NVE(NVEC) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents NVE Corporation's unaudited financial statements for the quarter and six months ended September 30, 2019 Balance Sheets Details the company's assets, liabilities, and shareholders' equity as of September 30, 2019, compared to March 31, 2019 Balance Sheet Highlights (Sept 30, 2019 vs. March 31, 2019) | Metric | Sept. 30, 2019 | March 31, 2019 | | :----------------------------- | :------------- | :------------- | | ASSETS | | | | Cash and cash equivalents | $14,076,290 | $6,877,304 | | Marketable securities, short-term | - | $12,487,821 | | Marketable securities, long-term | $58,798,500 | $54,925,633 | | Total assets | $82,281,405 | $83,615,887 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $923,812 | $835,676 | | Total liabilities | $966,594 | $835,676 | | Total shareholders' equity | $81,314,811 | $82,780,211 | - Cash and cash equivalents significantly increased from $6.88 million to $14.08 million, while short-term marketable securities were fully converted to cash or long-term holdings[12] Statements of Income (Quarter Ended Sept. 30) Reports quarterly revenue, expenses, and net income, showing a year-over-year decline in performance Quarterly Income Statement Highlights (Q2 FY2020 vs. Q2 FY2019) | Metric | Q2 FY2020 (2019) | Q2 FY2019 (2018) | Change (%) | | :-------------------------------- | :--------------- | :--------------- | :--------- | | Product sales | $6,187,708 | $7,054,977 | (12.3)% | | Contract research and development | $314,237 | $451,098 | (30.3)% | | Total revenue | $6,501,945 | $7,506,075 | (13.4)% | | Gross profit | $5,155,847 | $6,153,230 | (16.2)% | | Income from operations | $3,860,801 | $4,803,819 | (19.6)% | | Net income | $3,822,062 | $4,282,610 | (10.8)% | | Net income per share – basic | $0.79 | $0.88 | (10.2)% | | Cash dividends declared per common share | $1.00 | $1.00 | 0.0% | - Total revenue decreased by 13.4% year-over-year, primarily due to a 12.3% decrease in product sales and a 30.3% decrease in contract research and development revenue[15][66] - Net income declined by 10.8% year-over-year, mainly driven by the decrease in total revenue[15][69] Statements of Comprehensive Income (Quarter Ended Sept. 30) Details the quarterly comprehensive income, including net income and unrealized gains from marketable securities Quarterly Comprehensive Income Highlights (Q2 FY2020 vs. Q2 FY2019) | Metric | Q2 FY2020 (2019) | Q2 FY2019 (2018) | Change (%) | | :---------------------------------------- | :--------------- | :--------------- | :--------- | | Net income | $3,822,062 | $4,282,610 | (10.8)% | | Unrealized gain from marketable securities, net of tax | $178,716 | $51,237 | 248.8% | | Comprehensive income | $4,000,778 | $4,333,847 | (7.7)% | - Comprehensive income decreased by 7.7% despite a significant increase in unrealized gains from marketable securities, which partially offset the decline in net income[17][70] Statements of Income (Six Months Ended Sept. 30) Reports revenue, expenses, and net income for the six-month period, indicating a year-over-year decline Six-Month Income Statement Highlights (H1 FY2020 vs. H1 FY2019) | Metric | H1 FY2020 (2019) | H1 FY2019 (2018) | Change (%) | | :-------------------------------- | :--------------- | :--------------- | :--------- | | Product sales | $12,273,072 | $13,925,623 | (11.9)% | | Contract research and development | $523,569 | $688,358 | (23.9)% | | Total revenue | $12,796,641 | $14,613,981 | (12.4)% | | Gross profit | $10,358,506 | $11,865,131 | (12.7)% | | Income from operations | $7,760,384 | $9,197,933 | (15.6)% | | Net income | $7,429,481 | $8,227,659 | (9.7)% | | Net income per share – basic | $1.53 | $1.70 | (10.0)% | | Cash dividends declared per common share | $2.00 | $2.00 | 0.0% | - Total revenue for the six months decreased by 12.4% year-over-year, driven by an 11.9% decrease in product sales and a 23.9% decrease in contract research and development revenue[19][71] - Net income declined by 9.7% year-over-year, primarily due to the decrease in total revenue[19][74] Statements of Comprehensive Income (Six Months Ended Sept. 30) Details the six-month comprehensive income, which remained stable due to gains on marketable securities Six-Month Comprehensive Income Highlights (H1 FY2020 vs. H1 FY2019) | Metric | H1 FY2020 (2019) | H1 FY2019 (2018) | Change (%) | | :---------------------------------------- | :--------------- | :--------------- | :--------- | | Net income | $7,429,481 | $8,227,659 | (9.7)% | | Unrealized gain (loss) from marketable securities, net of tax | $748,779 | $(55,790) | N/A (swing from loss to gain) | | Comprehensive income | $8,178,260 | $8,171,869 | 0.1% | - Comprehensive income for the six months slightly increased by 0.1% year-over-year, as a significant shift from an unrealized loss to a gain on marketable securities offset the decrease in net income[21][75] Statements of Shareholders' Equity (Periods Ended Sept. 30, 2019) Summarizes changes in shareholders' equity for the six months ended September 30, 2019 Shareholders' Equity Changes (March 31, 2019 to Sept 30, 2019) | Item | Amount | | :-------------------------------- | :------------- | | Balance as of March 31, 2019 | $82,780,211 | | Total comprehensive income (Q1 FY2020) | $4,177,482 | | Cash dividends declared (Q1 FY2020) | $(4,846,010) | | Total comprehensive income (Q2 FY2020) | $4,000,778 | | Stock-based compensation | $48,360 | | Cash dividends declared (Q2 FY2020) | $(4,846,010) | | Balance as of September 30, 2019 | $81,314,811 | - Total shareholders' equity decreased from $82.78 million to $81.31 million during the six months, primarily due to cash dividends declared, partially offset by comprehensive income and stock-based compensation[23] Statements of Shareholders' Equity (Periods Ended Sept. 30, 2018) Summarizes changes in shareholders' equity for the six months ended September 30, 2018 Shareholders' Equity Changes (March 31, 2018 to Sept 30, 2018) | Item | Amount | | :-------------------------------- | :------------- | | Balance as of March 31, 2018 | $86,441,740 | | Total comprehensive income (Q1 FY2019) | $3,838,022 | | Cash dividends declared (Q1 FY2019) | $(4,842,010) | | Cumulative effect of accounting change | - | | Exercise of stock options | $124,450 | | Total comprehensive income (Q2 FY2019) | $4,333,847 | | Stock-based compensation | $93,360 | | Cash dividends declared (Q2 FY2019) | $(4,842,010) | | Balance as of September 30, 2018 | $85,147,399 | - Total shareholders' equity decreased from $86.44 million to $85.15 million during the six months, primarily due to cash dividends declared, partially offset by comprehensive income and stock-based compensation[26] Statements of Cash Flows Outlines cash flows from operating, investing, and financing activities for the six-month periods Cash Flow Highlights (Six Months Ended Sept. 30) | Metric | H1 FY2020 (2019) | H1 FY2019 (2018) | Change | | :-------------------------------- | :--------------- | :--------------- | :------- | | Net cash provided by operating activities | $7,420,636 | $8,270,118 | $(849,482) | | Cash provided by investing activities | $9,470,370 | $2,582,288 | $6,888,082 | | Cash used in financing activities | $(9,692,020) | $(9,559,570) | $(132,450) | | Increase in cash and cash equivalents | $7,198,986 | $1,292,836 | $5,906,150 | | Cash and cash equivalents at end of period | $14,076,290 | $6,047,918 | $8,028,372 | - Cash and cash equivalents significantly increased by $7.2 million, driven by strong cash from investing activities ($9.5 million) and operating activities ($7.4 million), partially offset by cash used for dividends ($9.7 million)[29][77] Notes to Financial Statements Provides detailed explanations of accounting policies and specific financial statement items NOTE 1. DESCRIPTION OF BUSINESS Describes the company's core business in developing and selling spintronic-based devices - NVE Corporation develops and sells devices utilizing spintronics, a nanotechnology based on electron spin for information acquisition, storage, and transmission[32][63] - The company manufactures high-performance spintronic products, including sensors and couplers[32][63] NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Outlines the accounting principles and policies used in preparing the financial statements - Financial statements are unaudited, prepared consistent with GAAP and SEC rules, and include normal and recurring adjustments[33] - Revenue from product sales is recognized at a point in time upon shipment, while contract R&D revenue is recognized over time based on costs incurred[34][35][36] - No material contract assets or liabilities were recognized as of September 30, 2019, or March 31, 2019[37] NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS Details the adoption of new accounting standards and their impact on financial reporting - Adopted ASU 2019-07 (Codification Updates to SEC Sections) in Q1 FY2020, affecting presentation and disclosure[39] - Adopted ASU 2016-02 (Lease Accounting) in Q1 FY2020, recognizing $298,983 of leased liabilities and a $261,644 right-of-use asset for its facility lease[40] - ASU 2016-13 (Credit Losses) will be effective for fiscal 2021, and its adoption is not expected to have a significant impact on financial statements[41] NOTE 4. NET INCOME PER SHARE Provides the calculation of basic and diluted net income per share for the reported periods Weighted Average Shares Outstanding | Metric | Quarter Ended Sept. 30, 2019 | Quarter Ended Sept. 30, 2018 | | :------------------------------------ | :--------------------------- | :--------------------------- | | Weighted average common shares outstanding – basic | 4,846,010 | 4,843,032 | | Dilutive effect of stock options | 1,871 | 9,612 | | Shares used in computing net income per share – diluted | 4,847,881 | 4,852,644 | | Metric | Six Months Ended Sept. 30, 2019 | Six Months Ended Sept. 30, 2018 | | :------------------------------------ | :---------------------------- | :---------------------------- | | Weighted average common shares outstanding – basic | 4,846,010 | 4,842,524 | | Dilutive effect of stock options | 3,347 | 8,548 | | Shares used in computing net income per share – diluted | 4,849,357 | 4,851,072 | NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS Discloses the fair value measurements for the company's financial instruments, primarily marketable securities - Corporate bonds and money market funds are classified as available-for-sale securities and carried at estimated fair value[44] - Available-for-sale securities represented approximately 71% of total assets as of September 30, 2019, with corporate bonds having remaining maturities between 13 and 53 months[46] Fair Value of Available-for-Sale Securities | Category | Sept. 30, 2019 | March 31, 2019 | | :---------------- | :------------- | :------------- | | Money market funds | $13,807,888 | $6,703,809 | | Corporate bonds | $58,798,500 | $67,413,454 | | Total | $72,606,388 | $74,117,263 | Gross Unrealized Holding Losses on Corporate Bonds | Date | Estimated Fair Value | Gross Unrealized Holding Losses | | :------------------- | :------------------- | :------------------------------ | | September 30, 2019 | $5,054,583 | $(26,360) | | March 31, 2019 | $51,413,428 | $(421,798) | NOTE 6. INVENTORIES Provides a breakdown of inventory components, including raw materials, work in process, and finished goods Inventory Breakdown | Category | September 30, 2019 | March 31, 2019 | | :--------------- | :----------------- | :--------------- | | Raw materials | $1,127,683 | $1,130,917 | | Work in process | $2,282,261 | $2,325,238 | | Finished goods | $945,388 | $808,721 | | Total inventories | $4,355,332 | $4,264,876 | - Total inventories slightly increased from $4.26 million to $4.36 million, with finished goods showing the most notable increase[52] NOTE 7. STOCK-BASED COMPENSATION Details the expenses related to stock-based compensation plans for non-employee directors Stock-Based Compensation Expense | Period | FY2020 | FY2019 | | :-------------------- | :----- | :----- | | Second quarter | $48,360 | $93,360 | | First six months | $48,360 | $93,360 | - Stock-based compensation expense decreased by approximately 48% in fiscal 2020 compared to fiscal 2019, attributed to the automatic issuance of stock options to non-employee directors[53] NOTE 8. INCOME TAXES Explains the company's accounting for income taxes and the status of tax examinations - Deferred income taxes reflect temporary differences between financial reporting and tax purposes[54] - No unrecognized tax benefits as of September 30, 2019, and none expected within 12 months[55] - Tax years 2016 through 2018 remain open to examination by major taxing jurisdictions[55] NOTE 9. LEASES Discloses information about the company's operating lease for its facility - NVE operates under a non-cancellable facility lease through December 31, 2020[56] Operating Lease Costs (FY2020) | Metric | Quarter Ended Sept. 30, 2019 | Six Months Ended Sept. 30, 2019 | | :------------------------------------------------ | :--------------------------- | :---------------------------- | | Operating lease cost | $38,641 | $77,282 | | Variable lease cost | $30,227 | $60,454 | | Total | $68,868 | $137,736 | Lease Liabilities as of September 30, 2019 | Year Ending March 31 | Operating Leases | | :------------------- | :--------------- | | 2020 | $87,798 | | 2021 | $133,299 | | Total lease payments | $221,097 | | Imputed lease interest | $(4,463) | | Total lease liabilities | $216,634 | NOTE 10. STOCK REPURCHASE PROGRAM Provides an update on the company's authorized stock repurchase program - The Board of Directors authorized a stock repurchase program with $4,540,806 remaining authorization as of September 30, 2019[58] - No common stock was repurchased under the program during the quarter ended September 30, 2019[58] NOTE 11. INFORMATION AS TO EMPLOYEE STOCK PURCHASE, SAVINGS, AND SIMILAR PLANS Describes the company's 401(k) savings plan and matching contributions - All employees are eligible to participate in the 401(k) savings plan, with the company matching 100% of the first 3% of participants' salary deferral contributions[59] 401(k) Matching Contributions | Period | FY2020 | FY2019 | | :-------------------- | :----- | :----- | | Second quarter | $21,990 | $22,296 | | First six months | $46,056 | $45,594 | NOTE 12. SUBSEQUENT EVENTS Discloses significant events that occurred after the balance sheet date - On October 23, 2019, the Board declared a quarterly cash dividend of $1.00 per share of Common Stock, payable November 29, 2019[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, liquidity, and capital resources, highlighting a decrease in revenue and net income Forward-looking statements Cautions that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[61] - Actual future experience and results may differ materially due to factors such as reliance on large customers, economic uncertainties, and trade barriers[61] General Provides a general overview of NVE Corporation's business in spintronics technology - NVE Corporation develops and sells devices that use spintronics, a nanotechnology relying on electron spin to acquire, store, and transmit information[63] - The company manufactures high-performance spintronic products, including sensors and couplers[63] Critical accounting policies Identifies the most critical accounting policies and estimates used in financial reporting - As of September 30, 2019, critical accounting policies and estimates include investment valuation, inventory valuation, and deferred tax assets estimation[64] Quarter ended September 30, 2019 compared to quarter ended September 30, 2018 Analyzes the company's financial performance for the quarter, comparing it to the prior-year period Quarter-over-Quarter Performance Changes | Metric | Change (%) | | :-------------------------------- | :--------- | | Total revenue | (13.4)% | | Product sales | (12.3)% | | Contract research and development | (30.3)% | | Gross profit | (16.2)% | | Total expenses | (4.0)% | | Interest income | 2.9% | | Provision for income taxes | (48.7)% | | Net income | (10.8)% | | Comprehensive income | (8.0)% | - The decrease in product sales was primarily due to decreased purchases by existing customers, while the decline in contract R&D revenue was due to the completion of certain contracts[67] - Gross profit margin decreased to 79% from 82% due to a less profitable product mix[67] - The provision for income taxes decreased significantly by 49% due to tax benefits from the Federal Tax Reform Act enacted in 2017[69] Six months ended September 30, 2019 compared to six months ended September 30, 2018 Analyzes the company's financial performance for the six-month period compared to the prior year Six-Month Period-over-Period Performance Changes | Metric | Change (%) | | :-------------------------------- | :--------- | | Total revenue | (12.4)% | | Product sales | (11.9)% | | Contract research and development | (23.9)% | | Gross profit | (12.7)% | | Total expenses | (2.6)% | | Interest income | 5.4% | | Provision for income taxes | (32.2)% | | Net income | (9.7)% | | Comprehensive income | 0.1% | - The decrease in product sales was due to decreased purchase volumes by existing customers, and contract R&D revenue declined due to the completion of certain contracts[72] - Interest income increased by 5% due to an increase in the average interest rates on marketable securities[73] - Comprehensive income increased slightly due to an unrealized gain from marketable securities of $748,779 in 2019, compared to an unrealized loss of $55,790 in the prior-year period[75] Liquidity and capital resources Discusses the company's cash position, sources of liquidity, and capital allocation Overview Provides an overview of the company's cash flow activities and working capital adequacy - Cash and cash equivalents increased by $7,198,986 to $14,076,290 as of September 30, 2019, from $6,877,304 as of March 31, 2019[77] - The increase was driven by $7,420,636 in net cash from operating activities and $9,470,370 from investing activities, partially offset by $9,692,020 used in financing activities[77] - Management believes current working capital and cash generated from operations will be adequate for needs for at least the next 12 months[77] Investing Activities Details the cash flows related to the purchase and sale of assets and securities - Cash provided by investing activities for the six months ended September 30, 2019, was $9,470,370[78] - This was primarily due to $12,500,000 from marketable security maturities, partially offset by $3,013,530 in marketable securities purchases and $16,100 in fixed asset purchases[78] Financing Activities Details cash flows related to dividends and other financing transactions - Cash used in financing activities for the first six months of fiscal 2020 totaled $9,692,020, entirely due to cash dividends paid to shareholders[79] - A quarterly cash dividend of $1.00 per share was declared on October 23, 2019, to be paid on November 29, 2019[79] - Future dividends are subject to Board approval and the company's financial performance, cash balances, and future cash requirements[79] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures and notes no material changes in internal controls Disclosure Controls and Procedures States management's conclusion on the effectiveness of the company's disclosure controls - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of September 30, 2019[80] Changes in Internal Controls Reports on any changes to internal control over financial reporting during the quarter - No change in internal control over financial reporting materially affected, or is reasonably likely to materially affect, internal control over financial reporting during the quarter ended September 30, 2019[81] PART II. OTHER INFORMATION Item 1. Legal Proceedings Reports on the status of legal proceedings, including a recent patent reissue - Patent 6,538,921 was reissued as RE 47,583 on August 27, 2019, for the unexpired term of the original patent, expiring August 14, 2021[84] - The company is not aware of any material pending or threatened legal proceedings expected to have a material adverse impact on future results of operation and financial condition[85] Item 1A. Risk Factors States that there have been no material changes to previously disclosed risk factors - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2019[86] Item 4. Mine Safety Disclosures Confirms that this disclosure requirement is not applicable to the company's operations - Not applicable[87] Item 6. Exhibits Lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - Includes certifications by Daniel A. Baker (President and CEO) and Curt A. Reynders (CFO) pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350[89] - XBRL Instance Document and Taxonomy Extension Documents are included[89] SIGNATURES Provides the official signatures of the company's certifying officers for the report - The report was signed on October 23, 2019, by Daniel A. Baker, President and Chief Executive Officer, and Curt A. Reynders, Chief Financial Officer[93]