10QSB 1 tenq1-03.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 30, 2002 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act. NVE Corporation --------------- (Exact name of registrant as specified in its charter) Minnesota --------- (State or other jurisdiction of incorporation) 000-12196 41-1424202 -------------------------------- ------------------------ Commission File Number I.R.S. Employer Identification number 11409 Valley View Road, Eden Prairie, Minnesota 55344 ----------------------------------------------- ---------- (Address of principal executive offices) (Zip code) Issuer's telephone number, including area code: (952) 829-9217 -------------- 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 [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common Stock, $.01 Par Value - 20,785,549 shares outstanding as of July 25, 2002. PART I--FINANCIAL INFORMATION Item 1. Financial Statements. NVE CORPORATION BALANCE SHEET JUNE 30, 2002 ASSETS Current assets: Cash $ 873,688 Investment securities 5,283,731 Accounts receivable 1,129,385 Inventories 514,796 Prepaid expenses and other assets 120,922 ----------- Total current assets 7,922,522 Fixed assets: Machinery and equipment 2,376,796 Furniture and fixtures 35,499 Leasehold improvements 356,833 Construction in progress 70,411 ----------- 2,839,539 Less accumulated depreciation 1,592,465 ----------- Total fixed assets 1,247,074 ----------- Total assets $9,169,596 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 311,470 Accrued payroll and other 367,915 Deferred revenue 1,193,273 Current portion of capital lease obligations 144,898 ----------- Total current liabilities 2,017,556 Capital lease obligations, less current portion 340,038 ----------- Total liabilities 2,357,594 Shareholders' equity: Common stock 207,855 Additional paid-in capital 11,943,158 Accumulated other comprehensive income 23,098 Accumulated deficit (5,362,109) ----------- Total shareholders' equity 6,812,002 ----------- Total liabilities and shareholders' equity $9,169,596 ===========
SEE ACCOMPANYING NOTES. NVE CORPORATION STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30:
2002 2001 -------------------------- Revenue Contract research and development $1,535,851 $1,112,596 Product sales 529,188 369,045 License revenue 97,917 181,249 -------------------------- Total revenue 2,162,956 1,662,890 Cost of sales 1,340,146 1,202,081 -------------------------- Gross profit 822,810 460,809 Expenses Research and development 328,602 277,073 Selling, general & administrative 446,999 359,956 -------------------------- Total expenses 775,601 637,029 -------------------------- Income (loss) from operations 47,209 (176,220) Interest income 40,250 10,376 Other income 4,770 71,308 -------------------------- Net income (loss) 92,229 (94,536) ========================== Net income (loss) per basic and diluted share - (.01) ========================== Weighted average shares outstanding: Basic 20,192,362 16,945,607 Diluted 21,711,367 16,945,607
SEE ACCOMPANYING NOTES. NVE CORPORATION STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 30:
2002 2001 -------------------------- OPERATING ACTIVITIES Net income (loss) $ 92,229 $ (94,536) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 106,551 65,219 Changes in operating assets and liabilities: Accounts receivable 131,788 138,022 Inventories (2,581) 1,423 Prepaid expenses and other (61,717) (19,009) Accounts payable and accrued expenses (136,097) (110,475) Deferred revenue (372,034) (336,585) -------------------------- Net cash used in operating activities (241,861) (355,941) INVESTING ACTIVITIES Purchases of fixed assets (128,020) (466,831) Purchase of investment securities (5,260,633) - -------------------------- Net cash used in investing activities (5,388,653) (466,831) FINANCING ACTIVITIES Net proceeds from sale of common stock 6,219,867 80,001 Repayment of note payable and capital lease obligations (252,923) (13,491) -------------------------- Net cash provided by financing activities 5,966,944 66,510 -------------------------- Increase (decrease) in cash 336,430 (756,262) Cash at beginning of period 537,258 1,492,080 -------------------------- Cash at end of period $ 873,688 $ 735,818 ==========================
SEE ACCOMPANYING NOTES. NVE CORPORATION NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 1. Interim Financial Information The accompanying unaudited financial statements of NVE Corporation (the "Company") are consistent with accounting principles generally accepted in the United States and reporting with SEC 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 the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that that these condensed financial statements be read in conjunction with the audited financial statements and the notes there to included in the Company's latest annual financial statements included in its report on Form 10-KSB. The results of operations for the three month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the full year ending March 31, 2003. 2. Nature of Business We develop and sell "spintronics" devices, which utilize electron spin rather than electron charge to acquire, store, and transmit information. 3. Revenue Recognition Revenue from product sales to direct customers is recognized upon shipment. Revenue from licensing and technology development programs, which is nonrefundable and for which no significant future obligations exist, is recognized when the license is signed. Revenue from licensing and technology development programs, which is refundable, recoupable against future royalties, or for which future obligations exist, is recognized when the Company has completed its obligations under the terms of the agreements. Revenue from royalties is recognized upon the shipment of product from the Company's technology license partners to direct customers. Certain research and development activities are conducted for third parties and such revenue is recognized as the services are performed. 4. Earnings Per Share The Company calculates its income (loss) per share pursuant to Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share. Basic earnings per share is computed based upon the weighted average number of common shares issued and outstanding during each year. Diluted net income per share amounts assume conversion, exercise or issuance of all potential common stock instruments (stock options, warrants and convertible preferred stock). Potentially dilutive securities including warrants and stock options are excluded from diluted earnings per share during net loss periods because these securities would be anti-dilutive. 5. Reclassification The Company has reclassified certain research and development costs related to contract research and development programs to cost of sales. Previously, these costs were included with research and development costs reported as operating expenses. 6. Investments The Company classifies and accounts for debt and equity securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company's entire portfolio is classified as available for sale; thus, securities are recorded at fair market value and any associated unrealized gain or loss, net of tax, is included as a separate component of shareholders' equity, "Accumulated other comprehensive income." 7. Technology exchange agreement On April 19, 2002 the Company closed a technology exchange agreement accompanied by an investment by Cypress Semiconductor Corporation ("Cypress"). Cypress purchased 3.433 million shares of NVE Common Stock for $6.228 million. Cypress also received a warrant for the purchase of up to an additional two million shares of Common Stock for $3.00 per share for a term of three years. Item 2. Management's Discussion and Analysis or Plan of Operation. General We develop and sell "spintronics" devices, which are integrated circuit type devices that rely on electron spin rather than electron charge to acquire, store, and transmit information in electronic systems. We derive revenue from three sources: 1) contract spintronics research and development (principally government contracts); 2) commercial sales of spintronic sensor and coupler products; and 3) licenses for our magnetic random-access memory (MRAM) intellectual property. Three months ended June 30, 2002 compared to three months ended June 30, 2001 The table shown below summarizes the percentage of revenues for the various items for the periods indicated:
Three Months Ended June 30, 2002 2001 ------- ------- Revenue: Research and development 71.0 % 66.9 % Product sales 24.5 22.2 License fees 4.5 10.9 ------- ------- Total revenues 100.0 100.0 Cost of sales 62.0 72.3 ------- ------- Gross profit 38.0 27.7 Total expenses 33.8 33.4 ------- ------- Net income (loss) 4.2 % (5.7)% ======= =======
Revenue for the three months ended June 30, 2002 were $2,162,956, an increase of 30% from revenue of $1,662,890 for the three months ended June 30, 2001. The increase was due primarily to a 43% increase in commercial product sales from $369,045 to $529,188. Contract research revenue increased 38%, from $1,112,596 to $1,535,851 due to increased government contract revenue and new revenue recognized under an agreement with Agilent Technologies, Inc. ("Agilent"). Increases in product revenue and contract research were partially offset by a decrease in license revenue from $181,249 to $97,917. Gross profit increased to 38% for the three months ended June 30, 2002 as compared to 27% for the three months ended June 30, 2001. This increase was due to higher yields on commercial products as well as increased margins on contract research and development. Research and development expenses increased 19% to $328,602 for the quarter ended June 30, 2002 as compared to $277,073 in the prior year's quarter. The increase was due to a greater emphasis on commercial product development. Selling, general and administrative expenses for the quarter ended June 30, 2002 increased by 24% to $446,999 compared to $359,956 in the prior year. The increase was primarily due to higher expenses associated with commercial selling activities and additional expenses associated with the Cypress technology exchange. We reported net income of $92,229 for the quarter ended June 30, 2002 compared to a net loss of $94,536 for the quarter ended June 30, 2001. The profit was due to a change from operational losses to profits, and higher interest income on the Company's increased investments. Liquidity and capital resources Net proceeds of $6,213,719 from the sale of common stock to Cypress Semiconductor Corporation in April 2002 were used primarily to retire debt and invest in available-for-sale securities. At June 30, 2002, the Company had $5,283,731 in available-for-sale securities, consisting of marketable fixed- income investments. We had cash on June 30, 2002 of $873,688 and working capital of $5,904,996. We believe our working capital is adequate for our current needs. Critical accounting policies It is important to understand our significant accounting policies in order to understand our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These accounting principles require us to make estimates and assumptions that affect amounts reported in our consolidated financial statements and the accompanying notes. Actual results are likely to differ from those estimates, but we do not believe such differences will materially affect our financial position or results of operations for the periods presented in this report. Revenue recognition Revenue from product sales to direct customers is recognized upon shipment. Revenue from licensing and technology development programs, which is nonrefundable and for which no significant future obligations exist, is recognized when the license is signed. Revenue from licensing and technology development programs, which is refundable, recoupable against future royalties, or for which future obligations exist, is recognized when the Company has completed its obligations under the terms of the agreements. Revenue from royalties is recognized upon the shipment of product from the Company's technology license partners to direct customers. Certain research and development activities are conducted for third parties and such revenue is recognized as the services are performed. Payments received from licensing and technology development programs relating to future obligations as well as prepayments for future discounts on product sales are recorded as deferred revenue. Bad Debt The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventory The Company reduces the stated value of its inventory for obsolescence or impairment in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional reductions in stated value may be required. Income Taxes In determining the carrying value of the Company's net deferred tax assets, the Company must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions to realize the benefit of these assets. Management evaluates the realizability of the deferred assets quarterly and assesses the need for valuation allowances or reduction of existing allowances quarterly. PART II--OTHER INFORMATION Item 2. Changes in Securities. On April 12, 2002, we sold 3.433 million shares of unregistered Common Stock to Cypress Semiconductor Corporation. Net proceeds from the sale were $6,213,719, net of expenses. As part of the sale, Cypress was also granted a warrant to purchase up to an additional two million shares of Common Stock at a price of $3.00 per share for a term of three years. The sale was under Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended. Item 6. Exhibits and Reports on Form 8-K. a. Exhibits 10.1 Stock Purchase Agreement dated April 12, 2002 with Cypress Semiconductor Corporation. 10.2 Cypress Semiconductor Corporation Common Stock Purchase Warrant dated April 12, 2002. 10.3 License Agreement dated April 12, 2002 with Cypress Semiconductor Corporation (confidential treatment has been requested with respect to portions of this exhibit, and such confidential portions have been deleted and separately filed with the Securities and Exchange Commission pursuant to Rule24b-2 or Rule 406). b. Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigneds thereunto duly authorized. NVE CORPORATION Dated: July 31, 2002 By /s/ Daniel A. Baker ------------------------------------- Daniel A. Baker President and Chief Executive Officer By /s/ Richard George ------------------------------------- Richard George Chief Financial Officer