NVE(NVEC) - 2019 Q4 - Annual Report

PART I Business Overview NVE develops and sells spintronic sensors and couplers, licensing MRAM technology, aiming for growth through product expansion and new market entry In General NVE develops and sells spintronic devices, including high-performance sensors and couplers for data acquisition and transmission, and licenses MRAM technology - NVE Corporation develops and sells devices utilizing spintronics, a nanotechnology based on electron spin[18] - Key products include high-performance spintronic sensors and couplers for data acquisition and transmission[18] - The company has licensed its Magnetic Random Access Memory (MRAM) technology[18] NVE History and Background NVE was founded in 1989 by Dr. James M. Daughton, went public in 2000, and has secured over $50 million in government research contracts - NVE Corporation was founded in 1989 by Dr. James M. Daughton[19] - The company went public in 2000 and was listed on Nasdaq in 2003[19] - NVE has received over $50 million in government research contracts for product development and intellectual property building[19] Industry Background NVE's spintronic technology targets information sensing, storage, and transmission, offering smaller, more precise, and reliable solutions than competitors - NVE's spintronic technology focuses on three main applications: magnetic sensors, couplers, and memory[20] - Sensors are used for position or speed detection and medical device communication, with NVE's sensors being smaller, more precise, and more reliable[21] - Couplers provide reliable digital communication between electronic subsystems, with NVE's couplers transmitting more data at higher speeds and longer distances[22] - MRAM is currently used in mission-critical storage (military, industrial, tamper detection) and is expected to become a pervasive high-density memory in the long term[23] Our Enabling Technology NVE's designs leverage Giant Magnetoresistance (GMR) and Tunnel Magnetoresistance (TMR) effects, integrating spintronic elements with traditional integrated circuits - NVE's designs are primarily based on Giant Magnetoresistance (GMR) or Tunnel Magnetoresistance (TMR) effects[24] - Critical conductor layers in GMR devices can be less than 2 nanometers thick[25] - Tunnel barriers in TMR devices (spin-dependent tunnel junctions or magnetic tunnel junctions) range from 1 to 4 nanometers thick[26] - Spintronic elements are connected to integrated circuits and packaged using traditional integrated circuit methods[27] Our Strategy NVE aims to be a leader in practical spintronic technology, monetizing through product sales and MRAM licensing, with long-term goals of expanding into automotive electronics - Vision: To be a leading developer of practical spintronic technology and devices[28] - Monetization is achieved through product sales and MRAM technology licensing[28] - Plans include expanding sensor and coupler product lines, with a long-term goal of entering larger markets like automotive electronics[28] - Products support the demand for smart, small, low-power end nodes in the "Internet of Things"[28] Our Products and Markets NVE offers sensors for magnetic field detection, couplers for high-speed isolated digital communication, and MRAM for universal memory applications Sensor Products and Markets NVE's GMR sensors detect magnetic fields for position or speed, serving industrial IoT and medical device markets with smaller, more precise, and reliable solutions - Sensor products detect magnetic field strength or gradient to determine position or speed[29] - The primary market for standard sensors is industrial Internet of Things (IIoT) factory automation[30] - Custom sensors are mainly used in medical devices, offering advantages over electromechanical switches such as no moving parts, smaller size, and higher sensitivity[31] - Future target markets for custom sensors include consumer electronics, automotive electronics, and biosensors[31] Coupler Products and Markets NVE's IsoLoop spintronic couplers provide high-speed, isolated digital communication, outperforming optocouplers and primarily serving industrial IoT factory automation - Spintronic couplers combine GMR sensor elements with "IsoLoop" integrated micro-coils for near-instantaneous data transmission[32] - Couplers are also known as "isolators" due to their ability to electrically isolate coupled systems[32] - IsoLoop couplers are faster than the fastest optocouplers[32] - The primary market for couplers is industrial Internet of Things (IIoT) factory automation[33] - The company offers five coupler product lines: IL500, IL600, IL700/IL200, IL4/IL3, and IL800 series[33] MRAM Products and Markets MRAM leverages spintronics for data storage, aiming to combine SRAM speed, DRAM density, and flash non-volatility, with NVE focusing on low-bit-density MRAM and licensing high-bit-density technology - MRAM utilizes spintronics for data storage, aiming to combine SRAM speed, DRAM density, and flash non-volatility[34] - The company's strategy is to develop, manufacture, and sell low-bit-density MRAM for applications like tamper detection[35] - For high-bit-density MRAM, the company licenses its technology to companies with large-scale memory manufacturing capabilities[35] Product Manufacturing NVE manufactures most products in its cleanroom facility, specializing in spintronic material processing, with final testing and shipping conducted in-house - NVE's manufacturing facility centers around a cleanroom area equipped with specialized equipment for processing spintronic materials[36] - Most products are manufactured in-house using raw silicon wafers or foundry wafers[36] - The production process includes wafer-level inspection and testing, with packaged parts returned for final testing, warehousing, and shipping[37] Sales and Product Distribution NVE distributes products globally through a network of distributors, including America II Electronics, Avnet, and Digi-Key, and through private-label partnerships with large integrated device manufacturers - The company relies on distributors to sell products in over 75 countries worldwide, with key distributors including America II Electronics, Inc., Avnet, and Digi-Key Corporation[38] - Distribution agreements are typically renewed annually[38] - Private-label partnerships with large integrated device manufacturers expand distribution and enhance sales, technical support, and brand recognition[38] New Product Status In FY2019, NVE launched new smart magnetometers, angle sensors, current sensors, low-power sensors and couplers, private-label couplers, and tamper sensors, while pursuing long-term development in custom ICs and biosensors - FY2019 New Products: - Smart magnetometer sensors for IoT and automotive applications[39] - Smart angle sensors for IoT and automotive applications[39] - New current sensors for motor control and automotive applications[39] - Low-power sensors and couplers[43] - Private-label couplers[43] - New tamper sensors[43] - FY2019 Long-Term Product Development Projects: - Custom integrated circuits for smart sensors[43] - Biosensors for enhanced food safety[43] - Power conversion integrated circuits[43] Our Competition NVE competes on product features rather than price, with its IsoLoop couplers offering superior size, signal distortion, product life, and power consumption compared to rival technologies - NVE's competitive strategy is based on product features rather than price[42] - IsoLoop couplers are smaller than most competing couplers, requiring less board space per channel[42] - Other advantages include less signal distortion, longer product life, and lower power consumption[42] Industrial Sensor Competition NVE's GMR/TMR industrial sensors compete with other GMR/TMR manufacturers, silicon Hall effect sensors, and Anisotropic Magnetoresistance (AMR) sensors, with NVE emphasizing sensitivity and energy efficiency - Competitors include other GMR or TMR sensor manufacturers, as well as solid-state industrial magnetic sensors like silicon Hall effect sensors and Anisotropic Magnetoresistance (AMR) sensors[39] - NVE believes its GMR or TMR sensors are more sensitive and energy-efficient than competing devices[39] Medical Sensor Competition NVE's medical device sensors compete with electromechanical and other solid-state magnetic sensors, with NVE's offerings providing inherent reliability, smaller size, and greater precision due to no moving parts - Medical device sensors face competition from electromechanical magnetic sensors (e.g., reed and MEMS switches) and other solid-state magnetic sensors[40] - NVE believes its sensors offer inherent reliability due to no moving parts, and are smaller, more precise in magnetic switch points, and more sensitive than the smallest electromechanical magnetic sensors[40] Coupler Competition NVE's coupler technology competes with optocouplers, inductive, capacitive, and RF modulated couplers from major suppliers, with IsoLoop couplers excelling in size, signal distortion, product life, and power consumption - Competing coupler technologies include optocouplers, inductive couplers (transformers), capacitive couplers, and RF modulated couplers[41] - Major optocoupler suppliers include Broadcom Limited, Fairchild Semiconductor International, Lite-On Technology Corporation, Renesas Electronics Corporation, Toshiba Corporation, and Vishay Intertechnology[41] - IsoLoop couplers offer advantages in size, signal distortion, product life, and power consumption[42] MRAM Competition MRAM faces competition from other MRAM developers and emerging technologies like graphene and phase-change memory, potentially offering advantages in manufacturability, speed, density, and durability - MRAM faces competition from other MRAM research and development or service companies, as well as emerging technologies such as graphene, carbon nanotubes, phase-change memory (PCM), resistive RAM (ReRAM), conductive bridge RAM (CBRAM), memristors, and conductive metal oxide (CMOx) memory[43] - MRAM may offer advantages in manufacturability, speed, bit density, data retention, or endurance[43] Sources and Availability of Raw Materials NVE's primary raw materials include raw silicon and semiconductor foundry wafers, along with device packaging services, sourced globally with most packaging in Asia - Key raw materials include raw silicon and semiconductor foundry wafers, as well as device packaging services[44] - Wafer suppliers are located globally, with most packaging services performed in Asia[44] Intellectual Property NVE holds over 50 granted US patents, numerous foreign patents, and pending applications, many developed with US government support, and owns registered trademarks like "NVE" and "IsoLoop" Patents As of March 31, 2019, NVE holds over 50 granted US patents, with many developed under US government support, including key MRAM patents expiring in 2021 and 2022 - As of March 31, 2019, NVE holds over 50 granted US patents, along with numerous foreign and pending patents[45] - A significant portion of the intellectual property was developed with US government support[46] - Key MRAM patents include: 6,538,921 (expiring August 14, 2021) and 6,744,086 (reissued as RE 44,878, expiring May 15, 2022)[47] - The company also holds patents for advanced MRAM designs related to magnetothermal MRAM, spin-momentum MRAM, and synthetic antiferromagnetic memory[48] Trademarks NVE's registered trademarks include "NVE" and "IsoLoop," with other claimed trademarks such as "GMR Switch" and "GT Sensor" - Registered trademarks include "NVE" and "IsoLoop"[49] - Other claimed trademarks include "GMR Switch" and "GT Sensor"[49] Working Capital Items NVE consistently invests in capital equipment for manufacturing, testing, and R&D, and maintains substantial inventory to ensure product supply, secure favorable pricing, and mitigate shortages - The company historically invests in capital equipment for manufacturing and testing products, as well as for research and development[49] - Significant capital is invested in inventory to ensure finished product supply, obtain better raw material prices, and guard against raw material shortages[49] Dependence on Major Customers NVE's revenue heavily relies on a few major customers, including Abbott Laboratories and Sonova AG, with the loss of any posing a significant adverse impact - A substantial portion of the company's revenue depends on a few major customers, including Abbott Laboratories, Sonova AG, certain other medical device manufacturers, and certain distributors[50] - The loss of one or more of these customers could have a material adverse effect on the company[50] Firm Backlog As of March 31, 2019, NVE had a firm contract R&D order backlog of $354,650, expected to be completed in FY2020, excluding product sales orders which are typically cancellable - As of March 31, 2019, the company had a firm contract R&D order backlog of $354,650, expected to be completed in fiscal year 2020[51] - Product sales order backlog is not included in "firm backlog" because product orders are generally cancellable and not indicative of future performance[51] Environmental Matters NVE complies with environmental regulations, particularly regarding industrial waste and emissions, with compliance having no material impact to date, though future regulations may incur costs - The company is subject to environmental laws and regulations, particularly concerning industrial waste and emissions[52] - To date, compliance has not had a material effect on capital expenditures, earnings, or competitive position[52] - Existing and future environmental laws and regulations may result in emission reduction or remediation expenses, which are currently not estimable[52] Number of Employees As of March 31, 2019, NVE employed 48 individuals, none of whom are unionized or covered by collective bargaining agreements, maintaining good employee relations - As of March 31, 2019, the company had 48 employees[53] - All employees are non-unionized and not subject to collective bargaining agreements[53] Available Information All NVE SEC filings, including annual, quarterly, and current reports, are freely accessible on the company's website and the SEC's website - All SEC reports (10-K, 10-Q, 8-K, proxy statements, etc.) are freely available on the company's website (www.nve.com) and the SEC's website (www.sec.gov)[54](index=54&type=chunk) Risk Factors NVE faces significant risks including customer dependence, intense competition, certification challenges, government contract uncertainties, industry cyclicality, product liability, supply chain disruptions, foreign operation risks, intellectual property litigation, talent retention, investment losses, cybersecurity, and stock price volatility - The company's revenue heavily relies on a few major customers (e.g., Abbott Laboratories, Sonova AG), and reduced or lost orders could significantly impact revenue and profitability[56][59] - NVE faces numerous competitors, many with greater resources, and increased market competition could lead to business loss or pricing pressure[57] - Failure to maintain important certifications like ISO 9001 and IATF 16949 could result in customer cancellations[58] - Reduced, delayed, or canceled government contract funding could hinder R&D activities and decrease related revenue[60][62] - The cyclical nature of the semiconductor market and an uncertain economic environment could adversely affect business[63] - Product liability claims (especially for medical device products), warranty issues, or delivery failures could lead to significant expenses and reputational damage[65][66][67][68] - Failure of critical production equipment or disruptions from single-source wafer, chemical, and packaging suppliers could impact production and revenue[69][70][71][72] - Operating in foreign countries (e.g., China, India, Taiwan, Thailand) carries risks such as economic/political instability, intellectual property enforcement difficulties, trade barriers, and shipping delays[73] - Risks of intellectual property litigation include patent infringement claims and the inability to effectively enforce NVE's own intellectual property[74][75] - Inability to attract and retain highly qualified employees could materially adversely affect the business[76] - As of March 31, 2019, the company held approximately $67.4 million in marketable securities (81% of total assets), and changes in market conditions could lead to investment losses[77] - Cybersecurity incidents or information technology disruptions could disrupt operations, damage reputation, and lead to liabilities[78] - Reducing or ceasing cash dividend payments could cause a decline in common stock market price, and the stock price is subject to significant volatility due to various factors[79][80] Properties NVE's main administrative and manufacturing facility in Eden Prairie, Minnesota, spans 21,362 square feet under a lease expiring December 31, 2020, with ample space for future growth - The primary administrative offices and manufacturing facility are located in Eden Prairie, Minnesota, occupying 21,362 square feet under lease[82] - The facility lease is set to expire on December 31, 2020[82] - The facility is currently operating below full capacity, providing room for future growth[82] Legal Proceedings NVE currently has no material pending or threatened legal proceedings or government actions expected to significantly impact future operations or financial condition - The company is not currently aware of any material pending or threatened legal proceedings or other actions by governmental authorities expected to have a material adverse effect on future operating results and financial condition[83] Mine Safety Disclosures This item is not applicable to NVE Corporation - This item is not applicable[84] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. NVE's common stock trades on Nasdaq under NVEC, with approximately 67 registered shareholders as of April 11, 2019; the board authorized a stock repurchase program with $4,540,806 remaining, though no repurchases occurred in FY2019 or FY2018, and dividends are paid from operating cash and marketable securities maturities Market Information and Dividends NVE's common stock trades on the Nasdaq Capital Market under NVEC, with dividends paid from operating cash and marketable securities maturities, subject to board approval and policy changes - The company's common stock trades on the Nasdaq Capital Market under the symbol NVEC[86] - Dividends are paid from net cash generated by operating activities and maturities of marketable securities[87] - The dividend policy can be changed at any time and requires board approval[87] Shareholders As of April 11, 2019, NVE had approximately 67 registered shareholders, with a significantly larger number of beneficial owners holding shares through financial institutions - As of April 11, 2019, the company had approximately 67 registered shareholders[88] - The actual number of "street name" or beneficial owners of the company's common stock is significantly greater, with shares held by banks, brokers, and other financial institutions[88] Securities Authorized for Issuance Under Equity Compensation Plans Information regarding securities authorized under equity compensation plans is incorporated by reference from the company's 2019 Annual Meeting of Shareholders proxy statement into Item 12 of this report - Relevant information is incorporated by reference into Item 12 of this report, derived from the 2019 Annual Meeting of Shareholders proxy statement[89] Stock Repurchase Program NVE's board authorized stock repurchase programs in 2009 and 2015, with $4,540,806 remaining authorized as of March 31, 2019, though no common stock was repurchased in FY2019 or FY2018 - The board authorized repurchases of up to $2.5 million of common stock on January 21, 2009, and an additional $5 million on August 27, 2015[90] - As of March 31, 2019, the remaining authorized amount was $4,540,806[90] - No common stock was repurchased in fiscal years 2019 or 2018[90] - The repurchase program has no expiration date and can be modified or terminated at any time[90] Management's Discussion and Analysis of Financial Condition and Results of Operations. NVE's total revenue decreased by 11.4% in FY2019 due to lower product sales and R&D contract revenue, yet net income increased by 4.3% driven by significantly lower income tax expense and improved gross margin, with ample liquidity for FY2020 - FY2019 Key Financial Performance (Year-over-Year) | Metric | FY2019 | FY2018 | Change Rate | | :-------------------------- | :---------- | :---------- | :--------- | | Total Revenue | $26,472,337 | $29,863,881 | (11.4)% | | Product Sales | $25,291,306 | $27,321,810 | (7.4)% | | Contract R&D Revenue | $1,181,031 | $2,542,071 | (53.5)% | | Net Income | $14,507,936 | $13,912,672 | +4.3% | | Basic Net Earnings Per Share | $3.00 | $2.87 | +4.5% | | Diluted Net Earnings Per Share | $2.99 | $2.87 | +4.2% |[100][105][156] - Cash and Cash Equivalents (as of March 31) | Metric | 2019 ($) | 2018 ($) | Change ($) | | :-------------------------- | :---------- | :---------- | :---------- | | Cash and Cash Equivalents | $6,877,304 | $4,755,082 | +$2,122,222 |[106] - Working capital and cash flow from operations are expected to be sufficient for at least fiscal year 2020[113] General NVE Corporation develops and sells spintronic devices, primarily sensors and couplers, while also undertaking R&D contracts and licensing MRAM technology - The company develops and sells devices utilizing spintronics, a nanotechnology based on electron spin[93] - Key products include sensors and couplers for data sensing and transmission[93] - The company also undertakes research and development contracts and licenses MRAM technology[93] Application of Critical Accounting Policies and Estimates NVE's critical accounting policies involve complex judgments for investment valuation, inventory valuation, and deferred tax asset estimation - Critical accounting policies include investment valuation, inventory valuation, and deferred tax asset estimation[94] - These policies require management to make complex judgments and estimates[94] Investment Valuation NVE classifies marketable securities as available-for-sale, recorded at fair value with unrealized gains/losses in accumulated other comprehensive loss, and regularly assesses for other-than-temporary impairment considering market conditions and sale likelihood - Investments primarily consist of high-quality, investment-grade long-term marketable securities with maturities of less than five years[95] - All marketable securities are classified as available-for-sale, recorded at fair value, with unrealized gains and losses included in "accumulated other comprehensive loss" within shareholders' equity[95] - Assessment for other-than-temporary impairment considers credit market conditions, credit ratings, historical default rates, insurance, market interest rate effects, and the likelihood of early sale[95] Inventory Valuation NVE values inventory at the lower of cost (FIFO) or net realizable value, regularly assessing for obsolescence and maintaining a $190,000 reserve as of March 31, 2019 and 2018 - Inventory is measured at the lower of cost (first-in, first-out method) or net realizable value[96] - Reserves are established for inventory unlikely to be sold, based on sales trends, turnover rates, competition, and other market factors[96] - As of March 31, 2019, and March 31, 2018, the inventory reserve was $190,000[96] Deferred Tax Assets Estimation NVE assesses deferred tax asset realizability quarterly, concluding no valuation allowance is needed as of March 31, 2019, due to the likelihood of sufficient future taxable income - Determining the carrying value of deferred tax assets requires assessing whether sufficient future taxable income will be available in specific tax jurisdictions to utilize these assets[97] - The realizability of deferred assets and the need for or reduction of a valuation allowance are assessed quarterly[97] - As of March 31, 2019, no valuation allowance was recorded, as the company believes all deferred tax assets are more likely than not to be realized[97] Deferred Tax Assets (as of March 31) | Metric | 2019 ($) | 2018 ($) | | :------------------------------------------ | :---------- | :---------- | | Net Deferred Tax Assets | $353,735 | $572,655 | | Of which: Deferred tax assets from equity compensation deductions | $62,671 | $55,886 |[98] Results of Operations In FY2019, NVE's total revenue decreased by 11.4%, but net income rose by 4.3% due to a significant drop in income tax expense, improved gross margin, and reduced SG&A, partially offset by higher R&D expenses FY2019 Operating Results Overview (Year-over-Year) | Metric | FY2019 ($) | FY2018 ($) | Change Rate | | :-------------------------- | :---------- | :---------- | :--------- | | Total Revenue | $26,472,337 | $29,863,881 | (11.4)% | | Product Sales | $25,291,306 | $27,321,810 | (7.4)% | | Contract R&D Revenue | $1,181,031 | $2,542,071 | (53.5)% | | Cost of Sales | $5,216,112 | $6,274,744 | (16.9)% | | Gross Profit | $21,256,225 | $23,589,137 | (9.9)% | | Gross Margin | 80.3% | 79.0% | +1.3 pp | | R&D Expenses | $4,107,692 | $3,702,918 | +10.9% | | Selling, General & Administrative Expenses | $1,223,971 | $1,435,592 | (14.7)% | | Total Expenses | $5,331,663 | $5,138,510 | +3.8% | | Operating Income | $15,924,562 | $18,450,627 | (13.7)% | | Interest Income | $1,785,277 | $1,558,197 | +14.6% | | Income Before Taxes | $17,709,839 | $20,008,824 | (11.5)% | | Income Tax Expense | $3,201,903 | $6,096,152 | (47.5)% | | Effective Tax Rate | 18% | 30% | -12 pp | | Net Income | $14,507,936 | $13,912,672 | +4.3% | | Basic Net Earnings Per Share | $3.00 | $2.87 | +4.5% | | Diluted Net Earnings Per Share | $2.99 | $2.87 | +4.2% |[100][101][102][103][104][105][156] Liquidity and Capital Resources NVE's cash and cash equivalents increased by $2.1 million in FY2019, driven by operating and investing activities despite significant dividend payouts, with sufficient liquidity projected for FY2020 - Cash and Cash Equivalents Change (as of March 31) | Metric | 2019 ($) | 2018 ($) | Change ($) | | :-------------------------- | :---------- | :---------- | :---------- | | Cash and Cash Equivalents, End of Period | $6,877,304 | $4,755,082 | +$2,122,222 |[106] - The company believes its working capital and cash flow from operations will be sufficient for at least fiscal year 2020[113] Overview As of March 31, 2019, NVE's cash and cash equivalents rose to $6,877,304, an increase of $2,122,222 from the prior year, primarily due to cash provided by operating and investing activities - Cash and Cash Equivalents Change (as of March 31) | Metric | 2019 ($) | 2018 ($) | Change ($) | | :-------------------------- | :---------- | :---------- | :---------- | | Cash and Cash Equivalents, End of Period | $6,877,304 | $4,755,082 | +$2,122,222 |[106] - The cash increase primarily resulted from $14,218,994 provided by operating activities and $7,059,328 from investing activities, offset by $19,156,100 used in financing activities[106] Operating Activities In FY2019, NVE's net cash from operating activities was $14,218,994, slightly lower than FY2018, with a $614,437 increase in inventory primarily due to raw material procurement timing - Cash Flow from Operating Activities (Year-over-Year) | Metric | FY2019 ($) | FY2018 ($) | | :-------------------------- | :---------- | :---------- | | Net Cash Provided by Operating Activities | $14,218,994 | $15,151,928 |[107] - Inventory increased by $614,437 in fiscal year 2019, primarily due to the timing of raw material purchases[108] Investing Activities NVE's net cash from investing activities in FY2019 was $7,059,328, mainly from $20.8 million in marketable securities maturities, partially offset by $13,672,407 in purchases and $68,265 in fixed asset acquisitions - Cash Flow from Investing Activities (Year-over-Year) | Metric | FY2019 ($) | FY2018 ($) | | :-------------------------- | :---------- | :---------- | | Net Cash Provided by Investing Activities | $7,059,328 | $717,790 | | Maturities of Marketable Securities | $20,800,000 | $19,540,000 | | Purchases of Marketable Securities | $(13,672,407) | $(18,217,410) | | Purchases of Property and Equipment | $(68,265) | $(604,800) |[109][110] Financing Activities In FY2019, NVE used $19,156,100 in financing activities, primarily for $19,374,040 in cash dividends, partially offset by $217,940 from common stock sales, with a $1.00 per share dividend declared on May 1, 2019 - Cash Flow from Financing Activities (Year-over-Year) | Metric | FY2019 ($) | FY2018 ($) | | :-------------------------- | :---------- | :---------- | | Net Cash Used in Financing Activities | $(19,156,100) | $(19,314,000) | | Dividends Paid to Shareholders | $(19,374,040) | $(19,365,040) | | Net Proceeds from Sales of Common Stock | $217,940 | $51,040 |[111][164] - On May 1, 2019, the board declared a quarterly cash dividend of $1.00 per share, payable on May 31, 2019[112] Off-Balance-Sheet Arrangements NVE's off-balance-sheet arrangements include purchase commitments and operating leases for facilities, which are not expected to materially impact profitability, cash flows, or financial condition - Off-balance-sheet arrangements include purchase commitments and operating leases for facilities[114] - The company believes these arrangements will not have a material effect on profitability, cash flows, or financial condition, either currently or in the future[114] Financial Statements and Supplementary Data. This section presents NVE's audited financial statements for the years ended March 31, 2019 and 2018, including balance sheets, income statements, comprehensive income, shareholders' equity, and cash flow statements, along with detailed notes and the independent registered public accounting firm's report - This report includes financial statements and notes for the years ended March 31, 2019, and March 31, 2018[115] - Financial statements comprise balance sheets, statements of income, comprehensive income, shareholders' equity, and cash flows[140] - The report includes the independent registered public accounting firm's report[140] Reports of Independent Registered Public Accounting Firm Grant Thornton LLP issued an unqualified opinion on NVE's internal control over financial reporting as of March 31, 2019, and on the financial statements for the years ended March 31, 2019 and 2018 - Grant Thornton LLP issued an unqualified opinion on the effectiveness of NVE Corporation's internal control over financial reporting as of March 31, 2019[141] - Grant Thornton LLP issued an unqualified audit opinion on the financial statements for the years ended March 31, 2019, and March 31, 2018[147] Balance Sheets As of March 31, 2019, NVE's total assets were $83,615,887, a decrease of $3,815,578 from 2018 primarily due to reduced short-term marketable securities, with total liabilities at $835,676 and shareholders' equity at $82,780,211 Balance Sheet Overview (as of March 31) | Metric | 2019 ($) | 2018 ($) | Change ($) | | :-------------------------- | :---------- | :---------- | :---------- | | Cash and Cash Equivalents | $6,877,304 | $4,755,082 | +$2,122,222 | | Short-Term Marketable Securities | $12,487,821 | $20,765,809 | -$8,277,988 | | Accounts Receivable, Net | $2,995,638 | $2,888,779 | +$106,859 | | Inventories | $4,264,876 | $3,650,439 | +$614,437 | | Prepaid Expenses and Other Assets | $816,045 | $635,160 | +$180,885 | | Total Current Assets | $27,441,684 | $32,695,269 | -$5,253,585 | | Property and Equipment, Net | $894,835 | $1,325,383 | -$430,548 | | Deferred Tax Assets | $353,735 | $572,655 | -$218,920 | | Long-Term Marketable Securities | $54,925,633 | $52,838,158 | +$2,087,475 | | Total Assets | $83,615,887 | $87,431,465 | -$3,815,578 | | Accounts Payable | $375,188 | $414,970 | -$39,782 | | Accrued Payroll and Other | $460,488 | $574,755 | -$114,267 | | Total Current Liabilities | $835,676 | $989,725 | -$154,049 | | Total Shareholders' Equity | $82,780,211 | $86,441,740 | -$3,661,529 | | Total Liabilities and Shareholders' Equity | $83,615,887 | $87,431,465 | -$3,815,578 |[153] Statements of Income In FY2019, NVE's total revenue was $26,472,337, an 11.4% decrease year-over-year, yet net income increased to $14,507,936, up 4.3%, primarily due to significantly reduced income tax expense, with basic net earnings per share at $3.00 Income Statement Overview (as of March 31) | Metric | FY2019 ($) | FY2018 ($) | Change Rate | | :-------------------------- | :---------- | :---------- | :--------- | | Product Sales | $25,291,306 | $27,321,810 | (7.4)% | | Contract R&D Revenue | $1,181,031 | $2,542,071 | (53.5)% | | Total Revenue | $26,472,337 | $29,863,881 | (11.4)% | | Cost of Sales | $5,216,112 | $6,274,744 | (16.9)% | | Gross Profit | $21,256,225 | $23,589,137 | (9.9)% | | R&D Expenses | $4,107,692 | $3,702,918 | +10.9% | | Selling, General & Administrative Expenses | $1,223,971 | $1,435,592 | (14.7)% | | Total Expenses | $5,331,663 | $5,138,510 | +3.8% | | Operating Income | $15,924,562 | $18,450,627 | (13.7)% | | Interest Income | $1,785,277 | $1,558,197 | +14.6% | | Income Before Taxes | $17,709,839 | $20,008,824 | (11.5)% | | Income Tax Expense | $3,201,903 | $6,096,152 | (47.5)% | | Net Income | $14,507,936 | $13,912,672 | +4.3% | | Basic Net Earnings Per Share | $3.00 | $2.87 | +4.5% | | Diluted Net Earnings Per Share | $2.99 | $2.87 | +4.2% | | Cash Dividends Per Share | $4.00 | $4.00 | 0.0% |[156] Statements of Comprehensive Income In FY2019, NVE's comprehensive income increased to $15,401,211 from $13,035,335 in FY2018, primarily driven by higher net income and a shift from unrealized losses to gains on marketable securities Comprehensive Income Overview (as of March 31) | Metric | FY2019 ($) | FY2018 ($) | Change ($) | | :-------------------------- | :---------- | :---------- | :---------- | | Net Income | $14,507,936 | $13,912,672 | +$595,264 | | Unrealized Gain (Loss) on Marketable Securities (Net of Tax) | $893,275 | $(877,337) | +$1,770,612 | | Comprehensive Income | $15,401,211 | $13,035,335 | +$2,365,876 |[158] Statements of Shareholders' Equity As of March 31, 2019, NVE's total shareholders' equity was $82,780,211, a decrease of $3,661,529 from 2018, mainly due to $19,374,040 in cash dividends, partially offset by $14,507,936 in net income, stock option exercises, and improved accumulated other comprehensive loss Shareholders' Equity Overview (as of March 31) | Metric | 2019 ($) | 2018 ($) | Change ($) | | :-------------------------- | :---------- | :---------- | :---------- | | Common Stock | $48,460 | $48,420 | +$40 | | Additional Paid-in Capital | $19,910,558 | $19,599,298 | +$311,260 | | Accumulated Other Comprehensive Loss | $(82,725) | $(915,635) | +$832,910 | | Retained Earnings | $62,903,918 | $67,709,657 | -$4,805,739 | | Total Shareholders' Equity | $82,780,211 | $86,441,740 | -$3,661,529 |[161] - Cash dividends of $19,374,040 were paid in fiscal year 2019[161] - Net income for fiscal year 2019 was $14,507,936[161] Statements of Cash Flows In FY2019, NVE generated $14,218,994 from operations and $7,059,328 from investing, while using $19,156,100 in financing, primarily for dividends, resulting in a net cash increase of $2,122,222 Cash Flow Statement Overview (as of March 31) | Activity | FY2019 ($) | FY2018 ($) | Change ($) | | :-------------------------- | :---------- | :---------- | :---------- | | Net Cash Provided by Operating Activities | $14,218,994 | $15,151,928 | -$932,934 | | Net Cash Provided by Investing Activities | $7,059,328 | $717,790 | +$6,341,538 | | Net Cash Used in Financing Activities | $(19,156,100) | $(19,314,000) | +$157,900 | | Net Increase (Decrease) in Cash and Cash Equivalents | $2,122,222 | $(3,444,282) | +$5,566,504 | | Cash and Cash Equivalents, End of Period | $6,877,304 | $4,755,082 | +$2,122,222 | | Cash Paid for Income Taxes | $3,426,045 | $5,966,425 | -$2,540,380 |[164] Notes to Financial Statements The financial statement notes detail NVE's business, accounting policies, fair value of financial instruments, inventory, equity compensation, income taxes, customer concentration, commitments, stock repurchase, employee savings plans, and subsequent events, including recent and unadopted accounting standards - Note 1: Business Description, NVE operates in one reportable segment[167] - Note 2: Summary of Significant Accounting Policies, covering cash and cash equivalents, fair value of financial instruments, concentration of risk, accounts receivable, inventories, product warranties, property and equipment, revenue recognition, income taxes, research and development expenses, equity compensation, net earnings per share, use of estimates, and recently adopted and new accounting pronouncements[168][169][170][171][172][173][174][175][176][177][178][179][180][181][182][183][184][186][187][188][189][190][191][192] - Note 3: Fair Value of Financial Instruments, as of March 31, 2019, total available-for-sale securities were $74,117,263, representing approximately 89% of total assets[196][197][198][201] - Note 4: Inventories, as of March 31, 2019, total inventories were $4,264,876, including raw materials, work-in-process, and finished goods[204] - Note 5: Equity Compensation, equity compensation expense for fiscal year 2019 was $93,360[205] - Note 6: Income Taxes, the effective income tax rate for fiscal year 2019 was 18%, down from 30% in fiscal year 2018, primarily due to the Tax Cuts and Jobs Act[215] - Note 7: Customer Concentration, in fiscal year 2019, two major customers (Customer A and Customer B) accounted for 21% and 18% of revenue, respectively, and 41% of accounts receivable[218][219] - Note 8: Commitments and Contingencies, the facility operating lease expires on December 31, 2020, with future minimum lease payments of $519,417[220] - Note 9: Stock Repurchase Program, as of March 31, 2019, the remaining authorized amount was $4,540,806, with no repurchases in fiscal years 2019 or 2018[221] - Note 10: Employee Stock Purchase, Savings, and Similar Plans, the 401(k) plan matching contribution for fiscal year 2019 was $91,341[222] - Note 11: Subsequent Events, a quarterly cash dividend of $1.00 per share was declared on May 1, 2019[223] Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. NVE Corporation reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - The company has had no changes in or disagreements with its accountants[116] Controls and Procedures. Management, including the CEO and CFO, concluded that NVE's disclosure controls and procedures and internal control over financial reporting were effective as of March 31, 2019, with Grant Thornton LLP concurring on internal controls, and no significant changes occurred during the quarter Disclosure Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, concluded that NVE's disclosure controls and procedures were effective as of March 31, 2019 - Management (including the Chief Executive Officer and Chief Financial Officer) assessed and concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[117] Management's Report on Internal Control Over Financial Reporting NVE management assessed and concluded that the company's internal control over financial reporting was effective as of March 31, 2019, based on the COSO 2013 framework, with Grant Thornton LLP issuing an unqualified audit opinion - Management assessed and concluded that the company's internal control over financial reporting was effective as of March 31, 2019[119] - The assessment was based on the COSO 2013 "Internal Control—Integrated Framework"[118] - Grant Thornton LLP issued an unqualified audit opinion on this matter[119] Changes in Internal Controls No changes in NVE's internal control over financial reporting occurred during the quarter ended March 31, 2019, that materially affected or are reasonably likely to materially affect internal control - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2019, that materially affected or are reasonably likely to materially affect internal control[121] PART III Directors, Executive Officers and Corporate Governance. Information on NVE's directors, executive officers, and corporate governance, including elections and codes of conduct, is incorporated by reference from the 2019 Annual Meeting of Shareholders proxy statement - Relevant information is incorporated by reference from the company's 2019 Annual Meeting of Shareholders proxy statement[124] - This covers director elections, executive officer information, corporate governance, and the code of conduct[124] Executive Compensation. Detailed information on NVE's executive compensation, including discussion and analysis, committee interlocks, and director compensation, is incorporated by reference from the 2019 Annual Meeting of Shareholders proxy statement - Relevant information is incorporated by reference from the company's 2019 Annual Meeting of Shareholders proxy statement[125] - This includes executive compensation, compensation discussion and analysis, compensation committee interlocks and insider participation, and director compensation[125] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information on NVE's security ownership by certain beneficial owners and management, along with equity compensation plans, is incorporated by reference from the 2019 Annual Meeting of Shareholders proxy statement, with details on the 2000 Stock Option Plan in Note 5 to the financial statements - Relevant information is incorporated by reference from the company's 2019 Annual Meeting of Shareholders proxy statement[126] - This covers equity compensation plan information and security ownership[126] - Key features of the company's 2000 Stock Option Plan are disclosed in Note 5 to the financial statements[126] Certain Relationships and Related Transactions, and Director Independence. Information regarding NVE's related party transactions, promoters, certain control persons, and board composition and independence is incorporated by reference from the 2019 Annual Meeting of Shareholders proxy statement - Relevant information is incorporated by reference from the company's 2019 Annual Meeting of Shareholders proxy statement[127] - This covers transactions with related parties, promoters, certain control persons, and board composition and independence[127] Principal Accounting Fees and Services. Information on NVE's audit committee disclosures, including fees paid to the independent registered public accounting firm and the audit committee's pre-approval policies, is incorporated by reference from the 2019 Annual Meeting of Shareholders proxy statement - Relevant information is incorporated by reference from the company's 2019 Annual Meeting of Shareholders proxy statement[128] - This covers audit committee disclosures regarding fees paid to the independent registered public accounting firm and the audit committee's pre-approval policies[128] PART IV Exhibits, Financial Statement Schedules. This section lists the financial statements provided under Item 8 and a comprehensive exhibit list, including corporate charters, lease agreements, employment agreements, stock option plans, indemnification agreements, vendor agreements, and various certification documents - Financial statements are provided under Item 8[130] - The exhibit list includes corporate charters, lease agreements, employment agreements, stock option plans, indemnification agreements, vendor agreements, and various certification documents[132] Form 10-K Summary. NVE Corporation has elected not to include the optional Form 10-K Summary in this report - The company has elected not to include the optional Form 10-K Summary[134] SIGNATURES This report was formally signed on May 1, 2019, by Daniel A. Baker, President and Chief Executive Officer of NVE Corporation, along with other directors and executive officers, including the Chief Financial Officer - This report was signed on May 1, 2019, by Daniel A. Baker (President and Chief Executive Officer), Curt A. Reynders (Treasurer and Chief Financial Officer), and other directors[137][138]