Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer and Chief 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were effective.
 
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 Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of March 31, 2022. 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, 2022.
 
14
Table of Contents
 
Our management, including our Chief Executive Officer and Chief 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 quarter ended March 31, 2022, 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 III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The section titled “Delinquent Section 16(a) Reports” sets forth information regarding delinquent Section 16(a) reports required by Item 10, to be included in our Proxy Statement for our 2022 Annual Meeting of Shareholders , the section titled “Proposal 1. Election of Board of Directors” sets forth certain information regarding our directors and executive officers required by Item 10, the section titled “Information About Our Executive Officers” sets forth information regarding our executive officers required by Item 10, and the section titled “Corporate Governance” sets forth information regarding our corporate governance and code of ethics required by Item 10. The information in these sections to be included in our Proxy Statement for our 2022 Annual Meeting of Shareholders are 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 our Proxy Statement for our 2022 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 our Proxy Statement for our 2022 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 2022 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 2022 and 2021” and “Audit Committee Disclosure – Audit Committee Pre-Approval Policy” to be included in our Proxy Statement for our 2022 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 of is on the following page.
 
15
Table of Contents
 
Exhibit   #  
Description
3.1
Amended and Restated Articles of Incorporation of the company as amended by the Board of Directors effective November 21, 2002 (incorporated by reference to the Form 10-QSB for the period ended December 31, 2002).
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 (incorporated by reference to the Form 10-K for the year ended March 31, 2021).
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. 1 to St. Jude Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed September 10, 2007).
10.12+
Amendment No. 2 to St. Jude Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed December 18, 2009).
10.13+
Amendment No. 3 to St. Jude Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed September 16, 2010).
10.14
Amendment No. 4 to St. Jude Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed February 7, 2011).
10.15
Supplier Quality Agreement between St. Jude and the company (incorporated by reference to the Form 8-K filed February 10, 2016).
10.16
Amendment No. 5 to St. Jude Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed April 21, 2016).
10.17
Amendment No. 6 to Abbott Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed December 21, 2020).
10.18
Amendment No. 7 to Abbott Supplier Partnering Agreement (incorporated by reference to the Annual Report on Form 10-K for the year ended March 31, 2021).
10.19*
Amendment No. 8 to Abbott Supplier Partnering Agreement (incorporated by reference to the Form 8-K/A filed February 2, 2022).
10.20+
Supply Agreement by and with Sonova AG (incorporated by reference to the Form 8-K/A filed November 16, 2015).
10.21*
First Amendment to Sonova Supply Agreement (incorporated by reference to the Form 8-K/A filed February 18, 2020).
23.1
Consent of Boulay PLLP.
31.1
Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).
31.2
Certification by Joseph R. Schmitz pursuant to Rule 13a-14(a)/15d-14(a).
32
Certification by Daniel A. Baker and Joseph R. Schmitz pursuant to 18 U.S.C. Section 1350.
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.
 
16
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 4, 2022
 
 
 
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
Title
Date  
 
 
 
/s/Terrence W. Glarner
Terrence W. Glarner
Director and
Chairman of the Board
 
 
May 4, 2022
/s/Daniel A. Baker
Daniel A. Baker
Director,
President and Chief Executive Officer
(Principal Executive Officer)
 
May 4, 2022
/s/ Joseph R. Schmitz
Joseph R. Schmitz
 
 
Corporate Controller and
Chief Financial Officer
(Principal Financial Officer)
May 4, 2022
/s/Patricia M. Hollister
Patricia M. Hollister
 
 
Director
May 4, 2022
/s/Richard W. Kramp
Richard W. Kramp
 
 
Director
May 4, 2022
/s/James W. Bracke
James W. Bracke
Director
May 4, 2022
 
17
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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2022, 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
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) related 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
 
We have served as the Company’s auditor since May 8, 2019.
Minneapolis, Minnesota
May 4, 2022
 
 
F-1
Table of Contents
 
 
NVE CORPORATION
BALANCE SHEETS
 
    March 31, 2022
    March 31, 2021
 
ASSETS
 
Current assets
 
Cash and cash equivalents
  $ 10,449,510     $ 10,427,340  
Marketable securities, short-term
    20,839,683       7,678,957  
Accounts receivable, net of allowance for uncollectible accounts of $ 15,000
    4,704,829       1,964,281  
Inventories
    5,088,635       3,900,777  
Prepaid expenses and other assets
    420,520       391,278  
Total current assets
    41,503,177       24,362,633  
Fixed assets
 
Machinery and equipment
    9,739,244       9,254,664  
Leasehold improvements
    1,810,872       1,810,872  
      11,550,116       11,065,536  
Less accumulated depreciation and amortization
    10,943,731       10,728,853  
Net fixed assets
    606,385       336,683  
Deferred tax assets
    483,469       73,538  
Marketable securities, long-term
    24,314,211       47,038,669  
Right-of-use asset – operating lease
    560,250       689,216  
Total assets
  $ 67,467,492     $ 72,500,739  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current liabilities
 
Accounts payable
  $ 943,535     $ 336,591  
Accrued payroll and other
    1,356,689       540,474  
Operating lease
    156,121       150,273  
Total current liabilities
    2,456,345       1,027,338  
Operating lease
    446,018       581,459  
Total liabilities
    2,902,363       1,608,797  
                 
Shareholders’ equity
 
Common stock, $ 0.01 par value, 6,000,000 shares authorized; 4,830,826 issued and outstanding as of March 31, 2022 and 4,833,232 as of March 31, 2021
    48,308       48,332  
Additional paid-in capital
    19,256,485       19,338,127  
Accumulated other comprehensive income (loss)
    ( 318,120 )
    1,101,119  
Retained earnings
    45,578,456       50,404,364  
Total shareholders’ equity
    64,565,129       70,891,942  
Total liabilities and shareholders’ equity
  $ 67,467,492     $ 72,500,739  
 
 
See accompanying notes.
 
F-2
Table of Contents
 
 
NVE CORPORATION
STATEMENTS OF INCOME
 
 
 
Year Ended March 31
 
 
 
2022
 
 
2021
 
Revenue
 
Product sales
 
$
25,867,649
 
 
$
20,540,557
 
Contract research and development
 
 
1,119,321
 
 
 
825,689
 
Total revenue
 
 
26,986,970
 
 
 
21,366,246
 
Cost of sales
 
 
6,263,090
 
 
 
4,121,461
 
Gross profit
 
 
20,723,880
 
 
 
17,244,785
 
Expenses
 
Research and development
 
 
2,925,874
 
 
 
3,184,754
 
Selling, general, and administrative
 
 
1,469,321
 
 
 
1,316,427
 
Total expenses
 
 
4,395,195
 
 
 
4,501,181
 
Income from operations
 
 
16,328,685
 
 
 
12,743,604
 
Interest income
 
 
1,171,128
 
 
 
1,498,148
 
Income before taxes
 
 
17,499,813
 
 
 
14,241,752
 
Provision for income taxes
 
 
2,992,312
 
 
 
2,547,368
 
Net income
 
$
14,507,501
 
 
$
11,694,384
 
Net income per share – basic
 
$
3.00
 
 
$
2.42
 
Net income per share – diluted
 
$
3.00
 
 
$
2.42
 
Cash dividends declared per common share
 
$
4.00
 
 
$
4.00
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
Basic
 
 
4,833,661
 
 
 
4,834,054
 
Diluted
 
 
4,835,639
 
 
 
4,834,462
 
 
 
 
 
 
 
STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Year Ended March 31
 
 
 
2022
 
 
2021
 
Net income
 
$
14,507,501
 
 
$
11,694,384
 
Unrealized gain (loss) from marketable securities, net of tax
 
 
( 1,419,239
)
 
 
584,596
 
Comprehensive income
 
$
13,088,262
 
 
$
12,278,980
 
 
 
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, 2020
    4,835,038     $ 48,350     $ 19,383,956     $ 516,523     $ 58,046,520     $ 77,995,349  
Repurchase of common stock
    ( 1,806 )
    ( 18 )
    ( 91,401 )
                    ( 91,419 )
Comprehensive income:
 
Unrealized gain on marketable securities, net of tax
                            584,596               584,596  
Net income
                                    11,694,384       11,694,384  
Total comprehensive income
                                            12,278,980  
Stock-based compensation
                    45,572                       45,572  
Cash dividends declared ($ 4.00 per share of common stock)
                                    ( 19,336,540 )
    ( 19,336,540 )
Balance as of March 31, 2021
    4,833,232       48,332       19,338,127       1,101,119       50,404,364       70,891,942  
Repurchase of common stock
    ( 2,888 )
    ( 29 )
    ( 163,492 )
                    ( 163,521 )
Exercise of stock options
    482       5       ( 5 )
                    -  
Comprehensive income:
                                               
Unrealized loss on marketable securities, net of tax
                            ( 1,419,239 )
            ( 1,419,239 )
Net income
                                    14,507,501       14,507,501  
Total comprehensive income
                                            13,088,262  
Stock-based compensation
                    81,855                       81,855  
Cash dividends declared ($ 4.00 per share of common stock)
                                    ( 19,333,409 )
    ( 19,333,409 )
Balance as of March 31, 2022
    4,830,826       48,308     $ 19,256,485     $ ( 318,120 )
  $ 45,578,456     $ 64,565,129  
 
 
See accompanying notes.
 
F-4
Table of Contents
 
 
NVE CORPORATION
STATEMENTS OF CASH FLOWS  
 
 
 
Year Ended March 31
 
 
 
2022
 
 
2021
 
OPERATING ACTIVITIES
 
Net income
 
$
14,507,501
 
 
$
11,694,384
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation and amortization
 
 
424,981
 
 
 
542,926
 
Stock-based compensation
 
 
81,855
 
 
 
45,572
 
Deferred income taxes
 
 
24,457
 
 
 
( 129,155
)
Changes in operating assets and liabilities:
 
Accounts receivable
 
 
( 2,740,548
)
 
 
729,737
 
Inventories
 
 
( 1,187,858
)
 
 
( 16,327
)
Prepaid expenses and other assets
 
 
99,724
 
 
 
391,699
 
Accounts payable and accrued expenses
 
 
1,293,567
 
 
 
105,996
 
Net cash provided by operating activities
 
 
12,503,679
 
 
 
13,364,832
 
 
 
 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
Purchases of fixed assets
 
 
( 484,579
)
 
 
( 62,727
)
Purchases of marketable securities
 
 
-
 
 
 
( 10,512,400
)
Proceeds from maturities and sales of marketable securities
 
 
7,500,000
 
 
 
19,000,000
 
Net cash provided by investing activities
 
 
7,015,421
 
 
 
8,424,873
 
 
 
 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
Repurchase of common stock
 
 
( 163,521
)
 
 
( 91,419
)
Payment of dividends to shareholders
 
 
( 19,333,409
)
 
 
( 19,336,540
)
Net cash used in financing activities
 
 
( 19,496,930
)
 
 
( 19,427,959
)
 
 
 
 
 
 
 
 
 
Increase in cash and cash equivalents
 
 
22,170
 
 
 
2,361,746
 
Cash and cash equivalents at beginning of year
 
 
10,427,340
 
 
 
8,065,594
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents at end of year
 
$
10,449,510
 
 
$
10,427,340
 
 
 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
Cash paid during the year for income taxes
 
$
2,520,000
 
 
$
2,438,788
 
 
 
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.
 
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value because of the short maturity of these instruments. Fair values of marketable securities are based on quoted market prices.
 
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 are generally in excess of federally insured amounts.
 
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 Doubtful Accounts” 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. The effects of the COVID- 19 pandemic have increased the risk of supply interruptions.
 
Accounts Receivable and Allowance for Doubtful Accounts
We grant credit to customers in the normal course of business and at times may require customers to prepay for an order prior to shipment. Accounts receivable are recorded net of an allowance for doubtful accounts. We make estimates of the uncollectibility of accounts receivable. We specifically analyze accounts receivable, historical bad debts, and customer creditworthiness when evaluating the adequacy of the allowance. We had no charges or provisions to our allowance for doubtful accounts in fiscal 2022 or 2021.
 
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.
 
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 lease term 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 2022 or 2021. Depreciation and amortization expense related to fixed assets was $ 214,877 for fiscal 2022 and $ 308,511 for fiscal 2021.
 
F-
6
Table of Contents
 
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, 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 over a period of time as the performance obligation is satisfied over a period of time rather than a point in time. 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 recognize revenue over a period of time using costs incurred as the measurement of progress towards 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, 2022 or March  31, 2021.
 
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 each year. Net income per diluted share amounts assume exercise of all stock options. The following table shows the components of diluted shares: 
 
    Year Ended March 31
 
    2022
    2021
 
Weighted average common shares outstanding – basic
    4,833,661       4,834,054  
Dilutive effect of stock options
    1,978       408  
Shares used in computing net income per share – diluted
    4,835,639       4,834,462  
 
 
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.
 
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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 3. 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 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.
 
The fair value of our available-for-sale securities as of March  31, 2022 by maturity were as follows:
 
Total
    <1 Year
    1 – 3 Years
    3 – 5 Years
 
$ 51,910,887     $ 27,596,676     $ 24,314,211     $ -  
 
Total available-for-sale securities represented approximately 67 % of our total assets. Marketable securities as of March  31, 2022 had remaining maturities between 11  weeks and 36 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.
 
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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 March 31, 2022
 
 
As of March 31, 2021
 
 
 
Level 1
 
 
Level 2
 
 
Total
 
 
Level 1
 
 
Level 2
 
 
Total
 
Money market funds
 
$
6,756,993
 
 
$
-
 
 
$
6,756,993
 
 
$
10,143,196
 
 
$
-
 
 
$
10,143,196
 
Corporate bonds
 
 
-
 
 
 
45,153,894
 
 
 
45,153,894
 
 
 
-
 
 
 
54,717,626
 
 
 
54,717,626
 
Total
 
$
6,756,993
 
 
$
45,153,894
 
 
$
51,910,887
 
 
$
10,143,196
 
 
$
54,717,626
 
 
$
64,860,822
 
 
Our available-for-sale securities as of March  31, 2022 and 2021, aggregated into classes of securities, were as follows:
 
 
 
As of March 31, 2022
 
 
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
 
$
6,756,993
 
 
$
-
 
 
$
-
 
 
$
6,756,993
 
 
$
10,143,196
 
 
$
-
 
 
$
-
 
 
$
10,143,196
 
Corporate bonds
 
 
45,561,114
 
 
 
230,085
 
 
 
( 637,305
)
 
 
45,153,894
 
 
 
53,308,105
 
 
 
1,570,195
 
 
 
( 160,674
)
 
 
54,717,626
 
Total
 
$
52,318,107
 
 
$
230,085
 
 
$
( 637,305
)
 
$
51,910,887
 
 
$
63,451,301
 
 
$
1,570,195
 
 
$
( 160,674
)
 
$
64,860,822
 
 
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 March  31,   2022 and 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 March 31, 2022
 
Corporate bonds
 
$
6,306,750
 
 
$
( 23,727
)
 
$
9,738,338
 
 
$
( 613,578
)
 
$
16,045,088
 
 
$
( 637,305
)
Total
 
$
6,306,750
 
 
$
( 23,727
)
 
$
9,738,338
 
 
$
( 613,578
)
 
$
16,045,088
 
 
$
( 637,305
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 March  31, 2022. None of the securities were impaired at acquisition, and subsequent declines in fair value are not attributed to declines in credit quality. When evaluating for impairment we assess indicators that include, but are not limited to, earnings performance, changes in underlying credit ratings, market conditions, bona fide offers to purchase or sell, and ability to hold until maturity. Because we believe it is more likely than not we will recover the cost basis of our investments, we did not consider any of our marketable securities to be impaired as of March  31, 2022.
 
 
 
NOTE 4. INVENTORIES
Inventories are shown in the following table:
 
 
 
March 31
 
 
 
2022
 
 
2021
 
Raw materials
 
$
987,062
 
 
$
660,678
 
Work in process
 
 
3,355,838
 
 
 
2,220,723
 
Finished goods
 
 
745,735
 
 
 
1,019,376
 
Total inventories
 
$
5,088,635
 
 
$
3,900,777
 
 
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NOTE 5. 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 over a five -year period. The options have exercisable lives ranging from one year to 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 $ 81,855 in fiscal 2022 and $ 45,572 in fiscal  2021.
Valuation assumptions
We use the Black-Scholes standard 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
 
 
 
2022
 
 
2021
 
Risk-free interest rate
 
0.7
–
0.9 %
 
 
0.2
–
0.4 %
 
Expected volatility
 
35
–
36 %
 
 
34
–
35 %
 
Expected life (years)
 
 
4.6
 
 
 
 
4.6
 
 
Dividend yield
 
5.0
–
5.4 %
 
 
7.0
–
7.4 %
 
 
The determination of the fair value of the awards on the date of grant using the Black-Scholes 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.
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 5.0 % to 5.4 % dividend yield for fiscal 2022 and 7.0 % to 7.4 % for fiscal 2021 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 $ 13,521 for fiscal 2022 and $ 9,971 for fiscal 2021.
General stock option information
The following table summarizes information on options outstanding as of March  31, 2022:
 
Ranges of
Exercise Prices
  Number
Outstanding
    Weighted Average
Exercise Price
    Weighted Remaining
Contractual Life (years)
 
$49.86
– $ 57.46     17,500     $ 55.94       4.0  
$67.65
– $ 107.86     11,500       78.44       5.7  
          29,000     $ 69.52       5.0  
 
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A summary of our stock options is shown in the following table:
 
 
 
Option Shares
Reserved
 
 
Options
Outstanding
 
 
Weighted Average
Option Exercise Price
 
At March 31, 2019
 
 
135,230
 
 
 
22,000
 
 
$
70.89
 
Granted
 
 
( 4,000
)
 
 
4,000
 
 
$
67.65
 
Exercised
 
 
-
 
 
 
( 2,000
)
 
$
56.18
 
At March 31, 2020
 
 
131,230
 
 
 
24,000
 
 
$
71.58
 
Granted
 
 
( 6,500
)
 
 
6,500
 
 
$
56.12
 
At March 31, 2021
 
 
124,730
 
 
 
30,500
 
 
$
68.28
 
Granted
 
 
( 6,500
)
 
 
6,500
 
 
$
74.22
 
Exercised
 
 
5,000
 
 
 
( 5,000
)
 
$
61.36
 
Terminated
 
 
3,000
 
 
 
( 3,000
)
 
$
80.75
 
At March 31, 2022
 
 
126,230
 
 
 
29,000
 
 
$
69.52
 
 
The remaining weighted-average exercisable life was 5.0 years as of March  31, 2022 and 5.7  years as of March  31, 2021. 24,000 outstanding options were exercisable as of March  31, 2022 and 28,000 outstanding options were exercisable as of March 31, 2021. Options outstanding as of March  31, 2022 had no intrinsic value based on our closing stock price for that day. The total fair value of option grants was $ 81,855 in fiscal 2022. There was $ 3,133 of unrecognized stock-based compensation as of March 31, 2022 related to nonvested options, which we expect to recognize in the first quarter of fiscal 2023.
 
 
 
NOTE 6. INCOME TAXES
Income tax provisions for fiscal 2022 and 2021 consisted of the following:
 
 
 
Year Ended March 31
 
 
 
2022
 
 
2021
 
Current taxes
 
Federal
 
$
2,863,915
 
 
$
2,600,670
 
State
 
 
140,822
 
 
 
75,852
 
Deferred taxes
 
Federal
 
 
( 11,927
)
 
 
( 123,959
)
State
 
 
( 499
)
 
 
( 5,195
)
Income tax provision
 
$
2,992,312
 
 
$
2,547,368
 
 
 
A reconciliation of income tax provisions at the U.S. statutory rate for fiscal 2022 and 2021 is as follows:
 
 
 
Year Ended March 31
 
 
 
2022
 
 
2021
 
Tax expense at U.S. Statutory rate
 
$
3,674,961
 
 
$
2,990,768
 
State income taxes, net of Federal benefit
 
 
136,144
 
 
 
88,909
 
Research and development credits
 
 
( 42,688
)
 
 
( 86,223
)
Foreign-derived intangible income deduction
 
 
( 662,467
)
 
 
( 450,912
)
Other
 
 
( 113,638
)
 
 
4,826
 
Income tax provision
 
$
2,992,312
 
 
$
2,547,368
 
 
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, 2022 and 2021 were as follows:
 
 
 
March 31
 
 
 
2022
 
 
2021
 
Paid time off accrual
 
$
63,055
 
 
$
60,869
 
Inventory reserve
 
 
47,042
 
 
 
50,324
 
Depreciation and amortization
 
 
88,690
 
 
 
88,690
 
Stock-based compensation deductions
 
 
88,710
 
 
 
75,189
 
Unrealized gain on marketable securities
 
 
89,102
 
 
 
( 308,403
)
Other
 
 
106,870
 
 
 
106,869
 
Deferred tax assets
 
$
483,469
 
 
$
73,538
 
 
 
We had no unrecognized tax benefits as of March  31, 2022, 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, 2022 we had no accrued interest related to uncertain tax positions. The tax years 2018 through 2020 remain open to examination by the major taxing jurisdictions to which we are subject.
 
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NOTE 7. 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:
 
 
 
Year Ended March 31
 
 
 
2022
 
 
2021
 
Operating lease cost
 
$
170,062
 
 
$
158,439
 
Variable lease cost
 
 
120,606
 
 
 
109,449
 
Total
 
$
290,668
 
 
$
267,888
 
 
 
 
 
 
 
 
 
 
Cash paid for amounts included in the measurement of lease liabilities
 
Operating cash flows for leases
 
$
174,313
 
 
$
133,299
 
Remaining lease term (years)
 
 
4
 
 
 
5
 
Discount rate
 
 
3.5
%
 
 
3.5
%
 
The following table presents the maturities of lease liabilities as of March  31,   2022:
 
Year Ending March 31
 
Operating Leases
 
2023
 
 
156,121
 
2024
 
 
159,592
 
2025
 
 
163,224
 
2026
 
 
165,947
 
Total lease payments
 
 
644,884
 
Imputed lease interest
 
 
( 42,745
)
Total lease liabilities
 
$
602,139
 
 
 
 
NOTE 8. CONCENTRATIONS
The following table summarizes customers comprising 10% or more of revenue for the two most recent fiscal years:
 
 
 
% of Revenue for
Year Ended March 31
 
 
 
2022
 
 
2021
 
Customer A
 
 
25
%
 
 
22
%
Customer B
 
 
11
%
 
 
15
%
 
These customers accounted for 34 % of our accounts receivable as of March  31, 2022 and 37 % as of March  31, 2021. We believe the receivable balances from these customers do not represent a significant credit risk based on past collection experience.
 
 
 
NOTE 9. 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. We repurchased 2,888 shares of our Common Stock in fiscal 2022 and 1,806 shares in fiscal 2021. The remaining authorization was $ 3,598,519 as of March  31,   2022. The Stock Repurchase Program may be modified or discontinued at any time without notice.
 
 
 
NOTE 10. 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 $ 101,735 for fiscal 2022 and $ 94,498 for fiscal 2021.
 
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NOTE 11. SUBSEQUENT EVENTS
On May 4, 2022 we announced that our Board had declared a quarterly cash dividend of $ 1.00 per share of Common Stock to be paid May  31, 2022 to shareholders of record as of the close of business May  16, 2022 .  
 
 
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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 Joseph R. Schmitz pursuant to Rule 13a-14(a)/15d-14(a).
32
Certification by Daniel A. Baker and Joseph R. Schmitz pursuant to 18 U.S.C. Section 1350.
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
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.