UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2019
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 [ ]
|
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 – 4,846,010 shares outstanding as of July 12,
2019
NVE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance
Sheets
Statements
of Income for the Quarters Ended June 30, 2019 and 2018
Statements
of Comprehensive Income for the Quarters Ended June 30, 2019 and 2018
Statements of Shareholders’ Equity
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
Table
of Contents
PART I–FINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEETS
|
(Unaudited)
June 30, 2019 |
|
March
31, 2019* |
| ASSETS |
| Current assets |
|
Cash and cash equivalents
|
$ |
13,039,292 |
|
|
$ |
6,877,304 |
|
|
Marketable securities, short-term
|
|
2,999,689 |
|
|
|
12,487,821 |
|
|
Accounts receivable, net of allowance for uncollectible
accounts of $15,000
|
|
2,746,683 |
|
|
|
2,995,638 |
|
|
Inventories
|
|
4,219,783 |
|
|
|
4,264,876 |
|
|
Prepaid expenses and other assets
|
646,917 |
|
|
816,045 |
|
| Total current assets |
|
23,652,364 |
|
|
|
27,441,684 |
|
| Fixed assets |
|
Machinery and equipment
|
|
9,381,906 |
|
|
|
9,365,806 |
|
|
Leasehold improvements
|
1,787,269 |
|
|
1,787,269 |
|
|
|
|
11,169,175 |
|
|
|
11,153,075 |
|
|
Less accumulated depreciation and amortization
|
10,348,140 |
|
|
10,258,240 |
|
| Net fixed assets |
|
821,035 |
|
|
|
894,835 |
|
| Deferred tax assets |
194,735 |
|
|
353,735 |
|
| Marketable securities, long-term |
58,612,189 |
|
|
54,925,633 |
|
| Right-of-use asset – operating lease |
225,373 |
|
|
- |
|
| Total assets |
$ |
83,505,696 |
|
|
$ |
83,615,887 |
|
| |
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
| Current liabilities |
|
Accounts payable
|
$ |
237,718 |
|
|
$ |
375,188 |
|
Accrued payroll and other
|
455,814 |
|
|
460,488 |
|
|
Income taxes payable
|
442,493 |
|
|
- |
|
Operating lease
|
172,796 |
|
|
- |
|
| Total current liabilities |
|
1,308,821 |
|
|
|
835,676 |
|
|
|
|
|
|
|
|
|
| Operating lease |
85,192 |
|
|
- |
|
| Total liabilities |
1,394,013 |
|
|
835,676 |
|
| |
| Shareholders’ equity |
|
Common stock, $0.01 par value,
6,000,000 shares authorized;
4,846,010 issued and outstanding as of June 30, 2019 and March 31, 2019
|
|
48,460 |
|
|
|
48,460 |
|
Additional paid-in capital
|
|
19,910,558 |
|
|
|
19,910,558 |
|
|
Accumulated other comprehensive income (loss)
|
|
487,338 |
|
|
|
(82,725 |
) |
Retained earnings
|
61,665,327 |
|
|
62,903,918 |
|
| Total shareholders’ equity |
82,111,683 |
|
|
82,780,211 |
|
| Total liabilities and shareholders’ equity |
$ |
83,505,696 |
|
|
$ |
83,615,887 |
|
*The March 31, 2019 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, 2019.
See accompanying notes.
3
Table of Contents
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
|
Quarter Ended June 30 |
| 2019 |
|
2018 |
| Revenue |
|
Product sales
|
$ |
6,085,364 |
|
|
$ |
6,870,646 |
|
|
Contract research and development
|
209,332 |
|
|
237,260 |
|
| Total revenue |
|
6,294,696 |
|
|
|
7,107,906 |
|
| Cost of sales |
1,092,037 |
|
|
1,396,005 |
|
| Gross profit |
|
5,202,659 |
|
|
|
5,711,901 |
|
| Expenses |
|
Research and development
|
|
973,067 |
|
|
|
989,026 |
|
|
Selling, general, and administrative
|
330,009 |
|
|
328,761 |
|
| Total expenses |
1,303,076 |
|
|
1,317,787 |
|
| Income from operations |
|
3,899,583 |
|
|
|
4,394,114 |
|
| Interest income |
459,039 |
|
|
424,770 |
|
| Income before taxes |
|
4,358,622 |
|
|
|
4,818,884 |
|
| Provision for income taxes |
751,203 |
|
|
873,835 |
|
| Net income |
$ |
3,607,419 |
|
|
$ |
3,945,049 |
|
| Net income per share – basic |
$ |
0.74 |
|
|
$ |
0.81 |
|
| Net income per share – diluted |
$ |
0.74 |
|
|
$ |
0.81 |
|
| Cash dividends declared per common share |
$ |
1.00 |
|
|
$ |
1.00 |
|
| Weighted average shares outstanding |
|
Basic
|
|
4,846,010 |
|
|
|
4,842,010 |
|
|
Diluted
|
|
4,850,388 |
|
|
|
4,850,479 |
|
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
Quarter Ended June 30 |
| 2019 |
|
2018 |
| Net income |
$ |
3,607,419 |
|
|
$ |
3,945,049 |
|
| Unrealized gain (loss) from marketable securities, net of tax |
570,063 |
|
|
(107,027 |
) |
| Comprehensive income |
$ |
4,177,482 |
|
|
$ |
3,838,022 |
|
See accompanying notes.
4
Table
of Contents
NVE CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
|
|
|
Additional
Paid-In
Capital |
|
|
Accumulated
Other
Comprehen-
sive Income
(Loss) |
|
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 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,607,419 |
|
|
|
3,607,419 |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
| |
| |
| Balance as of March 31, 2018 |
4,842,010 |
|
$ |
48,420 |
|
$ |
19,599,298 |
|
|
$ |
(915,635 |
) |
|
$ |
67,709,657 |
|
|
$ |
86,441,740 |
|
|
Comprehensive income:
|
|
Unrealized loss on
marketable securities,
net of tax
|
|
|
|
|
|
|
|
|
|
|
(107,027 |
) |
(107,027 |
) |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,945,049 |
|
|
|
3,945,049 |
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,838,022 |
|
|
Cash dividends declared
($1.00 per share of
common stock)
|
|
|
|
|
|
|
|
|
|
|
|
(4,842,010 |
) |
|
(4,842,010 |
) |
|
Cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
(60,365 |
) |
|
60,365 |
|
|
|
|
| Balance as of June 30, 2018 |
4,842,010 |
|
$ |
48,420 |
|
$ |
19,599,298 |
|
|
$ |
(1,083,027 |
) |
|
$ |
66,873,061 |
|
|
$ |
85,437,752 |
|
See accompanying notes.
5
Table
of Contents
NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
|
Quarter
Ended June 30 |
| 2019 |
|
2018 |
| OPERATING ACTIVITIES |
| Net income |
$ |
3,607,419 |
|
|
$ |
3,945,049 |
|
| Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
Depreciation and amortization
|
|
134,733 |
|
|
|
179,746 |
|
|
Deferred income taxes
|
|
(664 |
) |
|
|
(443 |
) |
|
Changes in operating assets and liabilities:
|
|
Accounts receivable
|
|
248,955 |
|
|
|
(231,994 |
) |
|
Inventories
|
|
45,093 |
|
|
|
28,758 |
|
|
Prepaid expenses and other assets
|
|
205,399 |
|
|
|
103,053 |
|
|
Accounts payable and other liabilities
|
|
296,693 |
|
|
|
625,730 |
|
| Net cash provided by operating activities |
|
4,537,628 |
|
|
|
4,649,899 |
|
| |
| INVESTING ACTIVITIES |
| Purchases of fixed assets |
(16,100 |
) |
|
|
(37,985 |
) |
| Purchases of marketable securities |
|
(3,013,530 |
) |
|
|
(3,373,125 |
) |
| Proceeds from maturities of marketable securities |
|
9,500,000 |
|
|
|
7,300,000 |
|
| Cash provided by investing activities |
|
6,470,370 |
|
|
|
3,888,890 |
|
| |
| FINANCING ACTIVITIES |
| Payment of dividends to shareholders |
|
(4,846,010 |
) |
|
|
(4,842,010 |
) |
| Cash used in financing activities |
|
(4,846,010 |
) |
|
|
(4,842,010 |
) |
| |
| Increase in cash and cash equivalents |
|
6,161,988 |
|
|
|
3,696,779 |
|
| Cash and cash equivalents at beginning of period |
6,877,304 |
|
|
4,755,082 |
|
| |
| Cash and cash equivalents at end of period |
$ |
13,039,292 |
|
|
$ |
8,451,861 |
|
| |
| Supplemental disclosures of cash flow information: |
|
Cash paid during the period for income taxes
|
$ |
- |
|
|
$ |
11,222 |
|
See accompanying notes.
6
Table of Contents
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE
1. DESCRIPTION OF BUSINESS
We develop and sell devices that use spintronics,
a nanotechnology that relies on electron spin rather than electron charge to acquire,
store, and transmit information.
NOTE 2.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements
of NVE Corporation are prepared consistent with accounting principles generally
accepted in the United States and in accordance with Securities and Exchange Commission
rules and regulations. In the opinion of management, these financial statements
reflect all adjustments, consisting only of normal and recurring adjustments,
necessary for a fair presentation of the financial statements. Although we believe
that the disclosures are adequate to make the information presented not misleading,
certain disclosures have been omitted as allowed, and it is suggested that these
unaudited financial statements be read in conjunction with the audited financial
statements and the notes included in our latest annual financial statements included
in our Annual Report on Form 10-K for
the fiscal year ended March 31, 2019. The results of operations for the quarter
ended June 30, 2019 are not necessarily indicative of the results that may
be expected for the full fiscal year ending March 31, 2020.
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, 2019 or March 31,
2019.
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
Table
of Contents
NOTE 3.
RECENTLY ISSUED ACCOUNTING STANDARDS
Recently Adopted Accounting Standard
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 is effective for fiscal years beginning after December 15, 2018,
and interim periods within those fiscal years, which is fiscal 2020 for us. In
July 2018, the FASB issued ASU No. 2018-11, Leases Topic (842): Targeted
Improvements. ASU No. 2018-11 provided 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, and
we adopted the new lease guidance using that method in the quarter ended June 30,
2019. Currently our only lease is the lease for our facility. We recognized $298,983
of leased liabilities and a right-of-use asset of $261,644 as of April 1, 2019.
The leased liabilities and right-of-use asset exclude non-lease components. There
was no effect on our results of operations or cash flows.
New Accounting Standard 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
Table
of Contents
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 |
| 2019 |
|
2018 |
| Weighted average common shares outstanding – basic |
4,846,010 |
|
4,842,010 |
| Dilutive effect of stock options |
4,378 |
|
8,469 |
| Shares used in computing net income per share –
diluted |
4,850,388 |
|
4,850,479 |
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 June 30, 2019 by maturity were as follows:
| Total |
|
<1
Year |
|
1–3
Years |
|
3–5
Years |
| $ |
61,611,878 |
|
$ |
2,999,689 |
|
$ |
36,251,115 |
|
$ |
22,361,074 |
Total available-for-sale securities represented
approximately 74% of our total assets. Marketable
securities as of June 30, 2019 had remaining maturities between 18 days
and 56 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, 2019 |
|
As of
March 31, 2019 |
| Level
1 |
|
Level
2 |
|
Total |
Level
1 |
|
Level
2 |
|
Total |
| Money market funds |
$ |
12,774,255 |
|
$ |
- |
|
$ |
12,774,255 |
|
$ |
6,703,809 |
|
$ |
- |
|
$ |
6,703,809 |
| Corporate bonds |
|
- |
|
|
61,611,878 |
|
|
61,611,878 |
|
|
- |
|
|
67,413,454 |
|
|
67,413,454 |
| Total |
$ |
12,774,255 |
|
$ |
61,611,878 |
|
$ |
74,386,133 |
|
$ |
6,703,809 |
|
$ |
67,413,454 |
|
$ |
74,117,263 |
9
Table
of Contents
Our
available-for-sale securities as of June 30 and March 31, 2019, aggregated
into classes of securities, were as follows:
|
As
of June 30, 2019 |
|
As
of March 31, 2019 |
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 |
$ |
12,774,255 |
|
$ |
- |
|
$ |
- |
|
|
$ |
12,774,255 |
|
$ |
6,703,809 |
|
$ |
- |
|
$ |
- |
|
|
$ |
6,703,809 |
| Corporate bonds |
|
60,988,047 |
|
|
691,342 |
|
|
(67,511 |
) |
|
|
61,611,878 |
|
|
67,519,350 |
|
|
315,902 |
|
|
(421,798 |
) |
|
|
67,413,454 |
| Total |
$ |
73,762,302 |
|
$ |
691,342 |
|
$ |
(67,511 |
) |
|
$ |
74,386,133 |
|
$ |
74,223,159 |
|
$ |
315,902 |
|
$ |
(421,798 |
) |
|
$ |
74,117,263 |
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 June 30 and March 31,
2019.
|
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 June 30, 2019 |
|
Corporate bonds |
$ |
- |
|
$ |
- |
|
|
$ |
24,235,229 |
|
$ |
(67,511 |
) |
|
$ |
24,235,229 |
|
$ |
(67,511 |
) |
| |
Total |
$ |
- |
|
$ |
- |
|
|
$ |
24,235,229 |
|
$ |
(67,511 |
) |
|
$ |
24,235,229 |
|
$ |
(67,511 |
) |
| |
| As of March 31, 2019 |
|
Corporate bonds |
$ |
- |
|
$ |
- |
|
|
$ |
51,413,428 |
|
$ |
(421,798 |
) |
|
$ |
51,413,428 |
|
$ |
(421,798 |
) |
| |
Total |
$ |
- |
|
$ |
- |
|
|
$ |
51,413,428 |
|
$ |
(421,798 |
) |
|
$ |
51,413,428 |
|
$ |
(421,798 |
) |
We did not consider any of our available-for-sale
securities to be impaired as of June 30, 2019. 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 June 30, 2019.
NOTE 6. INVENTORIES
Inventories are shown in the following table:
|
June
30,
2019 |
|
March
31,
2019 |
| Raw materials |
$ |
1,082,203 |
|
$ |
1,130,917 |
| Work in process |
|
2,250,251 |
|
|
2,325,238 |
| Finished goods |
887,329 |
|
808,721 |
| Total inventories |
$ |
4,219,783 |
|
$ |
4,264,876 |
NOTE 7. STOCK-BASED COMPENSATION
There were no stock-based compensation expenses
for the first quarters of fiscal 2020 or 2019.
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,
2019, 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, 2019 we had no accrued interest
related to uncertain tax positions. The tax years 2015 through 2018 remain open
to examination by the major taxing jurisdictions
to which we are subject.
10
Table
of Contents
NOTE 9.
LEASES
We conduct our operations in a leased facility under
a non-cancellable lease through December 31, 2020. 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, 2019 |
| Operating
lease cost |
$ |
38,641 |
|
| Variable
lease cost |
30,227 |
|
| Total |
$ |
68,868 |
|
| |
| Cash paid for amounts included in the measurement
of lease liabilities |
|
Operating cash flows for leases
|
$ |
43,365 |
|
| Remaining lease term |
1.5 years |
|
| Discount rate |
3.5 |
% |
The following table presents the maturities of lease
liabilities as of June 30, 2019:
|
| Year Ending March 31 |
|
Operating Leases |
| 2020 |
|
$ |
131,163 |
|
| 2021 |
|
133,299 |
|
| Total lease payments |
|
264,462 |
|
| Imputed lease interest |
|
(6,474 |
) |
| Total lease liabilities |
|
$ |
257,988 |
|
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,
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 June 30, 2019. The remaining authorization
was $4,540,806 as of June 30, 2019. The Repurchase Program may be modified
or discontinued at any time without notice.
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 $24,066 for the first quarter of fiscal 2020 and $23,298
for the first quarter of fiscal 2019.
NOTE 12.
SUBSEQUENT EVENTS
On July 17, 2019 we announced that our Board
had declared a quarterly cash dividend of $1.00 per share of Common Stock to be
paid August 30, 2019 to shareholders of record as of the close of business
July 29, 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 sales and revenues, risks related to changes in
tariffs and other trade barriers, 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.
11
Table
of Contents
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,
2019.
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, 2019. As of June 30, 2019 our
critical accounting policies and estimates continued to include investment valuation,
inventory valuation, and deferred tax assets estimation.
Quarter ended June 30, 2019 compared to quarter ended June 30, 2018
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 |
| 2019 |
|
2018 |
| Revenue |
|
Product sales
|
96.7 |
% |
|
96.7 |
% |
|
(11.4 |
)% |
|
Contract research and development
|
3.3 |
% |
|
3.3 |
% |
|
(11.8 |
)% |
| Total revenue |
100.0 |
% |
|
100.0 |
% |
|
(11.4 |
)% |
| Cost of sales |
17.3 |
% |
|
19.6 |
% |
|
(21.8 |
)% |
| Gross profit |
82.7 |
% |
|
80.4 |
% |
|
(8.9 |
)% |
| Expenses |
|
Research and development
|
15.5 |
% |
|
13.9 |
% |
|
(1.6 |
)% |
|
Selling, general, and administrative
|
5.2 |
% |
|
4.7 |
% |
|
0.4 |
% |
| Total expenses |
20.7 |
% |
|
18.6 |
% |
|
(1.1 |
)% |
| Income from operations |
62.0 |
% |
|
61.8 |
% |
|
(11.3 |
)% |
| Interest income |
7.2 |
% |
|
6.0 |
% |
|
8.1 |
% |
| Income before taxes |
69.2 |
% |
|
67.8 |
% |
|
(9.6 |
)% |
| Provision for income taxes |
11.9 |
% |
|
12.3 |
% |
|
(14.0 |
)% |
| Net income |
57.3 |
% |
|
55.5 |
% |
|
(8.6 |
)% |
Total revenue for the quarter ended June 30,
2019 (the first quarter of fiscal 2020) decreased 11% compared to the quarter
ended June 30, 2018 (the first quarter of fiscal 2019). The decrease was
due to an 11% decrease in product sales and a 12% 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 the first quarter of fiscal 2020
was due to the completion of certain contracts.
Gross profit margin increased to 83% of revenue
for the first quarter of fiscal 2020 compared to 80% for the first quarter of
fiscal 2019 due to a more profitable product mix.
Total expenses decreased 1% in the first quarter
of fiscal 2020 compared to the first quarter of fiscal 2019 due to a 2% decrease
in research and development expense.
Interest income for the first quarter of fiscal
2020 increased 8% due to an increase in the average interest rates on our marketable
securities and money market funds.
The 9% decrease in net income in the first quarter
of fiscal 2020 compared to the prior-year quarter was primarily due to a decrease
in total revenue partially offset by an increase in gross profit margin.
Comprehensive income increased 9% to $4,177,482
compared to $3,838,022 for the prior-year quarter. The increase in comprehensive
income was due to an unrealized gain from marketable securities of $570,063 compared
to an unrealized loss of $107,027 in the prior-year quarter, partially offset
by a decrease in net income. The unrealized gain was due to strong bond market
conditions.
12
Table
of Contents
Liquidity
and capital resources
Overview
Cash and cash equivalents were $13,039,292 as of
June 30, 2019 compared to $6,877,304 as of March 31, 2019. The $6,161,988
increase in cash and cash equivalents during the quarter ended June 30, 2019
was due to $4,537,628 in net cash provided by operating activities and $6,470,370
of cash provided by investing activities, partially offset by $4,846,010 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 quarter
ended June 30, 2019 was due to $9,500,000 of marketable security maturities,
partially offset by $3,013,530 of purchases of marketable securities and $16,100
of purchases of fixed assets.
Financing Activities
Cash used in financing activities in the first quarter
of fiscal 2020 was due to $4,846,010 of cash dividends paid to shareholders. In
addition to the dividends already paid in fiscal 2020, on July 17, 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 July 12,
2019, to be paid August 30, 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 June 30, 2019, our disclosure controls and procedures
were effective.
Changes in Internal Controls
During the quarter ended June 30, 2019, 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.
13
Table
of Contents
PART II–OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of business we may become
involved in litigation. At this time we are not aware of any material pending
or threatened legal proceedings or other proceedings contemplated by governmental
authorities that we expect would have a material adverse impact on our future
results of operation and financial condition.
Item 1A. Risk Factors.
There have been no material changes from the risk
factors disclosed in our Annual Report on Form 10-K for the fiscal year ended
March 31, 2019.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 6. Exhibits.
14
Table
of Contents
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 17, 2019
|
/s/ DANIEL A. BAKER |
|
Date
|
Daniel A. Baker |
|
President and Chief Executive Officer |
|
|
July 17, 2019
|
/s/ CURT A. REYNDERS
|
|
Date
|
Curt A. Reynders |
|
Chief Financial Officer |
15
Exhibit
31.1
CERTIFICATION
I, Daniel A. Baker,
certify that:
1.
I have reviewed this Quarterly Report
on Form 10-Q of NVE Corporation;
2.
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered
by this report;
3.
Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls
and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal
control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial
reporting.
Date: July 17, 2019
| |
/s/ DANIEL A. BAKER | |
|
|
Daniel A. Baker |
|
|
President and Chief Executive Officer |
Exhibit
31.2
CERTIFICATION
I, Curt A. Reynders, certify
that:
1.
I have reviewed this Quarterly Report
on Form 10-Q of NVE Corporation;
2.
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered
by this report;
3.
Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls
and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal
control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial
reporting.
Date: July 17, 2019
| |
/s/ CURT A. REYNDERS | |
|
|
Curt A. Reynders |
|
|
Chief Financial Officer |