NVE CORPORATION
(Exact name of registrant as specified in its charter)

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Intellectual Property
Patents
     As of March 31, 20192021 we had more than 50 issued U.S. patents assigned to us. We also have a number of foreign patents, a number of U.S. and foreign patents pending, and we have licensed patents from others. There are no patents we regard as critical to our current business owned by us or licensed to us that expire in the next 12 months.

We have patents on advanced MRAM designs that we believe are important, including patents that relate to magnetothermal MRAM, spin-momentum MRAM, and synthetic antiferromagnetic storage. Although it is not critical to our current business, we have identified U.S. patent 6,744,086 titled “Current switched magnetoresistive memory cell” as particularly important for successful high-density, high-performance MRAMs. The patent has been reissued as RE 44,878 and expires May 15, 2022.

     Much of our intellectual property has been developed with U.S. Government support. Under federal legislation, companies normally may retain the principal worldwide patent rights to any invention developed with U.S. Government support.

     Certain of our patents cover inventions we believe may be necessary for successful high-density, high-performance MRAMs. We believe U.S. patents 6,538,921 titled “Circuit selection of magnetic memory cells and related cell structures,” and 6,744,086 titled “Current switched magnetoresistive memory cell” are particularly important. The 6,744,086 patent has been reissued as RE 44,878 and expires May 15, 2022. The 6,538,921 patent expires August 14, 2021.

     We also have patents on advanced MRAM designs that we believe are important, including patents that relate to magnetothermal MRAM, spin-momentum MRAM, and synthetic antiferromagnetic storage.

Trademarks
     “NVE” and “IsoLoop” are our registered trademarks. Other trademarks we claim include “GMR Switch” and “GT Sensor.”

Working Capital Items
     Like other companies in the electronics industry, we have historically invested in capital equipment for manufacturing and testing our products, as well as research and development equipment. We have also deployed significant capital in inventories to have finished products available from stock, to receive more favorable pricing for raw materials, and to guard against raw material shortages.

Dependence on Major Customers
     We rely on several large customers for a significant percentage of our revenue, including Abbott Laboratories, Sonova AG, certain other medical device manufacturers, and certain distributors. The loss of one or more of these customers could have a material adverse effect on us.

Firm BacklogGovernment Regulations
     As of March 31, 2019 we had $354,650 of contract researchWe are subject to government regulations including, but not limited to, regulations related to environment, tax matters, securities, conflict minerals, ethics and development backlog we believed to be firm,foreign corrupt practices, import and which weexport controls, product safety and liability, workplace health and safety, labor and employment, and data privacy. We incur and expect to be filled in fiscal 2020. Certaincontinue to incur costs and expenses to comply with these regulations and may incur penalties for any failure to do so.

     Additionally, certain contracts have performance requirementsrequired us maintain facilities and milestones,personnel security clearances to protect classified information. Such clearances are subject Government audits and there can be no assurance that backlog willinvestigations, and any deficiencies or illegal activities identified during the audits or investigations could result in future revenue. Our product sales are made primarily under standard purchase orders, which are generally cancellable. Therefore product order backlog is not included in “firm backlog,”the forfeiture or suspension of payments and product sales backlog as of any particular date may not be indicative of future results. We also have certain agreements that require customers to forecast purchases; however, these agreements do not generally obligate the customer to purchase any particular quantity of products. Based on semiconductor industry practice and our experience, we do not believe that such agreements are meaningful for determining backlog amounts.civil or criminal penalties.

Environmental Matters
     We are subject to environmental laws and regulations particularly with respectstate and local laws and regulations relating to industrial waste and emissions. Compliance with these laws and regulations has not had a material impact on our capital expenditures, earnings, or competitive position to date. Existing and future environmental laws and regulations could result in expenses related to emission abatement or remediation, but we are currently unable to estimate such expenses.

Number of EmployeesHuman Capital Resources
     We had 4844 employees as of March 31, 2019. Our2021, all of whom were full-time.

     We have policies to prevent discrimination based on gender, race, disability, ethnicity, nationality, religion, sexual orientation, gender identity, or gender expression. We take affirmative action to ensure that applicants are employed, and that employees are treated during employment, can fluctuate duewithout regard to a variety of factors.their race, color, religion, sex, or national origin. We also take affirmative action to employ and advance veterans in employment.

     We offer employees free health risk assessments, wellness programs, and financial incentives for healthy biometrics.

     None of our employees are represented by a labor union or are subject to a collective bargaining agreement, and we believe we maintain good relations with our employees.

Available Information
     All reports we file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements and additional proxy materials on Schedule 14A, as well as any amendments to those reports and schedules, are accessible at no cost through the “Investors” section of our Website (www.nve.com). These filings are also accessible through the SEC’s Website (www.sec.gov).
 

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     Accounts receivable decreased $729,737 primarily due to the timing of raw material purchases.sales to and payments from customers.

Investing Activities
     Net cash provided by investing activities in fiscal 20192021 was primarily due to marketable security maturities of $20,800,000,$19,000,000, partially offset by marketable security purchases of $10,512,400 and fixed assets purchases of $68,265 and marketable security purchases of $13,672,407.$62,727.

     Purchases of fixed assets were $68,265$62,727 in fiscal 20192021 and $604,800$52,041 in fiscal 2018.2020. Purchases were primarily for capital equipment and leasehold improvements to increase our production capacity and were financed with cash provided by operating activities. Our capital expenditures have been significantly higher in prior years and can vary significantly from year to year depending on our needs and equipment purchasing opportunities.
 
Financing Activities
     Net cash used in financing activities in fiscal 20192021 was due to $19,374,040$19,336,540 in cash dividends to shareholders partially offset by net proceeds from the saleand $91,419 in repurchases of our common stock of $217,940 from stock option exercises.stock.

     In addition to cash dividends to shareholders paid in fiscal 2019,2021, on May 1, 20195, 2021 we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,846,010$4,833,232 based on shares outstanding as of April 26, 2019,30, 2021, to be paid May 31, 2019.2021. 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, the impacts of the COVID-19 pandemic, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.

     We believe our working capital and cash generated from operations will be adequate for our needs at least through fiscal 2020.2022.
 
Off-Balance-Sheet Arrangements
     Our off-balance sheet arrangements consist of purchase commitments and the operating lease for our facility. We believe these arrangements have no material current or anticipated future effect on our profitability, cash flows, or financial position.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
     Financial statements and accompanying notes are included in this Report beginning on page F-1.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
     None.

ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
     Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has performed an evaluation of our disclosure controls and procedures that are defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this Report. This evaluation included consideration of the controls, processes, and procedures that are designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2019,2021, our disclosure controls and procedures were effective.

Management’s Report on Internal Control Over Financial Reporting
     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of March 31, 2019.2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013 Internal Control—Integrated Framework.

Based on our assessment using the criteria set forth by COSO in the 2013 Internal Control—Integrated Framework, management concluded that our internal control over financial reporting was effective as of March 31, 2019. Our internal control over financial reporting2021.

ITEM 9B. OTHER INFORMATION.
     Effective as of March 31, 2019 has been auditedApril 30, 2021 we executed Amendment No. 7 to our Supplier Partnering Agreement dated January 3, 2006 by Grant Thornton LLP, an independent registered public accounting firm,and between Pacesetter, Inc., now a subsidiary of Abbott Laboratories, and us, as stated in their report contained in Item 8 included elsewhere herein.amended by Amendment No. 1 to the Agreement dated September 6, 2007, Amendment No. 2 dated December 15, 2009, Amendment No. 3 dated September 13, 2010, Amendment No. 4 dated February 1, 2011, Amendment No. 5 dated April 20, 2016, and Amendment No. 6 dated December 18, 2020. We supply products to Abbott Laboratories under the Supplier Partnering Agreement as amended. The Amendment extends the Supplier Partnering Agreement term through November 30, 2021. The Amendment is filed as Exhibit 10.18 to this Annual Report on Form 10-K.

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     Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within NVE have been detected. Our internal controls over financial reporting, however, are designed to provide reasonable assurance that the objectives of internal control over financial reporting are met.

Changes in Internal Controls
     During the quarter ended March 31, 2019,2021, 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.
 

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PART III

 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
     The sectionssection titled “Proposal 1. Election of Board of Directors” and “Certain Relationships and Related Person Transactions – Section 16(a) Beneficial Ownership Reporting Compliance” to be included in our Proxy Statement for our 20192021 Annual Meeting of Shareholders setsets forth certain information regarding our directors and executive officers required by Item 10, the section titled “Executive Officers of the Company”“Information About Our Executive Officers” sets forth information regarding our executive officers required by Item 10, and the section titled “Corporate Governance” sets forth information regarding our corporate governance and code of ethics required by Item 10. The information in these sections to be included in our Proxy Statement for our 20192021 Annual Meeting of Shareholders are incorporated by reference into this section.

ITEM 11. EXECUTIVE COMPENSATION.
     The information in the sections “Executive Compensation,” “Compensation Discussion and Analysis,” “Corporate Governance – Board Committees – Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report,” and “Director Compensation” to be included in our Proxy Statement for our 20192021 Annual Meeting of Shareholders is incorporated by reference into this section.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
     The information in the sections “Equity Compensation Plan Information” and “Security Ownership” to be included in our Proxy Statement for our 20192021 Annual Meeting of Shareholders is incorporated by reference into this section. Information regarding the material features of our 2000 Stock Option Plan, as amended, is contained in Note 5 to the Financial Statements included elsewhere in this Report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
     The information in the sections “Security Ownership – Transactions With Related Persons, Promoters, and Certain Control Persons” and “Corporate Governance – Board Composition and Independence” to be included in our Proxy Statement for our 20192021 Annual Meeting of Shareholders is incorporated by reference into this section.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
     The information in the sections “Audit Committee Disclosure – Fees Billed to Us by Our Independent Registered Public Accounting Firm During Fiscal 20192020 and 2018”2019” and “Audit Committee Disclosure – Audit Committee Pre-Approval Policy” to be included in our Proxy Statement for our 20192021 Annual Meeting of Shareholders is incorporated by reference into this section.

 

PART IV
 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) Financial Statements and Schedules
     Financial statements are provided pursuant to Item 8 of this Report. Certain financial statement schedules have been omitted because they are not required, not applicable, or the required information is provided in other financial statements or the notes to the financial statements.
 

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(b) Exhibits
     The following is a list of exhibits:
 

	Exhibit #	Description
	3.1	Amended and Restated Articles of Incorporation of the company as amended by the Board of Directors effective November 21, 2002 (incorporated by reference to the Form 10-QSB for the period ended December 31, 2002).
	3.2	Bylaws of the company as amended by the Board of Directors effective December 18, 2007 (incorporated by reference to the Form 8-K filed December 19, 2007).May 6, 2020.
4	Description of the registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
	10.1	Lease dated October 1, 1998 between the company and Glenborough Properties, LP (incorporated by reference to the Form 10-QSB for the period ended September 30, 2002).
	10.2	First amendment to lease between the company and Glenborough dated September 18, 2002 (incorporated by reference to the Form 10-QSB for the period ended September 30, 2002).
	10.3	Second amendment to lease between the company and Glenborough dated December 1, 2003 (incorporated by reference to the Form 10-QSB for the period ended December 31, 2003).
	10.4	Third amendment to lease between the company and Carlson Real Estate (incorporated by reference to the Form 8-K/A filed December 20, 2007).
	10.5	Fourth amendment to lease between the company and the Barbara C. Gage Revocable Trust (incorporated by reference to our Current Report on Form 8-K/A filed August 3, 2011).
10.6
Fifth amendment to lease between the company and GRE – Bryant Lake, LLC (incorporated by reference to our Current Report on Form 8-K/A filed March 3, 2020).
	10.6*10.7†	Employment Agreement between the company and Daniel A. Baker dated January 29, 2001 (incorporated by reference to the Form 10-KSB for the year ended March 31, 2001).
	10.7*  10.8†	NVE Corporation 2000 Stock Option Plan as Amended July 19, 2001 by the shareholders (incorporated by reference to our Registration Statement on Form S-8 filed July 20, 2001).
	10.8  10.9	Indemnification Agreement by and between Pacesetter, Inc., a St. Jude Medical Company, d.b.a. St. Jude Medical Cardiac Rhythm Management Division, and the company (incorporated by reference to the Form 8-K filed September 27, 2005).
	10.9+  10.10+	Supplier Partnering Agreement by and between St. Jude and the company (incorporated by reference to the Form 8-K filed January 4, 2006).
	10.10+  10.11+	Amendment No. 1 to Supplier Partnering Agreement between St. Jude and the company (incorporated by reference to the Form 8-K/A filed September 10, 2007).
	10.11+  10.12+	Amendment No. 2 to Supplier Partnering Agreement between St. Jude and the company (incorporated by reference to the Form 8-K/A filed December 18, 2009).
	10.12+  10.13+	Amendment No. 3 to Supplier Partnering Agreement between St. Jude and the company (incorporated by reference to the Form 8-K/A filed September 16, 2010).
	10.13  10.14	Amendment No. 4 to Supplier Partnering Agreement between St. Jude and the company (incorporated by reference to the Form 8-K/A filed February 7, 2011).
	10.14  10.15	Supplier Quality Agreement between St. Jude and the company (incorporated by reference to the Form 8-K filed February 10, 2016).
	10.15  10.16	Amendment No. 5 to Supplier Partnering Agreement between St. Jude and the company (incorporated by reference to the Form 8-K/A filed April 21, 2016).
10.17
Amendment No. 6 to Supplier Partnering Agreement between Abbott and the company (incorporated by reference to the Form 8-K/A filed December 21, 2020).
10.18	10.16+Amendment No. 7 to Supplier Partnering Agreement between Abbott and the company (filed with this Annual Report on Form 10-K).
10.19+	Supply Agreement by and between the company and Sonova AG (incorporated by reference to the Form 8-K/A filed November 16, 2015).
10.20*
First Amendment to Supply Agreement by and between the company and Sonova AG (incorporated by reference to the Form 8-K/A filed February 18, 2020).
	2323.1	Consent of Grant Thornton LLPBoulay PLLP..
	31.1	Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).
	31.2	Certification by Curt A. Reynders pursuant to Rule 13a-14(a)/15d-14(a).
	32	Certification by Daniel A. Baker and Curt A. Reynders pursuant to 18 U.S.C. Section 1350.
	101.INS	XBRL Instance Document
	101.SCH	XBRL Taxonomy Extension Schema Document
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*†Indicates a management contract or compensatory plan or arrangement.

+Confidential portions deleted and filed separately with the SEC.

*Certain confidential portions redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause us competitive harm if publicly disclosed. We agree to furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission on its request.

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ITEM 16. FORM 10-K SUMMARY.
     We have elected not to include an optional Form 10-K Summary.
 
 

SIGNATURES

 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NVE CORPORATION
          (Registrant)

/s/Daniel A. Baker
by Daniel A. Baker
President and Chief Executive Officer

Date    May 1, 20195, 2021

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/Terrence W. Glarner Terrence W. Glarner	Director and Chairman of the Board	May 1, 20195, 2021
/s/Daniel A. Baker Daniel A. Baker	Director, President & Chief Executive Officer (Principal Executive Officer)	May 1, 20195, 2021
/s/Curt A. Reynders Curt A. Reynders	Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)	May 1, 20195, 2021
/s/Patricia M. Hollister Patricia M. Hollister	Director	May 1, 20195, 2021
/s/Richard W. Kramp Richard W. Kramp	Director	May 1, 20195, 2021
/s/Gary R. Maharaj Gary R. Maharaj	Director	May 1, 20195, 2021

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NVE CORPORATION
INDEX TO
FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm	F-2
Balance Sheets	F-4
Statements of Income	F-5
Statements of Comprehensive Income	F-5
Statements of Shareholders’ Equity	F-6
Statements of Cash Flows	F-7
Notes to Financial Statements	F-8

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Shareholders
NVE Corporation

Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of NVE Corporation (a Minnesota corporation) (the “Company”) as of March 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the financial statements of the Company as of and for the year ended March 31, 2019, and our report dated May 1, 2019 expressed an unqualified opinion on those financial statements.

Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ Grant Thornton LLP
Minneapolis, Minnesota
May 1, 2019

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of
NVE Corporation

Opinion on the financial statementsFinancial Statements
We have audited the accompanying balance sheets of NVE Corporation (a Minnesota corporation) (the “Company”)Company) as of March 31, 20192021 and 2018,2020, and the related statements of income, comprehensive income, shareholders’shareholders' equity, and cash flows for each of the years thenin the two-year period ended March 31, 2021, and the related notes (collectively referred to as the “financial statements”)financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the years thenin the two-year period ended March 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of March 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated May 1, 2019 expressed an unqualified opinion.

Basis for opinionOpinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Refer to Note 1 to the Financial Statements

Description of the Matter
The Company recognizes revenue from product sales to customers and distributors upon satisfaction of the performance obligation, at a point in time, upon product shipment or delivery to its customer or distributor as determined by agreed upon shipping terms. Additionally, the Company recognizes contract research and development revenue over a period of time as the performance obligation is satisfied over a period of time. Each research and development contract has specifications unique to each customer and does not create an asset with an alternate use, and the Company has an enforceable right to payment for performance completed to date. The Company recognizes revenue over a period of time based on an input method using costs incurred as the measurement of progress towards completion.

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Significant judgment is exercised by the Company in determining revenue recognition for these customer agreements, and includes the following:

	•	Determination of whether products and services are considered distinct performance obligations that should be accounted for separately versus together as it relates to product sales and research and development contracts.
	•	Determination of stand-alone selling prices for each distinct performance obligation and for products and services that are not sold separately.
	•	The pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation.
	•	Estimation of variable consideration when determining the amount of revenue to recognize (e.g., customer credits, incentives, and in certain instances, estimation of customer usage of products and services).

Given these factors, the related audit effort in evaluating management’s judgments in determining revenue recognition for these customer agreements was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company’s revenue recognition for these customer agreements included the following:

	•	We evaluated the Company’s accounting policies and related disclosures for compliance with applicable revenue recognition accounting guidance.
	•	We obtained an understanding of the design and implementation of internal controls related to the Company’s revenue recognition process, including the identification of performance obligations and allocation of transaction price.
	•	We performed analytical procedures to test the reasonableness of recorded balances.
	•	We performed procedures to test the transactions were recorded in the appropriate accounting period.
	•	We selected a sample of product sales and contract research agreements and performed the following procedures:

	–	Tested the existence and accuracy of the transaction by obtaining and agreeing terms to the underlying contract.
	–	Evaluated management’s identification of significant terms for completeness, including the identification of distinct performance obligations and variable consideration.
	–	We evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services that are not sold separately.
	–	Tested the underlying costs driving recognition of revenue related to contract research and development contracts.
	–	Evaluated whether the transaction was accounted for in accordance with the Company’s policies.

 
 
/s/ Grant Thornton LLP
Boulay PLLP
We have served as the Company’s auditor since fiscal year 2014.May 8, 2019.

Minneapolis, Minnesota
May 1, 20195, 2021
 

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NVE CORPORATION
BALANCE SHEETS
 

	March 31, 2019				March 31, 2018			March 31, 2021				March 31, 2020
ASSETS															Current assets
Cash and cash equivalents	$	6,877,304			$	4,755,082		$	10,427,340			$	8,065,594
Marketable securities, short-term		12,487,821				20,765,809			7,678,957				19,084,814
Accounts receivable, net of allowance for uncollectible accounts of $15,000		2,995,638				2,888,779			1,964,281				2,694,018
Inventories		4,264,876				3,650,439			3,900,777				3,884,450
Prepaid expenses and other assets	816,045				635,160			391,278				655,835
Total current assets		27,441,684				32,695,269			24,362,633				34,384,711
Fixed assets
Machinery and equipment		9,365,806				9,395,987			9,254,664				9,280,062
Leasehold improvements	1,787,269				1,749,284			1,810,872				1,797,245
		11,153,075				11,145,271			11,065,536				11,077,307
Less accumulated depreciation and amortization	10,258,240				9,819,888			10,728,853				10,494,840
Net fixed assets		894,835				1,325,383			336,683				582,467
Deferred tax assets	353,735				572,655			73,538				108,119
Marketable securities, long-term	54,925,633				52,838,158			47,038,669				43,606,495
Right-of-use asset – operating lease								689,216				816,358
Total assets	$	83,615,887			$	87,431,465		$	72,500,739			$	79,498,150
															LIABILITIES AND SHAREHOLDERS’ EQUITY															Current liabilities
Accounts payable	$	375,188			$	414,970		$	336,591			$	186,993
Accrued payroll and other	460,488				574,755			540,474				482,074
Operating lease								150,273				127,134
Total current liabilities		835,676				989,725			1,027,338				796,201
Operating lease								581,459				706,600
Total liabilities								1,608,797				1,502,801
															Shareholders’ equity
Common stock, $0.01 par value, 6,000,000 shares authorized; 4,846,010 issued and outstanding as of March 31, 2019 and 4,842,010 as of March 31, 2018		48,460				48,420
Common stock, $0.01 par value, 6,000,000 shares authorized; 4,833,232 issued and outstanding as of March 31, 2021 and 4,835,038 as of March 31, 2020									48,332				48,350
Additional paid-in capital		19,910,558				19,599,298			19,338,127				19,383,956
Accumulated other comprehensive loss		(82,725	)			(915,635	)
Accumulated other comprehensive income									1,101,119				516,523
Retained earnings	62,903,918				67,709,657			50,404,364				58,046,520
Total shareholders’ equity	82,780,211				86,441,740			70,891,942				77,995,349
Total liabilities and shareholders’ equity	$	83,615,887			$	87,431,465		$	72,500,739			$	79,498,150

 

See accompanying notes.

Table of Contents
 

NVE CORPORATION
STATEMENTS OF INCOME
 

	Year Ended March 31							Year Ended March 31
	2019				2018			2021				2020
Revenue
Product sales	$	25,291,306			$	27,321,810		$	20,540,557			$	24,400,192
Contract research and development	1,181,031				2,542,071			825,689				1,011,971
Total revenue		26,472,337				29,863,881			21,366,246				25,412,163
Cost of sales	5,216,112				6,274,744			4,121,461				4,889,295
Gross profit	21,256,225				23,589,137			17,244,785				20,522,868
Expenses
Research and development		4,107,692				3,702,918			3,184,754				3,690,539
Selling, general, and administrative	1,223,971				1,435,592			1,316,427				1,317,543
Total expenses	5,331,663				5,138,510			4,501,181				5,008,082
Income from operations		15,924,562				18,450,627			12,743,604				15,514,786
Interest income		1,785,277				1,558,197			1,498,148				1,787,117
Income before taxes		17,709,839				20,008,824			14,241,752				17,301,903
Provision for income taxes	3,201,903				6,096,152			2,547,368				2,775,261
Net income	$	14,507,936			$	13,912,672		$	11,694,384			$	14,526,642
Net income per share – basic	$	3.00			$	2.87		$	2.42			$	3.00
Net income per share – diluted	$	2.99			$	2.87		$	2.42			$	3.00
Cash dividends declared per common share	$	4.00			$	4.00		$	4.00			$	4.00
Weighted average shares outstanding
Basic	4,844,010		4,841,347					4,834,054		4,845,627
Diluted	4,850,567		4,846,212					4,834,462		4,847,294

 
  
STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended March 31							Year Ended March 31
	2019				2018			2021				2020
Net income	$	14,507,936			$	13,912,672		$	11,694,384			$	14,526,642
Unrealized gain (loss) from marketable securities, net of tax	893,275				(877,337		)
Unrealized gain from marketable securities, net of tax								584,596				599,248
Comprehensive income	$	15,401,211			$	13,035,335		$	12,278,980			$	15,125,890

 
 
See accompanying notes.

Table of Contents
 

NVE CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
 

						Additional Paid-In Capital				Accumulated Other Comprehen- sive Income (Loss)				Retained Earnings												Additional Paid-In Capital				Accumulated Other Comprehen- sive Income (Loss)				Retained Earnings
	Common Stock
	Shares		Amount		Total			Shares											Amount		Total
Balance as of March 31, 2017	4,841,010		$	48,410		$	19,507,348			$	(38,298	)		$	73,162,025			$	92,679,485
Balance as of March 31, 2019																					4,846,010		$	48,460		$	19,910,558			$	(82,725	)		$	62,903,918			$	82,780,211
Exercise of stock options	1,000			10			51,030												51,040		2,000			20			112,340												112,360
Comprehensive income:
Unrealized loss on marketable securities, net of tax											(877,337	)	(877,337							)
Net income															13,912,672				13,912,672
Total comprehensive income																			13,035,335
Stock-based compensation						40,920												40,920
Cash dividends declared ($4.00 per share of common stock)														(19,365,040		)		(19,365,040		)
Balance as of March 31, 2018	4,842,010			48,420			19,599,298				(915,635	)			67,709,657				86,441,740
Exercise of stock options	4,000			40			217,900												217,940
Repurchase of common stock																					(12,972	)		(130	)		(687,302	)											(687,432	)
Comprehensive income:
Unrealized gain on marketable securities, net of tax											893,275		893,275																		599,248		599,248
Net income															14,507,936				14,507,936																14,526,642				14,526,642
Total comprehensive income																			15,401,211																				15,125,890
Stock-based compensation						93,360												93,360								48,360												48,360
Cash dividends declared ($4.00 per share of common stock)														(19,374,040		)		(19,374,040		)														(19,384,040		)		(19,384,040		)
Cumulative effect of accounting change											(60,365	)		60,365
Balance as of March 31, 2019	4,846,010		$	48,460		$	19,910,558			$	(82,725	)		$	62,903,918			$	82,780,211
Balance as of March 31, 2020																					4,835,038		$	48,350		$	19,383,956			$	516,523			$	58,046,520			$	77,995,349
Repurchase of common stock																					(1,806	)		(18	)		(91,401	)											(91,419	)
Comprehensive income:																					Comprehensive income:
Unrealized gain on marketable securities, net of tax																															584,596		584,596
Net income																																			11,694,384				11,694,384
Total comprehensive income																																							12,278,980
Stock-based compensation																										45,572												45,572
Cash dividends declared ($4.00 per share of common stock)																																		(19,336,540		)		(19,336,540		)
Balance as of March 31, 2021																					4,833,232		$	48,332		$	19,338,127			$	1,101,119			$	50,404,364			$	70,891,942

 

See accompanying notes.

Table of Contents
 

NVE CORPORATION
STATEMENTS OF CASH FLOWS
 

	Year Ended March 31							Year Ended March 31
	2019				2018			2021				2020
OPERATING ACTIVITIES
Net income	$	14,507,936			$	13,912,672		$	11,694,384			$	14,526,642
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		705,197				979,652			542,926				549,969
Stock-based compensation		93,360				40,920			45,572				48,360
Deferred income taxes		(31,269	)			96,275			(129,155	)			77,779
Changes in operating assets and liabilities:
Accounts receivable		(106,859	)		548,023				729,737				301,620
Inventories		(614,437	)		(292,141		)		(16,327	)			380,426
Prepaid expenses and other assets		(180,885	)		(27,877		)		391,699				(394,504	)
Accounts payable and accrued expenses		(154,049	)		37,137				105,996				405,481
Deferred revenue		-			(142,733		)
Net cash provided by operating activities		14,218,994			15,151,928				13,364,832				15,895,773
															INVESTING ACTIVITIES
Purchases of fixed assets	Purchases of fixed assets	(68,265	)			(604,800	)	Purchases of fixed assets	(62,727	)			(52,041	)
Purchases of marketable securities		(13,672,407	)		(18,217,410		)		(10,512,400	)			(7,196,330	)
Proceeds from maturities and sales of marketable securities		20,800,000			19,540,000				19,000,000				12,500,000
Net cash provided by investing activities		7,059,328			717,790				8,424,873				5,251,629
															FINANCING ACTIVITIES
Proceeds from sale of common stock		217,940			51,040
Proceeds from exercise of stock options									-				112,360
Repurchase of common stock									(91,419	)			(687,432	)
Payment of dividends to shareholders		(19,374,040	)		(19,365,040		)		(19,336,540	)			(19,384,040	)
Net cash used in financing activities		(19,156,100	)		(19,314,000		)		(19,427,959	)			(19,959,112	)
Increase (decrease) in cash and cash equivalents		2,122,222			(3,444,282		)
Increase in cash and cash equivalents									2,361,746				1,188,290
Cash and cash equivalents at beginning of year	4,755,082				8,199,364			8,065,594				6,877,304
Cash and cash equivalents at end of year	$	6,877,304			$	4,755,082		$	10,427,340			$	8,065,594
															Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes	$	3,426,045			$	5,966,425		$	2,438,788			$	2,586,661

 

See accompanying notes.

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NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS

 
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. We operate in one reportable segment.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
     We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Fair Value of Financial Instruments
     The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximates fair value because of the short maturity of these instruments. Fair values of marketable securities are based on quoted market prices.

Concentration of Risk and Financial Instruments
     Financial instruments potentially subject to significant concentrations of credit risk consist principally of cash equivalents, marketable securities, and accounts receivable.

     Cash and cash equivalents have been maintained in financial institutions we believe have high credit quality, however these accounts are generally in excess of federally insured amounts.

     We have invested our excess cash in corporate-backed and municipal-backed bonds and money market instruments. Our investment policy prescribes purchases of only high-grade securities, and limits the amount of credit exposure to any one issuer. The effects of the COVID-19 pandemic have degraded outlooks for some of our securities’ issuers, which may increase the risk of default on one or more securities.

     Our customers are throughout the world. We generally do not require collateral from our customers, but we perform ongoing credit evaluations of their financial condition. More information on accounts receivable is contained in the paragraph titled “Accounts Receivable and Allowance for Doubtful Accounts” of this note. The effects of the COVID-19 pandemic could increase our bad-debt risk in the future.

     Additionally, we are dependent on critical suppliers including our packaging vendors and suppliers of certain raw silicon and semiconductor wafers that are incorporated in our products. The effects of the COVID-19 pandemic have increased the risk of supply interruptions.

Accounts Receivable and Allowance for Doubtful Accounts
     We grant credit to customers in the normal course of business and at times may require customers to prepay for an order prior to shipment. Accounts receivable are recorded net of an allowance for doubtful accounts. We make estimates of the uncollectibility of accounts receivable. We specifically analyze accounts receivable, historical bad debts, and customer creditworthiness when evaluating the adequacy of the allowance. We had no charges or provisions to our allowance for doubtful accounts in fiscal 20192021 or 2018.2020.
 
Inventories
     Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first in, first out method. We record inventory reserves when we determine certain inventory is unlikely to be sold based on sales trends, turnover, competition, and other market factors.
 
Product Warranty
     In general we warranty our products to be free from defects in material and workmanship for one year.

Fixed Assets
     Fixed assets are stated at cost. Depreciation of machinery and equipment is recorded over the estimated useful lives of the assets, generally five years, using the straight-line method. Amortization of leasehold improvements is recorded using the straight-line method over the lesser of the lease term or five-year useful life. We record losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. We havedid not identifiedidentify any indicators of impairment during fiscal 20192021 or 2018.2020. Depreciation and amortization expense related to fixed assets was $498,813$308,511 for fiscal 20192021 and $692,665$364,409 for fiscal 2018.2020.
 

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Revenue Recognition
    We recognize revenue when we satisfy performance obligations by the transfer of control of products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. Revenue is disaggregated into product sales and contract research and development to depict the nature, amount, timing of revenue recognition and economic characteristics of our business, and is represented within the financial statements.

     We recognize revenue from product sales to customers and distributors when we satisfy our performance obligation, at a point in time, uponon product shipment or delivery to our customer or distributor as determined by agreed uponon shipping terms. Shipping charges billed to customers are included in product sales and the related shipping costs are included in selling, general, and administrative expenses.cost of sales. Under certain limited circumstances, our distributors may earn commissions for activities unrelated to their purchases of our products, such as for facilitating the sale of custom products or research and development contracts with third parties. We recognize any such commissions as selling, general, and administrative expenses. We recognize discounts provided to our distributors as reductions in revenue.

     We recognize contract research and development revenue over a period of time as the performance obligation is satisfied over a period of time rather than a point in time. Contracts have specifications unique to each customer and do not create an asset with an alternate use, and we have an enforceable right to payment for performance completed to date. We recognize revenue over a period of time using costs incurred as the measurement of progress towards completion.

     Accounts receivable is recognized when we have transferred a good or service to a customer and our right to receive consideration is unconditional through the completion of our performance obligation. A contract asset is recognized when we have a right to consideration from the transfer of goods or services to a customer but have not completed our performance obligation. A contract liability is recognized when we have been paid by a customer but have not yet satisfied the performance obligation by transferring goods or services. We had no material contract assets or contract liabilities as of March 31, 20192021 or March 31, 2018.2020.

     Our performance obligations related to product sales and contract research and development contracts are satisfied in one year or less. Unsatisfied performance obligations represent contracts with an original expected duration of one year or less. As permitted under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, we are using the practical expedient not to disclose the value of these unsatisfied performance obligations. We also use the practical expedient in which we do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.
 
Income Taxes
     We account for income taxes using the asset and liability method. Deferred income taxes are provided for temporary differences between the financial reporting and tax bases of assets and liabilities. We provide valuation allowances against deferred tax assets if we determine that it is less likely than not that we will be able to utilize the deferred tax assets.
 
Research and Development Expense Recognition
     Research and development costs are expensed as they are incurred. Customer-sponsored research and development costs are included in cost of sales.
 
Stock-Based Compensation
     We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is generally the vesting period. We recognize any forfeitures as they occur.
 

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Net Income Per Share
     Net income per basic share is computed based on the weighted-average number of common shares issued and outstanding during each year. Net income per diluted share amounts assume exercise of all stock options. The following table shows the components of diluted shares:
 

	Year Ended March 31			Year Ended March 31
	2019		2018	2021		2020
Weighted average common shares outstanding – basic	4,844,010	4,841,347		4,834,054	4,845,627
Dilutive effect of stock options	6,557		4,865	408		1,667
Shares used in computing net income per share – diluted	4,850,567		4,846,212	4,834,462		4,847,294

 
Use of Estimates
     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Recently Issued Accounting Standards
Recently Adopted Accounting Standards
     In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amendments in ASU 2018-13 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which will be fiscal 2021 for us. Early adoption is permitted for the removed disclosures and delayed adoption is permitted until fiscal 2021 for the new disclosures. We adopted ASU 2018-13 early, effective the quarter ended September 30, 2018. The removed and modified disclosures were adopted on a retrospective basis and the new disclosures on a prospective basis. The adoption did not have a significant effect on our financial statements.

     In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). ASU 2018-02 addresses the effect of the change in the U.S. federal corporate tax rate on items within accumulated other comprehensive income or loss due to the enactment of the Act “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “Tax Reform Act”) on December 22, 2017. The guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, which will be fiscal 2020 for us. Early adoption is permitted, and we adopted ASU 2018-02 in the quarter ended June 30, 2018. The adoption resulted in a $60,365 reclassification from accumulated other comprehensive loss to retained earnings due to the change in the federal corporate tax rate.

     In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which made eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted ASU 2016-15 retrospectively in the quarter ended June 30, 2018. The adoption did not have a significant impact on our financial statements.

     In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The amendment changed the accounting for and financial statement presentation of equity investments, other than those accounted for under the equity method of accounting or those that result in consolidation of the investee. The amendment provides clarity on the measurement methodology to be used for the required disclosure of fair value of financial instruments measured at amortized cost on the balance sheet and clarifies that an entity should evaluate the need for a valuation allowance on deferred tax assets related to available-for-sale securities in combination with the entity’s other deferred tax assets, among other changes. We adopted ASU 2016-01 retrospectively in the quarter ended June 30, 2018. The adoption did not have a significant impact on our financial statements.

     In May 2014, the FASB issued ASU No. 2014-09, which superseded the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. We adopted the guidance using the modified retrospective method to contracts that were not complete as of April 1, 2018. The adoption did not have a significant impact on our financial statements.
 

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Recently Issued Accounting Standards

New Accounting Standards Not Yet Adopted
     In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, which is fiscal 2022 for us. We do not expect adoption of the new guidance to have a significant impact on our financial statements.

     In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. 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. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. In November 2018 the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which clarifies codification and corrects unintended application of the guidance, and in November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarifies or addresses specific issues about certain aspects of ASU 2016-13. In November 2019 the FASB issued ASU No. 2019-10, Financial 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. In accordance with ASU 2019-10 and ASU 2018-19 are2020-02, ASU 2016-13 is effective for certain Smaller Reporting Companies for financial statements issued for fiscal years beginning after December 15, 20192022 and interim periods within those fiscal years, which will be fiscal 20212024 for us.us if we continue to be classified as a Smaller Reporting Company, with early adoption permitted. We do not expect adoption of the new guidance to have a significant impact on our financial statements.

     In February 2016, the FASB issued ASU No. 2016-02, Lease Accounting. ASU 2016-02 requires recognition of lease assets and lease liabilities on the balance sheet of lessees. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, which will be fiscal 2020 for us. In July 2018, the FASB issued ASU No. 2018-11, Leases Topic (842): Targeted Improvements. ASU No. 2018-11 provided companies an option to apply the transition provisions of the new lease standard at its adoption date instead of at the earliest comparative period presented in its financial statements, and we expect to adopt the new lease guidance using that method. Currently our only lease is the lease for our facility. We expect to recognize a leased asset and corresponding liability on our balance sheet, which will increase total assets by less than one percent. The leased asset and corresponding liability will exclude non-lease components.

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NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
     Our corporate bonds and money market funds are classified as available-for-sale securities and carried at estimated fair value. Unrealized holding gains and losses are included in accumulated other comprehensive lossincome in the statement of shareholders’ equity. Corporate bonds with remaining maturities less than one year are classified as short-term, and those with remaining maturities greater than one year are classified as long-term. We consider all highly-liquid investments with maturities of three months or less when purchased, including money market funds, to be cash equivalents. Gains and losses on marketable security transactions are reported on the specific-identification method.
 
    The fair value of our available-for-sale securities as of March 31, 20192021 by maturity were as follows:

Total	Total		<1 Year			1–3 Years			3–5 Years		Total		<1 Year			1–3 Years			3–5 Years
$	74,117,263		$	19,191,630		$	26,733,361		$	28,192,272	64,860,822		$	17,822,153		$	36,716,130		$	10,322,539

     Total available-for-sale securities represented approximately 89% of our total assets. Marketable securities as of March 31, 20192021 had remaining maturities between five20 weeks and 5947 months.
 
     Generally accepted accounting principles establish a framework for measuring fair value, provide a definition of fair value, and prescribe required disclosures about fair-value measurements. Generally accepted accounting principles define fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Generally accepted accounting principles utilize a valuation hierarchy for disclosure of fair value measurements. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:

     Level 1 – Financial instruments with quoted prices in active markets for identical assets or liabilities.

     Level 2 – Financial instruments with quoted prices in active markets for similar assets or liabilities. Level 2 fair value measurements are determined using either prices for similar instruments or inputs that are either directly or indirectly observable, such as interest rates.

     Level 3 – Inputs to the fair value measurement are unobservable inputs or valuation techniques.

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     Money market funds are included on the balance sheets in “Cash and cash equivalents.” Corporate bonds are included on the balance sheets in “Marketable securities, short term” and “Marketable securities, long term.”
 
     The following table shows the estimated fair value of assets that were accounted for at fair value on a recurring basis:
 

	As of March 31, 2019									As of March 31, 2018								As of March 31, 2021									As of March 31, 2020
	Level 1			Level 2			Total			Level 1			Level 2			Total		Level 1			Level 2			Total			Level 1			Level 2			Total
Money market funds	$	6,703,809		$	-		$	6,703,809		$	3,951,032		$	-		$	3,951,032	$	10,143,196		$	-		$	10,143,196		$	7,903,433		$	-		$	7,903,433
Corporate bonds		-			67,413,454			67,413,454			54,517,969			19,085,998			73,603,967		-			54,717,626			54,717,626			-			62,691,309			62,691,309
Total	$	6,703,809		$	67,413,454		$	74,117,263		$	58,469,001		$	19,085,998		$	77,554,999	$	10,143,196		$	54,717,626		$	64,860,822		$	7,903,433		$	62,691,309		$	70,594,742

     Our available-for-sale securities as of March 31, 20192021 and 2018,2020, aggregated into classes of securities, were as follows:

	As of March 31, 2019													As of March 31, 2018												As of March 31, 2021													As of March 31, 2020
	Amortized Cost			Gross Unrealized Holding Gains			Gross Unrealized Holding Losses				Estimated Fair Value			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Estimated Fair Value		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	$	6,703,809		$	-		$	-			$	6,703,809		$	3,951,032		$	-		$	-			$	3,951,032	$	10,143,196		$	-		$	-			$	10,143,196		$	7,903,433		$	-		$	-			$	7,903,433
Corporate bonds		67,519,350			315,902			(421,798	)			67,413,454			74,853,327			-			(1,249,360	)			73,603,967		53,308,105			1,570,195			(160,674	)			54,717,626			62,030,120			752,621			(91,432	)			62,691,309
Total	$	74,223,159		$	315,902		$	(421,798	)		$	74,117,263		$	78,804,359		$	-		$	(1,249,360	)		$	77,554,999	$	63,451,301		$	1,570,195		$	(160,674	)		$	64,860,822		$	69,933,553		$	752,621		$	(91,432	)		$	70,594,742

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     The following table shows the gross unrealized holding losses and fair value of our available-for-sale securities with unrealized holding losses, aggregated by class of securities and length of time that individual securities had been in a continuous unrealized loss position as of March 31, 20192021 and 2018.2020.

		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 March 31, 2019
	Corporate bonds	$	-		$	-			$	51,413,428		$	(421,798	)		$	51,413,428		$	(421,798	)
	Total	$	-		$	-			$	51,413,428		$	(421,798	)		$	51,413,428		$	(421,798	)
As of March 31, 2018
	Corporate bonds	$	61,731,248		$	(1,003,849	)		$	9,072,719		$	(245,511	)		$	70,803,967		$	(1,249,360	)
	Total	$	61,731,248		$	(1,003,849	)		$	9,072,719		$	(245,511	)		$	70,803,967		$	(1,249,360	)

		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 March 31, 2021
	Corporate bonds	$	10,322,539		$	(160,674	)		$	-		$		-		$	10,322,539		$	(160,674	)
	Total	$	10,322,539		$	(160,674	)		$	-		$		-		$	10,322,539		$	(160,674	)
As of March 31, 2020
	Corporate bonds	$	19,525,169		$	(91,432	)		$	-		$		-		$	19,525,169		$	(91,432	)
	Total	$	19,525,169		$	(91,432	)		$	-		$		-		$	19,525,169		$	(91,432	)

 
     We did not consider any of our available-for-sale securities to be impaired as of March 31, 2019.2021. None of the securities were impaired at acquisition, and subsequent declines in fair value are not attributed to declines in credit quality. The effects of the COVID-19 pandemic, however, have degraded outlooks for some of our marketable securities’ issuers, which could lead to credit-quality downgrades in the future. When evaluating for impairment we assess indicators that include, but are not limited to, earnings performance, changes in underlying credit ratings, market conditions, bona fide offers to purchase or sell, and ability to hold until maturity. Because we believe it is more likely than not we will recover the cost basis of our investments, we did not consider any of our marketable securities to be impaired as of March 31, 2019.
2021.

NOTE 4. INVENTORIES
     Inventories are shown in the following table:
 

	March 31					March 31
	2019			2018		2021			2020
Raw materials	$	1,130,917		$	1,084,030	$	660,678		$	1,017,451
Work in process		2,325,238			1,828,492		2,220,723			1,863,000
Finished goods	808,721			737,917		1,019,376			1,003,999
Total inventories	$	4,264,876		$	3,650,439	$	3,900,777		$	3,884,450

 

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NOTE 5. STOCK-BASED COMPENSATION
Stock Option Plan
     Our 2000 Stock Option Plan, as amended, provides for issuance to employees, directors, and certain service providers of incentive stock options and nonstatutory stock options. Generally, the options may be exercised at any time prior to expiration, subject to vesting based on terms of employment. The period ranges from immediate vesting to vesting over a five-year period. The options have exercisable lives ranging from one year to ten years from the date of grant, and are generally not eligible to vest early in the event of retirement, death, disability, or change in control. Exercise prices are not less than fair market value of the underlying Common Stock at the date the options are granted. Stock-based compensation expense was $93,360$45,572 in fiscal 20192021 and $40,920$48,360 in fiscal 2018.2020.

Valuation assumptions
     We use the Black-Scholes standard option-pricing model to determine the fair value of stock options. The following assumptions were used to estimate the fair value of options granted:

	Year Ended March 31					Year Ended March 31
	2019			2018		2021			2020
Risk-free interest rate	2.9	%		1.8	%	0.2 – 0.4	%		1.7	%
Expected volatility	33	%		28	%	34 – 35	%		37	%
Expected life (years)	4.5			4.4		4.6			4.6
Dividend yield	3.7	%		5.3	%	7.0 – 7.4	%		5.9	%

 
     The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions of other variables, including projected stock option exercise behaviors, risk-free interest rate, and expected volatility of our stock price in future periods. Our estimates and assumptions affect the amounts reported in the financial statements and accompanying notes.

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Expected life
     We analyze historical exercise and termination data to estimate the expected life assumption. We believe historical data currently represents the best estimate of the expected life of a new option.

Risk-free interest rate
     The risk-free rate is based on the yield of U.S. Treasury securities on the grant date for maturities similar to the expected lives of the options.

Volatility
     We use historical volatility to estimate the expected volatility of our common stock.

Dividend yield
     We assumed a 7.0% to 7.4% dividend yield of 3.7% for fiscal 20192021 and 5.3%5.9% for fiscal 20182020 based on the dividend yield on the date the options were granted.

Tax effects of stock-based compensation
     Stock-based compensation increased deferred tax assets by $19,771$9,971 for fiscal 20192021 and $8,953$10,581 for fiscal 2018.2020.

General stock option information
     The following table summarizes information abouton options outstanding as of March 31, 2019, all of which were exercisable:2021:

Ranges of Exercise Prices		Number Outstanding		Weighted Average Exercise Price			Weighted Remaining Contractual Life (years)
$49.86 - $67.69		14,000		$	58.83		5.5
$76.13 - $107.86		8,000		92.00			8.9
		22,000		$	70.89		6.7

Ranges of Exercise Prices		Number Outstanding		Weighted Average Exercise Price			Weighted Remaining Contractual Life (years)
$49.86 – $67.69		22,000		$	59.85		5.3
$76.13 – $107.86		8,000		92.00			6.9
		30,500		$	68.28		5.7

 
     A summary of our stock options is shown in the following table:
 

	Option Shares Reserved			Options Outstanding			Weighted Average Option Exercise Price		Option Shares Reserved			Options Outstanding			Weighted Average Option Exercise Price
At March 31, 2017	143,230			19,000			$	57.51
At March 31, 2019									135,230			22,000			$	70.89
Granted	(4,000	)		4,000			$	76.13	(4,000	)		4,000			$	67.65
Exercised	-			(1,000	)		$	51.04	-			(2,000	)		$	56.18
At March 31, 2018	139,230			22,000			$	61.19
At March 31, 2020									131,230			24,000			$	71.58
Granted	(4,000	)		4,000			$	107.86	(6,500	)		6,500			$	56.12
Exercised	-			(4,000	)		$	54.49
At March 31, 2019	135,230			22,000			$	70.89
At March 31, 2021									124,730			30,500			$	68.28

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     The remaining weighted-average exercisable life was 6.75.7 years as of March 31, 20192021 and 6.6 years as of March 31, 2018. All2020. 28,000 outstanding options were exercisable as of March 31, 20192021 and 2018. The total intrinsic value24,000 outstanding options were exercisable as of options exercised during fiscal 2019 was $180,093 based on the difference between the exercise price and stock price at the time of exercise for in-the-money options.March 31, 2020. The total intrinsic value of options outstanding March 31, 2019,2021, based on our closing stock price for that day, was $633,840, all$230,540, $191,140 of which was exercisable. The total fair value of option grants was $93,360$47,140 in fiscal 2019.2021. There was no$1,568 of unrecognized stock-based compensation as of March 31, 2019.

Table2021 related to nonvested options, which we expect to recognize in the first quarter of Contentsfiscal 2022.

NOTE 6. INCOME TAXES
     Income tax provisions for fiscal 20192021 and 20182020 consisted of the following:

	Year Ended March 31
	2019				2018
Current taxes
Federal	$	3,107,376			$	5,899,574
State	125,796				160,670
Deferred taxes
Federal	(30,012		)		31,800
State	(1,257		)		4,108
Income tax provision	$	3,201,903			$	6,096,152

	Year Ended March 31
	2021				2020
Current taxes
Federal	$	2,600,670			$	2,710,658
State	75,852				(13,176		)
Deferred taxes
Federal	(123,959		)		74,651
State	(5,195		)		3,128
Income tax provision	$	2,547,368			$	2,775,261

 
     A reconciliation of income tax provisions at the U.S. statutory rate for fiscal 20192021 and 20182020 is as follows:
 

	Year Ended March 31
	2019				2018
Tax expense at U.S. statutory rate	$	3,719,066			$	6,282,771
State income taxes, net of Federal benefit		95,430				103,240
Domestic manufacturing deduction		-				(495,361	)
Foreign-derived intangible income deduction		(555,256	)			-
Municipal interest		-				(1,378	)
Tax Reform Act effect on deferred tax assets		-				206,693
Other		(57,337	)			187
Income tax provision	$	3,201,903			$	6,096,152

	Year Ended March 31
	2021				2020
Tax expense at U.S. Statutory rate	$	2,990,768			$	3,633,400
State income taxes, net of Federal benefit		88,909				77,989
Research and development credits		(86,223	)			(126,320	)
Foreign-derived intangible income deduction		(450,912	)			(540,265	)
Other		4,826				(269,543	)
Income tax provision	$	2,547,368			$	2,775,261

 
     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. Significant components of our deferred tax assets and liabilities as of March 31, 20192021 and 20182020 were as follows:
 

	March 31							March 31
	2019				2018			2021				2020
Paid time off accrual	$	55,900			$	59,171		$	60,869			$	55,240
Inventory reserve	41,572				41,572			50,324				45,948
Depreciation and amortization	112,125				81,385			88,690				22,651
Stock-based compensation deductions	62,671				55,886			75,189				65,218
Unrealized loss on marketable securities	23,170				273,360
Unrealized gain on marketable securities								(308,403		)		(144,668		)
Other	58,297				61,281			106,869				63,730
Deferred tax assets	$	353,735			$	572,655		$	73,538			$	108,119

     The Act “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “Tax Reform Act”) was enacted December 22, 2017. The Tax Reform Act reduced certain Federal corporate income tax rates effective January 1, 2018 and changed certain other provisions. The effective tax rate for fiscal 2018 was a blended rate reflecting the estimated benefit of Federal tax rate reductions. These benefits were partially offset by a one-time $206,693 unfavorable impact of a revaluation of our deferred tax assets. The revaluation of our deferred tax assets increased income tax provisions for the year ended March 31, 2018, and decreased deferred tax assets as of March 31, 2018.
 
     We had no unrecognized tax benefits as of March 31, 2019,2021, and we do not expect any significant unrecognized tax benefits within 12 months of the reporting date. We recognize interest and penalties related to income tax matters in income tax expense. As of March 31, 20192021 we had no accrued interest related to uncertain tax positions. The tax years 20152016 through 20172019 remain open to examination by the major taxing jurisdictions to which we are subject.
 
NOTE 7. LEASES
     We conduct our operations in a leased facility under a non-cancellable lease expiring March 31, 2026. Our lease does not provide an implicit rate, so we used our incremental borrowing rate to determine the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term. Variable lease costs consist primarily of common area maintenance and real estate taxes which are paid based on actual costs incurred by the lessor. Details of our operating lease are as follows:

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		Year Ended March 31
		2021				2020
Operating lease cost		$	158,439			$	154,565
Variable lease cost		109,449				96,798
Total		$	267,888			$	251,363
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for leases		$	133,299			$	174,528
Remaining lease term			5 years				6 years
Discount rate			3.5	%			3.5	%

      The following table presents the maturities of lease liabilities as of March 31, 2021:

Year Ending March 31	Operating Leases
2022	152,703
2023	156,121
2024	159,592
2025	163,224
2026	165,947
Total lease payments	797,587
Imputed lease interest	(65,855		)
Total lease liabilities	$	731,732

NOTE 7.8. CONCENTRATIONS
     The following table summarizes customers comprising 10% or more of revenue for the two most recent fiscal years:
 

	% of Revenue for Year Ended March 31			% of Revenue for Year Ended March 31
	2019		2018	2021		2020
Customer A	21%		18%	22%		24%
Customer B	18%		19%	15%		14%
Customer C				Less than 10%		10%

 
     These two customers accounted for 41%43% of our accounts receivable as of March 31, 20192021 and 51%43% as of March 31, 2018.2020. We believe the receivable balances from these customers do not represent a significant credit risk based on past collection experience.
 

NOTE 8. COMMITMENTS AND CONTINGENCIES
     Our lease payments were $283,779 for fiscal 2019 and $278,429 for fiscal 2018. Currently our only future lease obligation is the operating lease for our facility, which expires December 31, 2020. We pay operating expenses including maintenance, utilities, real estate taxes, and insurance in addition to rental payments. The following table shows our future minimum lease payments:

Year Ending March 31
2020			2021			2022			2023			2024			Total
$	295,436		$	223,981		$	-		$	-		$	-		$	519,417

NOTE 9. STOCK REPURCHASE PROGRAM
       On January 21, 2009 we announced that our Board of Directors authorized the repurchase of up to $2,500,000 of our Common Stock from time to time in open market, block, or privately negotiated transactions. The timing and extent of any repurchases depends on market conditions, the trading price of the company’s stock, and other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. On August 27, 2015, we announced that our Board of Directors authorized up to $5,000,000 of additional repurchases. Our authorizedrepurchase program does not have an expiration date and does not obligate us to purchase any shares. The Program may be modified or discontinued at any time without notice. We intend to finance any stock is stated as six millionrepurchases with cash provided by operating activities or maturating marketable securities. We repurchased 1,806 shares of our Common Stock $0.01 par value,in fiscal 2021 and ten million12,972 shares of all types. Our Board may designate any series and fix any relative rights and preferences to authorized but undesignated stock. We have ain fiscal 2020. The remaining authorization of $4,540,806was $3,762,040 as of March 31, 2019 under a Stock Repurchase Program originally announced on January 21, 2009. We did not repurchase any Common Stock in fiscal 2019 or 2018.2021. The Stock Repurchase Program may be modified or discontinued at any time without notice.

 
NOTE 10. INFORMATION AS TO EMPLOYEE STOCK PURCHASE, SAVINGS, AND SIMILAR PLANS
     All of our employees are eligible to participate in our 401(k) savings plan the first quarter after reaching age 21. Employees may contribute up to the Internal Revenue Code maximum. We make matching contributions of 100% of the first 3% of participants’ salary deferral contributions. Our matching contributions were $91,341$94,498 for fiscal 20192021 and $100,904$92,880 for fiscal 2018.2020.
 

NOTE 11. SUBSEQUENT EVENTS
     On May 1, 20195, 2021 we announced that our Board had declared a quarterly cash dividend of $1.00 per share of Common Stock to be paid May 31, 20192021 to shareholders of record as of the close of business May 13, 2019.17, 2021.
  

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EXHIBIT INDEX

Exhibit #	Description
4	Description of the registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
10.18	Amendment No. 7 to Supplier Partnering Agreement between Abbott and the company.
23	Consent of Grant Thornton LLP.Boulay PLLP.
31.1	Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).
31.2	Certification by Curt A. Reynders pursuant to Rule 13a-14(a)/15d-14(a).
32	Certification by Daniel A. Baker and Curt A. Reynders pursuant to 18 U.S.C. Section 1350.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 

F-14

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