NVE CORP /NEW/ 10-K

ITEM 9A. CONTROLS AND PROCEDURES. Disclosure Controls and Procedures Management, with the participation of the Chief Executive Officer and Principal 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 times specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, although there have been changes in personnel involved in our controls, processes, and procedures, our Chief Executive Officer and Principal Financial Officer concluded that, as of March 31, 2024, our disclosure controls and procedures were effective. 17 Table of Contents Management ’ s 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 Principal Financial Officer, assessed the effectiveness of our internal control over financial reporting as of March 31, 2024. 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 Control — Integrated Framework . Based on our assessment using the criteria set forth by COSO in the 2013 Internal Control — Integrated Framework , management concluded that our internal control over financial reporting was effective as of March 31, 2024. Our management, including our Chief Executive Officer and Principal 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 year ended March 31, 2024, 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. ITEM 9B. OTHER INFORMATION. Clawback Policy We have adopted a policy for recovery of erroneously awarded incentive compensation (a “Clawback Policy”), which is filed as Exhibit 97 to this Report. Rule 10b5-1 Plan Disclosures for Section 16 Officers and Directors During the quarter ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K). There are no such plans currently in effect. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 18 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. A section titled “Delinquent Section 16(a) Reports” to be included in our Proxy Statement for our 2024 Annual Meeting of Shareholders will set forth information regarding delinquent Section 16(a) reports required by Item 10. The section titled “Proposal 1. Election of Board of Directors” will set forth certain information regarding our directors and executive officers required by Item 10, the section titled “Information About Our Executive Officers” will set forth information regarding our executive officers required by Item 10, and the section titled “Corporate Governance” will set forth information regarding our corporate governance and code of ethics required by Item 10. The information in these sections to be included in the Proxy Statement for our 2024 Annual Meeting of Shareholders is 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 the Proxy Statement for our 2024 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 the Proxy Statement for our 2024 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 2024 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 2024 and 2023” and “Audit Committee Disclosure – Audit Committee Pre-Approval Policy” to be included in the Proxy Statement for our 2024 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. (b) Exhibits A list of exhibits is on the following page. 19 Table of Contents Exhibit # Description 3.1 Amended and Restated Articles of Incorporation of the company as amended by the Board of Directors effective August 3, 2003 (incorporated by reference to the Form 8-K filed August 7, 2023). 3.2 Bylaws of the company as amended by the Board of Directors effective May 6, 2020. 4 Description of the registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. 10.1 Lease dated October 1, 1998, with Glenborough Properties, LP (incorporated by reference to the Form 10-QSB for the period ended September 30, 2002). 10.2 First amendment to lease with 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 with 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 with Carlson Real Estate (incorporated by reference to the Form 8-K/A filed December 20, 2007). 10.5 Fourth amendment to lease with 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 with GRE – Bryant Lake, LLC (incorporated by reference to our Current Report on Form 8-K/A filed March 3, 2020). 10.7† Employment Agreement with 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, 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. 4 to St. Jude Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed February 7, 2011). 10.12 Supplier Quality Agreement between St. Jude and the company (incorporated by reference to the Form 8-K filed February 10, 2016). 10.13 Amendment No. 5 to St. Jude Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed April 21, 2016). 10.14* Amendment No. 8 to Abbott Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed February 2, 2022). 10.15* Amendment No. 1 0 to Supplier Partnering Agreement between Abbott and the company (incorporated by reference to the Form 8-K/A filed J anuary 3 , 202 4 ). 10.16+ Supply Agreement by and with Sonova AG (incorporated by reference to the Form 8-K/A filed November 16, 2015). 10.17* First Amendment to Sonova Supply Agreement (incorporated by reference to the Form 8-K/A filed February 18, 2020). 10.18* Second Amendment to Sonova Supply Agreement (incorporated by reference to the Form 8-K/A filed July 19, 2023). 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 Daniel Nelson pursuant to Rule 13a-14(a)/15d-14(a). 32 Certification by Daniel A. Baker and Daniel Nelson pursuant to 18 U.S.C. Section 1350. 97 Clawback Policy. 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 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) †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. 20 Table of Contents 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 1, 2024 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 (1) Title Date /s/Terrence W. Glarner Terrence W. Glarner Director and Chairman of the Board May 1, 2024 /s/Daniel A. Baker Daniel A. Baker Director, President and Chief Executive Officer (Principal Executive Officer) May 1, 2024 /s/ Daniel Nelson Daniel Nelson Principal Financial Officer May 1, 2024 /s/Patricia M. Hollister Patricia M. Hollister Director May 1, 2024 /s/James W. Bracke James W. Bracke Director May 1, 2024 (1) Richard W. Kramp was unable to sign this Report due to illness. 21 Table of Contents 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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 Company’s 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 Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. /s/ Boulay PLLP PCOAB ID: 542 We have served as the Company’s auditor since 2019. Minneapolis, Minnesota May 1, 2024 F-1 Table of Contents NVE CORPORATION BALANCE SHEETS March 31, 2024 March 31, 2023 ASSETS Current assets Cash and cash equivalents $ 10,283,550 $ 1,669,896 Marketable securities, short-term (amortized cost of $ 12,283,630 as of March 31, 2024, and $ 15,696,135 as of March 31, 2023) 11,917,779 15,513,095 Accounts receivable, net of allowance for credit losses of $ 15,000 3,144,833 6,523,344 Inventories 7,158,585 6,417,010 Prepaid expenses and other assets 689,349 663,459 Total current assets 33,194,096 30,786,804 Fixed assets Machinery and equipment 10,501,096 10,484,365 Leasehold improvements 1,956,309 1,956,309 12,457,405 12,440,674 Less accumulated depreciation and amortization 11,403,383 11,095,236 Net fixed assets 1,054,022 1,345,438 Deferred tax assets 1,453,704 572,038 Marketable securities, long-term (amortized cost of $ 31,417,890 as of March 31, 2024, and $ 37,495,846 as of March 31, 2023) 30,788,301 36,125,047 Right-of-use asset – operating lease 289,910 425,843 Total assets $ 66,780,033 $ 69,255,170 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 127,154 $ 281,712 Accrued payroll and other 729,215 1,375,250 Operating lease 179,372 175,798 Total current liabilities 1,035,741 1,832,760 Operating lease 175,775 342,908 Total liabilities 1,211,516 2,175,668 Shareholders’ equity Common stock, $ 0.01 par value, 6,000,000 shares authorized; 4,833,676 issued and outstanding as of March 31, 2024 and 4,830,826 as of March 31, 2023 48,337 48,308 Additional paid-in capital 19,554,812 19,295,442 Accumulated other comprehensive income (loss) ( 777,637 ) ( 1,213,858 ) Retained earnings 46,743,005 48,949,610 Total shareholders’ equity 65,568,517 67,079,502 Total liabilities and shareholders’ equity $ 66,780,033 $ 69,255,170 See accompanying notes. F-2 Table of Contents NVE CORPORATION STATEMENTS OF INCOME Year Ended March 31, 2024 2023 Revenue Product sales $ 29,218,063 $ 37,196,717 Contract research and development 586,116 1,056,875 Total revenue 29,804,179 38,253,592 Cost of sales 6,772,533 8,062,311 Gross profit 23,031,646 30,191,281 Expenses Research and development 2,731,434 2,583,994 Selling, general, and administrative 1,771,833 1,963,105 Credit loss expense 9,514 - Total expenses 4,512,781 4,547,099 Income from operations 18,518,865 25,644,182 Interest income 1,948,720 1,448,655 Income before taxes 20,467,585 27,092,837 Provision for income taxes 3,342,886 4,398,379 Net income $ 17,124,699 $ 22,694,458 Net income per share – basic $ 3.54 $ 4.70 Net income per share – diluted $ 3.54 $ 4.70 Cash dividends declared per common share $ 4.00 $ 4.00 Weighted average shares outstanding Basic 4,833,146 4,830,826 Diluted 4,839,705 4,832,096 STATEMENTS OF COMPREHENSIVE INCOME Year Ended March 31, 2024 2023 Net income $ 17,124,699 $ 22,694,458 Unrealized gain (loss) from marketable securities, net of tax 436,221 ( 895,738 ) Comprehensive income $ 17,560,920 $ 21,798,720 See accompanying notes. F-3 Table of Contents NVE CORPORATION STATEMENTS OF SHAREHOLDERS ’ EQUITY Common Stock Additional Paid-In Accumulated Other Comprehen- sive Income Retained Shares Amount Capital (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 Repurchase of common stock ( 264 ) ( 3 ) ( 20,697 ) ( 20,700 ) Exercise of stock options, net of shares withheld for exercise price 264 3 ( 3 ) - Comprehensive income: Unrealized loss on marketable securities, net of tax ( 895,738 ) ( 895,738 ) Net income 22,694,458 22,694,458 Total comprehensive income 21,798,720 Stock-based compensation 59,657 59,657 Cash dividends declared ($4.00 per share of common stock) ( 19,323,304 ) ( 19,323,304 ) 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, net of shares withheld for exercise price 2,850 29 117,434 117,463 Comprehensive income: Unrealized gain on marketable securities, net of tax 436,221 436,221 Net income 17,124,699 17,124,699 Total comprehensive income 17,560,920 Stock-based compensation 141,936 141,936 Cash dividends declared ($4.00 per share of common stock) ( 19,331,304 ) ( 19,331,304 ) Balance as of March 31, 2024 4,833,676 48,337 $ 19,554,812 $ ( 777,637 ) $ 46,743,005 $ 65,568,517 See accompanying notes. F-4 Table of Contents NVE CORPORATION STATEMENTS OF CASH FLOWS Year Ended March 31, 2024 2023 OPERATING ACTIVITIES Net income $ 17,124,699 $ 22,694,458 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 308,147 196,738 Bond premium (discount) amortization ( 106,354 ) 60,868 Provision for current estimate of credit losses 9,514 - Stock-based compensation 141,936 59,657 Deferred income taxes ( 1,003,844 ) 161,894 Changes in operating assets and liabilities: Accounts receivable 3,368,997 ( 1,818,515 ) Inventories ( 741,575 ) ( 1,328,375 ) Prepaid expenses and other assets 110,043 ( 208,532 ) Accounts payable and accrued expenses ( 964,152 ) ( 726,695 ) Net cash provided by operating activities 18,247,411 19,091,498 INVESTING ACTIVITIES Purchases of fixed assets ( 16,731 ) ( 935,791 ) Purchases of marketable securities ( 6,103,185 ) ( 28,441,317 Proceeds from maturities of marketable securities 15,700,000 20,750,000 Receipt of tenant improvement allowance - 100,000 Net cash provided by (used in) investing activities 9,580,084 ( 8,527,108 ) FINANCING ACTIVITIES Exercise of stock options, net of shares withheld for exercise price 117,463 ( 3 ) Repurchase of common stock - ( 20,697 ) Payment of dividends to shareholders ( 19,331,304 ) ( 19,323,304 ) Net cash used in financing activities ( 19,213,841 ) ( 19,344,004 ) Increase (decrease) in cash and cash equivalents 8,613,654 ( 8,779,614 ) Cash and cash equivalents at beginning of year 1,669,896 10,449,510 Cash and cash equivalents at end of year $ 10,283,550 $ 1,669,896 Supplemental disclosures of cash flow information: Cash paid during the year for income taxes $ 4,539,071 $ 4,501,656 See accompanying notes. F-5 Table of Contents 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. 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 may not be federally insured. 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. 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 Credit Losses” of this note. 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. Industry shortages and supply-chain disruptions in the past several years have increased the risks of supply interruptions. Marketable securities Our marketable securities consist of corporate bonds and money market funds. Marketable securities 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. Accounts Receivable and Allowance for Credit Losses We grant credit to customers in the normal course of business and at times may require customers to prepay for orders prior to shipment. Accounts receivable are recorded net of allowance for credit losses. We specifically analyze accounts receivable, historical credit losses, and customer creditworthiness when estimated allowance for credit losses. 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. F-6 Table of Contents 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 remaining term of the lease 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 2024 or 2023. Depreciation expense related to fixed assets was $ 308,147 for fiscal 2024 and $ 196,738 for fiscal 2023. 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, and 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 as the performance obligations are satisfied. 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 use the proportion of total contract consideration attributable to performance milestones achieved as the measurement of progress toward 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, 2024, or March 31, 2023. 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 the year. Net income per diluted share amounts assume the exercise of all stock options. The following table shows the components of diluted shares: F-7 Table of Contents Year Ended March 31, 2024 2023 Weighted average common shares outstanding – basic 4,833,146 4,830,826 Dilutive effect of stock options 6,559 1,270 Shares used in computing net income per share – diluted 4,839,705 4,832,096 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. 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 March 31, 2024 or April 1, 2023. New Accounting Standards Not Yet Adopted In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires additional quantitative and qualitative income tax disclosures to enable financial statements users to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. For public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024, which will be fiscal 2026 for us. The adoption will result in disclosure changes only. We do not expect the adoption of other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date to have a material impact on our financial statements when they are adopted. NOTE 3. MARKETABLE SECURITIES The following table shows the major categories of our marketable securities and their contractual maturities as of March 31, 2024: Total <1 Year 1–3 Years 3–6 Years Money market funds $ 9,842,796 $ 9,842,796 $ - $ - Corporate bonds 42,706,080 11,917,779 22,425,929 8,362,372 Total $ 52,548,876 $ 21,760,575 $ 22,425,929 $ 8,362,372 Total marketable securities represent approximately 79% of our total assets as of March 31, 2024. Marketable securities as of March 31, 2024, had remaining maturities between six weeks and 61 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 $ 460,627 as of March 31, 2024, and $ 425,372 as of March 31, 2023, and are included in the balance sheets in “Prepaid expenses and other assets.” F-8 Table of Contents 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 March 31, 2024, aggregated by credit rating: Credit Rating Fair Value AAA $ 9,842,796 AA+ 2,192,943 AA 6,737,897 AA- 21,140,534 A+ 2,909,870 A 9,724,836 Total $ 52,548,876 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 March 31, 2024 As of March 31, 2023 Level 1 Level 2 Total Level 1 Level 2 Total Money market funds $ 9,842,796 $ - $ 9,842,796 $ 906,141 $ - $ 906,141 Corporate bonds - 42,706,080 42,706,080 - 51,638,142 51,638,142 Total $ 9,842,796 $ 42,706,080 $ 52,548,876 $ 906,141 $ 51,638,142 $ 52,544,283 Our available-for-sale securities as of March 31, 2024 and 2023, aggregated into classes of securities, were as follows: As of March 31, 2024 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 $ 9,842,796 $ - $ - $ 9,842,796 $ 906,141 $ - $ - $ 906,141 Corporate bonds 43,701,520 930 ( 996,370 ) 42,706,080 53,191,981 1,007 ( 1,554,846 ) 51,638,142 Total $ 53,544,316 $ 930 $ ( 996,370 ) $ 52,548,876 $ 54,098,122 $ 1,007 $ ( 1,554,846 ) $ 52,544,283 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 March 31, 2024 and 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 March 31, 2024 Corporate bonds $ 3,154,764 $ ( 4,902 ) $ 36,551,534 $ ( 991,468 ) $ 39,706,298 $ ( 996,370 ) Total $ 3,154,764 $ ( 4,902 ) $ 36,551,534 $ ( 991,468 ) $ 39,706,298 $ ( 996,370 ) 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. F-9 Table of Contents 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: Year Ended March 31, 2024 2023 Unrealized gain (loss) from marketable securities $ 558,399 $ ( 1,146,618 ) Tax effects ( 122,178 ) 250,880 Unrealized gain (loss) from marketable securities, net of tax $ 436,221 $ ( 895,738 ) NOTE 4. ALLOWANCE FOR CREDIT LOSSES ON ACCOUNTS RECEIVABLES The following table shows a roll forward of the allowance for accounts receivable credit losses: Allowance for credit losses as of March 31, 2023 $ 15,000 Additions during the year 212,440 Reversals during the year ( 202,926 ) Specific accounts deemed uncollectible ( 9,514 ) Allowance for credit losses as of March 31, 2024 $ 15,000 NOTE 5. INVENTORIES Inventories are shown in the following table: March 31, 2024 2023 Raw materials $ 1,982,657 $ 1,601,962 Work in process 2,641,085 3,781,894 Finished goods 2,534,843 1,033,154 Total inventories $ 7,158,585 $ 6,417,010 NOTE 6. 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 in one year. The options have exercisable lives of 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 $ 141,936 in fiscal 2024 and $ 59,657 in fiscal 2023. Valuation assumptions We use the Black-Scholes-Merton 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, 2024 2023 Risk-free interest rate 4.2 % – 5.0 % 0.9 % – 3.0 % Expected volatility 40 % – 42 % 35 % – 39 % Expected life (years) 5.0 % 4.6 % Dividend yield 4.5 % – 5.0 % 5.0 % – 5.5 % The determination of the fair value of the awards on the date of grant using the Black-Scholes-Merton 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. F-10 Table of Contents 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 4.5% to 5% dividend yield for fiscal 2024 and 5.0% to 5.5% for fiscal 2023 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 $29,934 for fiscal 2024 and reduced deferred tax assets by $16,976 for fiscal 2023. General stock option information The following table summarizes the activity for all stock options outstanding for the years ended March 31, 2024 and 2023: 2024 2023 Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Options outstanding at beginning of year 34,500 $ 66.26 29,000 $ 69.52 Granted 6,500 79.29 6,500 50.35 Exercised ( 5,000 ) 59.85 ( 1,000 )) 57.46 At March 31, 36,000 $ 69.50 34,500 $ 66.26 Options exercisable at March 31, 33,500 $ 65.12 32,000 $ 63.60 Weighted average grant date fair value of options granted during the year $ 22.15 $ 9.06 The following table summarizes additional information about stock options outstanding and exercisable at March 31, 2024: Options Outstanding Options Exercisable Options Outstanding Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Aggregate Intrinsic Value Options Exercisable Weighted Average Exercise Price Aggregate Intrinsic Value 36,000 5.96 $ 69.50 $ 764,355 33,500 $ 65.12 $ 764,355 The total fair value of options granted was $ 143,943 in fiscal 2024 and $ 58,900 in fiscal 2023. There was $ 4,181 of unrecognized stock-based compensation as of March 31, 2024 related to nonvested options, which we expect to recognize in the first quarter of fiscal 2025. NOTE 7. INCOME TAXES Income tax provisions for fiscal 2024 and 2023 consisted of the following: Year Ended March 31, 2024 2023 Current taxes Federal $ 4,145,804 $ 4,039,848 State 200,926 195,939 Deferred taxes Federal ( 963,470 ) 156,053 State ( 40,374 ) 6,539 Income tax provision $ 3,342,886 $ 4,398,379 F-11 Table of Contents A reconciliation of income tax provisions at the U.S. statutory rate for fiscal 2024 and 2023 is as follows: Year Ended March 31, 2024 2023 Tax expense at U.S. Statutory rate $ 4,298,193 $ 5,689,294 State income taxes, net of Federal benefit 180,115 180,091 Research & development and manufacturing tax credits ( 68,894 ) ( 255,713 ) Tax effect of Foreign-derived intangible income deduction ( 1,125,817 ) ( 1,265,055 ) Other 59,289 49,762 ) Income tax provision $ 3,342,886 $ 4,398,379 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, 2024 and 2023 were as follows: March 31, 2024 2023 Paid time off accrual $ 64,190 $ 52,525 Inventory reserve 47,042 47,042 Depreciation and amortization ( 127,839 ) ( 167,551 ) Stock-based compensation deductions 101,668 71,734 Unrealized loss on marketable securities 217,802 339,980 Section 174 R&D expense 930,946 - UNICAP 263A inventory 202,339 204,424 Other 17,556 23,884 Deferred tax assets $ 1,453,704 $ 572,038 We had no unrecognized tax benefits as of March 31, 2024, 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, 2024 we had no accrued interest related to uncertain tax positions. Federal and State estimated taxes overpayment were $31,250 as of March 31, 2024 and estimated taxes payable were $161,092 as of March 31, 2023. The tax years 2020 through 2023 remain open to examination by the major taxing jurisdictions to which we are subject. NOTE 8. LEASES We conduct our operations in a leased facility under a non-cancellable lease expiring March 31, 2026. We have an option to extend the lease for an additional five years at the market rent subject to certain terms and conditions. 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. Details of our operating lease are as follows: Year Ended March 31, 2024 2023 Operating lease cost $ 151,014 $ 151,014 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for leases $ 178,640 $ 75,168 Remaining lease term (years) 2 3 Discount rate 3.5 % 3.5 % F-12 Table of Contents The following table presents the maturities of lease liabilities as of March 31, 2024: Year Ending March 31, Operating Lease Liabilities 2025 182,271 2026 184,995 Total lease payments 367,266 Imputed lease interest ( 12,119 ) Total lease liabilities $ 355,147 NOTE 9. CONCENTRATIONS The following table summarizes customers comprising 10% or more of revenue for the two most recent fiscal years: % of Revenue % of Accounts Receivable Year Ended March 31, 2024 2023 2024 2023 Customer A 23 % 22 % 21 % 19 % We do not currently believe the receivable balances from this customer represents a significant credit risk based on our analysis of the likelihood of default. 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, tax considerations, 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 264 shares of our Common Stock in fiscal 2023. The remaining authorization was $ 3,520,369 as of March 31, 2024. 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 18. Employees may contribute up to the Internal Revenue Code maximum. We make matching contributions of 100 % of the first 3 % of participants’ before-tax salary deferral contributions. Our matching contributions were $ 101,931 for fiscal 2024 and $ 98,029 for fiscal 2023. NOTE 12. SUBSEQUENT EVENTS On May 1, 2024 we announced that our Board had declared a quarterly cash dividend of $ 1.00 per share of Common Stock to be paid May 31, 2024 to shareholders of record as of the close of business May 13, 2024 . F-13 Table of Contents EXHIBIT INDEX Exhibit # Description 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 Daniel Nelson pursuant to Rule 13a-14(a)/15d-14(a). 32 Certification by Daniel A. Baker and Daniel Nelson pursuant to 18 U.S.C. Section 1350. 97 Clawback Policy. 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 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). F-14