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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended   September 30, 2022

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.jpg

NVE CORPORATION

(Exact name of registrant as specified in its charter)

 

Minnesota

 

41-1424202

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

11409 Valley View Road, Eden Prairie, Minnesota

 

55344 

(Address of principal executive offices)

 

(Zip Code)

 

(952) 829-9217 

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes  ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

 

Non-accelerated filer ☒

Smaller reporting company ☒

  

Emerging growth company ☐ 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ☐ Yes  ☒ No

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

NVEC

The NASDAQ Stock Market, LLC

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 Par Value – 4,830,826 shares outstanding as of October 14, 2022

 

 

 

 

NVE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 
   

Item 1. Financial Statements

 
   

Balance Sheets

 
   

Statements of Income for the Quarters Ended September 30, 2022 and 2021

 
   
Statements of Comprehensive Income for the Quarters Ended September 30, 2022 and 2021  
   
Statements of Income for the Six Months Ended September 30, 2022 and 2021  
   

Statements of Comprehensive Income for the Six Months Ended September 30, 2022 and 2021

 
   

Statements of Shareholders’ Equity for the Six Months Ended September 30, 2022

 
   

Statements of Shareholders’ Equity for the Six Months Ended September 30, 2021

 
   

Statements of Cash Flows for the Six Months Ended September 30, 2022 and 2021

 
   

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 IFINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

NVE CORPORATION

BALANCE SHEETS

  

(Unaudited)

September 30, 2022

  

March 31, 2022*

 

ASSETS

        

Current assets

        

Cash and cash equivalents

 $3,583,539  $10,449,510 

Marketable securities, short-term

  10,326,647   20,839,683 

Accounts receivable, net of allowance for uncollectible accounts of $15,000

  5,860,414   4,704,829 

Inventories

  5,794,849   5,088,635 

Prepaid expenses and other assets

  600,913   420,520 

Total current assets

  26,166,362   41,503,177 

Fixed assets

        

Machinery and equipment

  9,603,049   9,739,244 

Leasehold improvements

  1,826,334   1,810,872 
   11,429,383   11,550,116 

Less accumulated depreciation and amortization

  10,990,224   10,943,731 

Net fixed assets

  439,159   606,385 

Deferred tax assets

  894,045   483,469 

Marketable securities, long-term

  39,514,685   24,314,211 

Right-of-use asset – operating lease

  494,070   560,250 

Total assets

 $67,508,321  $67,467,492 
         

LIABILITIES AND SHAREHOLDERS’ EQUITY

        

Current liabilities

        

Accounts payable

 $399,263  $943,535 

Accrued payroll and other

  2,861,151   1,356,689 

Operating lease

  157,830   156,121 

Total current liabilities

  3,418,244   2,456,345 

Operating lease

  374,941   446,018 

Total liabilities

  3,793,185   2,902,363 
         

Shareholders’ equity

        

Common stock, $0.01 par value, 6,000,000 shares authorized; 4,830,826 issued and outstanding as of September 30 and March 31, 2022

  48,308   48,308 

Additional paid-in capital

  19,303,570   19,256,485 

Accumulated other comprehensive (loss)

  (1,784,035)  (318,120)

Retained earnings

  46,147,293   45,578,456 

Total shareholders’ equity

  63,715,136   64,565,129 

Total liabilities and shareholders’ equity

 $67,508,321  $67,467,492 

 

*The March 31, 2022 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, 2022.

 

See accompanying notes. 

 

3

 

 

NVE CORPORATION

STATEMENTS OF INCOME

(Unaudited)

 

   

Quarter Ended September 30

 
   

2022

   

2021

 

Revenue

               

Product sales

  $ 10,514,539     $ 6,630,012  

Contract research and development

    203,285       193,450  

Total revenue

    10,717,824       6,823,462  

Cost of sales

    2,402,781       1,544,134  

Gross profit

    8,315,043       5,279,328  

Expenses

               

Research and development

    669,978       707,997  

Selling, general, and administrative

    435,625       483,116  

Total expenses

    1,105,603       1,191,113  

Income from operations

    7,209,440       4,088,215  

Interest income

    351,375       294,858  

Income before taxes

    7,560,815       4,383,073  

Provision for income taxes

    1,470,442       736,566  

Net income

  $ 6,090,373     $ 3,646,507  

Net income per share – basic

  $ 1.26     $ 0.75  

Net income per share – diluted

  $ 1.26     $ 0.75  

Cash dividends declared per common share

  $ 1.00     $ 1.00  

Weighted average shares outstanding

               

Basic

    4,830,826       4,833,232  

Diluted

    4,830,956       4,836,603  

 

 

STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   

Quarter Ended September 30

 
   

2022

   

2021

 

Net income

  $ 6,090,373     $ 3,646,507  

Unrealized loss from marketable securities, net of tax

    (1,127,362 )     (197,034 )

Comprehensive income

  $ 4,963,011     $ 3,449,473  

 

See accompanying notes.

 

4

NVE CORPORATION

STATEMENTS OF INCOME

(Unaudited)

 

 

Six Months Ended September 30

 

2022

  

2021

Revenue

      

Product sales

$17,587,500  $13,583,778

Contract research and development

 466,731   392,847

Total revenue

 18,054,231   13,976,625

Cost of sales

 4,054,628   3,313,715

Gross profit

 13,999,603   10,662,910

Expenses

      

Research and development

 1,271,896   1,516,139

Selling, general, and administrative

 806,946   949,734

Total expenses

 2,078,842   2,465,873

Income from operations

 11,920,761   8,197,037

Interest income

 634,436   584,578

Income before taxes

 12,555,197   8,781,615

Provision for income taxes

 2,324,707   1,555,542

Net income

$10,230,490  $7,226,073

Net income per share – basic

$2.12  $1.50

Net income per share – diluted

$2.12  $1.49

Cash dividends declared per common share

$2.00  $2.00

Weighted average shares outstanding

      

Basic

 4,830,826   4,833,232

Diluted

     4,836,621

 

 

STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   

Six Months Ended September 30

 
   

2022

   

2021

 

Net income

  $ 10,230,490     $ 7,226,073  

Unrealized loss from marketable securities, net of tax

    (1,465,915 )     (287,199 )

Comprehensive income

  $ 8,764,575     $ 6,938,874  

 

See accompanying notes.

 

5

 

 

NVE CORPORATION

STATEMENTS OF SHAREHOLDERS EQUITY

(Unaudited)

 

              

Accumulated

         
          

Additional

  

Other

         
  

Common Stock

  

Paid-In

  

Comprehensive

  

Retained

     
  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Earnings

  

Total

 

Balance as of March 31, 2022

  4,830,826  $48,308  $19,256,485  $(318,120) $45,578,456  $64,565,129 
Comprehensive income:                        
Unrealized loss on marketable securities, net of tax            (338,553)     (338,553)
Net income               4,140,116   4,140,116 
Total comprehensive income                  3,801,563 
Stock-based compensation         7,134         7,134 
Cash dividends declared ($1.00 per share of common stock)               (4,830,826)  (4,830,826)
Balance as of June 30, 2022  4,830,826   48,308   19,263,619   (656,673)  44,887,746   63,543,000 

Comprehensive income:

                        

Unrealized loss on marketable securities, net of tax

            (1,127,362

)

     (1,127,362

)

Net income

               6,090,373   6,090,373 

Total comprehensive income

                  4,963,011 

Stock-based compensation

         39,951         39,951 

Cash dividends declared ($1.00 per share of common stock)

               (4,830,826

)

  (4,830,826

)

Balance as of September 30, 2022

  4,830,826  $48,308  $19,303,570  $(1,784,035) $46,147,293  $63,715,136 

 

See accompanying notes. 

 

6

 

 

NVE CORPORATION

STATEMENTS OF SHAREHOLDERS EQUITY

(Unaudited)

 

              

Accumulated

         
          

Additional

  

Other

         
  

Common Stock

  

Paid-In

  

Comprehensive

  

Retained

     
  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Earnings

  

Total

 

Balance as of March 31, 2021

  4,833,232  $48,332  $19,338,127  $1,101,119  $50,404,364  $70,891,942 

Comprehensive income:

                        

Unrealized loss on marketable securities, net of tax

             (90,165

)

      (90,165

)

Net income

                 3,579,566   3,579,566 

Total comprehensive income

                      3,489,401 
Stock-based compensation          7,238           7,238 
Cash dividends declared ($1.00 per share of common stock)                  (4,833,232)  (4,833,232)
Balance as of June 30, 2021  4,833,232   48,332   19,345,365   1,010,954   49,150,698   69,555,349 
Comprehensive income:                        
Unrealized loss on marketable securities, net of tax            (197,034)     (197,034)
Net income               3,646,507   3,646,507 
Total comprehensive income                  3,449,473 

Stock-based compensation

         56,999         56,999 

Cash dividends declared ($1.00 per share of common stock)

               (4,833,232

)

  (4,833,232

)

Balance as of September 30, 2021

  4,833,232  $48,332  $19,402,364  $813,920  $47,963,973  $68,228,589 

 

See accompanying notes. 

 

7

 

 

NVE CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Six Months Ended September 30

 
   

2022

   

2021

 

OPERATING ACTIVITIES

               

Net income

  $ 10,230,490     $ 7,226,073  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    158,851       271,207  

Stock-based compensation

    47,085       64,237  

Deferred income taxes

    -       16,539  

Changes in operating assets and liabilities:

               

Accounts receivable

    (1,155,585 )     (911,821 )

Inventories

    (706,214 )     81,994  

Prepaid expenses and other assets

    (114,213 )     (298,099 )

Accounts payable and accrued expenses

    890,822       172,054  

Net cash provided by operating activities

    9,351,238       6,458,196  
                 

INVESTING ACTIVITIES

             

Purchases of fixed assets

    (24,500 )     (73,916 )

Purchases of marketable securities

    (25,381,057 )     -  
Proceeds from maturities of marketable securities     18,750,000       4,000,000  
Receipt of tenant improvement allowance     100,000       -  

Net cash provided (used) by investing activities

    (6,555,557)       3,926,084  
                 

FINANCING ACTIVITIES

               

Payment of dividends to shareholders

    (9,661,652 )     (9,666,464 )

Cash used in financing activities

    (9,661,652 )     (9,666,464 )

(Decrease) increase in cash and cash equivalents

    (6,865,971 )     717,816  
                 

Cash and cash equivalents at beginning of period

    10,449,510       10,427,340  
                 

Cash and cash equivalents at end of period

  $ 3,583,539     $ 11,145,156  
                 

Supplemental disclosures of cash flow information:

               

Cash paid during the period for income taxes

  $ 1,281,629     $ 1,760,000  

 

See accompanying notes. 

 

8

 

NVE CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1. DESCRIPTION OF BUSINESS

We develop and sell devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store, and transmit information. 

 

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements of NVE Corporation are prepared consistent with accounting principles generally accepted in the United States and in accordance with Securities and Exchange Commission rules and regulations. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the financial statements. Although we believe that the disclosures are adequate to make the information presented not misleading, certain disclosures have been omitted as allowed, and it is suggested that these unaudited financial statements be read in conjunction with the audited financial statements and the notes included in our latest annual financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022. The results of operations for the quarter and six months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2023.

 

Significant accounting policies

A description of our significant accounting policies is provided in Note 2 to the Financial Statements in our Annual Report on Form 10-K for the year ended March 31, 2022. As of September 30, 2022, there were no changes to our significant accounting policies.

 

NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS

Recently Adopted Accounting Standard

In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 addresses issuers’ accounting for certain modifications or exchanges of freestanding equity-classified written call options. We adopted ASU 2021-04 beginning with the quarter ended June 30, 2022. The adoption had no material impact on our financial statements.
 

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. 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 InstrumentsCredit 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 InstrumentsCredit 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. 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 are evaluating the potential impact of ASU 2016-13 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 September 30
 

2022

 

2021

Weighted average common shares outstanding – basic

4,830,826 4,833,232

Dilutive effect of stock options

130 3,371

Shares used in computing net income per share – diluted

4,830,956 4,836,603
 
 Six Months Ended September 30
 2022 2021
Weighted average common shares outstanding – basic4,830,826 4,833,232
Dilutive effect of stock options101 3,389
Shares used in computing net income per share – diluted4,830,927 4,836,621

 

 

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 September 30, 2022 are as follows: 

 

Total

 

<1 Year

 

1–3 Years

 

3–7 Years

 
$51,598,609 $12,083,924 $24,387,794 $15,126,891 

 

Total available-for-sale securities represented approximately 76% of our total assets. Marketable securities as of September 30, 2022 had remaining maturities between 14 weeks and 79 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 September 30, 2022

  

As of March 31, 2022

  

Level 1

  

Level 2

  

Total

  

Level 1

  

Level 2

  

Total

Money market funds

 $1,757,277  $-  $1,757,277  $6,756,993  $-  $6,756,993

Corporate bonds

  -   49,841,332   49,841,332   -   45,153,894   45,153,894

Total

 $1,757,277  $49,841,332  $51,598,609  $6,756,993  $45,153,894  $51,910,887

 

Our available-for-sale securities as of September 30 and March 31, 2022, aggregated into classes of securities, were as follows:

 

  

As of September 30, 2022

  

As of March 31, 2022

  

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

 $1,757,277  $-  $-  $1,757,277  $6,756,993  $-  $-  $6,756,993

Corporate bonds

  52,125,043   -   (2,283,711)  49,841,332   45,561,114   230,085   (637,305

)

  45,153,894

Total

 $53,882,320  $-  $(2,283,711) $51,598,609  $52,318,107  $230,085  $(637,305

)

 $51,910,887

 

10

 

The following table shows the gross unrealized holding losses and fair value of our available-for-sale securities with unrealized holding losses, aggregated by class of securities and length of time that individual securities had been in a continuous unrealized loss position as of September 30 and March 31, 2022.

 

  

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 September 30, 2022

                        

Corporate bonds

 $40,510,241  $(1,327,302) $9,331,091  $(956,409) $49,841,332  $(2,283,711)

Total

 $40,510,241  $(1,327,302) $9,331,091  $(956,409) $49,841,332  $(2,283,711)
                         

As of March 31, 2022

                        

Corporate bonds

 $6,306,750  $(23,727

)

 $9,738,338  $(613,578) $16,045,088  $(637,305

)

Total

 $6,306,750  $(23,727

)

 $9,738,338  $(613,578) $16,045,088  $(637,305

)

 

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 September 30, 2022.

 

NOTE 6. INVENTORIES

Inventories are shown in the following table:

 

  September 30, 2022  March 31, 2022

Raw materials

$1,324,358 $987,062

Work in process

 3,829,498  3,355,838

Finished goods

 640,993  745,735

Total inventories

$5,794,849 $5,088,635
 

NOTE 7. STOCK-BASED COMPENSATION

Stock-based compensation expense was $39,951 for the second quarter of fiscal 2023, $56,999 for the second quarter of fiscal 2022, $47,085 for the first six months of fiscal 2023, and $64,237 for the first six months of fiscal 2022. 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. Federal and state income taxes payable as of September 30, 2022 of approximately $1,457,000 are included in accrued expenses.

 

We had no unrecognized tax benefits as of September 30, 2022, and we do not expect any significant unrecognized tax benefits within 12 months of the reporting date. We recognize interest and penalties related to income tax matters in income tax expense. As of September 30, 2022 we had no accrued interest related to uncertain tax positions. The tax years 2018 through 2022 remain open to examination by the major taxing jurisdictions to which we are subject. 

 

11

 

NOTE 9. LEASES

We conduct our operations in a leased facility under a non-cancellable lease expiring March 31, 2026. Our lease does not provide an implicit rate, so we used our incremental borrowing rate to determine the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term. Variable lease costs consist primarily of common area maintenance and real estate taxes which are paid based on actual costs incurred by the lessor. Details of our operating lease are as follows: 

 

 Quarter Ended September 30, 2022  Six Months Ended September 30, 2022
Operating lease cost$42,515 $85,031 
Variable lease cost 30,126  61,315 
Total$72,641 $146,346 
       
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows for leases
$42,723  87,156 
Remaining lease term42 months    
Discount rate 3.5%   

 

 The following table presents the maturities of lease liabilities as of September 30, 2022:

 

Year Ending March 31Operating Leases 
2023 78,487 
2024 159,592 
2025 163,224 
2026 165,947 
Total lease payments 567,250 
Imputed lease interest (34,479)
Total lease liabilities$532,771 
 

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 $3,598,519 as of September 30, 2022. We did not repurchase any of our Common Stock during the first six months of fiscal 2023. 

 

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 $23,751 for the second quarter of fiscal 2023, $26,831 for the second quarter of fiscal 2022, $52,177 for the first six months of fiscal 2023, and $55,415 for the first six months of fiscal 2022.

 

NOTE 12. SUBSEQUENT EVENTS

On October 19, 2022 we announced that our Board had declared a quarterly cash dividend of $1.00 per share of Common Stock to be paid November 30, 2022 to shareholders of record as of the close of business October 31, 2022.

 

12

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-looking statements

Some of the statements made in this Report or in the documents incorporated by reference in this Report and in other materials filed or to be filed by us with the Securities and Exchange Commission (“SEC”) as well as information included in verbal or written statements made by us constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of the terminology such as may, will, expect, anticipate, intend, believe, estimate, should, or continue, or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of NVE, you should be aware that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. These differences may be caused by a variety of factors, including but not limited to risks related to our reliance on several large customers for a significant percentage of revenue, our dependence on critical suppliers and packaging vendors, uncertainties related to the economic environments in the industries we serve, uncertainties related to future sales and revenues, risks and uncertainties related to future stock repurchases and dividend payments, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.

 

Further information regarding our risks and uncertainties are contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2022.

 

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, 2022. As of September 30, 2022 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

 

13

 

Quarter ended September 30, 2022 compared to quarter ended September 30, 2021

The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

 

 

Percentage of Revenue

Quarter Ended September 30

   

Quarter-

to-Quarter

 
 

2022

   

2021

   

Change

 

Revenue

               

Product sales

 98.1

%

  97.2

%

  58.6

%

Contract research and development

1.9

%

  2.8

%

   5.1

%

Total revenue

100.0

%

  100.0

%

  57.1

%

Cost of sales

 22.4

%

   22.6

%

   55.6

%

Gross profit

 77.6

%

   77.4

%

  57.5

%

Expenses

               

Research and development

6.2

%

  10.4

%

   (5.4)

%

Selling, general, and administrative

 4.1

%

   7.1

%

   (9.8)

%

Total expenses

 10.3

%

   17.5

%

   (7.2)

%

Income from operations

 67.3

%

  59.9

%

  76.3

%

Interest income

 3.2

%

   4.3

%

  19.2

%

Income before taxes

70.5

%

   64.2

%

  72.5

%

Provision for income taxes

 13.7

%

   10.8

%

  99.6

%

Net income

 56.8

%

  53.4

%

  67.0

%

 

 

Total revenue for the quarter ended September 30, 2022 (the second quarter of fiscal 2023) increased 57% compared to the quarter ended September 30, 2021 (the second quarter of fiscal 2022). The increase was due to a 59% increase in product sales and a 5% increase in contract research and development revenue. The increase in product sales was primarily due to increased purchases by existing customers and new customers. Sales increased in most of our markets and product lines. The increase in contract research and development revenue was due to new contracts.

 

Total expenses decreased 7% for the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022 due to a 5% decrease in research and development expense and a 10% decrease in selling, general, and administrative expense. The decreases in expenses were primarily due to the reallocation of resources to revenue-generating activities.

 

Interest income for the second quarter of fiscal 2023 increased 19% due to an increase in our available-for-sale securities and an increase in their average interest rate.

 

The 67% increase in net income in the second quarter of fiscal 2023 compared to the prior-year quarter was primarily due to increased revenue and decreased expenses.

 

14

 

Six months ended September 30, 2022 compared to six months ended September 30, 2021

The table shown below summarizes the percentage of revenue and period-to-period changes for various items:

 

 

Percentage of Revenue

Six Months Ended September 30

   

Period-

to-Period

 
 

2022

   

2021

   

Change

 

Revenue

               

Product sales

 97.4

%

  97.2

%

  29.5

%

Contract research and development

2.6

%

  2.8

%

   18.8

%

Total revenue

100.0

%

  100.0

%

  29.2

%

Cost of sales

 22.5

%

   23.7

%

  22.4

%

Gross profit

 77.5

%

   76.3

%

  31.3

%

Expenses

               

Research and development

 7.0

%

  10.9

%

   (16.1)

%

Selling, general, and administrative

4.5

%

   6.8

%

   (15.0)

%

Total expenses

 11.5

%

   17.7

%

   (15.7)

%

Income from operations

 66.0

%

  58.6

%

  45.4

%

Interest income

 3.5

%

   4.2

%

  8.5

%

Income before taxes

 69.5

%

   62.8

%

  43.0

%

Provision for income taxes

 12.8

%

   11.1

%

  49.4

%

Net income

 56.7

%

  51.7

%

  41.6

%

 

Total revenue for the six months ended September 30, 2022 (the first six months of fiscal 2023) increased 29% compared to the six months ended September 30, 2021 (the first six months of fiscal 2022). The increase was due to a 29% increase in product sales and a 19% increase in contract research and development revenue. The increase in product sales was primarily due to increased purchases by existing customers and new customers. Sales increased in most of our markets and product lines. The increase in contract research and development revenue was due to new contracts.

 

Gross profit as a percentage of revenue increased to 78% for the first six months of fiscal 2023 from 76% for the first six months of fiscal 2022 primarily due to increased prices partially offset by increased costs.

 

Total expenses decreased 16% for the first six months of fiscal 2023 compared to the first six months of fiscal 2022 due to a 16% decrease in research and development expense and a 15% decrease in selling, general, and administrative expense. The decreases in expenses were primarily due to the reallocation of resources to revenue-generating activities.

 

Interest income for the first six months of fiscal 2023 increased 9% due to an increase in our available-for-sale securities and an increase in their average interest rate.

 

The 42% increase in net income in the first six months of fiscal 2023 compared to the prior-year period was primarily due to increased revenue and decreased expenses.

 

Supply Chain Disruptions

Supply chain disruptions related to the COVID-19 pandemic may have favorably affected product sales in the quarter and six months ended September 30, 2022 since we believe the disruptions may have been less severe for us than for our competitors. We believe supply chain disruptions also had an unfavorable impact on our costs of sales.

 

15

 

Liquidity and Capital Resources

 

Overview

Cash and cash equivalents were $3,583,539 as of September 30, 2022 compared to $10,449,510 as of March 31, 2022. The $6,865,971 decrease in cash and cash equivalents during the first six months of fiscal 2023 was due to $9,661,652 of cash used in financing activities for dividend payments and $6,555,557 of cash used by investing activities, partially offset by $9,351,238 in net cash provided by operating activities.

 

Operating Activities

Net cash provided by operating activities related to product sales and research and development contract revenue as our primary source of working capital for the current and prior-year quarters. Net cash provided by operating activities was $9,351,238 for the first six months of fiscal 2023 compared to $6,458,196 for the first six months of fiscal 2022.

 

Accounts receivable increased $1,155,585 during the first six months of fiscal 2023 primarily due to increased product sales.

 

Inventories increased $706,214 due primarily to our decisions to increase work in process in order to mitigate longer vendor lead-times.

 

Accounts payable and accrued expenses increased $890,822 due primarily due to a $1,504,462 increase in accrued expenses partially offset by a $544,272 decrease in accounts payable and a $69,368 net decrease in current and long-term operating lease liabilities. The increase in accrued expenses was due to increases in income taxes payable and deferred revenue. The decrease in accounts payable was due to the timing of vendor payments.

 

Investing Activities

Cash used by investing activities during the six months ended September 30, 2022 consisted of $25,381,057 of  marketable securities purchases and $24,500 of fixed asset purchases, partially offset by $18,750,000 in proceeds from maturities of marketable securities and the receipt of a $100,000 tenant improvement allowance. Fixed asset purchases can vary from quarter to quarter depending on our needs and equipment purchasing opportunities. We have ordered additional new production equipment to increase our production capacity. Therefore we currently expect significantly more fixed asset purchases during fiscal 2023 than the $484,579 we invested in fiscal 2022.

 

Financing Activities

Cash used in financing activities during the six months ended September 30, 2022 consisted of $9,661,652 of cash dividends paid to shareholders. In addition to cash dividends to shareholders paid in second quarter of fiscal 2023, on October 19, 2022 we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,830,826 based on shares outstanding as of October 14, 2022, to be paid November 30, 2022. We plan to fund dividends through cash provided by operating activities and proceeds from maturities of marketable securities. All future dividends will be subject to Board approval and subject to the company’s results of operations, cash and marketable security balances, estimates of future cash requirements, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.

 

16

 

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 Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Although there have been changes in personnel involved in our controls, processes, and procedures, our management concluded that, as of September 30, 2022, our disclosure controls and procedures were effective.

 

Changes in Internal Controls

During the quarter ended September 30, 2022, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART IIOTHER 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, 2022.

 

Item 4. Mine Safety Disclosures.

None.
 

17

 

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 Joseph P. Schmitz pursuant to Rule 13a-14(a)/15d-14(a).
   

32

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   

101.INS

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

   

101.SCH     

Inline XBRL Taxonomy Extension Schema Document

   

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

   

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

   

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

   

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

   

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

18

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   

NVE CORPORATION

 
   

 (Registrant)

 
   
   

October 19, 2022

 

/s/ DANIEL A. BAKER 

 

Date

 

Daniel A. Baker

 
   

President and Chief Executive Officer

 
   
   
October 19, 2022   /s/ JOSEPH P. SCHMITZ  
Date   Joseph P. Schmitz  
    Chief Financial Officer  

 

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