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Item 5. Market for Registrant’s Common Equity

2023-05-03 compared with 2022-05-04 · 41 added, 73 removed, 59 unchanged (66% of the section changed)

MARKET FOR REGISTRANT ’

S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information and Dividends

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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 company’s results of operations, cash and marketable security balances, our forecasts of future cash requirements, and other factors our Board may deem relevant.

We have approximately 57 shareholders of record as of April 13, 2022.

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.

We had approximately 54 shareholders of record as of April 12, 2023.

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 2022 Annual Meeting of Shareholders, and is incorporated by reference into Item 12 of this Report.

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 2023 Annual Meeting of Shareholders and is incorporated by reference into Item 12 of this Report.

Stock Repurchase Program

We repurchased 2,888 shares of our Common Stock in fiscal 2022 and 1,806 shares in fiscal 2021.

All purchases in fiscal 2022 were made in the quarter ended March 31, 2022 as detailed below:

Total number of

shares purchased

as part of publicly

dollar value of

shares that may

yet be purchased

under the program

January 1, 2022 –

January 31, 2022

February 1, 2022 –

February 28, 2022

March 1, 2022 –

March 31, 2022

(1) All shares were purchased under the plan described in note (2) below.

(2) 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.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We repurchased 1,000 shares in fiscal 2023 and 2,888 shares in fiscal 2022.

The Stock Repurchase Program may be modified or discontinued at any time without notice, and our Board of Directors has resolved to forgo stock buybacks for five years if, under Government policies, such a voluntary agreement would result in preferential treatment for grants under the CHIPS and Science Act of 2022.

MANAGEMENT ’ S 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.

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.

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.

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.

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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 investor’s understanding of our financial results and condition and require complex management judgment are discussed below.

Investment Valuation

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We have generally invested excess cash in high-quality investment grade long-term marketable securities with less than five years to maturity.

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.

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;

We consider a number of factors in determining whether other-than-temporary impairment exists, including credit market conditions;

the credit ratings of the securities;

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If reserved inventory is subsequently sold, corresponding reductions in inventory and inventory reserves are made.

Our inventory reserve was $215,000 as of March 31, 2022 and $230,000 as of March 31, 2021.

Our inventory reserve was $215,000 as of March 31, 2023 and March 31, 2022.

Deferred Tax Assets Estimation

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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 $483,469 of net deferred tax assets as of March 31, 2022 and $73,538 as of March 31, 2021.

Net deferred tax assets included $88,710 in deferred tax assets for stock-based compensation deductions as of March 31, 2022 and $75,189 as of March 31, 2021.

We had $572,038 of net deferred tax assets as of March 31, 2023, and $483,469 as of March 31, 2022.

Net deferred tax assets included $71,734 in deferred tax assets for stock-based compensation deductions as of March 31, 2023 and $88,710 as of March 31, 2022.

Results of Operations

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Income before taxes

Income tax provision

Total revenue for fiscal 2022 increased 26% compared to fiscal 2021 due to a 26% increase in product sales and a 36% increase in contract research and development revenue.

Provision for income taxes

Total revenue for fiscal 2023 increased 42% compared to fiscal 2022 due to a 44% increase in product sales, partially offset by a 6% decrease in contract research and development revenue.

The increase in product sales was primarily due to increased purchases by existing customers, and sales increased in most of our markets and product lines.

The increase in contract research and development revenue was due to new contracts..

Gross profit as a percentage of revenue decreased to 77% for fiscal 2022 from 81% for fiscal 2021 primarily due to increased costs, partially offset by increased prices.

Material, labor, and services costs increased significantly in the most recent fiscal year.

Total expenses decreased 2% for fiscal 2022 compared to fiscal 2021 due primarily to a 8% decrease in research and development expense, partially offset by a 12% increase in selling, general, and administrative expense.

The decrease in research and development expense was primarily due to staffing changes and the completion of certain product development activities.

The decrease in contract research and development revenue was due to the completion of certain contracts.

Gross profit as a percentage of revenue increased to 79% for fiscal 2023 from 77% for fiscal 2022.

The increase was primarily due to economies of scale from increased production and increased prices, partially offset by increased material and labor costs.

Total expenses increased 4% for fiscal 2023 compared to fiscal 2022 due primarily to a 34% increase in selling, general, and administrative expense, partially offset by a 12% decrease in research and development expense.

The decrease in research and development expense was primarily due to the reallocation of resources to revenue-generating activities.

The increase in selling, general, and administrative expense was primarily due to staffing changes and increased employee compensation.

Interest income for fiscal 2022 decreased 22% due to a decrease in our available-for-sale securities and a decrease in the average interest rates on those securities.

The 24% increase in net income in fiscal 2022 compared to the prior year was primarily due to an increase in total revenue.

The Impact of the COVID-19 Pandemic

We believe the impact of the COVID-19 pandemic on customer demand was less in the year ended March 31, 2022 compared to the prior year.

We believe the impact of the pandemic on our supply chain, however, was significantly more in the year ended March 31, 2022 than in the prior year.

Supply-chain shortages may have been exacerbated by COVID-19 lockdowns in China in late fiscal 2022.

We expect supply-chain shortages to continue in fiscal 2023.

Interest income for fiscal 2023 increased 24% due to an increase in our available-for-sale securities and an increase in the average interest rates on those securities.

Our effective tax rate for fiscal 2023 decreased to 16% of income before taxes from 17% for fiscal 2022.

The decrease was due to $197,008 in investment tax credits under the CHIPS and Science Act of 2022.

Such credits require qualifying investments, and eligibility criteria are subject to changes in Federal tax policies.

Therefore, our effective tax rate in fiscal 2023 may not be indicative of the rate for future periods.

The 56% increase in net income in fiscal 2023 compared to the prior year was primarily due to increased product sales, increased gross profit margin, and increased interest income.

Liquidity and Capital Resources

Our liquidity and operating capital requirements are primarily for purchases of raw materials such as foundry wafers, purchases of packaging services, and for the maintenance of work-in-process inventories.

Our liquidity and operating capital requirements are primarily for purchases of raw materials such as foundry wafers, purchases of packaging services, and the maintenance of work-in-process inventories.

We maintain most of our marketable securities as long-term to maximize yield and fund future dividends.

Cash and cash equivalents were $10,449,510 as of March 31, 2022 compared to $10,427,340 as of March 31, 2021.

The $22,170 increase in cash and cash equivalents was due to $12,503,679 in net cash provided by operating activities and $7,015,421 net cash provided by investing activities, partially offset by $19,496,930 net cash used in financing activities.

Cash and cash equivalents were $1,669,896 as of March 31, 2023, compared to $10,449,510 as of March 31, 2022.

The $8,779,614 decrease in cash and cash equivalents was due to $19,344,004 net cash used in financing activities and $8,527,108 net cash used by investing activities, partially offset by $19,091,498 in net cash provided by operating activities.

Operating Activities

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Net cash provided by operating activities was $19,091,498 for fiscal 2023 and $12,503,679 for fiscal 2022.

Accounts receivable increased $2,740,548 primarily due to the timing of sales to and payments from customers.

Inventory increased $1,187,858 primarily due to our decisions to increase work in process in order to mitigate longer vendor lead-times.

Accounts payable and accrued expenses increased $1,422,677 due to an $815,783 increase in accrued expenses and a $606,944 increase in accounts payable.

The increase in accounts payable was due to the timing of vendor payments.

The increase in accrued expenses was due to increases in accrued payroll and income taxes payable.

Accounts receivable increased $1,818,515 primarily due to increased product sales and the timing of sales to customers.

Inventory increased $1,328,375 primarily due to our decisions to increase inventories to support increased product sales and to mitigate supply-chain risks.

Investing Activities

Net cash provided by investing activities in fiscal 2022 was due to marketable security maturities of $7,500,000 and fixed assets purchases of $484,579.

The $484,579 of fixed asset purchases in fiscal 2022 were a significant increase from $62,727 in fiscal 2021.

Purchases in fiscal 2022 were primarily for capital equipment to increase our production throughput and capacity and were financed with cash provided by operating activities.

Net cash used in investing activities in fiscal 2023 was due to marketable securities purchases of $28,441,317 and fixed assets purchases of $935,791, partially offset by marketable securities maturations of $20,750,000 and the receipt of a $100,000 tenant-improvement allowance.

The $935,791 of fixed asset purchases in fiscal 2023 was a significant increase from $484,579 in fiscal 2022.

Purchases in fiscal 2023 and 2022 were primarily for capital equipment to increase our production throughput and capacity and were financed with cash provided by operating activities.

Our capital expenditures can vary significantly from year to year depending on our needs and equipment purchasing opportunities.

Financing Activities

Net cash used in financing activities in fiscal 2022 was due to $19,333,409 in cash dividends to shareholders and $163,521 in repurchases of our common stock.

In addition to cash dividends to shareholders paid in fiscal 2022, on May 4, 2022 we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,830,826 based on shares outstanding as of April 29, 2022, to be paid May 31, 2022.

Net cash used in financing activities in fiscal 2023 was due to $19,323,304 in cash dividends to shareholders and $20,700 of common stock repurchases.

In addition to cash dividends to shareholders paid in fiscal 2023, on May 3, 2023, we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,830,826 based on shares outstanding as of April 28, 2023, to be paid May 31, 2023.

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 company’s results of operations, cash and marketable security balances, estimates of future cash requirements, the impacts of supply-chain shortages, the impacts of cost inflation, and other factors the Board may deem relevant.

Furthermore, dividends may be modified or discontinued at any time without notice.

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Financial statements and accompanying notes are included in this Report beginning on page F-1.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND  

FINANCIAL  

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity