NVE CORP /NEW/ 10-Q

Item 1. Financial Statements. NVE CORPORATION BALANCE SHEETS (Unaudited) June 30, 2023 March 31, 2023* ASSETS Current assets Cash and cash equivalents $ 1,439,933 $ 1,669,896 Marketable securities, short-term (amortized cost of $ 12,300,315 as of June 30, 2023, and $ 15,696,135 as of March 31, 2023) 12,173,737 15,513,095 Accounts receivable, net of allowance for credit losses of $ 227,440 as of June 30, 2023, and $ 15,000 as of March 31, 2023 5,397,032 6,523,344 Inventories 6,292,162 6,417,010 Prepaid expenses and other assets 707,175 663,459 Total current assets 26,010,039 30,786,804 Fixed assets Machinery and equipment 10,488,496 10,484,365 Leasehold improvements 1,956,309 1,956,309 12,444,805 12,440,674 Less accumulated depreciation and amortization 11,172,258 11,095,236 Net fixed assets 1,272,547 1,345,438 Deferred tax assets 724,773 572,038 Marketable securities, long-term (amortized cost of $ 41,447,065 as of June 30, 2023, and $ 37,495,846 as of March 31, 2023) 39,719,369 36,125,047 Right-of-use asset – operating lease 392,370 425,843 Total assets $ 68,119,098 $ 69,255,170 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 159,155 $ 281,712 Accrued payroll and other 935,621 1,375,250 Operating lease 176,688 175,798 Total current liabilities 1,271,464 1,832,760 Operating lease 301,866 342,908 Total liabilities 1,573,330 2,175,668 Shareholders’ equity Common stock, $ 0.01 par value, 6,000,000 shares authorized; 4,833,401 issued and outstanding as of June 30, 2023, and 4,830,826 as of March 31, 2023 48,334 48,308 Additional paid-in capital 19,423,479 19,295,442 Accumulated other comprehensive loss ( 1,448,559 ) ( 1,213,858 ) Retained earnings 48,522,514 48,949,610 Total shareholders’ equity 66,545,768 67,079,502 Total liabilities and shareholders’ equity $ 68,119,098 $ 69,255,170 *The March 31, 2023 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, 2023. See accompanying notes. 3 Table of Contents NVE CORPORATION STATEMENTS OF INCOME (Unaudited ) Quarter Ended June 30, 2023 2022 Revenue Product sales $ 8,700,092 $ 7,072,961 Contract research and development 131,322 263,446 Total revenue 8,831,414 7,336,407 Cost of sales 2,079,623 1,651,847 Gross profit 6,751,791 5,684,560 Expenses Research and development 695,992 601,918 Selling, general, and administrative 475,115 371,320 Credit loss expense 212,440 - Total expenses 1,383,547 973,238 Income from operations 5,368,244 4,711,322 Interest income 436,526 283,059 Income before taxes 5,804,770 4,994,381 Provision for income taxes 1,401,040 854,265 Net income $ 4,403,730 $ 4,140,116 Net income per share – basic $ 0.91 $ 0.86 Net income per share – diluted $ 0.91 $ 0.86 Cash dividends declared per common share $ 1.00 $ 1.00 Weighted average shares outstanding Basic 4,832,166 4,830,826 Diluted 4,840,571 4,830,871 STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Quarter Ended June 30, 2023 2022 Net income $ 4,403,730 $ 4,140,116 Unrealized loss from marketable securities, net of tax ( 234,701 ) ( 338,553 ) Comprehensive income $ 4,169,029 $ 3,801,563 See accompanying notes. 4 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, 2023 4,830,826 $ 48,308 $ 19,295,442 $ ( 1,213,858 ) $ 48,949,610 $ 67,079,502 Exercise of stock options 2,575 26 117,501 117,527 Comprehensive income: Unrealized loss on marketable securities, net of tax ( 234,701 ) ( 234,701 ) Net income 4,403,730 4,403,730 Total comprehensive income 4,169,029 Stock-based compensation 10,536 10,536 Cash dividends declared ($1.00 per share of common stock) ( 4,830,826 ) ( 4,830,826 ) Balance as of June 30, 2023 4,833,401 $ 48,334 $ 19,423,479 $ ( 1,448,559 ) $ 48,522,514 $ 66,545,768 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 See accompanying notes. 6 Table of Contents NVE CORPORATION STATEMENTS OF CASH FLOWS (Unaudited) Quarter Ended June 30, 2023 2022 OPERATING ACTIVITIES Net income $ 4,403,730 $ 4,140,116 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 59,457 87,621 Provision for current estimate of credit losses 212,440 - Stock-based compensation 10,536 7,134 Deferred income taxes ( 87,000 ) 1 Changes in operating assets and liabilities: Accounts receivable 913,872 1,191,613 Inventories 124,848 ( 455,402 ) Prepaid expenses and other assets ( 10,243 ) ( 268,772 ) Accounts payable and accrued expenses ( 602,338 ) ( 1,371,168 ) Net cash provided by operating activities 5,025,302 3,331,143 INVESTING ACTIVITIES Purchases of fixed assets ( 4,131 ) ( 24,500 ) Purchases of marketable securities ( 3,937,835 ) ( 4,976,063 ) Proceeds from maturities of marketable securities 3,400,000 9,250,000 Receipt of tenant improvement allowance - 100,000 Net cash (used) provided by investing activities ( 541,966 ) 4,349,437 FINANCING ACTIVITIES Proceeds from exercise of stock options 117,527 - Payment of dividends to shareholders ( 4,830,826 ) ( 4,830,826 ) Cash used in financing activities ( 4,713,299 ) ( 4,830,826 ) (Decrease) increase in cash and cash equivalents ( 229,963 ) 2,849,754 Cash and cash equivalents at beginning of period 1,669,896 10,449,510 Cash and cash equivalents at end of period $ 1,439,933 $ 13,299,264 Supplemental disclosures of cash flow information: Cash paid during the period for income taxes $ 1,195,542 $ 1,275,629 See accompanying notes. 7 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 Report on Form 10-K for the fiscal year ended March 31, 2023. The results of operations for the quarter ended June 30, 2023, are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2024. 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, 2023. As of June 30, 2023, there were no changes to our significant accounting policies except for changes resulting from the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (ASC Topic 326) as described in the “Marketable securities and credit losses” section below and in Note 3. Marketable securities and credit losses Our marketable securities consist of corporate bonds and money market funds. Marketable are initially recognized at cost. Marketable securities considered to be “purchased financial assets with credit deterioration” are initially recognized at cost, less any allowance for expected credit losses. Unrealized holding gains and losses are reported in other comprehensive income, net of applicable taxes, until realized. All marketable securities are carried on the balance sheet at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use a three-level fair value hierarchy in estimating and reporting fair values of our marketable securities: Level 1 – Securities whose fair values are determined using quoted prices in active markets for identical securities. Level 2 – Securities whose fair values are determined using quoted prices for similar securities in active markets or quoted prices for identical securities in markets that are not active. Level 3 – Securities whose fair values are determined using unobservable inputs. Corporate bonds with remaining maturities of less than one year are classified as short-term and those with remaining maturities of one year or more 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. We measure credit losses on our marketable securities at the individual security level, using the present value of expected cash flows method. Credit losses are measured as the amount by which the amortized cost basis of the security exceeds the present value of expected cash flows (discounted at the effective interest rate implicit in the security at the date of acquisition), limited by the amount by which the fair value of the security is less than its amortized cost basis. When estimating expected cash flows, we consider available information relating to past events, current conditions, and reasonable and supportable forecasts such as, past incidences of default, credit quality as reported by credit rating agencies, extent of impairment, length of time the security has been in a continuous unrealized loss position, and adverse conditions forecasted by industry, financial and economic experts that are relevant to the collectability of expected cash flows. We do not include accrued interest receivables in amortized cost and in fair value when measuring expected credit losses. We will write off uncollectible accrued interest receivable to net income in a timely manner, by reversing interest income, and therefore do not measure credit losses for accrued interest receivable. Timely manner means one year from the date the accrued interest receivable becomes past due. Accrued interest receivables are included in the balance sheet in “prepaid expenses and other assets.” 8 Table of Contents Accounts Receivable and Allowance for Credit Losses We grant credit to customers in the normal course of business and at times require customers to pay for orders before shipment. Accounts receivable are presented on the balance sheet net of any allowance for credit losses. We measure credit losses on our trade accounts receivable on a pool basis, and in some cases, on an individual basis, using the loss-rate method. Accounts receivable are pooled based on geographical locations because we believe accounts originating from the same geographical location share risk characteristics. When estimating expected credit losses on our trade accounts receivable, we consider available information relating to past events, current conditions, and reasonable and supportable forecasts such as, historical loss rate, current age of and the remaining term of the receivable relative to our current days sales outstanding (“DSO”) ratio, and pending orders of the customer relative to accounts receivable balance as of the reporting date. NOTE 3. RECENTLY ADOPTED ACCOUNTING STANDARD 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) 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. We adopted ASU No. 2016-13 beginning with the quarter ended June 30, 2023. The adoption resulted in disclosure changes and required us to consider the likelihood of default and to measure our allowance for credit losses over the contractual term of our receivables. The adoption did not have a material impact on the financial statements as of April 1, 2023. Under these requirements, we increased our allowance for credit losses by $212,440 on our balance sheet as of June 30, 2023, and recorded a corresponding credit loss expense in our income statement for the quarter ended June 30, 2023, which decreased net income by the same amount. This reduced our net income per share by $0.04 for the quarter ended June 30, 2023. The adoption had no net impact on cash flows. 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 June 30, 2023 2022 Weighted average common shares outstanding – basic 4,832,166 4,830,826 Dilutive effect of stock options 8,405 45 Shares used in computing net income per share – diluted 4,840,571 4,830,871 9 Table of Contents NOTE 5. MARKETABLE SECURITIES The following table shows the major categories of our marketable securities and their contractual maturities as of June 30, 2023: Total <1 Year 1–3 Years 3–6 Years Money market funds $ 1,294,300 $ 1,294,300 $ - $ - Corporate bonds 51,893,106 12,173,737 27,318,977 12,400,392 Total $ 53,187,406 $ 13,468,037 $ 27,318,977 $ 12,400,392 Total marketable securities represent approximately 78% of our total assets as of June 30, 2023. Marketable securities as of June 30, 2023, had remaining maturities between three weeks and 70 months. 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.” Accrued interest receivables were $ 418,336 as of June 30, 2023, and $ 425,372 as of March 31, 2023, and are included in the balance sheets in “Prepaid expenses and other assets.” We monitor the credit ratings of our marketable securities at least quarterly as reported by Standard & Poor’s. The following table summarizes the fair values of our marketable securities as of June 30, 2023, aggregated by credit rating: Credit Rating Fair Value AAA $ 2,564,149 AA 6,626,736 AA- 20,804,539 A+ 7,893,562 A 9,387,766 A- 5,910,654 Total $ 53,187,406 The following table shows the estimated fair value of our marketable securities, aggregated by fair value hierarchy inputs used in estimating their fair values: As of June 30, 2023 As of March 31, 2023 Level 1 Level 2 Total Level 1 Level 2 Total Money market funds $ 1,294,300 $ - $ 1,294,300 $ 906,141 $ - $ 906,141 Corporate bonds - 51,893,106 51,893,106 - 51,638,142 51,638,142 Total $ 1,294,300 $ 51,893,106 $ 53,187,406 $ 906,141 $ 51,638,142 $ 52,544,283 The following table shows the amortized cost, fair value and gross unrealized holding gains and losses of our marketable securities as of June 30 and March 31, 2023: As of June 30, 2023 As of March 31, 2023 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 $ 1,294,300 $ - $ - $ 1,294,300 $ 906,141 $ - $ - $ 906,141 Corporate bonds 53,747,380 1 ( 1,854,275 ) 51,893,106 53,191,981 1,007 ( 1,554,846 ) 51,638,142 Total $ 55,041,680 $ 1 $ ( 1,854,275 ) $ 53,187,406 $ 54,098,122 $ 1,007 $ ( 1,554,846 ) $ 52,544,283 10 Table of Contents The following table shows the gross unrealized holding losses and estimated fair value of our marketable securities for which an allowance for credit losses has not been recorded, aggregated by category of securities and length of time that individual securities had been in a continuous unrealized loss position as of June 30 and March 31, 2023. 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 June 30, 2023 Corporate bonds $ 36,594,686 $ ( 934,611 ) $ 15,298,420 $ ( 919,664 ) $ 51,893,106 $ ( 1,854,275 ) Total $ 36,594,686 $ ( 934,611 ) $ 15,298,420 $ ( 919,664 ) $ 51,893,106 $ ( 1,854,275 ) As of March 31, 2023 Corporate bonds $ 37,084,628 $ ( 590,967 ) $ 13,294,817 $ ( 963,879 ) $ 50,379,445 $ ( 1,554,846 ) Total $ 37,084,628 $ ( 590,967 ) $ 13,294,817 $ ( 963,879 ) $ 50,379,445 $ ( 1,554,846 ) None of the securities were impaired at acquisition, and subsequent declines in fair value are attributable to interest rate increases. We do not intend to sell, and it is not more likely than not that we will be required to sell, these securities before recovery of their amortized cost basis. The issuers continue to make timely interest payments on these securities. Because we believe it is more likely than not we will recover the cost basis of our investments, we did not record any impairment attributable to credit losses. None of the marketable securities purchased during the period had experienced more-than-insignificant deterioration in credit quality since its origination and were therefore not considered “Purchased Financial Assets with Credit Deterioration.” Unrealized losses on our marketable securities and their tax effects are as follows: Quarter Ended June 30, 2023 2022 Unrealized loss from marketable securities $ ( 300,437 ) $ ( 433,376 ) Tax effects 65,736 94,823 Unrealized loss from marketable securities, net of tax $ ( 234,701 ) $ ( 338,553 ) NOTE 6. ALLOWANCE FOR CREDIT LOSSES ON ACCOUNTS RECEIVABLES The following table shows a roll forward of the allowance for credit losses on our accounts receivable: Allowance for credit losses as of March 31, 2023 $ 15,000 Change in provision for current expected credit losses 212,440 Allowance for credit losses as of June 30, 2023 $ 227,440 NOTE 7. INVENTORIES Inventories are shown in the following table: June 30, 2023 March 31, 2023 Raw materials $ 1,741,172 $ 1,601,962 Work in process 2,914,014 3,781,894 Finished goods 1,636,976 1,033,154 Total inventories $ 6,292,162 $ 6,417,010 NOTE 8. STOCK-BASED COMPENSATION Stock-based compensation expense was $ 10,536 for the first quarter of fiscal 2024 and $ 7,134 for the first quarter of fiscal 2023. We calculate share-based compensation expense using the Black-Scholes-Merton standard option-pricing model . 11 Table of Contents NOTE 9. 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 June 30, 2023, federal and state estimated tax liabilities of $ 453,591 were included in the balance sheet in “Accrued payroll and other.” We had no unrecognized tax benefits as of June 30, 2023, 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 June 30, 2023, we had no accrued interest related to uncertain tax positions. The tax years 2019 through 2023 remain open to examination by the major taxing jurisdictions to which we are subject. NOTE 10. 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 interest 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. Details of our operating lease are as follows: Quarter Ended June 30, 2023 Operating lease cost $ 37,754 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for leases $ 44,433 Remaining lease term 33 months Discount rate 3.5 % The following table shows the maturities of lease liabilities as of June 30, 2023: Year Ending March 31, Operating Lease Liabilities 2024 $ 134,207 2025 182,271 2026 184,995 Total lease payments 501,473 Imputed lease interest ( 22,919 ) Total lease liabilities $ 478,554 NOTE 11. 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 depend 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 maturing marketable securities. The remaining authorization was $ 3,520,369 as of June 30, 2023. We did no t repurchase any of our Common Stock during the first quarter of fiscal 2024. NOTE 12. 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 18. 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 $ 27,078 for the first quarter of fiscal 2024 and $ 28,426 for the first quarter of fiscal 2023. NOTE 13. SUBSEQUENT EVENTS On July 19, 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 August 31, 2023 , to shareholders of record as of the close of business July 31, 2023 . 12 Table of Contents