year. Net income per diluted share amounts assume exercise of all stock options.
The following table shows the components of diluted shares:
Year
Ended March 31
2021
2020
Weighted average common shares outstanding basic
4,834,054
4,845,627
Dilutive effect of stock options
408
1,667
Shares used in computing net income per share diluted
4,834,462
4,847,294
Use of Estimates
The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires us to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-8
Table
of Contents
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. 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. 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 3. 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 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.
The fair value of our available-for-sale securities as
of March 31, 2021 by maturity were as follows:
Total
<1
Year
13
Years
35
Years
$
64,860,822
$
17,822,153
$
36,716,130
$
10,322,539
Total available-for-sale securities represented
approximately 89% of our total assets. Marketable securities as of March 31,
2021 had remaining maturities between 20 weeks and 47 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.
F-9
Table
of Contents
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
March 31, 2021
As of
March 31, 2020
Level
1
Level
2
Total
Level
1
Level
2
Total
Money market funds
$
10,143,196
$
-
$
10,143,196
$
7,903,433
$
-
$
7,903,433
Corporate bonds
-
54,717,626
54,717,626
-
62,691,309
62,691,309
Total
$
10,143,196
$
54,717,626
$
64,860,822
$
7,903,433
$
62,691,309
$
70,594,742
Our available-for-sale securities as of March 31,
2021 and 2020, aggregated into classes of securities, were as follows:
As
of March 31, 2021
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
$
10,143,196
$
-
$
-
$
10,143,196
$
7,903,433
$
-
$
-
$
7,903,433
Corporate bonds
53,308,105
1,570,195
(160,674
)
54,717,626
62,030,120
752,621
(91,432
)
62,691,309
Total
$
63,451,301
$
1,570,195
$
(160,674
)
$
64,860,822
$
69,933,553
$
752,621
$
(91,432
)
$
70,594,742
The
following table shows the gross unrealized holding losses and fair value of our
available-for-sale securities with unrealized holding losses, aggregated by class
of securities and length of time that individual securities had been in a continuous
unrealized loss position as of March 31, 2021 and 2020.
Less
Than 12 Months
12 Months
or Greater
Total
Estimated
Fair
Value
Gross
Unrealized
Holding Losses
Estimated
Fair
Value
Gross
Unrealized
Holding Losses
Estimated
Fair
Value
Gross
Unrealized
Holding Losses
As of March 31, 2021
Corporate bonds
$
10,322,539
$
(160,674
)
$
-
$
-
$
10,322,539
$
(160,674
)
Total
$
10,322,539
$
(160,674
)
$
-
$
-
$
10,322,539
$
(160,674
)
As of March 31, 2020
Corporate bonds
$
19,525,169
$
(91,432
)
$
-
$
-
$
19,525,169
$
(91,432
)
Total
$
19,525,169
$
(91,432
)
$
-
$
-
$
19,525,169
$
(91,432
)
We did not consider any of our available-for-sale
securities to be impaired as of March 31, 2021. None of the securities were
impaired at acquisition, and subsequent declines in fair value are not attributed
to declines in credit quality. The effects of the COVID-19 pandemic, however,
have degraded outlooks for some of our marketable securities issuers, which
could lead to credit-quality downgrades in the future. When evaluating for impairment
we assess indicators that include, but are not limited to, earnings performance,
changes in underlying credit ratings, market conditions, bona fide offers to purchase
or sell, and ability to hold until maturity. Because we believe it is more likely
than not we will recover the cost basis of our investments, we did not consider
any of our marketable securities to be impaired as of March 31, 2021.
NOTE 4. INVENTORIES
Inventories are shown in the following table:
March
31
2021
2020
Raw materials
$
660,678
$
1,017,451
Work in process
2,220,723
1,863,000
Finished goods
1,019,376
1,003,999
Total inventories
$
3,900,777
$
3,884,450
F-10
Table
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NOTE 5.
STOCK-BASED COMPENSATION
Stock Option Plan
Our 2000 Stock Option Plan, as amended, provides
for issuance to employees, directors, and certain service providers of incentive
stock options and nonstatutory stock options. Generally, the options may be exercised
at any time prior to expiration, subject to vesting based on terms of employment.
The period ranges from immediate vesting to vesting over a five-year period. The
options have exercisable lives ranging from one year to ten years from the date
of grant, and are generally not eligible to vest early in the event of retirement,
death, disability, or change in control. Exercise prices are not less than fair
market value of the underlying Common Stock at the date the options are granted.
Stock-based compensation expense was $45,572 in fiscal 2021 and $48,360 in fiscal
2020.
Valuation assumptions
We use the Black-Scholes standard option-pricing
model to determine the fair value of stock options. The following assumptions
were used to estimate the fair value of options granted:
Year Ended March 31
2021
2020
Risk-free interest rate
0.2 0.4
%
1.7
%
Expected volatility
34 35
%
37
%
Expected life (years)
4.6
4.6
Dividend yield
7.0 7.4
%
5.9
%
The determination of the fair value of the awards
on the date of grant using the Black-Scholes model is affected by our stock price
as well as assumptions of other variables, including projected stock option exercise
behaviors, risk-free interest rate, and expected volatility of our stock price
in future periods. Our estimates and assumptions affect the amounts reported in
the financial statements and accompanying notes.
Expected life
We analyze historical exercise and termination data
to estimate the expected life assumption. We believe historical data currently
represents the best estimate of the expected life of a new option.
Risk-free interest rate
The risk-free rate is based on the yield of U.S.
Treasury securities on the grant date for maturities similar to the expected lives
of the options.
Volatility
We use historical volatility to estimate the expected
volatility of our common stock.
Dividend yield
We assumed a 7.0% to 7.4% dividend yield for fiscal
2021 and 5.9% for fiscal 2020 based on the dividend yield on the date the options
were granted.
Tax effects of stock-based compensation
Stock-based compensation increased deferred tax
assets by $9,971 for fiscal 2021 and $10,581 for fiscal 2020.
General stock option information
The following table summarizes information on options
outstanding as of March 31, 2021:
Ranges
of
Exercise Prices
Number
Outstanding
Weighted Average
Exercise Price
Weighted Remaining
Contractual Life (years)
$49.86 $67.69
22,000
$
59.85
5.3
$76.13 $107.86
8,000
92.00
6.9
30,500
$
68.28
5.7
A
summary of our stock options is shown in the following table:
Option Shares
Reserved
Options
Outstanding
Weighted
Average
Option Exercise Price
At March 31, 2019
135,230
22,000
$
70.89
Granted
(4,000
)
4,000
$
67.65
Exercised
-
(2,000
)
$
56.18
At March 31, 2020
131,230
24,000
$
71.58
Granted
(6,500
)
6,500
$
56.12
At March 31, 2021
124,730
30,500
$
68.28
F-11
Table
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The remaining weighted-average exercisable life
was 5.7 years as of March 31, 2021 and 6.6 years as of March 31,
2020. 28,000 outstanding options were exercisable as of March 31, 2021 and
24,000 outstanding options were exercisable as of March 31, 2020. The total intrinsic
value of options outstanding March 31, 2021, based on our closing stock price
for that day, was $230,540, $191,140 of which was exercisable. The total fair
value of option grants was $47,140 in fiscal 2021. There was $1,568 of unrecognized
stock-based compensation as of March 31, 2021 related to nonvested options, which
we expect to recognize in the first quarter of fiscal 2022.
NOTE 6. INCOME TAXES
Income tax provisions for fiscal 2021 and 2020 consisted
of the following:
Year
Ended March 31
2021
2020
Current taxes
Federal
$
2,600,670
$
2,710,658
State
75,852
(13,176
)
Deferred taxes
Federal
(123,959
)
74,651
State
(5,195
)
3,128
Income tax provision
$
2,547,368
$
2,775,261
A
reconciliation of income tax provisions at the U.S. statutory rate for fiscal
2021 and 2020 is as follows:
Year
Ended March 31
2021
2020
Tax expense at U.S. Statutory rate
$
2,990,768
$
3,633,400
State income taxes, net of Federal benefit
88,909
77,989
Research and development credits
(86,223
)
(126,320
)
Foreign-derived intangible income deduction
(450,912
)
(540,265
)
Other
4,826
(269,543
)
Income tax provision
$
2,547,368
$
2,775,261
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.
Significant components of our deferred tax assets and liabilities as of March 31,
2021 and 2020 were as follows:
March
31
2021
2020
Paid time off accrual
$
60,869
$
55,240
Inventory reserve
50,324
45,948
Depreciation and amortization
88,690
22,651
Stock-based compensation deductions
75,189
65,218
Unrealized gain on marketable securities
(308,403
)
(144,668
)
Other
106,869
63,730
Deferred tax assets
$
73,538
$
108,119
We had no unrecognized tax benefits as of March 31,
2021, 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 March 31, 2021 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 7. 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:
F-12
Table
of Contents
Year Ended March 31
2021
2020
Operating lease cost
$
158,439
$
154,565
Variable lease cost
109,449
96,798
Total
$
267,888
$
251,363
Cash paid for amounts included in the measurement
of lease liabilities
Operating cash flows for leases
$
133,299
$
174,528
Remaining lease term
5 years
6 years
Discount rate
3.5
%
3.5
%
The following table presents the maturities
of lease liabilities as of March 31, 2021:
Year Ending March 31
Operating Leases
2022
152,703
2023
156,121
2024
159,592
2025
163,224
2026
165,947
Total lease payments
797,587
Imputed lease interest
(65,855
)
Total lease liabilities
$
731,732
NOTE 8. CONCENTRATIONS
The following table summarizes customers comprising
10% or more of revenue for the two most recent fiscal years:
%
of Revenue for
Year Ended March 31
2021
2020
Customer A
22%
24%
Customer B
15%
14%
Customer C
Less than 10%
10%
These customers accounted for 43% of our
accounts receivable as of March 31, 2021 and 43% as of
March 31, 2020. We believe the receivable balances from these customers do
not represent a significant credit risk based on past collection experience.
NOTE 9.
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.
The Stock Repurchase Program may be modified or
discontinued at any time without notice.
NOTE 10.
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 $94,498 for fiscal 2021 and $92,880 for fiscal
2020.
NOTE 11.
SUBSEQUENT EVENTS
On May 5, 2021 we announced that our Board had declared
a quarterly cash dividend of $1.00 per share of Common Stock to be paid May 31,
2021 to shareholders of record as of the close of business May 17, 2021.
F-13
Table
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EXHIBIT INDEX
Exhibit #
Description
4
Description of the registrants securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
10.18
Amendment No. 7 to Supplier Partnering Agreement between
Abbott and the company.
23
Consent of Boulay PLLP.
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
F-14
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.