nvec20211231_10q.htm
 
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.    20549
 
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended   December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                      to                                      
 
Commission File Number: 000-12196
NVE CORPORATION
(Exact name of registrant as specified in its charter)
 
Minnesota
  41-1424202
(State or other jurisdiction of incorporation or organization)
  (I.R.S. Employer Identification No.)
 
11409 Valley View Road , Eden Prairie , Minnesota
  55344  
(Address of principal executive offices)
  (Zip Code)
 
( 952 ) 829-9217  
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes   ☐ No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes   ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
  Large accelerated filer ☐
Accelerated filer ☐
  Non-accelerated filer ☒
Smaller reporting company ☒
    Emerging growth company ☐  
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ☐  Yes  ☒ No
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
NVEC
The NASDAQ Stock Market, LLC
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value – 4,833,714 shares outstanding as of January 14, 2022
 
 
 
 
 
NVE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements
 
 
 
Balance Sheets
 
 
 
Statements of Income for the Quarters Ended December 31, 2021 and 2020
 
 
 
Statements of Comprehensive Income for the Quarters Ended December 31, 2021 and 2020
 
 
 
Statements of Income for the Nine Months Ended December 31, 2021 and 2020
 
 
 
Statements of Comprehensive Income for the Nine Months Ended December 31, 2021 and 2020
 
 
 
Statements of Shareholders’ Equity for the Period Ended December 31, 2021
 
 
 
Statements of Shareholders’ Equity for the Period Ended December 31, 2020
 
 
 
Statements of Cash Flows
 
 
 
Notes to Financial Statements
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 4. Controls and Procedures
 
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
 
 
 
Item 1A. Risk Factors
 
 
 
Item 4. Mine Safety Disclosures
 
 
 
Item 6. Exhibits
 
 
 
SIGNATURES
 
 
 
2
 
 
 
PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
 
NVE CORPORATION
BALANCE SHEETS
    (Unaudited)
December 31, 2021
    March 31,
2021*
 
ASSETS
               
Current assets
               
Cash and cash equivalents
  $ 8,967,657     $ 10,427,340  
Marketable securities, short-term
    22,482,494       7,678,957  
Accounts receivable, net of allowance for uncollectible accounts of $ 15,000
    3,038,203       1,964,281  
Inventories
    4,367,675       3,900,777  
Prepaid expenses and other assets
    921,846       391,278  
Total current assets
    39,777,875       24,362,633  
Fixed assets
               
Machinery and equipment
    9,312,982       9,254,664  
Leasehold improvements
    1,810,872       1,810,872  
      11,123,854       11,065,536  
Less accumulated depreciation and amortization
    10,886,378       10,728,853  
Net fixed assets
    237,476       336,683  
Deferred tax assets
    260,134       73,538  
Marketable securities, long-term
    27,179,552       47,038,669  
Right-of-use asset – operating lease
    593,715       689,216  
Total assets
  $ 68,048,752     $ 72,500,739  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities
               
Accounts payable
  $ 111,243     $ 336,591  
Accrued payroll and other
    812,502       540,474  
Operating lease
    152,807       150,273  
Total current liabilities
    1,076,552       1,027,338  
Operating lease
    482,798       581,459  
Total liabilities
    1,559,350       1,608,797  
                 
Shareholders’ equity
               
Common stock, $ 0.01 par value, 6,000,000 shares authorized; 4,833,714 issued and outstanding as of December 31, 2021 and 4,833,232 as of March 31, 2021
    48,337       48,332  
Additional paid-in capital
    19,411,158       19,338,127  
Accumulated other comprehensive income
    433,759       1,101,119  
Retained earnings
    46,596,148       50,404,364  
Total shareholders’ equity
    66,489,402       70,891,942  
Total liabilities and shareholders’ equity
  $ 68,048,752     $ 72,500,739  
 
*The March 31, 2021 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, 2021.
 
See accompanying notes. 
 
3
 
 
 
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited )
 
    Quarter Ended December 31
 
    2021
    2020
 
Revenue
               
Product sales
  $ 5,916,790     $ 6,332,349  
Contract research and development
    374,019       201,013  
Total revenue
    6,290,809       6,533,362  
Cost of sales
    1,385,006       1,075,048  
Gross profit
    4,905,803       5,458,314  
Expenses
               
Research and development
    596,492       702,216  
Selling, general, and administrative
    272,159       311,356  
Total expenses
    868,651       1,013,572  
Income from operations
    4,037,152       4,444,742  
Interest income
    283,940       365,498  
Income before taxes
    4,321,092       4,810,240  
Provision for income taxes
    855,685       884,531  
Net income
  $ 3,465,407     $ 3,925,709  
Net income per share – basic
  $ 0.72     $ 0.81  
Net income per share – diluted
  $ 0.72     $ 0.81  
Cash dividends declared per common share
  $ 1.00     $ 1.00  
Weighted average shares outstanding
               
Basic
    4,833,604       4,833,232  
Diluted
    4,835,770       4,833,261  
 
 
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
    Quarter Ended December 31
 
    2021
    2020
 
Net income
  $ 3,465,407     $ 3,925,709  
Unrealized loss from marketable securities, net of tax
    ( 380,161 )     ( 145,452 )
Comprehensive income
  $ 3,085,246     $ 3,780,257  
 
See accompanying notes.
 
4
 
 
 
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited )
 
    Nine Months Ended December 31
 
    2021
    2020
 
Revenue
               
Product sales
  $ 19,500,567     $ 14,850,157  
Contract research and development
    766,866       653,252  
Total revenue
    20,267,433       15,503,409  
Cost of sales
    4,698,720       2,852,757  
Gross profit
    15,568,713       12,650,652  
Expenses
               
Research and development
    2,112,630       2,399,164  
Selling, general, and administrative
    1,221,893       1,024,549  
Total expenses
    3,334,523       3,423,713  
Income from operations
    12,234,190       9,226,939  
Interest income
    868,519       1,166,102  
Income before taxes
    13,102,709       10,393,041  
Provision for income taxes
    2,411,228       1,833,127  
Net income
  $ 10,691,481     $ 8,559,914  
Net income per share – basic
  $ 2.21     $ 1.77  
Net income per share – diluted
  $ 2.21     $ 1.77  
Cash dividends declared per common share
  $ 3.00     $ 3.00  
Weighted average shares outstanding
               
Basic
    4,833,356       4,834,324  
Diluted
    4,835,781       4,834,411  
 
 
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
    Nine Months Ended December 31
 
    2021
    2020
 
Net income
  $ 10,691,481     $ 8,559,914  
Unrealized (loss) gain from marketable securities, net of tax
    ( 667,361 )     966,886  
Comprehensive income
  $ 10,024,120     $ 9,526,800  
 
See accompanying notes.
 
5
 
 
 
NVE CORPORATION
STATEMENTS OF SHAREHOLDERS ’ EQUITY
(Unaudited)
 
                            Accumulated
                 
                    Additional
    Other
                 
    Common Stock
    Paid-In
    Comprehensive
    Retained
         
    Shares
    Amount
    Capital
    Income
    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. 
 
6
 
 
 
NVE CORPORATION
STATEMENTS OF SHAREHOLDERS ’ EQUITY
(Unaudited)
 
                            Accumulated
                 
                    Additional
    Other
                 
    Common Stock
    Paid-In
    Comprehensive
    Retained
         
    Shares
    Amount
    Capital
    Income
    Earnings
    Total
 
Balance as of March 31, 2020
    4,835,038     $ 48,350     $ 19,383,956     $ 516,523     $ 58,046,520     $ 77,995,349  
Comprehensive income:
                                               
Unrealized gain on marketable securities, net of tax
                        1,242,662             1,242,662  
Net income
                              2,411,865       2,411,865  
Total comprehensive income
                                    3,654,527  
Stock-based compensation
                  2,707                   2,707  
Cash dividends declared ($ 1.00 per share of common stock)
                              ( 4,835,038 )
    ( 4,835,038 )
Balance as of June 30, 2020
    4,835,038       48,350       19,386,663       1,759,185       55,623,347       76,817,545  
Repurchase of common stock
    ( 1,806 )
    ( 18 )
    ( 91,401 )
                ( 91,401 )
Comprehensive income:
                                               
Unrealized loss on marketable securities, net of tax
                        ( 130,324 )
            ( 130,324 )
Net income
                              2,222,340       2,222,340  
Total comprehensive income
                                            2,092,016  
Stock-based compensation
                    34,315                       34,315  
Cash dividends declared ($ 1.00 per share of common stock)
                                    ( 4,835,038 )
    ( 4,835,038 )
Balance as of September 30, 2020
    4,833,232       48,332       19,329,577       1,628,861       53,010,649       74,017,419  
Comprehensive income:                                                
Unrealized loss on marketable securities, net of tax                         ( 145,452 )           ( 145,452 )
Net income                               3,925,709       3,925,709  
Total comprehensive income                                     3,780,257  
Stock-based compensation                   4,275                   4,275  
Cash dividends declared ($ 1.00 per share of common stock)                               ( 4,833,232 )     ( 4,833,232 )
Balance as of December 31, 2020     4,833,232     $ 48,332     $ 19,333,852     $ 1,483,409     $ 52,103,126     $ 72,968,719  
 
See accompanying notes. 
 
7
 
 
 
NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
 
    Nine Months Ended December 31
 
    2021
    2020
 
OPERATING ACTIVITIES
               
Net income
  $ 10,691,481     $ 8,559,914  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    358,828       386,968  
Stock-based compensation
    73,036       41,297  
Deferred income taxes
    319       ( 73,269 )
Changes in operating assets and liabilities:
               
Accounts receivable
    ( 1,073,922 )     ( 467,290 )
Inventories
    ( 466,898 )     41,973  
Prepaid expenses and other assets
    ( 435,067 )     181,557  
Accounts payable and other liabilities
    ( 49,447 )     ( 140,082 )
Net cash provided by operating activities
    9,098,330       8,531,068  
                 
INVESTING ACTIVITIES
             
Purchases of fixed assets
    ( 58,317 )   (13,627 )
Proceeds from maturities of marketable securities
    4,000,000       12,000,000  
Cash provided by investing activities
    3,941,683       11,986,373  
                 
FINANCING ACTIVITIES
               
Repurchase of common stock     -       ( 91,419 )
Payment of dividends to shareholders
    ( 14,499,696 )     ( 14,503,308 )
Cash used in financing activities
    ( 14,499,696 )     ( 14,594,727 )
(Decrease) increase in cash and cash equivalents
    ( 1,459,683 )     5,922,714  
                 
Cash and cash equivalents at beginning of period
    10,427,340       8,065,594  
                 
Cash and cash equivalents at end of period
  $ 8,967,657     $ 13,988,308  
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the period for income taxes
  $ 2,490,000     $ 1,636,788  
 
See accompanying notes. 
 
8
 
 
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, 2021. The results of operations for the quarter and nine months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2022.
 
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, 2021. As of December 31, 2021, there were no changes to our significant accounting policies.
 
 
NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS
 
Recently Adopted Accounting Standard
 
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019 - 12, Income Taxes (Topic 740 )—Simplifying the Accounting for Income Taxes. ASU 2019 - 12 simplifies accounting for income taxes, removes certain exceptions to the general principles in Topic 740, and amends existing guidance to improve consistent application. We adopted ASU 2019 - 12 beginning with the quarter ended June 30, 2021. The adoption had no material impact on our financial statements.
 
New Accounting Standard Not Yet Adopted
 
In May 2021, the FASB issued 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 issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021 - 04 is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, which is fiscal 2023 for us, with early adoption permitted. We do not expect adoption of the new guidance to have a significant impact on our financial statements.
 
 
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
 
    2021
    2020
 
Weighted average common shares outstanding – basic
    4,833,604       4,833,232  
Dilutive effect of stock options
    2,167       29  
Shares used in computing net income per share – diluted
    4,835,770       4,833,261  
 
    Nine Months Ended December 31
 
    2021
    2020
 
Weighted average common shares outstanding – basic
    4,833,356       4,834,324  
Dilutive effect of stock options
    2,425       87  
Shares used in computing net income per share – diluted
    4,835,781       4,834,411  
 
9
 
 
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, 2021 are as follows: 
 
Total
    <1 Year
    1–3 Years
    3–5 Years
 
$ 57,293,870     $ 30,114,318     $ 22,148,686     $ 5,030,866  
 
Total available-for-sale securities represented approximately 84 % of our total assets. Marketable securities as of December 31, 2021 had remaining maturities between three weeks and 38 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.”
 
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, 2021
    As of March 31, 2021
 
    Level 1
    Level 2
    Total
    Level 1
    Level 2
    Total
 
Money market funds
  $ 7,631,824     $ -     $ 7,631,824     $ 10,143,196     $ -     $ 10,143,196  
Corporate bonds
    -       49,662,046       49,662,046       -       54,717,626       54,717,626  
Total
  $ 7,631,824     $ 49,662,046     $ 57,293,870     $ 10,143,196     $ 54,717,626     $ 64,860,822  
 
Our available-for-sale securities as of December 31 and March 31, 2021, aggregated into classes of securities, were as follows:
 
    As of December 31, 2021
    As of March 31, 2021
 
    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
  $ 7,631,824     $ -     $ -     $ 7,631,824     $ 10,143,196     $ -     $ -     $ 10,143,196  
Corporate bonds
    49,106,800       772,080       ( 216,834 )     49,662,046       53,308,105       1,570,195       ( 160,674 )
    54,717,626  
Total
  $ 56,738,624     $ 772,080     $ ( 216,834 )   $ 57,293,870     $ 63,451,301     $ 1,570,195     $ ( 160,674 )
  $ 64,860,822  
 
10
 
 
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, 2021 and March  31, 2021.
 
    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, 2021
                                               
Corporate bonds
  $ 10,167,905     $ ( 216,834 )   $ -     $ -     $ 10,167,905     $ ( 216,834 )
Total
  $ 10,167,905     $ ( 216,834 )   $ -     $ -     $ 10,167,905     $ ( 216,834 )
                                                 
As of March 31, 2021
                                               
Corporate bonds
  $ 10,322,539     $ ( 160,674 )
  $ -     $ -     $ 10,322,539     $ ( 160,674 )
Total
  $ 10,322,539     $ ( 160,674 )
  $ -     $ -     $ 10,322,539     $ ( 160,674 )
 
We did not consider any of our available-for-sale securities to be impaired as of December 31, 2021. None of the securities were impaired at acquisition, and subsequent declines in fair value are not attributed to declines in credit quality. The effects of the COVID- 19 pandemic, however, have degraded outlooks for some of our marketable securities’ issuers, which could lead to credit-quality downgrades in the future. When evaluating for impairment we assess indicators that include, but are not limited to, earnings performance, changes in underlying credit ratings, market conditions, bona fide offers to purchase or sell, and ability to hold until maturity. Because we believe it is more likely than not we will recover the cost basis of our investments, we did not consider any of our marketable securities to be impaired as of December 31, 2021.
 
NOTE 6. INVENTORIES
 
Inventories are shown in the following table:
 
    December 31,
2021
    March 31,
2021
 
Raw materials
  $ 784,004     $ 660,678  
Work in process
    2,812,910       2,220,723  
Finished goods
    770,760       1,019,376  
Total inventories
  $ 4,367,675     $ 3,900,777  
 
 
NOTE 7. STOCK-BASED COMPENSATION
 
Stock-based compensation expense was $ 8,799 for the third quarter of fiscal 2022, $ 4,275 for the third quarter of fiscal 2021, $ 73,036 for the first nine months of fiscal 2022, and $ 41,297 for the first nine months of fiscal 2021. 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.
 
We had no unrecognized tax benefits as of December 31, 2021, and we do not expect any significant unrecognized tax benefits within 12 months of the reporting date. We recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2021 we had no accrued interest related to uncertain tax positions. The tax years 2016 through 2020 remain open to examination by the major taxing jurisdictions to which we are subject. 
 
11
 
 
 
 
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
Dec. 31, 2021     Nine Months Ended
Dec. 31, 2021  
Operating lease cost   $ 42,516     $ 127,546  
Variable lease cost     31,029       93,087  
Total   $ 73,545     $ 220,633  
                 
Cash paid for amounts included in the measurement of lease liabilities                
Operating cash flows for leases
  $ 37,962     $ 113,886  
Remaining lease term   51 months          
Discount rate     3.5 %        
 
 The following table presents the maturities of lease liabilities as of December 31, 2021:
 
Year Ending March 31   Operating Leases  
2022     38,817  
2023     156,121  
2024     159,592  
2025     163,224  
2026     165,947  
Total lease payments     683,701  
Imputed lease interest     ( 48,096 )
Total lease liabilities   $ 635,605  
 
 
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 $ 3,762,040 as of December 31, 2021. We have not repurchased any of our Common Stock during fiscal 2022.  
 
 
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 $ 21,579 f or the third quarter of fiscal 2022, $ 22,571 for the third quarter of fiscal 20 21, $ 76,995 for the first nine months of fiscal 2022, and $ 69,227 for the first nine months of fiscal 2021.
 
 
NOTE 12. SUBSEQUENT EVENTS
 
On January 19, 2022 we announced that our Board had declared a quarterly cash dividend of $ 1.00 per share of Common Stock to be paid February 28, 2022 to shareholders of record as of the close of business January 31, 2022 .
 
12
 
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Forward-looking statements
 
Some of the statements made in this Report or in the documents incorporated by reference in this Report and in other materials filed or to be filed by us with the Securities and Exchange Commission (“SEC”) as well as information included in verbal or written statements made by us constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of the terminology such as may, will, expect, anticipate, intend, believe, estimate, should, or continue, or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of NVE, you should be aware that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. These differences may be caused by a variety of factors, including but not limited to risks related to our reliance on several large customers for a significant percentage of revenue, our dependence on critical suppliers and packaging vendors, uncertainties related to the economic environments in the industries we serve, uncertainties related to future sales and revenues, risks and uncertainties related to future stock repurchases and dividend payments, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.
 
Further information regarding our risks and uncertainties are contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2021 as updated in Item 1A of this report.
 
General
 
NVE Corporation, referred to as NVE, we, us, or our, develops and sells 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 that are used to acquire and transmit data.
 
Critical accounting policies
 
A description of our critical accounting policies is provided in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2021. As of December 31, 2021 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
 
13
 
 
Quarter ended December 31, 2021 compared to quarter ended December 31, 2020
 
The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:
 
 
 
Percentage of Revenue
Quarter Ended December 31
 
 
Quarter-
to-Quarter
 
 
 
2021
 
 
2020
 
 
Change
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Product sales
 
 
 94.1
%
 
 
96.9
%
 
 
 (6.6)
%
Contract research and development
 
 
 5.9
%
 
 
 3.1
%
 
 
 86.1
%
Total revenue
 
 
100.0
%
 
 
100.0
%
 
 
 (3.7)
%
Cost of sales
 
 
 22.0
%
 
 
 16.5
%
 
 
 28.8
%
Gross profit
 
 
 78.0
%
 
 
 83.5
%
 
 
 (10.1)
%
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
 
 
 9.5
%
 
 
10.7
%
 
 
 (15.1)
%
Selling, general, and administrative
 
 
 4.3
%
 
 
 4.8
%
 
 
 (12.6)
%
Total expenses
 
 
 13.8
%
 
 
 15.5
%
 
 
 (14.3)
%
Income from operations
 
 
 64.2
%
 
 
 68.0
%
 
 
 (9.2)
%
Interest income
 
 
 4.5
%
 
 
 5.6
%
 
 
 (22.3)
%
Income before taxes
 
 
 68.7
%
 
 
 73.6
%
 
 
 (10.2)
%
Provision for income taxes
 
 
 13.6
%
 
 
 13.5
%
 
 
 (3.3)
%
Net income
 
 
 55.1
%
 
 
60.1
%
 
 
 (11.7)
%
 
Total revenue for the quarter ended December 31, 2021 (the third quarter of fiscal 2022) decreased 4% compared to the quarter ended December 31, 2020 (the third quarter of fiscal 2021). The decrease was due to a 7% decrease in product sales partially offset by an 86% increase in contract research and development revenue.
 
The decrease in product sales in the third quarter of fiscal 2022 from the prior-year quarter was primarily due to raw materials shortages and longer lead-times for critical materials and services. The increase in contract research and development revenue was due to new contracts.
 
Gross profit as a percentage of revenue decreased to 78% the third quarter of fiscal 2022 from 84% the third quarter of fiscal 2021 primarily due to revenue mix and increased costs.
 
Total expenses decreased 14% in the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021 due to a 15% decrease in research and development expense and a 13% decrease 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 selling, general, and administrative expense was primarily due to staffing changes.
 
Interest income for the third quarter of 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 12% decrease in net income in the third quarter of fiscal 2022 compared to the prior-year quarter was primarily due to decreased revenue, decreased gross margin, and decreased interest income partially offset by decreased expenses. 
 
14
 
 
Nine months ended December 31, 2021 compared to nine months ended December 31, 2020
 
The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:
 
 
 
Percentage of Revenue
Nine Months Ended December 31
 
 
Period-
to-Period
 
 
 
2021
 
 
2020
 
 
Change
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Product sales
 
 
 96.2
%
 
 
95.8
%
 
 
 31.3
%
Contract research and development
 
 
 3.8
%
 
 
 4.2
%
 
 
 17.4
%
Total revenue
 
 
100.0
%
 
 
 100.0
%
 
 
 30.7
%
Cost of sales
 
 
 23.2
%
 
 
18.4
%
 
 
 64.7
%
Gross profit
 
 
 76.8
%
 
 
81.6
%
 
 
 23.1
%
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
 
 
 10.4
%
 
 
15.5
%
 
 
 (11.9)
%
Selling, general, and administrative
 
 
 6.0
%
 
 
 6.6 
%
 
 
 19.3
%
Total expenses
 
 
 16.4
%
 
 
 22.1
%
 
 
 (2.6)
%
Income from operations
 
 
 60.4
%
 
 
 59.5
%
 
 
 32.6
%
Interest income
 
 
 4.2
%
 
 
 7.5
%
 
 
 (25.5)
%
Income before taxes
 
 
64.6
%
 
 
67.0
%
 
 
 26.1
%
Provision for income taxes
 
 
 11.8
%
 
 
11.8
%
 
 
 31.5
%
Net income
 
 
 52.8
%
 
 
55.2
%
 
 
 24.9
%
 
Total revenue for the nine months ended December 31, 2021 increased 31% compared to the nine months ended December 31, 2020. The increase was due to a 31% increase in product sales and a 17% increase in contract research and development revenue.
 
The increase in product sales from the prior-year period 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 the first nine months of fiscal 2022 from 82% for the first nine months of fiscal 2021 primarily due to revenue mix and increased costs.
 
Total expenses decreased 3% for the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021 due to a 12% decrease in research and development expense, partially offset by a 19% 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 increase in selling, general, and administrative expense was primarily due to increased employee compensation expense.
 
Interest income for the first nine months of fiscal 2022 decreased 26% due to a decrease in our available-for-sale securities and a decrease in the average interest rates on those securities.
 
The 25% increase in net income in the first nine months of fiscal 2022 compared to the prior-year period was primarily due to an increase in product sales.
 
The Impact of the COVID-19 Pandemic
 
We believe the impact of the COVID-19 pandemic on customer demand was significantly less in the quarter and nine months ended December 31, 2021 compared to the prior-year periods. We believe the impact of the pandemic on our supply chain, however, was significantly more in the quarter and nine months ended December 31, 2021 than in the prior-year periods. The effects of the pandemic also increased labor and materials costs and expenses for the quarter and nine months ended December 31, 2021.
 
15
 
 
Liquidity and Capital Resources
 
Overview
 
Cash and cash equivalents were $8,967,657 as of December 31, 2021 compared to $10,427,340 as of March 31, 2021. The $1,459,683 decrease in cash and cash equivalents during first nine months of fiscal 2022 was due to $14,499,696 of cash used in financing activities partially offset by $9,098,330 in net cash provided by operating activities and $3,941,683 of cash provided by investing activities.
 
Operating Activities
 
Net cash provided by operating activities related to product sales and research and development contract revenue as our primary source of working capital for the current and prior year quarters. Net cash provided by operating activities was $9,098,330 for first nine months of fiscal 2022 and $8,531,068 for the first nine months of fiscal 2021.
 
Accounts receivable increased by $1,073,922 during first nine months of fiscal 2022 primarily due to the timing of sales to and payments from customers.
 
Prepaid expenses and other assets increased by $435,067 due to the timing of estimated tax payments.
 
Inventories increased $466,898 due primarily to our decisions to increase work in process in order to mitigate longer vendor lead-times.
 
Investing Activities
 
Cash provided by investing activities during the nine months ended December 31, 2021 consisted of $4,000,000 in proceeds from maturities of marketable securities, partially offset by $58,317 in capital expenditures. Capital expenditures can vary from quarter to quarter depending on our needs and equipment purchasing opportunities. We have ordered several pieces of production equipment to increase our capacity. Therefore, we currently expect significantly more capital expenditures during fiscal 2022 than the $62,727 we invested in fiscal 2021.
 
Financing Activities
 
Cash used in financing activities during the nine months ended December 31, 2021 consisted of $14,499,696 of cash dividends paid to shareholders. In addition to cash dividends to shareholders paid in first nine months of fiscal 2022, on January 19, 2022 we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,833,714 based on shares outstanding as of January 14, 2022, to be paid February 28, 2022. 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, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.
 
We currently believe our working capital and cash generated from operations will be adequate for our needs at least for the next 12 months.
 
16
 
 
Item 4. 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 time periods 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. Although there have been changes in personnel involved in our controls, processes, and procedures, our management concluded that, as of December 31, 2021, our disclosure controls and procedures were effective.
 
Changes in Internal Controls
 
During the quarter ended December 31, 2021, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
In the ordinary course of business we may become involved in litigation. At this time we are not aware of any material pending or threatened legal proceedings or other proceedings contemplated by governmental authorities that we expect would have a material adverse impact on our future results of operation and financial condition.
 
Item 1A. Risk Factors.
 
There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 as updated in our Quarterly Report on Form 10-Q for the quarters ended June 30, 2021 and September 30, 2021.
 
Item 4. Mine Safety Disclosures.
None.
 
17
 
 
Item 6. Exhibits.  
 
Exhibit #
Description
31
Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).
 
 
32
Certification by Daniel A. Baker pursuant to 18 U.S.C. Section 1350.
 
 
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
 
 
101.SCH     
Inline XBRL Taxonomy Extension Schema Document
 
 
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
18
 
 
SIGNATURES
 
Pursuant to the requirements 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)
 
 
 
 
 
January 19, 2022
 
/s/ DANIEL A. BAKER  
 
Date
 
Daniel A. Baker
 
 
 
President, Chief Executive Officer,
and Principal Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.