NVE CORP /NEW/
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018
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.
[X] 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).
[X] 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 [X]
|
|
| Non-accelerated filer [ ] |
Smaller reporting company [X]
|
|
|
Emerging growth company [ ]
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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 [X] No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value – 4,846,010 shares outstanding as of January 18, 2019
NVE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
Statements of Income for the Quarters Ended December 31, 2018 and 2017
Statements of Comprehensive Income for the Quarters Ended December 31, 2018 and 2017
Statements of Income for the Nine Months Ended December 31, 2018 and 2017
Statements of Comprehensive Income for the Nine Months Ended December 31, 2018 and 2017
Statements of Cash Flows
Notes to Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 4. Mine Safety Disclosures
Item 6. Exhibits
SIGNATURES
2
PART I–FINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEETS
BALANCE SHEETS
|
(Unaudited)
Dec. 31, 2018 |
March 31, 2018* | ||||||
| ASSETS | |||||||
| Current assets | |||||||
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Cash and cash equivalents
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$ | 6,206,549 | $ | 4,755,082 | |||
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Marketable securities, short-term
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17,445,586 | 20,765,809 | |||||
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Accounts receivable, net of allowance for uncollectible
accounts of $15,000
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2,717,728 | 2,888,779 | |||||
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Inventories
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4,141,481 | 3,650,439 | |||||
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Prepaid expenses and other assets
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755,806 | 635,160 | |||||
| Total current assets | 31,267,150 | 32,695,269 | |||||
| Fixed assets | |||||||
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Machinery and equipment
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9,426,267 | 9,395,987 | |||||
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Leasehold improvements
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1,787,269 | 1,749,284 | |||||
| 11,213,536 | 11,145,271 | ||||||
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Less accumulated depreciation and amortization
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10,192,504 | 9,819,888 | |||||
| Net fixed assets | 1,021,032 | 1,325,383 | |||||
| Deferred tax assets | 590,391 | 572,655 | |||||
| Marketable securities, long-term | 51,907,552 | 52,838,158 | |||||
| Total assets | $ | 84,786,125 | $ | 87,431,465 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities | |||||||
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Accounts payable
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$ | 313,116 | $ | 414,970 | |||
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Accrued payroll and other
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552,834 | 574,755 | |||||
| Total current liabilities | 865,950 | 989,725 | |||||
| Shareholders’ equity | |||||||
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Common stock, $0.01 par value,
6,000,000 shares authorized;
4,846,010 shares issued and outstanding as of Dec. 31, 2018 and 4,842,010 as of March 31, 2018 |
48,460 | 48,420 | |||||
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Additional paid-in capital
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19,910,558 | 19,599,298 | |||||
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Accumulated other comprehensive loss
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(929,899 | ) | (915,635 | ) | |||
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Retained earnings
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64,891,056 | 67,709,657 | |||||
| Total shareholders’ equity | 83,920,175 | 86,441,740 | |||||
| Total liabilities and shareholders’ equity | $ | 84,786,125 | $ | 87,431,465 | |||
*The March 31, 2018 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, 2018.
See accompanying notes.
3
3
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited )
| Quarter Ended Dec. 31 | |||||||
| 2018 | 2017 | ||||||
| Revenue | |||||||
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Product sales
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$ | 5,991,241 | $ | 6,448,831 | |||
|
Contract research and development
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278,164 | 911,958 | |||||
| Total revenue | 6,269,405 | 7,360,789 | |||||
| Cost of sales | 1,169,406 | 1,657,700 | |||||
| Gross profit | 5,099,999 | 5,703,089 | |||||
| Expenses | |||||||
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Research and development
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1,126,975 | 852,739 | |||||
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Selling, general, and administrative
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268,905 | 313,033 | |||||
| Total expenses | 1,395,880 | 1,165,772 | |||||
| Income from operations | 3,704,119 | 4,537,317 | |||||
| Interest income | 457,204 | 404,665 | |||||
| Income before taxes | 4,161,323 | 4,941,982 | |||||
| Provision for income taxes | 739,918 | 1,370,380 | |||||
| Net income | $ | 3,421,405 | $ | 3,571,602 | |||
| Net income per share – basic | $ | 0.71 | $ | 0.74 | |||
| Net income per share – diluted | $ | 0.71 | $ | 0.74 | |||
| Cash dividends declared per common share | $ | 1.00 | $ | 1.00 | |||
| Weighted average shares outstanding | |||||||
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Basic
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4,845,010 | 4,841,369 | |||||
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Diluted
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4,850,507 | 4,847,290 | |||||
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Quarter Ended Dec. 31 | |||||||
| 2018 | 2017 | ||||||
| Net income | $ | 3,421,405 | $ | 3,571,602 | |||
| Unrealized gain (loss) from marketable securities, net of tax | 101,891 | (295,458 | ) | ||||
| Comprehensive income | $ | 3,523,296 | $ | 3,276,144 | |||
See accompanying notes.
4
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
| Nine Months Ended Dec. 31 | |||||||
| 2018 | 2017 | ||||||
| Revenue | |||||||
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Product sales
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$ | 19,916,864 | $ | 19,718,584 | |||
|
Contract research and development
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966,522 | 2,246,105 | |||||
| Total revenue | 20,883,386 | 21,964,689 | |||||
| Cost of sales | 3,918,256 | 4,809,235 | |||||
| Gross profit | 16,965,130 | 17,155,454 | |||||
| Expenses | |||||||
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Research and development
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3,087,964 | 2,788,968 | |||||
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Selling, general, and administrative
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975,114 | 1,060,757 | |||||
| Total expenses | 4,063,078 | 3,849,725 | |||||
| Income from operations | 12,902,052 | 13,305,729 | |||||
| Interest income | 1,325,299 | 1,154,303 | |||||
| Income before taxes | 14,227,351 | 14,460,032 | |||||
| Provision for income taxes | 2,578,287 | 4,429,780 | |||||
| Net income | $ | 11,649,064 | $ | 10,030,252 | |||
| Net income per share – basic | $ | 2.41 | $ | 2.07 | |||
| Net income per share – diluted | $ | 2.40 | $ | 2.07 | |||
| Cash dividends declared per common share | $ | 3.00 | $ | 3.00 | |||
| Weighted average shares outstanding | |||||||
|
Basic
|
4,843,355 | 4,841,130 | |||||
|
Diluted
|
4,850,120 | 4,846,036 | |||||
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Nine Months Ended Dec. 31 | |||||||
| 2018 | 2017 | ||||||
| Net income | $ | 11,649,064 | $ | 10,030,252 | |||
| Unrealized gain (loss) from marketable securities, net of tax | 46,101 | (227,693 | ) | ||||
| Comprehensive income | $ | 11,695,165 | $ | 9,802,559 | |||
See accompanying notes.
5
NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended Dec. 31 | |||||||
| 2018 | 2017 | ||||||
| OPERATING ACTIVITIES | |||||||
| Net income | $ | 11,649,064 | $ | 10,030,252 | |||
|
Adjustments to reconcile net income to net cash
provided by operating activities:
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|||||||
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Depreciation and amortization
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531,685 | 726,842 | |||||
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Stock-based compensation
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93,360 | 40,920 | |||||
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Deferred income taxes
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(30,648 | ) | 153,954 | ||||
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Changes in operating assets and liabilities:
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|||||||
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Accounts receivable
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171,051 | 1,270,936 | |||||
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Inventories
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(491,042 | ) | (238,028 | ) | |||
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Prepaid expenses and other assets
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(120,646 | ) | (360,675 | ) | |||
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Accounts payable and accrued expenses
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(123,775 | ) | (159,525 | ) | |||
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Deferred revenue
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- | (142,733 | ) | ||||
| Net cash provided by operating activities | 11,679,049 | 11,321,943 | |||||
| INVESTING ACTIVITIES | |||||||
| Purchases of fixed assets | (68,265 | ) | (604,755 | ) | |||
| Purchases of marketable securities | (11,649,227 | ) | (16,256,210 | ) | |||
| Proceeds from maturities and sales of marketable securities | 15,800,000 | 16,540,000 | |||||
| Net cash provided by (used in) investing activities | 4,082,508 | (320,965 | ) | ||||
| FINANCING ACTIVITIES | |||||||
| Proceeds from sale of common stock | 217,940 | 51,040 | |||||
| Payment of dividends to shareholders | (14,528,030 | ) | (14,523,030 | ) | |||
| Net cash used in financing activities | (14,310,090 | ) | (14,471,990 | ) | |||
| Increase (decrease) in cash and cash equivalents | 1,451,467 | (3,471,012 | ) | ||||
| Cash and cash equivalents at beginning of period | 4,755,082 | 8,199,364 | |||||
| Cash and cash equivalents at end of period | $ | 6,206,549 | $ | 4,728,352 | |||
| Supplemental disclosures of cash flow information: | |||||||
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Cash paid during the period for income taxes
|
$ | 2,696,045 | $ | 4,615,019 | |||
See accompanying notes.
6
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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, 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, 2018. The results of operations for the quarter or nine months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2019.
Significant Accounting Policies
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, upon product shipment or delivery to our customer or distributor as determined by agreed upon shipping terms. Shipping charges billed to customers are included in product sales and the related shipping costs are included in selling, general, and administrative expenses. 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 December 31, 2018 or March 31, 2018.
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.
7
NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS
Recently Adopted Accounting Standards
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement . ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amendments in ASU 2018-13 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which will be fiscal 2021 for us. Early adoption is permitted for the removed disclosures and delayed adoption is permitted until fiscal 2021 for the new disclosures. We adopted ASU 2018-13 early, effective the quarter ended September 30, 2018. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures on a prospective basis. The adoption did not have a significant effect on our financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220) . ASU 2018-02 addresses the effect of the change in the U.S. federal corporate tax rate on items within accumulated other comprehensive income or loss due to the enactment of the Act “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “Tax Reform Act”) on December 22, 2017. The guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, which will be fiscal 2020 for us. Early adoption is permitted, and we adopted ASU 2018-02 in the quarter ended June 30, 2018. The adoption resulted in a $60,365 reclassification from accumulated other comprehensive loss to retained earnings due to the change in the federal corporate tax rate.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments , which made eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted ASU 2016-15 retrospectively in the quarter ended June 30, 2018. The adoption did not have a significant impact on our financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities . The amendment changed the accounting for and financial statement presentation of equity investments, other than those accounted for under the equity method of accounting or those that result in consolidation of the investee. The amendment provides clarity on the measurement methodology to be used for the required disclosure of fair value of financial instruments measured at amortized cost on the balance sheet and clarifies that an entity should evaluate the need for a valuation allowance on deferred tax assets related to available-for-sale securities in combination with the entity’s other deferred tax assets, among other changes. We adopted ASU 2016-01 retrospectively in the quarter ended June 30, 2018. The adoption did not have a significant impact on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, which superseded the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition . ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. We adopted the guidance using the modified retrospective method to contracts that were not complete as of April 1, 2018. The adoption did not have significant impact on our financial statements.
Information regarding all other applicable recently issued accounting standards, on which our position have not changed since our latest annual financial statements, are contained in the financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2018.
New Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements . In November 2018 the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses , which clarifies codification and corrects unintended application of the guidance. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. ASU 2016-13 and ASU 2018-19 are effective for financial statements issued for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, which will be fiscal 2021 for us. We do not expect adoption of the new guidance to have a significant impact on our financial statements.
8
In February 2016, the FASB issued ASU No. 2016-02, Lease Accounting . ASU 2016-02 requires recognition of lease assets and lease liabilities on the balance sheet of lessees. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases) , which provides narrow amendments to clarify how to apply certain aspects of the new lease standard. The guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, which will be fiscal 2020 for us. In July 2018, the FASB issued ASU No. 2018-11, Leases Topic (842): Targeted Improvements. This ASU provides companies an option to apply the transition provisions of the new lease standard at its adoption date instead of at the earliest comparative period presented in its financial statements. We expect to adopt the new lease guidance using the newly-approved transition method. We expect to recognize a liability and corresponding asset associated with in-scope operating and finance leases but are still in the process of determining those amounts and the processes required to account for leasing activity on an ongoing basis.
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 Dec. 31 | |||
| 2018 | 2017 | ||
| Weighted average common shares outstanding – basic | 4,845,010 | 4,841,369 | |
| Dilutive effect of stock options | 5,497 | 5,921 | |
| Shares used in computing net income per share – diluted | 4,850,507 | 4,847,290 | |
| Nine Months Ended Dec. 31 | |||
| 2018 | 2017 | ||
| Weighted average common shares outstanding – basic | 4,843,355 | 4,841,130 | |
| Dilutive effect of stock options | 6,765 | 4,906 | |
| Shares used in computing net income per share – diluted | 4,850,120 | 4,846,036 | |
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.
The fair value of our available-for-sale securities as of December 31, 2018 by maturity were as follows::
| Total | <1 Year | 1–3 Years | 3–5 Years | |||||||
| $ | 75,268,216 | $ | 23,360,664 | $ | 22,867,445 | $ | 29,040,107 | |||
Total available-for-sale securities represented approximately 89% of our total assets. Marketable securities as of December 31, 2018 had remaining maturities between two weeks and 55 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.”
9
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, 2018 | As of March 31, 2018 | ||||||||||||||||
| Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||
| Money market funds | $ | 5,915,078 | $ | - | $ | 5,915,078 | $ | 3,951,032 | $ | - | $ | 3,951,032 | |||||
| Corporate bonds | - | 69,353,138 | 69,353,138 | 54,517,969 | 19,085,998 | 73,603,967 | |||||||||||
| Total | $ | 5,915,078 | $ | 69,353,138 | $ | 75,268,216 | $ | 58,469,001 | $ | 19,085,998 | $ | 77,554,999 | |||||
Our available-for-sale securities as of December 31 and March 31, 2018, aggregated into classes of securities, were as follows:
| As of December 31, 2018 | As of March 31, 2018 | ||||||||||||||||||||||||
|
Amortized Cost |
Gross
Unrealized Holding Gains |
Gross
Unrealized Holding Losses |
Estimated
Fair Value |
Amortized Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Estimated
Fair Value |
||||||||||||||||||
|
Money market
funds |
$ | 5,915,078 | $ | - | $ | - | $ | 5,915,078 | $ | 3,951,032 | $ | - | $ | - | $ | 3,951,032 | |||||||||
| Corporate bonds | 70,543,485 | 19,403 | (1,209,750 | ) | 69,353,138 | 74,853,327 | - | (1,249,360 | ) | 73,603,967 | |||||||||||||||
| Total | $ | 76,458,563 | $ | 19,403 | $ | (1,209,750 | ) | $ | 75,268,216 | $ | 78,804,359 | $ | - | $ | (1,249,360 | ) | $ | 77,554,999 | |||||||
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 and March 31, 2018.
| 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, 2018 | |||||||||||||||||||||
| Corporate bonds | $ | 17,553,361 | $ | (122,792 | ) | $ | 46,810,042 | $ | (1,086,958 | ) | $ | 64,363,403 | $ | (1,209,750 | ) | ||||||
| Total | $ | 17,553,361 | $ | (122,792 | ) | $ | 46,810,042 | $ | (1,086,958 | ) | $ | 64,363,403 | $ | (1,209,750 | ) | ||||||
| As of March 31, 2018 | |||||||||||||||||||||
| Corporate bonds | $ | 61,731,248 | $ | (1,003,849 | ) | $ | 9,072,719 | $ | (245,511 | ) | $ | 70,803,967 | $ | (1,249,360 | ) | ||||||
| Total | $ | 61,731,248 | $ | (1,003,849 | ) | $ | 9,072,719 | $ | (245,511 | ) | $ | 70,803,967 | $ | (1,249,360 | ) | ||||||
We did not consider any of our available-for-sale securities to be impaired as of December 31, 2018. 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 December 31, 2018.
NOTE 6. INVENTORIES
Inventories are shown in the following table:
|
December 31,
2018 |
March
31,
2018 |
||||
| Raw materials | $ | 1,155,148 | $ | 1,084,030 | |
| Work in process | 2,265,585 | 1,828,492 | |||
| Finished goods | 720,748 | 737,917 | |||
| Total inventories | $ | 4,141,481 | $ | 3,650,439 | |
10
NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation expense was $93,360 for the first nine months of fiscal 2019 and $40,920 for the first nine months of fiscal 2018. Stock-based compensation expenses were due to the automatic issuance to our non-employee directors of options to purchase 1,000 shares of stock on their reelection to our Board. We calculate the share-based compensation expense using the Black-Scholes standard option-pricing model. The increase in stock-based compensation expense for fiscal 2019 compared to fiscal 2018 was due to an increase in the model valuation for the same number of options to purchase shares.
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.
The Act “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “Tax Reform Act”) was enacted December 22, 2017. The Tax Reform Act reduced certain Federal corporate income tax rates effective January 1, 2018 and changed certain other provisions. As a result of the Tax Reform Act, our tax rate decreased to an estimated 18% for fiscal 2019 from 30% for fiscal 2018.
We had no unrecognized tax benefits as of December 31, 2018, 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, 2018 we had no accrued interest related to uncertain tax positions. The tax years 1999 and 2014 through 2017 remain open to examination by the major taxing jurisdictions to which we are subject.
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, and on August 27, 2015 we announced that our Board authorized $5,000,000 of additional repurchases. We did not repurchase any of our Common Stock under the program during the quarter ended December 31, 2018. The remaining authorization was $4,540,806 as of December 31, 2018. The Repurchase Program may be modified or discontinued at any time without notice.
NOTE 10. SUBSEQUENT EVENTS
On January 23, 2019 we announced that our Board had declared a quarterly cash dividend of $1.00 per share of Common Stock to be paid February 28, 2019 to shareholders of record as of the close of business February 4, 2019.
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, uncertainties related to the economic environments in the industries we serve, uncertainties related to future contract research and development revenue, uncertainties related to the impact of Federal tax reform, 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, 2018.
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. We have also licensed our spintronic magnetoresistive random access memory technology, commonly known as MRAM.
11
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, 2018. As of December 31, 2018 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
Quarter ended December 31, 2018 compared to quarter ended December 31, 2017
The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:
|
Percentage
of Revenue
Quarter Ended Dec. 31 |
Quarter-
to-Quarter Change |
|||||||
| 2018 | 2017 | |||||||
| Revenue | ||||||||
|
Product sales
|
95.6 | % | 87.6 | % | (7.1 | )% | ||
|
Contract research and development
|
4.4 | % | 12.4 | % | (69.5 | )% | ||
| Total revenue | 100.0 | % | 100.0 | % | (14.8 | )% | ||
| Cost of sales | 18.7 | % | 22.5 | % | (29.5 | )% | ||
| Gross profit | 81.3 | % | 77.5 | % | (10.6 | )% | ||
| Expenses | ||||||||
|
Research and development
|
17.9 | % | 11.6 | % | 32.2 | % | ||
|
Selling, general, and administrative
|
4.3 | % | 4.3 | % | (14.1 | )% | ||
| Total expenses | 22.2 | % | 15.9 | % | 19.7 | % | ||
| Income from operations | 59.1 | % | 61.6 | % | (18.4 | )% | ||
| Interest income | 7.3 | % | 5.5 | % | 13.0 | % | ||
| Income before taxes | 66.4 | % | 67.1 | % | (15.8 | )% | ||
| Provision for income taxes | 11.8 | % | 18.6 | % | (46.0 | )% | ||
| Net income | 54.6 | % | 48.5 | % | (4.2 | )% | ||
Total revenue for the quarter ended December 31, 2018 (the third quarter of fiscal 2019) decreased 15% compared to the quarter ended December 31, 2017 (the third quarter of fiscal 2018). The decrease was due to a 7% decrease in product sales and a 69% decrease in contract research and development revenue.
The decrease in product sales from the prior-year quarter was primarily due to decreased purchases by existing customers. The decrease in contract research and development revenue for the third quarter of fiscal 2019 was due to the completion of certain contracts.
Gross profit margin increased to 81% of revenue for the third quarter of fiscal 2019 compared to 77% for the third quarter of fiscal 2018 due to a more profitable revenue mix.
Total expenses increased 20% for the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018, due to a 32% increase in research and development expense partially offset by a 14% decrease in selling, general, and administrative expense. The increase in research and development expense was due to an increase in new product development activities. The decrease in selling, general, and administrative expense was due to staffing changes.
Interest income for the third quarter of fiscal 2019 increased 13% due to an increase in the average interest rates on our marketable securities, partially offset by a decrease in our securities.
Our effective tax rate was 18% of net income before taxes for the quarter, compared to 28% in the prior-year quarter. The decreased tax rate was due to the full effects of a decrease in the Federal tax rate and certain other provisions with the enactment of the Tax Reform Act. See Note 8 to the financial statements for more information on income taxes.
The 4% decrease in net income in the third quarter of fiscal 2019 compared to the prior-year quarter was primarily due to a decrease in total revenue and an increase in research and development expense, partially offset by an increase in gross profit margin, an increase in interest income, and a decrease in the provision for income taxes.
12
Nine months ended December 31, 2018 compared to nine months ended December 31, 2017
The table shown below summarizes the percentage of revenue and period-to-period changes for various items:
|
Percentage
of Revenue
Nine Months Ended Dec. 31 |
Period-
to-Period Change |
|||||||
| 2018 | 2017 | |||||||
| Revenue | ||||||||
|
Product sales
|
95.4 | % | 89.8 | % | 1.0 | % | ||
|
Contract research and development
|
4.6 | % | 10.2 | % | (57.0 | )% | ||
| Total revenue | 100.0 | % | 100.0 | % | (4.9 | )% | ||
| Cost of sales | 18.8 | % | 21.9 | % | (18.5 | )% | ||
| Gross profit | 81.2 | % | 78.1 | % | (1.1 | )% | ||
| Expenses | ||||||||
|
Research and development
|
14.8 | % | 12.7 | % | 10.7 | % | ||
|
Selling, general, and administrative
|
4.6 | % | 4.8 | % | (8.1 | )% | ||
| Total expenses | 19.4 | % | 17.5 | % | 5.5 | % | ||
| Income from operations | 61.8 | % | 60.6 | % | (3.0 | )% | ||
| Interest income | 6.3 | % | 5.2 | % | 14.8 | % | ||
| Income before taxes | 68.1 | % | 65.8 | % | (1.6 | )% | ||
| Provision for income taxes | 12.3 | % | 20.1 | % | (41.8 | )% | ||
| Net income | 55.8 | % | 45.7 | % | 16.1 | % | ||
Total revenue for the nine months ended December 31, 2018 decreased 5% compared to the nine months ended December 31, 2017, due to a 57% decrease in contract research and development revenue. The decrease in contract research and development revenue was due to the completion of certain contracts.
Gross profit margin increased to 81% of revenue for the first nine months of fiscal 2019 compared to 78% for the first nine months of fiscal 2018, due to a more profitable revenue mix.
Total expenses increased 6% for the first nine months of fiscal 2019 compared to the first nine months of fiscal 2018, due to an 11% increase in research and development expense, partially offset by an 8% decrease in selling, general, and administrative expense. The increase in research and development expense was due to an increase in new product development activities. The decrease in selling, general, and administrative expense was due to staffing changes.
Interest income for the first nine months of fiscal 2019 increased 15% due to an increase in the average interest rates on our marketable securities, partially offset by a decrease in our securities.
Our effective tax rate was 18% of net income before taxes for the first nine months of fiscal 2019, compared to 31% in the prior-year period. The decrease was due to the effect of a decrease in the Federal tax rate and certain other provisions with the enactment of the Tax Reform Act. See Note 8 to the financial statements for more information on income taxes.
The 16% increase in net income in the first nine months of fiscal 2019 compared to the prior-year period was primarily due to increased gross profit margin and a decrease in the provision for income taxes.
13
Liquidity and capital resources
Overview
Cash and cash equivalents were $6,206,549 as of December 31, 2018 compared to $4,755,082 as of March 31, 2018. The $1,451,467 increase in cash and cash equivalents during the nine months ended December 31, 2018 was due to $11,679,049 in net cash provided by operating activities and $4,082,508 of cash provided by investing activities, partially offset by $14,310,090 of cash used in financing activities. We currently believe our working capital and cash generated from operations will be adequate for our needs at least for the next 12 months.
Investing Activities
Cash provided by investing activities in the nine months ended December 31, 2018 was due to $15,800,000 of marketable security maturities, partially offset by $11,649,227 of purchases of marketable securities and $68,265 of purchases of fixed assets.
Financing Activities
Cash used in financing activities in the first nine months of fiscal 2019 was due to $14,528,030 of cash dividends paid to shareholders, partially offset by $217,940 in proceeds from sale of common stock from stock option exercises. In addition to the dividends already paid in fiscal 2019, on January 23, 2019 we announced that our Board had declared a cash quarterly dividend of $1.00 per share of common stock, or $4,846,010 based on shares outstanding as of January 18, 2019, to be paid February 28, 2019. We plan to fund dividends through cash provided by operating activities and proceeds from maturities and sales 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.
Item 4. 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 December 31, 2018, our disclosure controls and procedures were effective.
Changes in Internal Controls
During the quarter ended December 31, 2018, 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.
14
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, 2018.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 6. Exhibits.
|
Exhibit #
|
Description
|
| 31.1 |
Certification by
Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).
|
| 31.2 |
Certification
by Curt A. Reynders pursuant to Rule 13a-14(a)/15d-14(a).
|
| 32 |
Certification
by Daniel A. Baker and Curt A. Reynders 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 |
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 23, 2019
|
/s/ DANIEL A. BAKER |
|
Date
|
Daniel A. Baker |
| President and Chief Executive Officer | |
|
|
|
|
January 23, 2019
|
/s/ CURT A. REYNDERS
|
|
Date
|
Curt A. Reynders |
| Chief Financial Officer | |
15
TABLE OF CONTENTS
Part I Financial InformationNote 1. Description Of BusinessNote 2. Basis Of Presentation and Significant Accounting PoliciesNote 3. Recently Issued Accounting Standards Recently Adopted Accounting StandardsNote 4. Net Income Per ShareNote 5. Fair Value Of Financial InstrumentsNote 6. InventoriesNote 7. Stock-based CompensationNote 8. Income TaxesNote 9. Stock Repurchase ProgramNote 10. Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations. Forward-looking StatementsItem 4. Controls and Procedures. Disclosure Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 4. Mine Safety DisclosuresItem 6. Exhibits