NVE CORP /NEW/ 10-Q

Item 1. Financial Statements. NVE CORPORATION BALANCE SHEETS (Unaudited) December 31, 2022 March 31, 2022* ASSETS Current assets Cash and cash equivalents $ 2,029,714 $ 10,449,510 Marketable securities, short-term 10,337,621 20,839,683 Accounts receivable, net of allowance for uncollectible accounts of $ 15,000 2,097,274 4,704,829 Inventories 6,459,227 5,088,635 Prepaid expenses and other assets 924,161 420,520 Total current assets 21,847,997 41,503,177 Fixed assets Machinery and equipment 10,486,161 9,739,244 Leasehold improvements 1,926,334 1,810,872 12,412,495 11,550,116 Less accumulated depreciation and amortization 11,018,857 10,943,731 Net fixed assets 1,393,638 606,385 Deferred tax assets 862,424 483,469 Marketable securities, long-term 41,167,242 24,314,211 Right-of-use asset – operating lease 459,032 560,250 Total assets $ 65,730,333 $ 67,467,492 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 470,929 $ 943,535 Accrued payroll and other 1,245,390 1,356,689 Operating lease 161,271 156,121 Total current liabilities 1,877,590 2,456,345 Operating lease 397,303 446,018 Total liabilities 2,274,893 2,902,363 Shareholders’ equity Common stock, $ 0.01 par value, 6,000,000 shares authorized; 4,830,826 issued and outstanding as of December 31 and March 31, 2022 48,308 48,308 Additional paid-in capital 19,310,703 19,256,485 Accumulated other comprehensive loss ( 1,451,362 ) ( 318,120 ) Retained earnings 45,547,791 45,578,456 Total shareholders’ equity 63,455,440 64,565,129 Total liabilities and shareholders’ equity $ 65,730,333 $ 67,467,492 *The March 31, 2022 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, 2022. See accompanying notes. 3 Table of Contents NVE CORPORATION STATEMENTS OF INCOME (Unaudited ) Quarter Ended December 31, 2022 2021 Revenue Product sales $ 7,200,385 $ 5,916,790 Contract research and development 201,293 374,019 Total revenue 7,401,678 6,290,809 Cost of sales 1,478,372 1,385,006 Gross profit 5,923,306 4,905,803 Expenses Research and development 700,609 596,492 Selling, general, and administrative 403,449 272,159 Total expenses 1,104,058 868,651 Income from operations 4,819,248 4,037,152 Interest income 406,092 283,940 Income before taxes 5,225,340 4,321,092 Provision for income taxes 994,016 855,685 Net income $ 4,231,324 $ 3,465,407 Net income per share – basic $ 0.88 $ 0.72 Net income per share – diluted $ 0.88 $ 0.72 Cash dividends declared per common share $ 1.00 $ 1.00 Weighted average shares outstanding Basic 4,830,826 4,833,604 Diluted 4,832,368 4,835,770 STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Quarter Ended December 31, 2022 2021 Net income $ 4,231,324 $ 3,465,407 Unrealized gain (loss) from marketable securities, net of tax 332,673 ( 380,161 ) Comprehensive income $ 4,563,997 $ 3,085,246 See accompanying notes. 4 Table of Contents NVE CORPORATION STATEMENTS OF INCOME (Unaudited ) Nine Months Ended December 31, 2022 2021 Revenue Product sales $ 24,787,885 $ 19,500,567 Contract research and development 668,024 766,866 Total revenue 25,455,909 20,267,433 Cost of sales 5,533,000 4,698,720 Gross profit 19,922,909 15,568,713 Expenses Research and development 1,972,505 2,112,630 Selling, general, and administrative 1,210,395 1,221,893 Total expenses 3,182,900 3,334,523 Income from operations 16,740,009 12,234,190 Interest income 1,040,528 868,519 Income before taxes 17,780,537 13,102,709 Provision for income taxes 3,318,723 2,411,228 Net income $ 14,461,814 $ 10,691,481 Net income per share – basic $ 2.99 $ 2.21 Net income per share – diluted $ 2.99 $ 2.21 Cash dividends declared per common share $ 3.00 $ 3.00 Weighted average shares outstanding Basic 4,830,826 4,833,356 Diluted 4,831,168 4,835,781 STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Nine Months Ended December 31, 2022 2021 Net income $ 14,461,814 $ 10,691,481 Unrealized loss from marketable securities, net of tax ( 1,133,242 ) ( 667,361 ) Comprehensive income $ 13,328,572 $ 10,024,120 See accompanying notes. 5 Table of Contents NVE CORPORATION STATEMENTS OF SHAREHOLDERS ’ EQUITY (Unaudited) Accumulated Additional Other Common Stock Paid-In Comprehensive Retained Shares Amount Capital Income (Loss) Earnings Total Balance as of March 31, 2022 4,830,826 $ 48,308 $ 19,256,485 $ ( 318,120 ) $ 45,578,456 $ 64,565,129 Comprehensive income: Unrealized loss on marketable securities, net of tax ( 338,553 ) ( 338,553 ) Net income 4,140,116 4,140,116 Total comprehensive income 3,801,563 Stock-based compensation 7,134 7,134 Cash dividends declared ($1.00 per share of common stock) ( 4,830,826 ) ( 4,830,826 ) Balance as of June 30, 2022 4,830,826 48,308 19,263,619 ( 656,673 ) 44,887,746 63,543,000 Comprehensive income: Unrealized loss on marketable securities, net of tax ( 1,127,362 ) ( 1,127,362 ) Net income 6,090,373 6,090,373 Total comprehensive income 4,963,011 Stock-based compensation 39,951 39,951 Cash dividends declared ($1.00 per share of common stock) ( 4,830,826 ) ( 4,830,826 ) Balance as of September 30, 2022 4,830,826 48,308 19,303,570 ( 1,784,035 ) 46,147,293 63,715,136 Comprehensive income: Unrealized gain on marketable securities, net of tax 332,673 332,673 Net income 4,231,324 4,231,324 Total comprehensive income 4,563,997 Stock-based compensation 7,133 7,133 Cash dividends declared ($1.00 per share of common stock) ( 4,830,826 ) ( 4,830,826 ) Balance as of December 31, 2022 4,830,826 $ 48,308 $ 19,310,703 $ ( 1,451,362 ) $ 45,547,791 $ 63,455,440 See accompanying notes. 6 Table of Contents NVE CORPORATION STATEMENTS OF SHAREHOLDERS ’ EQUITY (Unaudited) Accumulated Additional Other Common Stock Paid-In Comprehensive Retained Shares Amount Capital Income (Loss) Earnings Total Balance as of March 31, 2021 4,833,232 $ 48,332 $ 19,338,127 $ 1,101,119 $ 50,404,364 $ 70,891,942 Comprehensive income: Unrealized loss on marketable securities, net of tax ( 90,165 ) ( 90,165 ) Net income 3,579,566 3,579,566 Total comprehensive income 3,489,401 Stock-based compensation 7,238 7,238 Cash dividends declared ($1.00 per share of common stock) ( 4,833,232 ) ( 4,833,232 ) Balance as of June 30, 2021 4,833,232 48,332 19,345,365 1,010,954 49,150,698 69,555,349 Comprehensive income: Unrealized loss on marketable securities, net of tax ( 197,034 ) ( 197,034 ) Net income 3,646,507 3,646,507 Total comprehensive income 3,449,473 Stock-based compensation 56,999 56,999 Cash dividends declared ($1.00 per share of common stock) ( 4,833,232 ) ( 4,833,232 ) Balance as of September 30, 2021 4,833,232 48,332 19,402,364 813,920 47,963,973 68,228,589 Exercise of stock options 482 5 ( 5 ) - Comprehensive income: Unrealized loss on marketable securities, net of tax ( 380,161 ) ( 380,161 ) Net income 3,465,407 3,465,407 Total comprehensive income 3,085,246 Stock-based compensation 8,799 8,799 Cash dividends declared ($1.00 per share of common stock) ( 4,833,232 ) ( 4,833,232 ) Balance as of December 31, 2021 4,833,714 $ 48,337 $ 19,411,158 $ 433,759 $ 46,596,148 $ 66,489,402 See accompanying notes. 7 Table of Contents NVE CORPORATION STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended December 31, 2022 2021 OPERATING ACTIVITIES Net income $ 14,461,814 $ 10,691,481 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 187,781 358,828 Stock-based compensation 54,218 73,036 Deferred income taxes ( 61,972 ) 319 Changes in operating assets and liabilities: Accounts receivable 2,607,555 ( 1,073,922 ) Inventories ( 1,370,592 ) ( 466,898 ) Prepaid expenses and other assets ( 502,423 ) ( 435,067 ) Accounts payable and accrued expenses ( 627,470 ) ( 49,447 ) Net cash provided by operating activities 14,748,911 9,098,330 INVESTING ACTIVITIES Purchases of fixed assets ( 907,612 ) ( 58,317 ) Purchases of marketable securities ( 26,618,617 ) - Proceeds from maturities of marketable securities 18,750,000 4,000,000 Receipt of tenant improvement allowance 100,000 - Net cash provided (used) by investing activities ( 8,676,229 ) 3,941,683 FINANCING ACTIVITIES Payment of dividends to shareholders ( 14,492,478 ) ( 14,499,696 ) Cash used in financing activities ( 14,492,478 ) ( 14,499,696 ) Decrease in cash and cash equivalents ( 8,419,796 ) ( 1,459,683 ) Cash and cash equivalents at beginning of period 10,449,510 10,427,340 Cash and cash equivalents at end of period $ 2,029,714 $ 8,967,657 Supplemental disclosures of cash flow information: Cash paid during the period for income taxes $ 4,130,278 $ 2,490,000 See accompanying notes. 8 Table of Contents 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, 2022. The results of operations for the quarter and nine months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2023. Significant accounting policies A description of our significant accounting policies is provided in Note 2 to the Financial Statements in our Annual Report on Form 10-K for the year ended March 31, 2022. As of December 31, 2022, there were no changes to our significant accounting policies. NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS Recently Adopted Accounting Standard In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options . ASU 2021-04 addresses issuers’ accounting for certain modifications or exchanges of freestanding equity-classified written call options. We adopted ASU 2021-04 beginning with the quarter ended June 30, 2022. The adoption had no material impact on our financial statements. New Accounting Standard Not Yet Adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit 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 Instruments-Credit 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 Instruments — Credit 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 Instruments — Credit 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 are evaluating the potential impact of ASU 2016-13 on our financial statements. 9 Table of Contents 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 December 31, 2022 2021 Weighted average common shares outstanding – basic 4,830,826 4,833,604 Dilutive effect of stock options 1,542 2,166 Shares used in computing net income per share – diluted 4,832,368 4,835,770 Nine Months Ended December 31, 2022 2021 Weighted average common shares outstanding – basic 4,830,826 4,833,356 Dilutive effect of stock options 342 2,425 Shares used in computing net income per share – diluted 4,831,168 4,835,781 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, 2022 are as follows: Total <1 Year 1–3 Years 3–7 Years $ 52,020,382 $ 10,853,140 $ 25,270,655 $ 15,896,587 Total available-for-sale securities represented approximately 79% of our total assets as of December 31, 2022. Marketable securities as of December 31, 2022 had remaining maturities between six days and 76 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.” 10 Table of Contents 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, 2022 As of March 31, 2022 Level 1 Level 2 Total Level 1 Level 2 Total Money market funds $ 515,519 $ - $ 515,519 $ 6,756,993 $ - $ 6,756,993 Corporate bonds - 51,504,863 51,504,863 - 45,153,894 45,153,894 Total $ 515,519 $ 51,504,863 $ 52,020,382 $ 6,756,993 $ 45,153,894 $ 51,910,887 Our available-for-sale securities as of December 31 and March 31, 2022, aggregated into classes of securities, were as follows: As of December 31, 2022 As of March 31, 2022 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 $ 515,519 $ - $ - $ 515,519 $ 6,756,993 $ - $ - $ 6,756,993 Corporate bonds 53,362,727 372 ( 1,858,236 ) 51,504,863 45,561,114 230,085 ( 637,305 ) 45,153,894 Total $ 53,878,246 $ 372 $ ( 1,858,236 ) $ 52,020,382 $ 52,318,107 $ 230,085 $ ( 637,305 ) $ 51,910,887 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 December 31 and March 31, 2022. 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 December 31, 2022 Corporate bonds $ 38,850,214 $ ( 1,014,674 ) $ 9,410,692 $ ( 843,562 ) $ 48,260,906 $ ( 1,858,236 ) Total $ 38,850,214 $ ( 1,014,674 ) $ 9,410,692 $ ( 843,562 ) $ 48,260,906 $ ( 1,858,236 ) As of March 31, 2022 Corporate bonds $ 6,306,750 $ ( 23,727 ) $ 9,738,338 $ ( 613,578 ) $ 16,045,088 $ ( 637,305 ) Total $ 6,306,750 $ ( 23,727 ) $ 9,738,338 $ ( 613,578 ) $ 16,045,088 $ ( 637,305 ) None of the securities were impaired at acquisition, and subsequent declines in fair value are not attributed to declines in credit quality. 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 December 31, 2022. NOTE 6. INVENTORIES Inventories are shown in the following table: December 31, 2022 March 31, 2022 Raw materials $ 1,340,276 $ 987,062 Work in process 4,153,063 3,355,838 Finished goods 965,888 745,735 Total inventories $ 6,459,227 $ 5,088,635 11 Table of Contents NOTE 7. STOCK-BASED COMPENSATION Stock-based compensation expense was $ 7,133 for the third quarter of fiscal 2023, $ 8,799 for the third quarter of fiscal 2022, $ 54,218 for the first nine months of fiscal 2023, and $ 73,036 for the first nine months of fiscal 2022. 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. As of December 31, 2022, federal and state estimated tax overpayments of $ 291,000 were included in prepaid assets. We had no unrecognized tax benefits as of December 31, 2022, and we do no t 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, 2022 we had no accrued interest related to uncertain tax positions. The tax years 2018 through 2022 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 December 31, 2022 Nine Months Ended December 31, 2022 Operating lease cost $ 4,419 $ 89,450 Variable lease cost 33,460 94,775 Total $ 37,879 $ 184,225 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for leases $ 43,578 130,735 Remaining lease term 39 months Discount rate 3.5 % The following table presents the maturities of lease liabilities as of December 31, 2022: As of December 31, 2022 Operating Leases Fiscal 2023 44,433 Fiscal 2024 178,640 Fiscal 2025 182,271 Fiscal 2026 184,995 Total lease payments 590,339 Imputed lease interest ( 31,765 ) Total lease liabilities $ 558,574 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 company’s 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 $ 3,598,519 as of December 31, 2022. We did no t repurchase any of our Common Stock during the first nine months of fiscal 2023. 12 Table of Contents 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 $ 21,484 for the third quarter of fiscal 2023, $ 21,579 for the third quarter of fiscal 2022, $ 73,661 for the first nine months of fiscal 2023, and $ 76,995 for the first nine months of fiscal 2022. NOTE 12. SUBSEQUENT EVENTS On January 25, 2023 we announced that our Board of Directors had declared a quarterly cash dividend of $ 1.00 per share of Common Stock to be paid February 28, 2023 to shareholders of record as of the close of business January 30, 2023 .