UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from to
Commission
File Number:
(Exact name of registrant as specified in its charter)
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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.
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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).
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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.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| The
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common
Stock, $ Par Value – shares outstanding as of October 13, 2023
NVE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
2
PART I–FINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEETS
(Unaudited)
September 30, | March 31, 2023* | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities, short-term (amortized cost of $ | ||||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total current assets | ||||||||
| Fixed assets | ||||||||
| Machinery and equipment | ||||||||
| Leasehold improvements | ||||||||
| Total fixed assets | ||||||||
| Less accumulated depreciation and amortization | ||||||||
| Net fixed assets | ||||||||
| Deferred tax assets | ||||||||
| Marketable securities, long-term (amortized cost of $ | ||||||||
| Right-of-use asset – operating lease | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued payroll and other | ||||||||
| Operating lease | ||||||||
| Total current liabilities | ||||||||
| Operating lease | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity | ||||||||
| Common stock, $ par value, shares authorized; issued and outstanding as of September 30, 2023, and as of March 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| * |
See accompanying notes.
3
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
| Quarter Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Product sales | $ | $ | ||||||
| Contract research and development | ||||||||
| Total revenue | ||||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Expenses | ||||||||
| Research and development | ||||||||
| Selling, general, and administrative | ||||||||
| Provision for credit losses | ( | ) | ||||||
| Total expenses | ||||||||
| Income from operations | ||||||||
| Interest income | ||||||||
| Income before taxes | ||||||||
| Provision for income taxes | ||||||||
| Net income | $ | $ | ||||||
| Net income per share – basic | $ | $ | ||||||
| Net income per share – diluted | $ | $ | ||||||
| Cash dividends declared per common share | $ | $ | ||||||
| Weighted average shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Quarter Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net income | $ | $ | ||||||
| Unrealized loss from marketable securities, net of tax | ( | ) | ( | ) | ||||
| Comprehensive income | $ | $ | ||||||
See accompanying notes.
4
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
| Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Product sales | $ | $ | ||||||
| Contract research and development | ||||||||
| Total revenue | ||||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Expenses | ||||||||
| Research and development | ||||||||
| Selling, general, and administrative | ||||||||
| Provision for credit losses | ||||||||
| Total expenses | ||||||||
| Income from operations | ||||||||
| Interest income | ||||||||
| Income before taxes | ||||||||
| Provision for income taxes | ||||||||
| Net income | $ | $ | ||||||
| Net income per share – basic | $ | $ | ||||||
| Net income per share – diluted | $ | $ | ||||||
| Cash dividends declared per common share | $ | $ | ||||||
| Weighted average shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net income | $ | $ | ||||||
| Unrealized loss from marketable securities, net of tax | ( | ) | ( | ) | ||||
| Comprehensive income | $ | $ | ||||||
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, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | - | ( | ) | ( | ) | |||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Total comprehensive income | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Cash dividends declared ($1.00 per share of common stock) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | - | ( | ) | ( | ) | |||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Total comprehensive income | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Cash dividends declared ($1.00 per share of common stock) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
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, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | - | ( | ) | ( | ) | |||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Total comprehensive income | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Cash dividends declared ($1.00 per share of common stock) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Unrealized loss on marketable securities, net of tax | - | ( | ) | ( | ) | |||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Total comprehensive income | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Cash dividends declared ($1.00 per share of common stock) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
See accompanying notes.
7
NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for current estimate of credit losses | ||||||||
| Stock-based compensation | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| INVESTING ACTIVITIES | ||||||||
| Purchases of fixed assets | ( | ) | ( | ) | ||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from maturities of marketable securities | ||||||||
| Receipt of tenant improvement allowance | ||||||||
| Net cash provided (used) by investing activities | ( | ) | ||||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Payment of dividends to shareholders | ( | ) | ( | ) | ||||
| Cash used in financing activities | ( | ) | ( | ) | ||||
| Increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for income taxes | $ | $ | ||||||
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 Report on Form 10-K for the fiscal year ended March 31, 2023. The results of operations for the quarter ended September 30, 2023, are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2024.
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, 2023. As of September 30, 2023, there were no changes to our significant accounting policies except for changes resulting from the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (ASC Topic 326) as described in the “Marketable securities and credit losses” section below and in Note 3.
Marketable securities and credit losses
Our marketable securities consist of corporate bonds and money market funds. Marketable are initially recognized at cost. Marketable securities considered to be “purchased financial assets with credit deterioration” are initially recognized at cost, less any allowance for expected credit losses. Unrealized holding gains and losses are reported in other comprehensive income, net of applicable taxes, until realized. All marketable securities are carried on the balance sheet at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use a three-level fair value hierarchy in estimating and reporting fair values of our marketable securities:
Level 1 – Securities whose fair values are determined using quoted prices in active markets for identical securities.
Level 2 – Securities whose fair values are determined using quoted prices for similar securities in active markets or quoted prices for identical securities in markets that are not active.
Level 3 – Securities whose fair values are determined using unobservable inputs.
Corporate bonds with remaining maturities of less than one year are classified as short-term and those with remaining maturities of one year or more 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.
We measure credit losses on our marketable securities at the individual security level, using the present value of expected cash flows method. Credit losses are measured as the amount by which the amortized cost basis of the security exceeds the present value of expected cash flows (discounted at the effective interest rate implicit in the security at the date of acquisition), limited by the amount by which the fair value of the security is less than its amortized cost basis. When estimating expected cash flows, we consider available information relating to past events, current conditions, and reasonable and supportable forecasts such as, past incidences of default, credit quality as reported by credit rating agencies, extent of impairment, length of time the security has been in a continuous unrealized loss position, and adverse conditions forecasted by industry, financial and economic experts that are relevant to the collectability of expected cash flows. We do not include accrued interest receivables in amortized cost and in fair value when measuring expected credit losses. We will write off uncollectible accrued interest receivable to net income in a timely manner, by reversing interest income, and therefore do not measure credit losses for accrued interest receivable. Timely manner means one year from the date the accrued interest receivable becomes past due. Accrued interest receivables are included in the balance sheet in “prepaid expenses and other assets.”
9
Accounts Receivable and Allowance for Credit Losses
We grant credit to customers in the normal course of business and at times require customers to pay for orders before shipment. Accounts receivable are presented on the balance sheet net of any allowance for credit losses. We measure credit losses on our trade accounts receivable on a pool basis, and in some cases, on an individual basis, using the loss-rate method. Accounts receivable are pooled based on geographical locations because we believe accounts originating from the same geographical location share risk characteristics. When estimating expected credit losses on our trade accounts receivable, we consider available information relating to past events, current conditions, and reasonable and supportable forecasts such as historical loss rate, current age and remaining term of the receivable relative to our current days sales outstanding (“DSO”) ratio, pending orders of the customer relative to accounts receivable balance as of the reporting date and amounts paid by the customers subsequent to the reporting period end but before the financial statements are issued.
NOTE 3. RECENTLY ADOPTED ACCOUNTING STANDARD
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) to be presented at the
net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized
cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial
asset. In November 2018 the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial
Instruments-Credit Losses, which clarifies codification and corrects unintended application of the guidance, and in November
2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses,
which clarifies or addresses specific issues about certain aspects of ASU 2016-13. In November 2019 the FASB issued
ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815),
and Leases (Topic 842): Effective Dates, and in February 2020 the FASB issued ASU No. 2020-02, Financial Instruments—Credit
Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases
(Topic 842), both of which delay the effective date of ASU 2016-13 by three years for certain Smaller Reporting
Companies such as us. 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. We adopted ASU
No. 2016-13 beginning with the quarter ended June 30, 2023.
The adoption resulted in disclosure changes and required us to consider the likelihood of default and to measure our allowance for credit losses over the contractual term of our receivables. The adoption did not have a material impact on the financial statements as of September 30 or April 1, 2023.
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, | ||||||||
| 2023 | 2022 | |||||||
| Weighted average common shares outstanding – basic | ||||||||
| Dilutive effect of stock options | ||||||||
| Shares used in computing net income per share – diluted | ||||||||
| Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Weighted average common shares outstanding – basic | ||||||||
| Dilutive effect of stock options | ||||||||
| Shares used in computing net income per share – diluted | ||||||||
10
NOTE 5. MARKETABLE SECURITIES
The following table shows the major categories of our marketable securities and their contractual maturities as of September 30, 2023:
| Total | <1 Year | 1–3 Years | 3–6 Years | |||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||
| Corporate bonds | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
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.” Accrued
interest receivables were $
We monitor the credit ratings of our marketable securities at least quarterly as reported by Standard & Poor’s. The following table summarizes the fair values of our marketable securities as of September 30, 2023, aggregated by credit rating:
| Credit Rating | Fair Value | |||
| AAA | $ | |||
| AA | ||||
| AA- | ||||
| A+ | ||||
| A | ||||
| A- | ||||
| Total | $ | |||
The following table shows the estimated fair value of our marketable securities, aggregated by fair value hierarchy inputs used in estimating their fair values:
| As of September 30, 2023 | As of March 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | |||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table shows the amortized cost, fair value, and gross unrealized holding gains and losses of our marketable securities as of September 30 and March 31, 2023:
| As of September 30, 2023 | As of March 31, 2023 | |||||||||||||||||||||||||||||||
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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Corporate bonds | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
11
The following table shows the gross unrealized holding losses and estimated fair value of our marketable securities for which an allowance for credit losses has not been recorded, aggregated by category of securities and length of time that individual securities had been in a continuous unrealized loss position as of September 30 and March 31, 2023.
Gross unrealized holding losses and estimated fair value of marketable securities for which an allowance for credit losses has not been recorded
| 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, 2023 | ||||||||||||||||||||||||
| Corporate bonds | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| As of March 31, 2023 | ||||||||||||||||||||||||
| Corporate bonds | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
None of the securities were impaired at acquisition, and subsequent declines in fair value are attributable to interest rate increases. We do not intend to sell, and it is not more likely than not that we will be required to sell, these securities before recovery of their amortized cost basis. The issuers continue to make timely interest payments on these securities. Because we believe it is more likely than not we will recover the cost basis of our investments, we did not record any impairment attributable to credit losses.
None of the marketable securities purchased during the period had experienced more-than-insignificant deterioration in credit quality since its origination and were therefore not considered “Purchased Financial Assets with Credit Deterioration.”
Unrealized losses on our marketable securities and their tax effects are as follows:
| Quarter Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Unrealized loss from marketable securities | $ | ( | ) | $ | ( | ) | ||
| Tax effects | ||||||||
| Unrealized loss from marketable securities, net of tax | $ | ( | ) | $ | ( | ) | ||
| Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Unrealized loss from marketable securities | $ | ( | ) | $ | ( | ) | ||
| Tax effects | ||||||||
| Unrealized loss from marketable securities, net of tax | $ | ( | ) | $ | ( | ) | ||
NOTE 6. ALLOWANCE FOR CREDIT LOSSES ON ACCOUNTS RECEIVABLES
The following table shows a roll forward of the allowance for credit losses on our accounts receivable:
| Allowance for credit losses as of March 31, 2023 | $ | |||
| Provision for credit losses recorded in the quarter ended June 30, 2023 | ||||
| Change in provision for credit losses in the quarter ended September 30, 2023 | ( | ) | ||
| Specific accounts deemed uncollectible | ( | ) | ||
| Allowance for credit losses as of September 30, 2023 | $ |
NOTE 7. INVENTORIES
Inventories are shown in the following table:
| September 30, 2023 | March 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total inventories | $ | $ | ||||||
12
Stock-based compensation expense was $ for the second quarter of fiscal 2024, $ for the second quarter of fiscal 2023, $ for the first six months of fiscal 2024, and $ for the first six months of fiscal 2023. We calculate share-based compensation expense using the Merton standard option-pricing model.
NOTE 9. 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. As of September 30, 2023, federal and state estimated tax
overpayments of $
We
had
NOTE 10. 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 interest 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. Details of our operating lease are as follows:
| Quarter Ended Sept. 30, 2023 | Six Months Ended Sept. 30, 2023 | |||||||
| Operating lease cost | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows for leases | $ | $ | ||||||
| Remaining lease term | months | |||||||
| Discount rate | % | |||||||
The following table shows the maturities of lease liabilities as of September 30, 2023:
| Year Ending March 31, | Operating Lease Liabilities | ||||
| 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| Total lease payments | |||||
| Imputed lease interest | ( | ) | |||
| Total lease liabilities | $ | ||||
NOTE 11. STOCK REPURCHASE PROGRAM
On
January 21, 2009, we announced that our Board of Directors authorized the repurchase of up to $
NOTE 12. 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 18. Employees may
contribute up to the Internal Revenue Code maximum. We make matching contributions of
13
NOTE 13. SUBSEQUENT EVENTS
On
,
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 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 of credit losses, 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 is contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2023, as updated in Item 1A of this report.
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, 2023. As of September 30, 2023, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
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Quarter ended September 30, 2023, compared to quarter ended September 30, 2022
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 | |||||||||||
| 2023 | 2022 | Change | ||||||||||
| Revenue | ||||||||||||
| Product sales | 99.8 | % | 98.1 | % | (32.3 | )% | ||||||
| Contract research and development | 0.2 | % | 1.9 | % | (92.1 | )% | ||||||
| Total revenue | 100.0 | % | 100.0 | % | (33.4 | )% | ||||||
| Cost of sales | 22.4 | % | 22.4 | % | (33.4 | )% | ||||||
| Gross profit | 77.6 | % | 77.6 | % | (33.5 | )% | ||||||
| Expenses | ||||||||||||
| Research and development | 9.6 | % | 6.2 | % | 2.0 | % | ||||||
| Selling, general, and administrative | 6.0 | % | 4.1 | % | (0.4 | )% | ||||||
| Provision for credit losses | (2.8 | )% | — | % | — | % | ||||||
| Total expenses | 12.8 | % | 10.3 | % | (17.3 | )% | ||||||
| Income from operations | 64.8 | % | 67.3 | % | (35.9 | )% | ||||||
| Interest income | 7.2 | % | 3.2 | % | 45.7 | % | ||||||
| Income before taxes | 72.0 | % | 70.5 | % | (32.1 | )% | ||||||
| Provision for income taxes | 5.8 | % | 13.7 | % | (72.3 | )% | ||||||
| Net income | 66.2 | % | 56.8 | % | (22.4 | )% | ||||||
Total revenue for the quarter ended September 30, 2023 (the second quarter of fiscal 2024) decreased 33% compared to the quarter ended September 30, 2022 (the second quarter of fiscal 2023). The decrease was due to a 32% decrease in product sales and a 92% decrease in contract research and development revenue. The decrease in product sales was primarily due to decreased purchases by existing customers, particularly in the defense industry, and a semiconductor industry downturn. The decrease in contract research and development revenue was due to the completion of most contracts.
Total expenses decreased 17% for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 primarily due to a $202,926 credit loss provision reversal, partially offset by a 2% increase in research and development expense. The change in the provision for credit losses was due to a reassessment of our allowance for credit losses based on payments and debtor customer information as of September 30, 2023.
Interest income for the second quarter of fiscal 2024 increased 46% due to higher yields on securities purchased after September 30, 2022.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 8% for the second quarter of fiscal 2024 compared to 19% for the second quarter of fiscal 2023. The decrease was due to the impact of the $202,926 credit loss provision reversal and changes in the amounts and timing of tax deductions and credits. Our effective tax rate can vary from quarter to quarter. Our effective tax rate in subsequent quarters will likely be higher than the effective tax rate in the quarter ended September 30, 2023.
The 22% decrease in net income for the second quarter of fiscal 2024 compared to the prior-year quarter was primarily due to decreased revenue, partially offset by decreased expenses, increased interest income, and a lower effective tax rate.
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Six months ended September 30, 2023, compared to six months ended September 30, 2022
The table shown below summarizes the percentage of revenue and period-to-period changes for various items:
Percentage of Revenue Six Months Ended Sept. 30, | Period- to-Period | |||||||||||
| 2023 | 2022 | Change | ||||||||||
| Revenue | ||||||||||||
| Product sales | 99.1 | % | 97.4 | % | (10.1 | )% | ||||||
| Contract research and development | 0.9 | % | 2.6 | % | (68.4 | )% | ||||||
| Total revenue | 100.0 | % | 100.0 | % | (11.6 | )% | ||||||
| Cost of sales | 23.0 | % | 22.5 | % | (9.3 | )% | ||||||
| Gross profit | 77.0 | % | 77.5 | % | (12.2 | )% | ||||||
| Expenses | ||||||||||||
| Research and development | 8.6 | % | 7.0 | % | 8.4 | % | ||||||
| Selling, general, and administrative | 5.7 | % | 4.5 | % | 12.6 | % | ||||||
| Provision for credit losses | 0.1 | % | — | % | — | % | ||||||
| Total expenses | 14.4 | % | 11.5 | % | 10.5 | % | ||||||
| Income from operations | 62.6 | % | 66.0 | % | (16.2 | )% | ||||||
| Interest income | 5.9 | % | 3.5 | % | 49.5 | % | ||||||
| Income before taxes | 68.5 | % | 69.5 | % | (12.9 | )% | ||||||
| Provision for income taxes | 11.3 | % | 12.8 | % | (22.2 | )% | ||||||
| Net income | 57.2 | % | 56.7 | % | (10.8 | )% | ||||||
Total revenue for the six months ended September 30, 2023, decreased 12% compared to the six months ended September 30, 2022. The decrease was due to a 10% decrease in product sales and a 68% decrease in contract research and development revenue. The decrease in product sales was primarily due to decreased purchases by existing customers, particularly in the defense industry, and a semiconductor industry downturn. The decrease in contract research and development revenue was due to the completion of most contracts.
Total expenses increased 11% for the first six months of fiscal 2024 compared to the first six months of fiscal 2023 due to an 8% increase in research and development expense and a 13% increase in selling, general, and administrative expense. The increases in research and development and selling, general, and administrative expenses were primarily due to increased staffing and increased employee compensation expenses.
Interest income for the first six months of fiscal 2024 increased 50% due to higher yields on securities purchased after September 30, 2022.
Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 17% for the first six months of fiscal 2024 from 19% for the first six months of fiscal 2023. The decrease was due to changes in the amount and timing of tax deductions and tax credits.
The 11% decrease in net income for the first six months of fiscal 2024 compared to the prior-year period was primarily due to decreased revenue and increased expenses, partially offset by increased interest income and a lower effective tax rate.
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Liquidity and Capital Resources
Overview
Cash and cash equivalents were $6,953,448 as of September 30, 2023, compared to $1,669,896 as of March 31, 2023. The $5,283,552 increase in cash and cash equivalents during the first six months of fiscal 2024 was due to $10,384,818 of cash provided by operating activities and $4,445,434 of cash provided by investing activities, partially offset by $9,546,700 of cash used in financing activities.
Operating Activities
Net cash provided by operating activities related to product sales was our primary source of working capital for the current and prior-year quarters. Net cash provided by operating activities was $10,384,818 for the first six months of fiscal 2024 compared to $9,351,238 for the first six months of fiscal 2023.
Accounts receivable decreased $3,598,068 during the first six months of fiscal 2024 due to the timing of customer payments and decreased revenue.
Inventories increased $550,756 during the first six months of fiscal 2024 primarily due to our decision to increase inventories to mitigate longer vendor lead times and to support growth.
Accounts payable and accrued expenses decreased $953,886 during the first six months of fiscal 2024 primarily due to decreases in income tax payable, long-term operating lease, and a decrease in accruals for performance-based compensation.
Investing Activities
Cash provided by investing activities during the first six months of fiscal 2024 consisted of $8,400,000 in proceeds from maturities of marketable securities, partially offset by $16,731 of fixed assets purchases and $3,937,835 of marketable securities purchases. Purchases of fixed assets can vary from period to period depending on our needs and equipment purchasing opportunities. Such purchases could increase significantly in future periods.
Financing Activities
Cash used in financing activities during the six months ended September 30, 2023, consisted of $9,664,227 of cash dividends paid to shareholders, partially offset by $117,527 in proceeds from the exercise of stock options.
In addition to cash dividends to shareholders paid in the second quarter of fiscal 2024, on October 18, 2023, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,833,401, to be paid November 30, 2023, to shareholders of record as of the close of business October 30, 2023.
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.
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Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer and Principal 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. Our management concluded that, as of September 30, 2023, our disclosure controls and procedures were effective.
Changes in Internal Controls
During the quarter ended September 30, 2023, 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 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, 2023, as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.
Item 4. Mine Safety Disclosures.
None.
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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 Daniel Nelson 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) |
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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 18, 2023 | /s/ DANIEL A. BAKER | ||
| Date | Daniel A. Baker | ||
| President and Chief Executive Officer | |||
| October 18, 2023 | /s/ DANIEL NELSON | ||
| Date | Daniel Nelson | ||
| Principal Financial Officer | |||
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