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 June 30, 2020
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 [ ]
|
|
| Non-accelerated filer [X] |
Smaller reporting company [X]
|
|
|
Emerging growth company [ ]
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | NVEC | The NASDAQ Stock Market, LLC |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value – 4,835,038 shares outstanding as of July 17, 2020
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 June 30, 2020 and 2019
Statements of Comprehensive Income for the Quarters Ended June 30, 2020 and 2019
Statements of Shareholders’ Equity for the Period Ended June 30, 2020
Statements of Shareholders’ Equity for the Period Ended June 30, 2019
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)
June 30, 2020 |
March 31, 2020* | ||||||
| ASSETS | |||||||
| Current assets | |||||||
|
Cash and cash equivalents
|
$ | 6,402,983 | $ | 8,065,594 | |||
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Marketable securities, short-term
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19,179,495 | 19,084,814 | |||||
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Accounts receivable, net of allowance for uncollectible
accounts of $15,000
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2,297,850 | 2,694,018 | |||||
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Inventories
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3,943,738 | 3,884,450 | |||||
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Prepaid expenses and other assets
|
718,122 | 655,835 | |||||
| Total current assets | 32,542,188 | 34,384,711 | |||||
| Fixed assets | |||||||
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Machinery and equipment
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9,280,062 | 9,280,062 | |||||
|
Leasehold improvements
|
1,797,245 | 1,797,245 | |||||
| 11,077,307 | 11,077,307 | ||||||
|
Less accumulated depreciation and amortization
|
10,571,515 | 10,494,840 | |||||
| Net fixed assets | 505,792 | 582,467 | |||||
| Deferred tax assets | - | 108,119 | |||||
| Marketable securities, long-term | 45,049,578 | 43,606,495 | |||||
| Right-of-use asset – operating lease | 784,774 | 816,358 | |||||
| Total assets | $ | 78,882,332 | $ | 79,498,150 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities | |||||||
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Accounts payable
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$ | 180,338 | $ | 186,993 | |||
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Accrued payroll and other
|
492,243 | 482,074 | |||||
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Income taxes payable
|
406,326 | - | |||||
|
Operating lease
|
120,429 | 127,134 | |||||
| Total current liabilities | 1,199,336 | 796,201 | |||||
| Deferred tax liabilities | 189,523 | - | |||||
| Operating lease | 675,928 | 706,600 | |||||
| Total liabilities | 2,064,787 | 1,502,801 | |||||
| Shareholders’ equity | |||||||
|
Common stock, $0.01 par value,
6,000,000 shares authorized; 4,835,038 issued
and outstanding as of June 30, 2020 and March 31, 2020 |
48,350 | 48,350 | |||||
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Additional paid-in capital
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19,386,663 | 19,383,956 | |||||
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Accumulated other comprehensive income
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1,759,185 | 516,523 | |||||
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Retained earnings
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55,623,347 | 58,046,520 | |||||
| Total shareholders’ equity | 76,817,545 | 77,995,349 | |||||
| Total liabilities and shareholders’ equity | $ | 78,882,332 | $ | 79,498,150 | |||
*The March 31, 2020 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, 2020.
See accompanying notes.
3
3
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited )
| Quarter Ended June 30 | |||||||
| 2020 | 2019 | ||||||
| Revenue | |||||||
|
Product sales
|
$ | 4,358,635 | $ | 6,085,364 | |||
|
Contract research and development
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230,627 | 209,332 | |||||
| Total revenue | 4,589,262 | 6,294,696 | |||||
| Cost of sales | 836,422 | 1,092,037 | |||||
| Gross profit | 3,752,840 | 5,202,659 | |||||
| Expenses | |||||||
|
Research and development
|
880,983 | 973,067 | |||||
|
Selling, general, and administrative
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355,011 | 330,009 | |||||
| Total expenses | 1,235,994 | 1,303,076 | |||||
| Income from operations | 2,516,846 | 3,899,583 | |||||
| Interest income | 399,212 | 459,039 | |||||
| Income before taxes | 2,916,058 | 4,358,622 | |||||
| Provision for income taxes | 504,193 | 751,203 | |||||
| Net income | $ | $2,411,865 | $ | 3,607,419 | |||
| Net income per share – basic | $ | 0.50 | $ | 0.74 | |||
| Net income per share – diluted | $ | 0.50 | $ | 0.74 | |||
| Cash dividends declared per common share | $ | 1.00 | $ | 1.00 | |||
| Weighted average shares outstanding | |||||||
|
Basic
|
4,835,038 | 4,846,010 | |||||
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Diluted
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4,835,157 | 4,850,388 | |||||
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Quarter Ended June 30 | |||||||
| 2020 | 2019 | ||||||
| Net income | $ | 2,411,865 | $ | 3,607,419 | |||
| Unrealized gain from marketable securities, net of tax | 1,242,662 | 570,063 | |||||
| Comprehensive income | $ | 3,654,527 | $ | 4,177,482 | |||
See accompanying notes.
4
NVE CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
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Additional
Paid-In Capital |
Accumulated
Other Comprehen- sive Income |
Retained
Earnings |
|||||||||||||||||
| Common Stock | ||||||||||||||||||||
| Shares | Amount | Total | ||||||||||||||||||
| Balance as of March 31, 2020 | 4,835,038 | $ | 48,350 | $ | 19,383,956 | $ | 516,523 | $ | 58,046,520 | $ | 77,995,349 | |||||||||
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Comprehensive income:
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||||||||||||||||||||
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Unrealized gain on
marketable securities,
net of tax |
1,242,662 | 1,242,662 | ||||||||||||||||||
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Net income
|
2,411,865 | 2,411,865 | ||||||||||||||||||
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Total comprehensive income
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3,654,527 | |||||||||||||||||||
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Stock-based compensation
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2,707 | 2,707 | ||||||||||||||||||
|
Cash dividends declared
($1.00 per share of
common stock) |
(4,835,038 | ) | (4,835,038 | ) | ||||||||||||||||
| Balance as of June 30, 2020 | 4,835,038 | $ | 48,350 | $ | 19,386,663 | $ | 1,759,185 | $ | 55,623,347 | $ | 76,817,545 | |||||||||
See accompanying notes.
5
NVE CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
|
|
Additional
Paid-In Capital |
Accumulated
Other Comprehen- sive (Loss) Income |
Retained
Earnings |
|||||||||||||||||
| Common Stock | ||||||||||||||||||||
| Shares | Amount | Total | ||||||||||||||||||
| Balance as of March 31, 2019 | 4,846,010 | $ | 48,460 | $ | 19,910,558 | $ | (82,725 | ) | $ | 62,903,918 | $ | 82,780,211 | ||||||||
|
Comprehensive income:
|
||||||||||||||||||||
|
Unrealized gain on
marketable securities,
net of tax |
570,063 | 570,063 | ||||||||||||||||||
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Net income
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3,607,419 | 3,607,419 | ||||||||||||||||||
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Total comprehensive income
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4,177,482 | |||||||||||||||||||
|
Cash dividends declared
($1.00 per share of
common stock) |
(4,846,010 | ) | (4,846,010 | ) | ||||||||||||||||
| Balance as of June 30, 2019 | 4,846,010 | $ | 48,460 | $ | 19,910,558 | $ | 487,338 | $ | 61,665,327 | $ | 82,111,683 | |||||||||
See accompanying notes.
6
NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
| Quarter Ended June 30 | |||||||
| 2020 | 2019 | ||||||
| OPERATING ACTIVITIES | |||||||
| Net income | $ | 2,411,865 | $ | 3,607,419 | |||
|
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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129,620 | 134,733 | |||||
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Stock-based compensation
|
2,707 | - | |||||
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Deferred income taxes
|
(50,405 | ) | (664 | ) | |||
|
Changes in operating assets and liabilities:
|
|||||||
|
Accounts receivable
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396,168 | 248,955 | |||||
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Inventories
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(59,288 | ) | 45,093 | ||||
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Prepaid expenses and other assets
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(30,703 | ) | 205,399 | ||||
|
Accounts payable and other liabilities
|
372,463 | 296,693 | |||||
| Net cash provided by operating activities | 3,172,427 | 4,537,628 | |||||
| INVESTING ACTIVITIES | |||||||
| Purchases of fixed assets | - | (16,100 | ) | ||||
| Purchases of marketable securities | - | (3,013,530 | ) | ||||
| Proceeds from maturities of marketable securities | - | 9,500,000 | |||||
| Cash provided by investing activities | - | 6,470,370 | |||||
| FINANCING ACTIVITIES | |||||||
| Payment of dividends to shareholders | (4,835,038 | ) | (4,846,010 | ) | |||
| Cash used in financing activities | (4,835,038 | ) | (4,846,010 | ) | |||
| (Decrease) increase in cash and cash equivalents | (1,662,611 | ) | 6,161,988 | ||||
| Cash and cash equivalents at beginning of period | 8,065,594 | 6,877,304 | |||||
| Cash and cash equivalents at end of period | $ | 6,402,983 | $ | 13,039,292 | |||
| Supplemental disclosures of cash flow information: | |||||||
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Cash paid during the period for income taxes
|
$ | - | $ | - | |||
See accompanying notes.
7
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, certain disclosures have been omitted as allowed, and it is suggested that these unaudited financial statements be read in conjunction with the audited financial statements and the notes included in our latest annual financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020. The results of operations for the quarter ended June 30, 2020 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2021.
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 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 June 30, 2020 or March 31, 2020.
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.
8
NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS
New Accounting Standards Not Yet Adopted
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 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, which is fiscal 2022 for us, with early adoption permitted. We do not expect adoption of the new guidance to have a significant impact on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements . ASU 2016-13 requires a financial asset (or a group of financial assets) 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. In November 2018 the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses , which clarifies codification and corrects unintended application of the guidance, and in November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses , which clarifies or addresses specific issues about certain aspects of ASU 2016-13. In November 2019 the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates , and in February 2020 the FASB issued ASU No. 2020-02, Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) , both of which delay the effective date of ASU 2016-13 by three years for certain Smaller Reporting Companies such as us. We were unaffected by the change in the effective date of the ASU related to Leases (Topic 842) because we have already adopted that ASU. In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments ; which modifies the measurement of expected credit losses of certain financial instruments. In accordance with ASU 2019-10 and ASU 2020-02, ASU 2016-13 is effective for certain Smaller Reporting Companies for financial statements issued for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, which will be fiscal 2024 for us if we continue to be classified as a Smaller Reporting Company, with early adoption permitted. We do not expect adoption of the new guidance to have a significant impact on our financial statements.
NOTE 4. NET INCOME PER SHARE
Net income per basic share is computed based on the weighted-average number of common shares issued and outstanding during each period. Net income per diluted share amounts assume exercise of all stock options. The following tables show the components of diluted shares:
| Quarter Ended June 30 | |||
| 2020 | 2019 | ||
| Weighted average common shares outstanding – basic | 4,835,038 | 4,846,010 | |
| Dilutive effect of stock options | 119 | 4,378 | |
| Shares used in computing net income per share – diluted | 4,835,157 | 4,850,388 | |
9
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Our corporate bonds and money market funds are classified as available-for-sale securities and carried at estimated fair value. Unrealized holding gains and losses are included in accumulated other comprehensive income (loss) in the statement of shareholders’ equity. Corporate bonds with remaining maturities less than one year are classified as short-term, and those with remaining maturities greater than one year are classified as long-term. We consider all highly-liquid investments with maturities of three months or less when purchased, including money market funds, to be cash equivalents. Gains and losses on marketable security transactions are reported on the specific-identification method.
Contractual maturities of available-for-sale securities as of June 30, 2020 are as follows:
| Total | <1 Year | 1–3 Years | 3–5 Years | |||||||
| $ | 70,315,124 | $ | 25,265,545 | $ | 33,132,700 | $ | 11,916,879 | |||
Total available-for-sale securities represented approximately 89% of our total assets. Marketable securities as of June 30, 2020 had remaining maturities between four and 44 months.
Generally accepted accounting principles establish a framework for measuring fair value, provide a definition of fair value, and prescribe required disclosures about fair-value measurements. Generally accepted accounting principles define fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Generally accepted accounting principles utilize a valuation hierarchy for disclosure of fair value measurements. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:
Level 1 – Financial instruments with quoted prices in active markets for identical assets or liabilities.
Level 2 – Financial instruments with quoted prices in active markets for similar assets or liabilities. Level 2 fair value measurements are determined using either prices for similar instruments or inputs that are either directly or indirectly observable, such as interest rates.
Level 3 – Inputs to the fair value measurement are unobservable inputs or valuation techniques.
Money market funds are included on the balance sheets in “Cash and cash equivalents.” Corporate bonds are included on the balance sheets in “Marketable securities, short term” and “Marketable securities, long term.”
The following table shows the estimated fair value of assets that were accounted for at fair value on a recurring basis:
| As of June 30, 2020 | As of March 31, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||
| Money market funds | $ | 6,086,051 | $ | - | $ | 6,086,051 | $ | 7,903,433 | $ | - | $ | 7,903,433 | |||||
| Corporate bonds | - | 64,229,073 | 64,229,073 | - | 62,691,309 | 62,691,309 | |||||||||||
| Total | $ | 6,086,051 | $ | 64,229,073 | $ | 70,315,124 | $ | 7,903,433 | $ | 62,691,309 | $ | 70,594,742 | |||||
Our available-for-sale securities as of June 30 and March 31, 2020, aggregated into classes of securities, were as follows:
| As of June 30, 2020 | As of March 31, 2020 | ||||||||||||||||||||||||
|
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 |
$ | 6,086,051 | $ | - | $ | - | $ | 6,086,051 | $ | 7,903,433 | $ | - | $ | - | $ | 7,903,433 | |||||||||
| Corporate bonds | 61,977,175 | 2,251,898 | - | 64,229,073 | 62,030,120 | 752,621 | (91,432 | ) | 62,691,309 | ||||||||||||||||
| Total | $ | 68,063,226 | $ | 2,251,898 | $ | - | $ | 70,315,124 | $ | 69,933,553 | $ | 752,621 | $ | (91,432 | ) | $ | 70,594,742 | ||||||||
10
NOTE 6. INVENTORIES
Inventories are shown in the following table:
|
June
30,
2020 |
March
31,
2020 |
||||
| Raw materials | $ | 907,618 | $ | 1,017,451 | |
| Work in process | 2,026,032 | 1,863,000 | |||
| Finished goods | 1,010,088 | 1,003,999 | |||
| Total inventories | $ | 3,943,738 | $ | 3,884,450 | |
NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation expense was $2,707 for the first quarter of fiscal 2021. There were no stock-based compensation expenses for the first quarter of fiscal 2020. We calculate the share-based compensation expense using the Black-Scholes standard option-pricing model.
NOTE 8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
We had no unrecognized tax benefits as of June 30, 2020, 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 June 30, 2020 we had no accrued interest related to uncertain tax positions. The tax years 2016 through 2019 remain open to examination by the major taxing jurisdictions to which we are subject.
NOTE 9. LEASES
We conduct our operations in a leased facility under a non-cancellable lease expiring March 31, 2026. Our lease does not provide an implicit rate, so we used our incremental borrowing rate to determine the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term. Variable lease costs consist primarily of common area maintenance and real estate taxes which are paid based on actual costs incurred by the lessor. Details of our operating lease are as follows:
|
Quarter Ended
June 30, 2020 |
||||
| Operating lease cost | $ | 38,641 | ||
| Variable lease cost | 30,608 | |||
| Total | $ | 69,249 | ||
| Cash paid for amounts included in the measurement of lease liabilities | ||||
|
Operating cash flows for leases
|
$ | 44,433 | ||
| Remaining lease term | 69 months | |||
| Discount rate | 3.5 | % | ||
The following table presents the maturities of lease liabilities as of June 30, 2020:
| Year Ending March 31 | Operating Leases | ||
| 2021 | 84,104 | ||
| 2022 | 152,703 | ||
| 2023 | 156,121 | ||
| 2024 | 159,592 | ||
| 2025 | 163,224 | ||
| 2026 | 165,947 | ||
| Total lease payments | 881,691 | ||
| Imputed lease interest | (85,334 | ) | |
| Total lease liabilities | $ | 796,357 | |
11
NOTE 10. STOCK REPURCHASE PROGRAM
On January 21, 2009 we announced that our Board of Directors authorized the repurchase of up to $2,500,000 of our Common Stock from time to time in open market, block, or privately negotiated transactions. The timing and extent of any repurchases depends on market conditions, the trading price of the company’s stock, and other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. On August 27, 2015, we announced that our Board of Directors authorized up to $5,000,000 of additional repurchases. Our repurchase program does not have an expiration date and does not obligate us to purchase any shares. The Program may be modified or discontinued at any time without notice. We intend to finance any stock repurchases with cash provided by operating activities or maturating marketable securities. The remaining authorization was $3,853,459 as of June 30, 2020. We did not repurchase any of our Common Stock during the first quarter of fiscal 2021.
NOTE 11. INFORMATION AS TO EMPLOYEE STOCK PURCHASE, SAVINGS, AND SIMILAR PLANS
All of our employees are eligible to participate in our 401(k) savings plan the first quarter after reaching age 21. Employees may contribute up to the Internal Revenue Code maximum. We make matching contributions of 100% of the first 3% of participants’ salary deferral contributions. Our matching contributions were $25,381 for the first quarter of fiscal 2021 and $24,066 for the first quarter of fiscal 2020.
NOTE 12. SUBSEQUENT EVENTS
On July 22, 2020 we announced that our Board had declared a quarterly cash dividend of $1.00 per share of Common Stock to be paid August 31, 2020 to shareholders of record as of the close of business August 3, 2020.
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 sales and revenues, risks related to the COVID-19 pandemic, risks and uncertainties related to future stock repurchases and dividend payments, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.
Further information regarding our risks and uncertainties are contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2020.
General
NVE Corporation, referred to as NVE, we, us, or our, develops and sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store and transmit information. We manufacture high-performance spintronic products including sensors and couplers that are used to acquire and transmit data.
Critical accounting policies
A description of our critical accounting policies is provided in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2020. As of June 30, 2020 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
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Quarter ended June 30, 2020 compared to quarter ended June 30, 2019
The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:
|
Percentage
of Revenue
Quarter Ended June 30 |
Quarter-
to-Quarter Change |
|||||||
| 2020 | 2019 | |||||||
| Revenue | ||||||||
|
Product sales
|
95.0 | % | 96.7 | % | (28.4 | )% | ||
|
Contract research and development
|
5.0 | % | 3.3 | % | 10.2 | % | ||
| Total revenue | 100.0 | % | 100.0 | % | (27.1 | )% | ||
| Cost of sales | 18.2 | % | 17.3 | % | (23.4 | )% | ||
| Gross profit | 81.8 | % | 82.7 | % | (27.9 | )% | ||
| Expenses | ||||||||
|
Research and development
|
19.2 | % | 15.5 | % | (9.5 | )% | ||
|
Selling, general, and administrative
|
7.7 | % | 5.2 | % | 7.6 | % | ||
| Total expenses | 26.9 | % | 20.7 | % | (5.1 | )% | ||
| Income from operations | 54.9 | % | 62.0 | % | (35.5 | )% | ||
| Interest income | 8.7 | % | 7.2 | % | (13.0 | )% | ||
| Income before taxes | 63.6 | % | 69.2 | % | (33.1 | )% | ||
| Provision for income taxes | 11.0 | % | 11.9 | % | (32.9 | )% | ||
| Net income | 52.6 | % | 57.3 | % | (33.1 | )% | ||
Total revenue for the quarter ended June 30, 2020 (the first quarter of fiscal 2021) decreased 27% compared to the quarter ended June 30, 2019 (the first quarter of fiscal 2020). The decrease was due to a 28% decrease in product sales partially offset by a 10% increase 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 increase in contract research and development revenue the first quarter of fiscal 2021 was due to the timing of progress towards contract completion.
Total expenses decreased 5% in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 due to a 9% decrease in research and development expense, partially offset by a 8% increase in selling, general, and administrative expense. The decrease in research and development expense was primarily due to staffing changes and the completion of certain product development activities. The increase in selling, general, and administrative expense was primarily due to staffing changes.
Interest income for the first quarter of fiscal 2021 decreased 13% due to a decrease in the average interest rates on our marketable securities and money market funds.
The 33% decrease in net income in the first quarter of fiscal 2021 compared to the prior-year quarter was primarily due to a decrease in product sales.
The Impact of the COVID-19 Pandemic
We believe the COVID-19 pandemic had a significant impact on total revenue and net income for the quarter ended June 30, 2020 compared to the prior-year quarter due to its effects on market conditions in certain industries, especially medical devices. Total revenue and net income will likely continue to decrease for future quarters compared to prior-year quarters due to the effects of the COVID-19 pandemic.
13
Liquidity and Capital Resources
Overview
Cash and cash equivalents were $6,402,983 as of June 30, 2020 compared to $8,065,594 as of March 31, 2020. The $1,662,611 decrease in cash and cash equivalents was due to $4,835,038 of cash used in financing activities consisting of cash dividends paid to shareholders, partially offset by $3,172,427 in net cash provided by operating activities.
Investing Activities
We had no maturities or purchases of debt securities and no capital expenditures during the quarter ended June 30, 2020. Capital expenditures can vary from quarter to quarter depending on our needs and equipment purchasing opportunities.
Financing Activities
In addition to cash dividends to shareholders paid in fiscal 2021, on July 22, 2020 we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,835,038 based on shares outstanding as of July 17, 2020, to be paid August 31, 2020. We plan to fund dividends through cash provided by operating activities and proceeds from maturities of marketable securities. All future dividends will be subject to Board approval and subject to the company’s results of operations, cash and marketable security balances, estimates of future cash requirements, the impacts of the COVID-19 pandemic, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.
We currently believe our working capital and cash generated from operations will be adequate for our needs at least for the next 12 months.
Off-Balance-Sheet Arrangements
Our off-balance sheet arrangements consist of purchase commitments. We believe such arrangements have no material current or anticipated future effect on our profitability, cash flows, or financial position.
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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 June 30, 2020, our disclosure controls and procedures were effective.
Changes in Internal Controls
During the quarter ended June 30, 2020, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 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, 2020, except the following two risk factors are replaced in their entirety by the following to reflect the expiration of certain COVID-19 related restrictions:
Public health crises could have an adverse effect on our operations and financial results.
Public health crises could adversely affect our ongoing business operations. In particular, the COVID-19 pandemic has severely impacted global economic activity and caused many of our important customers to delay or cancel orders. We were allowed to operate under Minnesota Emergency Executive Orders because the Company is in several “Critical Sectors” as defined in the Orders, however there can be no assurance we will be exempted from any future restrictions imposed by Federal, State, or local authorities in response to possible future surges or “waves” of COVID-19. Such restrictions could limit or prohibit our operations. Furthermore, if one or more of our employees become infected with COVID-19, we could be forced to curtail or cease operations to protect the health of our employees or to prevent the spread of the disease. Additionally, any customer or supplier disruptions could affect our ability to operate. These and other impacts of COVID-19 pandemic or other public health crises could have a material adverse effect on our results of operations or our financial condition.
The loss of supply from any of our packaging vendors could impact our ability to produce and deliver products and cause loss of revenue.
We are dependent on our packaging vendors. Because of the unique materials our products use, the complexity of some of our products, unique magnetic requirements, and high isolation voltage specifications, many of our products are more challenging to package than conventional integrated circuits. Some of our products use processes or tooling unique to a particular packaging vendor, and it might be expensive, time-consuming, or impractical to convert to another vendor in the event of a supply interruption due to vendors’ business decisions, business condition, or acts of God, including floods, typhoons, earthquakes, or pandemics. One of our packaging vendors was forced to suspend its factory operations from late March 2020 until mid-May, and has been permitted only limited operation since mid-May pursuant to COVID-19 government orders. The COVID-19 pandemic has also caused shortages of materials and subassemblies our packaging vendors need for the packaging process. Additionally, certain of our packaging vendors are in flood-susceptible areas. Flooding risks to such vendors may increase in the future due to possible higher ocean levels, extreme weather, and other potential effects of climate change. We have alternate vendors or potential alternate vendors for the majority of our products, but it can be expensive, time-consuming, and technically challenging to convert to alternate vendors. Furthermore, we may not be able to recover work in process or finished goods at a packaging vendor in the event of a disruption. Any supply interruptions or loss of inventory could seriously jeopardize our ability to provide products that are critical to our business and operations and may cause us to lose revenue.
Item 4. Mine Safety Disclosures.
Not applicable.
15
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) | |
|
|
|
|
July 22, 2020
|
/s/ DANIEL A. BAKER |
|
Date
|
Daniel A. Baker |
| President and Chief Executive Officer | |
|
|
|
|
July 22, 2020
|
/s/ CURT A. REYNDERS |
|
Date
|
Curt A. Reynders |
| Chief Financial Officer | |
16
TABLE OF CONTENTS
Part I Financial InformationNote 1. Description Of BusinessNote 2. Basis Of Presentation and Significant Accounting PoliciesNote 3. Recently Issued Accounting StandardsNote 4. Net Income Per ShareNote 5. Fair Value Of Financial InstrumentsNote 6. Inventories Inventories Are Shown in The Following Table:Note 6. InventoriesNote 7. Stock-based CompensationNote 8. Income TaxesNote 9. LeasesNote 10. Stock Repurchase ProgramNote 11. Information As To Employee Stock Purchase, Savings, and Similar PlansNote 12. 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