UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017June 30, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission File Number: 000-12196 NVE CORPORATION (Exact name of registrant as specified in its charter)
Minnesota | 41-1424202 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 55344 | |
(Address of principal executive offices) | (Zip Code) | |
| ||
(Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes [ ]☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒ Yes [ ]☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ]☐ Yes [X]☒ No
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | NVEC | The NASDAQ Stock Market, LLC |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value – 4,842,0104,833,401 shares outstanding as of January 12, 2018
PART I–I–FINANCIAL INFORMATION
Item 1. Financial Statements.
(Unaudited) December 31, 2017 | March 31, 2017* | ||||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 4,728,352 | $ | 8,199,364 | |||
Marketable securities, short-term | 18,808,203 | 19,591,833 | |||||
Accounts receivable, net of allowance for uncollectible accounts of $15,000 | 2,165,866 | 3,436,802 | |||||
Inventories | 3,596,326 | 3,358,298 | |||||
Prepaid expenses and other assets | 967,958 | 607,283 | |||||
Total current assets | 30,266,705 | 35,193,580 | |||||
Fixed assets | |||||||
Machinery and equipment | 9,504,983 | 9,007,455 | |||||
Leasehold improvements | 1,751,646 | 1,644,419 | |||||
11,256,629 | 10,651,874 | ||||||
Less accumulated depreciation and amortization | 9,742,050 | 9,238,626 | |||||
Net fixed assets | 1,514,579 | 1,413,248 | |||||
Long-term deferred tax assets | 333,023 | 357,055 | |||||
Marketable securities, long-term | 56,729,730 | 56,810,923 | |||||
Total assets | $ | 88,844,037 | $ | 93,774,806 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities | |||||||
Accounts payable | $ | 258,869 | $ | 376,275 | |||
Accrued payroll and other | 534,194 | 576,313 | |||||
Deferred revenue | - | 142,733 | |||||
Total current liabilities | 793,063 | 1,095,321 | |||||
Shareholders’ equity | |||||||
Common stock, $0.01 par value, 6,000,000 shares authorized; 4,842,010 issued and outstanding as of December 31, 2017 and 4,841,010 issued and outstanding as of March 31, 2017 | 48,420 | 48,410 | |||||
Additional paid-in capital | 19,599,298 | 19,507,348 | |||||
Accumulated other comprehensive loss | (265,991 | ) | (38,298 | ) | |||
Retained earnings | 68,669,247 | 73,162,025 | |||||
Total shareholders’ equity | 88,050,974 | 92,679,485 | |||||
Total liabilities and shareholders’ equity | $ | 88,844,037 | $ | 93,774,806 |
|
| (Unaudited) June 30, 2023 |
|
| March 31, 2023* |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,439,933 |
|
| $ | 1,669,896 |
|
Marketable securities, short-term (amortized cost of $12,300,315 as of June 30, 2023, |
|
| 12,173,737 |
|
|
| 15,513,095 |
|
Accounts receivable, net of allowance for credit losses of $227,440 as of June 30, 2023, |
|
| 5,397,032 |
|
|
| 6,523,344 |
|
Inventories |
|
| 6,292,162 |
|
|
| 6,417,010 |
|
Prepaid expenses and other assets |
|
| 707,175 |
|
|
| 663,459 |
|
Total current assets |
|
| 26,010,039 |
|
|
| 30,786,804 |
|
Fixed assets |
|
|
|
|
|
|
|
|
Machinery and equipment |
|
| 10,488,496 |
|
|
| 10,484,365 |
|
Leasehold improvements |
|
| 1,956,309 |
|
|
| 1,956,309 |
|
|
|
| 12,444,805 |
|
|
| 12,440,674 |
|
Less accumulated depreciation and amortization |
|
| 11,172,258 |
|
|
| 11,095,236 |
|
Net fixed assets |
|
| 1,272,547 |
|
|
| 1,345,438 |
|
Deferred tax assets |
|
| 724,773 |
|
|
| 572,038 |
|
Marketable securities, long-term (amortized cost of $41,447,065 as of June 30, 2023, and $37,495,846 as of March 31, 2023) |
|
| 39,719,369 |
|
|
| 36,125,047 |
|
Right-of-use asset – operating lease |
|
| 392,370 |
|
|
| 425,843 |
|
Total assets |
| $ | 68,119,098 |
|
| $ | 69,255,170 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 159,155 |
|
| $ | 281,712 |
|
Accrued payroll and other |
|
| 935,621 |
|
|
| 1,375,250 |
|
Operating lease |
|
| 176,688 |
|
|
| 175,798 |
|
Total current liabilities |
|
| 1,271,464 |
|
|
| 1,832,760 |
|
Operating lease |
|
| 301,866 |
|
|
| 342,908 |
|
Total liabilities |
|
| 1,573,330 |
|
|
| 2,175,668 |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 6,000,000 shares authorized; 4,833,401 issued and outstanding as of June 30, 2023, and 4,830,826 as of March 31, 2023 |
|
| 48,334 |
|
|
| 48,308 |
|
Additional paid-in capital |
|
| 19,423,479 |
|
|
| 19,295,442 |
|
Accumulated other comprehensive loss |
|
| (1,448,559 | ) |
|
| (1,213,858 | ) |
Retained earnings |
|
| 48,522,514 |
|
|
| 48,949,610 |
|
Total shareholders’ equity |
|
| 66,545,768 |
|
|
| 67,079,502 |
|
Total liabilities and shareholders’ equity |
| $ | 68,119,098 |
|
| $ | 69,255,170 |
|
*The March 31, 20172023 Balance Sheet is derived from the audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.
See accompanying notes.3
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Quarter Ended Dec. 31 | |||||||
2017 | 2016 | ||||||
Revenue | |||||||
Product sales | $ | 6,448,831 | $ | 7,116,931 | |||
Contract research and development | 911,958 | 345,748 | |||||
Total revenue | 7,360,789 | 7,462,679 | |||||
Cost of sales | 1,657,700 | 1,502,848 | |||||
Gross profit | 5,703,089 | 5,959,831 | |||||
Expenses | |||||||
Selling, general, and administrative | 313,033 | 384,322 | |||||
Research and development | 852,739 | 826,816 | |||||
Total expenses | 1,165,772 | 1,211,138 | |||||
Income from operations | 4,537,317 | 4,748,693 | |||||
Interest income | 404,665 | 395,207 | |||||
Income before taxes | 4,941,982 | 5,143,900 | |||||
Provision for income taxes | 1,370,380 | 1,660,156 | |||||
Net income | $ | 3,571,602 | $ | 3,483,744 | |||
Net income per share – basic | $ | 0.74 | $ | 0.72 | |||
Net income per share – diluted | $ | 0.74 | $ | 0.72 | |||
Cash dividends declared per common share | $ | 1.00 | $ | 1.00 | |||
Weighted average shares outstanding | |||||||
Basic | 4,841,369 | 4,836,336 | |||||
Diluted | 4,847,290 | 4,839,777 |
|
| Quarter Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Revenue |
|
|
|
|
|
|
|
|
Product sales |
| $ | 8,700,092 |
|
| $ | 7,072,961 |
|
Contract research and development |
|
| 131,322 |
|
|
| 263,446 |
|
Total revenue |
|
| 8,831,414 |
|
|
| 7,336,407 |
|
Cost of sales |
|
| 2,079,623 |
|
|
| 1,651,847 |
|
Gross profit |
|
| 6,751,791 |
|
|
| 5,684,560 |
|
Expenses |
|
|
|
|
|
|
|
|
Research and development |
|
| 695,992 |
|
|
| 601,918 |
|
Selling, general, and administrative |
|
| 475,115 |
|
|
| 371,320 |
|
Credit loss expense |
|
| 212,440 |
|
|
| - |
|
Total expenses |
|
| 1,383,547 |
|
|
| 973,238 |
|
Income from operations |
|
| 5,368,244 |
|
|
| 4,711,322 |
|
Interest income |
|
| 436,526 |
|
|
| 283,059 |
|
Income before taxes |
|
| 5,804,770 |
|
|
| 4,994,381 |
|
Provision for income taxes |
|
| 1,401,040 |
|
|
| 854,265 |
|
Net income |
| $ | 4,403,730 |
|
| $ | 4,140,116 |
|
Net income per share – basic |
| $ | 0.91 |
|
| $ | 0.86 |
|
Net income per share – diluted |
| $ | 0.91 |
|
| $ | 0.86 |
|
Cash dividends declared per common share |
| $ | 1.00 |
|
| $ | 1.00 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
| 4,832,166 |
|
|
| 4,830,826 |
|
Diluted |
|
| 4,840,571 |
|
|
| 4,830,871 |
|
STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Quarter Ended Dec. 31 | |||||||
2017 | 2016 | ||||||
Net income | $ | 3,571,602 | $ | 3,483,744 | |||
Unrealized loss from marketable securities, net of tax | (295,458 | ) | (571,862 | ) | |||
Comprehensive income | $ | 3,276,144 | $ | 2,911,882 |
|
| Quarter Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net income |
| $ | 4,403,730 |
|
| $ | 4,140,116 |
|
Unrealized loss from marketable securities, net of tax |
|
| (234,701 | ) |
|
| (338,553 | ) |
Comprehensive income |
| $ | 4,169,029 |
|
| $ | 3,801,563 |
|
See accompanying notes.
NVE CORPORATION
STATEMENTS OF INCOME
SHAREHOLDERS’ EQUITY
(Unaudited)
Nine Months Ended Dec. 31 | |||||||
2017 | 2016 | ||||||
Revenue | |||||||
Product sales | $ | 19,718,584 | $ | 19,782,529 | |||
Contract research and development | 2,246,105 | 1,690,461 | |||||
Total revenue | 21,964,689 | 21,472,990 | |||||
Cost of sales | 4,809,235 | 4,628,840 | |||||
Gross profit | 17,155,454 | 16,844,150 | |||||
Expenses | |||||||
Selling, general, and administrative | 1,060,757 | 1,117,925 | |||||
Research and development | 2,788,968 | 2,353,372 | |||||
Total expenses | 3,849,725 | 3,471,297 | |||||
Income from operations | 13,305,729 | 13,372,853 | |||||
Interest income | 1,154,303 | 1,263,924 | |||||
Income before taxes | 14,460,032 | 14,636,777 | |||||
Provision for income taxes | 4,429,780 | 4,715,291 | |||||
Net income | $ | 10,030,252 | $ | 9,921,486 | |||
Net income per share – basic | $ | 2.07 | $ | 2.05 | |||
Net income per share – diluted | $ | 2.07 | $ | 2.05 | |||
Cash dividends declared per common share | $ | 3.00 | $ | 3.00 | |||
Weighted average shares outstanding | |||||||
Basic | 4,841,130 | 4,835,639 | |||||
Diluted | 4,846,036 | 4,837,815 |
Nine Months Ended Dec. 31 | |||||||
2017 | 2016 | ||||||
Net income | $ | 10,030,252 | $ | 9,921,486 | |||
Unrealized loss from marketable securities, net of tax | (227,693 | ) | (587,068 | ) | |||
Comprehensive income | $ | 9,802,559 | $ | 9,334,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
|
|
|
| ||
|
| Common Stock |
|
| Paid-In |
|
| Comprehensive |
|
| Retained |
|
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income (Loss) |
|
| Earnings |
|
| Total |
| ||||||
Balance as of March 31, 2023 |
|
| 4,830,826 |
|
| $ | 48,308 |
|
| $ | 19,295,442 |
|
| $ | (1,213,858 | ) |
| $ | 48,949,610 |
|
| $ | 67,079,502 |
|
Exercise of stock options |
|
| 2,575 |
|
|
| 26 |
|
|
| 117,501 |
|
|
|
|
|
|
|
|
|
|
| 117,527 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (234,701 | ) |
|
|
|
|
|
| (234,701 | ) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,403,730 |
|
|
| 4,403,730 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,169,029 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
| 10,536 |
|
|
|
|
|
|
|
|
|
|
| 10,536 |
|
Cash dividends declared ($1.00 per share of common stock) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,830,826 | ) |
|
| (4,830,826 | ) |
Balance as of June 30, 2023 |
|
| 4,833,401 |
|
| $ | 48,334 |
|
| $ | 19,423,479 |
|
| $ | (1,448,559 | ) |
| $ | 48,522,514 |
|
| $ | 66,545,768 |
|
See accompanying notes.
NVE CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
|
|
|
|
| ||
|
| Common Stock |
|
| Paid-In |
|
| Comprehensive |
|
| Retained |
|
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income (Loss) |
|
| Earnings |
|
| Total |
| ||||||
Balance as of March 31, 2022 |
|
| 4,830,826 |
|
| $ | 48,308 |
|
| $ | 19,256,485 |
|
| $ | (318,120 | ) |
| $ | 45,578,456 |
|
| $ | 64,565,129 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (338,553 | ) |
|
|
|
|
|
| (338,553 | ) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,140,116 |
|
|
| 4,140,116 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,801,563 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
| 7,134 |
|
|
|
|
|
|
|
|
|
|
| 7,134 |
|
Cash dividends declared ($1.00 per share of common stock) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,830,826 | ) |
|
| (4,830,826 | ) |
Balance as of June 30, 2022 |
|
| 4,830,826 |
|
| $ | 48,308 |
|
| $ | 19,263,619 |
|
| $ | (656,673 | ) |
| $ | 44,887,746 |
|
| $ | 63,543,000 |
|
See accompanying notes.
NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Dec. 31 | |||||||
2017 | 2016 | ||||||
OPERATING ACTIVITIES | |||||||
Net income | $ | 10,030,252 | $ | 9,921,486 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 726,842 | 868,218 | |||||
Stock-based compensation | 40,920 | 22,000 | |||||
Excess tax deficiencies | - | 293 | |||||
Deferred income taxes | 153,954 | (61,076 | ) | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 1,270,936 | 782,427 | |||||
Inventories | (238,028 | ) | 42,755 | ||||
Prepaid expenses and other assets | (360,675 | ) | (16,909 | ) | |||
Accounts payable and accrued expenses | (159,525 | ) | 162,906 | ||||
Deferred revenue | (142,733 | ) | (714,805 | ) | |||
Net cash provided by operating activities | 11,321,943 | 11,007,295 | |||||
INVESTING ACTIVITIES | |||||||
Purchases of fixed assets | (604,755 | ) | (200,447 | ) | |||
Purchases of marketable securities | (16,256,210 | ) | (11,528,240 | ) | |||
Proceeds from maturities of marketable securities | 16,540,000 | 11,400,000 | |||||
Net cash used in investing activities | (320,965 | ) | (328,687 | ) | |||
FINANCING ACTIVITIES | |||||||
Proceeds from sale of common stock | 51,040 | 92,310 | |||||
Excess tax (deficiencies) | - | (293 | ) | ||||
Payment of dividends to shareholders | (14,523,030 | ) | (14,506,030 | ) | |||
Net cash used in financing activities | (14,471,990 | ) | (14,414,013 | ) | |||
Decrease in cash and cash equivalents | (3,471,012 | ) | (3,735,405 | ) | |||
Cash and cash equivalents at beginning of period | 8,199,364 | 7,534,593 | |||||
Cash and cash equivalents at end of period | $ | 4,728,352 | $ | 3,799,188 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid during the period for income taxes | $ | 4,615,019 | $ | 4,720,000 |
|
| Quarter Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
| $ | 4,403,730 |
|
| $ | 4,140,116 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 59,457 |
|
|
| 87,621 |
|
Provision for current estimate of credit losses |
|
| 212,440 |
|
|
| - |
|
Stock-based compensation |
|
| 10,536 |
|
|
| 7,134 |
|
Deferred income taxes |
|
| (87,000 | ) |
|
| 1 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 913,872 |
|
|
| 1,191,613 |
|
Inventories |
|
| 124,848 |
|
|
| (455,402 | ) |
Prepaid expenses and other assets |
|
| (10,243 | ) |
|
| (268,772 | ) |
Accounts payable and accrued expenses |
|
| (602,338 | ) |
|
| (1,371,168 | ) |
Net cash provided by operating activities |
|
| 5,025,302 |
|
|
| 3,331,143 |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchases of fixed assets |
|
| (4,131 | ) |
|
| (24,500 | ) |
Purchases of marketable securities |
|
| (3,937,835 | ) |
|
| (4,976,063 | ) |
Proceeds from maturities of marketable securities |
|
| 3,400,000 |
|
|
| 9,250,000 |
|
Receipt of tenant improvement allowance |
|
| - |
|
|
| 100,000 |
|
Net cash (used) provided by investing activities |
|
| (541,966 | ) |
|
| 4,349,437 |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
| 117,527 |
|
|
| - |
|
Payment of dividends to shareholders |
|
| (4,830,826 | ) |
|
| (4,830,826 | ) |
Cash used in financing activities |
|
| (4,713,299 | ) |
|
| (4,830,826 | ) |
(Decrease) increase in cash and cash equivalents |
|
| (229,963 | ) |
|
| 2,849,754 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
| 1,669,896 |
|
|
| 10,449,510 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
| $ | 1,439,933 |
|
| $ | 13,299,264 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes |
| $ | 1,195,542 |
|
| $ | 1,275,629 |
|
See accompanying notes.
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
We develop and sell devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store, and transmit information.
NOTE 2. INTERIM FINANCIAL INFORMATION
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements of NVE Corporation are prepared consistent with accounting principles generally accepted in the United States and in accordance with Securities and Exchange Commission rules and regulations. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the financial statements. Although we believe that the disclosures are adequate to make the information presented not misleading, certain disclosures have been omitted as allowed, and it is suggested that these unaudited financial statements be read in conjunction with the audited financial statements and the notes included in our latest annual financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2023. The results of operations for the quarter or nine months ended December 31, 2017June 30, 2023, are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2018.
Significant accounting policies
A description of our significant accounting policies is provided in Note 2 to the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory that is recorded using the first-in, first-out method to be measured at the lower of cost or net realizable value. We adopted ASU 2015-11 prospectively in the first quarter of the current fiscal year, and the adoption has not had a significant impact on our financial statements. In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company’s payments for tax withholdings should be classified. We adopted ASU 2016-09 prospectively in the first quarter of the fiscal year ending March 31, 2018. The adoption did not have a significant impact on our financial statements.Future Accounting Pronouncements In May 2014, the FASB issued ASU No. 2014-09, which supersedes 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. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, which will be fiscal 2019 for us. We plan to adopt the guidance retrospectively with any effect of initially applying the guidance recognized at the date of initial application. Under this approach, we would not restate prior financial statements presented. Based on an evaluation, we do not expect there to be a material impact on our financial statements, because we do not expect to change the manner or timing of recognizing revenue. We have evaluated each of our revenue streams, product sales and contract research and development. We recognize revenue on product sales to customers and distributors when we satisfy our performance obligations as the products are shipped. We recognize contract research and development revenue pro-rata as work progresses using costs incurred relative to the total expected costs as the measurement basis for progress toward completion. We are currently evaluating the impact of new disclosure requirements required under the guidance. Information regarding all other applicable recently issued accounting standards, on which our position have not changed since our latest annual financial statements, are contained in the financial statements includedStatements in our Annual Report on Form 10-K for the year ended March 31, 2017.
Marketable securities and credit losses
Our marketable securities consist of corporate bonds and money market funds. Marketable are initially recognized at cost. Marketable securities considered to be “purchased financial assets with credit deterioration” are initially recognized at cost, less any allowance for expected credit losses. Unrealized holding gains and losses are reported in other comprehensive income, net of applicable taxes, until realized. All marketable securities are carried on the balance sheet at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use a three-level fair value hierarchy in estimating and reporting fair values of our marketable securities:
Level 1 – Securities whose fair values are determined using quoted prices in active markets for identical securities.
Level 2 – Securities whose fair values are determined using quoted prices for similar securities in active markets or quoted prices for identical securities in markets that are not active.
Level 3 – Securities whose fair values are determined using unobservable inputs.
Corporate bonds with remaining maturities of less than one year are classified as short-term and those with remaining maturities of one year or more are classified as long-term. We consider all highly liquid investments with maturities of three months or less when purchased, including money market funds, to be cash equivalents.
We measure credit losses on our marketable securities at the individual security level, using the present value of expected cash flows method. Credit losses are measured as the amount by which the amortized cost basis of the security exceeds the present value of expected cash flows (discounted at the effective interest rate implicit in the security at the date of acquisition), limited by the amount by which the fair value of the security is less than its amortized cost basis. When estimating expected cash flows, we consider available information relating to past events, current conditions, and reasonable and supportable forecasts such as, past incidences of default, credit quality as reported by credit rating agencies, extent of impairment, length of time the security has been in a continuous unrealized loss position, and adverse conditions forecasted by industry, financial and economic experts that are relevant to the collectability of expected cash flows. We do not include accrued interest receivables in amortized cost and in fair value when measuring expected credit losses. We will write off uncollectible accrued interest receivable to net income in a timely manner, by reversing interest income, and therefore do not measure credit losses for accrued interest receivable. Timely manner means one year from the date the accrued interest receivable becomes past due. Accrued interest receivables are included in the balance sheet in “prepaid expenses and other assets.”
Accounts Receivable and Allowance for Credit Losses
We grant credit to customers in the normal course of business and at times require customers to pay for orders before shipment. Accounts receivable are presented on the balance sheet net of any allowance for credit losses. We measure credit losses on our trade accounts receivable on a pool basis, and in some cases, on an individual basis, using the loss-rate method. Accounts receivable are pooled based on geographical locations because we believe accounts originating from the same geographical location share risk characteristics. When estimating expected credit losses on our trade accounts receivable, we consider available information relating to past events, current conditions, and reasonable and supportable forecasts such as, historical loss rate, current age of and the remaining term of the receivable relative to our current days sales outstanding (“DSO”) ratio, and pending orders of the customer relative to accounts receivable balance as of the reporting date.
NOTE 3. RECENTLY ADOPTED ACCOUNTING STANDARD
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. ASU 2016-13 requires a financial asset (or a group of financial assets) to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. In November 2018 the FASB issued ASU No. 2018-19, Codification Improvements to Topic326, 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 (Topic326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), both of which delay the effective date of ASU 2016-13 by three years for certain Smaller Reporting Companies such as us. In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments; which modifies the measurement of expected credit losses of certain financial instruments. We adopted ASU
No. 2016-13 beginning with the quarter ended June 30, 2023.
The adoption resulted in disclosure changes and required us to consider the likelihood of default and to measure our allowance for credit losses over the contractual term of our receivables. The adoption did not have a material impact on the financial statements as of April 1, 2023. Under these requirements, we increased our allowance for credit losses by $212,440 on our balance sheet as of June 30, 2023, and recorded a corresponding credit loss expense in our income statement for the quarter ended June 30, 2023, which decreased net income by the same amount. This reduced our net income per share by $0.04 for the quarter ended June 30, 2023. The adoption had no net impact on cash flows.
NOTE 4. 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 period. Net income per diluted share amounts assume exercise of all stock options. Stock options totaling 4,000 for the quarter and 6,000 for the nine months ended December 31, 2016 were not included in the computation of diluted earnings per share because the exercise prices were greater than the market price of the common stock. The following tables show the components of diluted shares:
| Quarter Ended June 30, | ||
| 2023 |
| 2022 |
Weighted average common shares outstanding – basic | 4,832,166 |
| 4,830,826 |
Dilutive effect of stock options | 8,405 |
| 45 |
Shares used in computing net income per share – diluted | 4,840,571 |
| 4,830,871 |
Quarter Ended Dec. 31 | |||
2017 | 2016 | ||
Weighted average common shares outstanding – basic | 4,841,369 | 4,836,336 | |
Dilutive effect of stock options | 5,921 | 3,441 | |
Shares used in computing net income per share – diluted | 4,847,290 | 4,839,777 |
Nine Months Ended Dec. 31 | |||
2017 | 2016 | ||
Weighted average common shares outstanding – basic | 4,841,130 | 4,835,639 | |
Dilutive effect of stock options | 4,906 | 2,176 | |
Shares used in computing net income per share – diluted | 4,846,036 | 4,837,815 |
NOTE 5. MARKETABLE SECURITIES
The following table shows the major categories of our marketable securities and their contractual maturities as of June 30, 2023:
| Total |
| <1 Year |
| 1–3 Years |
| 3–6 Years |
| |||||
Money market funds |
| $ | 1,294,300 |
| $ | 1,294,300 |
| $ | - |
| $ | - |
|
Corporate bonds |
|
| 51,893,106 |
|
| 12,173,737 |
|
| 27,318,977 |
|
| 12,400,392 |
|
Total |
| $ | 53,187,406 |
| $ | 13,468,037 |
| $ | 27,318,977 |
| $ | 12,400,392 |
|
Total marketable securities represent approximately 78% of our total assets as of June 30, 2023. Marketable securities withas of June 30, 2023, had remaining maturities less than one yearbetween three weeks and 70 months.
Money market funds are classifiedincluded on the balance sheets in “Cash and cash equivalents.” Corporate bonds are included on the balance sheets in “Marketable securities, short term” and “Marketable securities, long term.” Accrued interest receivables were $418,336 as short-term,of June 30, 2023, and those with remaining maturities greater than one year$425,372 as of March 31, 2023, and are classifiedincluded in the balance sheets in “Prepaid expenses and other assets.”
We monitor the credit ratings of our marketable securities at least quarterly as long-term.reported by Standard & Poor’s. The following table summarizes the fair values of our marketable securities as of June 30, 2023, aggregated by credit rating:
Credit Rating |
| Fair Value |
AAA | $ | 2,564,149 |
AA |
| 6,626,736 |
AA- |
| 20,804,539 |
A+ |
| 7,893,562 |
A |
| 9,387,766 |
A- |
| 5,910,654 |
Total | $ | 53,187,406 |
The following table shows the estimated fair value of our marketable securities, aggregated by fair value hierarchy inputs used in estimating their fair values:
|
| As of June 30, 2023 |
|
| As of March 31, 2023 | ||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Total | ||||||
Money market funds |
| $ | 1,294,300 |
|
| $ | - |
|
| $ | 1,294,300 |
|
| $ | 906,141 |
|
| $ | - |
|
| $ | 906,141 |
Corporate bonds |
|
| - |
|
|
| 51,893,106 |
|
|
| 51,893,106 |
|
|
| - |
|
|
| 51,638,142 |
|
|
| 51,638,142 |
Total |
| $ | 1,294,300 |
|
| $ | 51,893,106 |
|
| $ | 53,187,406 |
|
| $ | 906,141 |
|
| $ | 51,638,142 |
|
| $ | 52,544,283 |
The following table shows the amortized cost, fair value and gross unrealized holding gains and losses of our marketable securities as of December 31, 2017, by maturity, were as follows:
Total | <1 Year | 1–3 Years | 3–5 Years | |||||||
$ | 75,537,933 | $ | 18,808,203 | $ | 29,512,416 | $ | 27,217,314 |
|
| As of June 30, 2023 |
|
| As of March 31, 2023 | ||||||||||||||||||||||||||
|
| Amortized Cost |
|
| Gross Unrealized Holding Gains |
|
| Gross Unrealized Holding Losses |
|
| Estimated Fair Value |
|
| Amortized Cost |
|
| Gross Unrealized Holding Gains |
|
| Gross Unrealized Holding Losses |
|
| Estimated Fair Value | ||||||||
Money market funds |
| $ | 1,294,300 |
|
| $ | - |
|
| $ | - |
|
| $ | 1,294,300 |
|
| $ | 906,141 |
|
| $ | - |
|
| $ | - |
|
| $ | 906,141 |
Corporate bonds |
|
| 53,747,380 |
|
|
| 1 |
|
|
| (1,854,275 | ) |
|
| 51,893,106 |
|
|
| 53,191,981 |
|
|
| 1,007 |
|
|
| (1,554,846 | ) |
|
| 51,638,142 |
Total |
| $ | 55,041,680 |
|
| $ | 1 |
|
| $ | (1,854,275 | ) |
| $ | 53,187,406 |
|
| $ | 54,098,122 |
|
| $ | 1,007 |
|
| $ | (1,554,846 | ) |
| $ | 52,544,283 |
As of December 31, 2017 | As of March 31, 2017 | ||||||||||||||||||||||||
Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Market Value | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Market Value | ||||||||||||||||||
Corporate bonds | $ | 75,955,697 | $ | 27,442 | $ | (445,206 | ) | $ | 75,537,933 | $ | 75,158,087 | $ | 187,001 | $ | (246,935 | ) | $ | 75,098,153 | |||||||
Municipal bonds | - | - | - | - | 1,304,817 | - | (214 | ) | 1,304,603 | ||||||||||||||||
Total | $ | 75,955,697 | $ | 27,442 | $ | (445,206 | ) | $ | 75,537,933 | $ | 76,462,904 | $ | 187,001 | $ | (247,149 | ) | $ | 76,402,756 |
Table of December 31, 2017. Contents
The following table shows the gross unrealized holding losses and estimated fair value of our investments with unrealizedmarketable securities for which an allowance for credit losses has not been recorded, aggregated by investment category of securities and length of time that individual securities had been in a continuous unrealized loss position as of December 31June 30 and March 31, 2017:
Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||
Fair Market Value | Gross Unrealized Losses | Fair Market Value | Gross Unrealized Losses | Fair Market Value | Gross Unrealized Losses | ||||||||||||||||
As of December 31, 2017 | |||||||||||||||||||||
Corporate bonds | $ | 44,282,521 | $ | (325,912 | ) | $ | 9,224,878 | $ | (119,294 | ) | $ | 53,507,399 | $ | (445,206 | ) | ||||||
Municipal bonds | - | - | - | - | - | - | |||||||||||||||
Total | $ | 44,282,521 | $ | (325,912 | ) | $ | 9,224,878 | $ | (119,294 | ) | $ | 53,507,399 | $ | (445,206 | ) | ||||||
As of March 31, 2017 | |||||||||||||||||||||
Corporate bonds | $ | 32,198,766 | $ | (246,935 | ) | $ | - | $ | - | $ | 32,198,766 | $ | (246,935 | ) | |||||||
Municipal bonds | 1,304,603 | (214 | ) | - | - | 1,304,603 | (214 | ) | |||||||||||||
Total | $ | 33,503,369 | $ | (247,149 | ) | $ | - | $ | - | $ | 33,503,369 | $ | (247,149 | ) |
|
| 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 June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
| $ | 36,594,686 |
|
| $ | (934,611 | ) |
| $ | 15,298,420 |
|
| $ | (919,664 | ) |
| $ | 51,893,106 |
|
| $ | (1,854,275 | ) |
Total |
| $ | 36,594,686 |
|
| $ | (934,611 | ) |
| $ | 15,298,420 |
|
| $ | (919,664 | ) |
| $ | 51,893,106 |
|
| $ | (1,854,275 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
| $ | 37,084,628 |
|
| $ | (590,967 | ) |
| $ | 13,294,817 |
|
| $ | (963,879 | ) |
| $ | 50,379,445 |
|
| $ | (1,554,846 | ) |
Total |
| $ | 37,084,628 |
|
| $ | (590,967 | ) |
| $ | 13,294,817 |
|
| $ | (963,879 | ) |
| $ | 50,379,445 |
|
| $ | (1,554,846 | ) |
None of the securities were impaired at acquisition, and subsequent declines in fair market value of $9,224,878, had been in continuous unrealized loss positions for 12 months or greater as of December 31, 2017. Forare attributable to interest rate increases. We do not intend to sell, and it is not more likely than not that we will be required to sell, these securities we also considered the severitybefore recovery of unrealized losses, which were less than 2% of adjustedtheir amortized cost for each security.
None of the marketable securities purchased during the period had experienced more-than-insignificant deterioration in credit quality since its origination and were therefore not considered “Purchased Financial Assets with Credit Deterioration.”
Unrealized losses on our marketable securities to be impairedand their tax effects are as of December 31, 2017.
follows:
|
| Quarter Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Unrealized loss from marketable securities |
| $ | (300,437 | ) |
| $ | (433,376 | ) |
Tax effects |
|
| 65,736 |
|
|
| 94,823 |
|
Unrealized loss from marketable securities, net of tax |
| $ | (234,701 | ) |
| $ | (338,553 | ) |
NOTE 6. ALLOWANCE FOR CREDIT LOSSES ON ACCOUNTS RECEIVABLES
The following table shows a roll forward of the allowance for credit losses on our accounts receivable:
|
| ||
Allowance for credit losses as of March 31, 2023 |
| $ | 15,000 |
Change in provision for current expected credit losses |
|
| 212,440 |
Allowance for credit losses as of June 30, 2023 |
| $ | 227,440 |
NOTE 7. INVENTORIES
Inventories are shown in the following table:
December 31, 2017 | March 31, 2017 | ||||
Raw materials | $ | 1,044,845 | $ | 786,775 | |
Work in process | 1,710,799 | 1,968,990 | |||
Finished goods | 840,682 | 602,533 | |||
Total inventories | $ | 3,596,326 | $ | 3,358,298 |
|
| June 30, 2023 |
|
| March 31, 2023 |
Raw materials | $ | 1,741,172 |
| $ | 1,601,962 |
Work in process |
| 2,914,014 |
|
| 3,781,894 |
Finished goods |
| 1,636,976 |
|
| 1,033,154 |
Total inventories | $ | 6,292,162 |
| $ | 6,417,010 |
NOTE 7.8. STOCK-BASED COMPENSATION
Stock-based compensation expense was $40,920$10,536 for the first nine monthsquarter of fiscal 20182024 and $22,000$7,134 for the first nine monthsquarter of fiscal 2017. The stock-based compensation expenses were due to the automatic issuance to our non-employee directors of options to purchase 1,000 shares of stock on their reelection to our Board.2023. We calculate the share-based compensation expense using the Black-ScholesBlack-Scholes-Merton standard option-pricing model. The increase in stock-based compensation expense for fiscal 2018 compared to fiscal 2017 was due to an increase in the model valuation for the same number
Table of options to purchase shares.
NOTE 8.9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Act “To provide for reconciliation pursuant to titles II As of June 30, 2023, federal 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. Effective tax rates for the quarter and nine months ended December 31, 2017 are blended rates reflecting the estimated benefit of one quarter of Federal tax rate reductions for fiscal 2018. These benefits were partially offset by a one-time $206,693 unfavorable impact of a revaluation of our deferred tax assets that increased income tax provisions for the quarter and nine months ended December 31, 2017 and reduced long-term deferred tax assets as of December 31, 2017. As a result of the Tax Reform Act, ourstate estimated tax rate decreased from 32% to 29% for fiscal 2018.
liabilities of $453,591 were included in the balance sheet in “Accrued payroll and other.”
We had no unrecognized tax benefits as of December 31, 2017,June 30, 2023, 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 December 31, 2017June 30, 2023, we had no accrued interest related to uncertain tax positions. The tax years 1999 and 20132019 through 20162023 remain open to examination by the major taxing jurisdictions to which we are subject.
NOTE 9. FAIR VALUE MEASUREMENTS Generally accepted accounting principles establish10. LEASES
We conduct our operations in a framework for measuring fairleased facility under a non-cancellable lease expiring March 31, 2026. Our lease does not provide an implicit interest rate, so we used our incremental borrowing rate to determine the present value provideof lease payments. Lease expense is recognized on a definitionstraight-line basis over the lease term. Details 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 hierarchyour operating lease are described as follows: Level 1 – Financial instruments with quoted prices in active markets for identical assets or liabilities. Our Level 1 financial instruments consist
| Quarter Ended June 30, 2023 |
| |
Operating lease cost | $ | 37,754 |
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
Operating cash flows for leases | $ | 44,433 |
|
Remaining lease term | 33 months |
| |
Discount rate |
| 3.5 | % |
The following table shows the maturities of publicly-traded marketable corporate debt securities, which are classified as available-for-sale. On the balance sheets, these securities are included in “Marketable securities, short term” and “Marketable securities, long term.” All of our marketable securities were Level 1lease liabilities as of December 31, 2017. The fair value of these securities was $75,537,933 as of December 31, 2017 and $75,098,153 as of March 31, 2017. 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. We had no Level 2 financial instruments as of December 31, 2017. We had one Level 2 instrument, a municipal debt security with a fair value of $1,304,603, as of March 31, 2017. This security was classified as available-for-sale and included in “Marketable securities, short term” on the March 31, 2017 balance sheet. Level 3 – Inputs to the fair value measurement are unobservable inputs or valuation techniques. We do not have any financial assets or liabilities being measured at fair value that are classified as Level 3 financial instruments.
Year Ending March 31, | Operating Lease Liabilities |
| |
2024 | $ | 134,207 |
|
2025 |
| 182,271 |
|
2026 |
| 184,995 |
|
Total lease payments |
| 501,473 |
|
Imputed lease interest |
| (22,919 | ) |
Total lease liabilities | $ | 478,554 |
|
NOTE 10.11. 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 depend 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. We didOur repurchase program does not repurchasehave an expiration date and does not obligate us to purchase any of our Common Stock under the program during the quarter ended December 31, 2017.shares. The remaining authorization was $4,540,806 as of December 31, 2017. The Repurchase Program may be modified or discontinued at any time without notice.
We intend to finance any stock repurchases with cash provided by operating activities or maturing marketable securities. The remaining authorization was $3,520,369 as of June 30, 2023. We did not repurchase any of our Common Stock during the first quarter of fiscal 2024.
NOTE 11.12. INFORMATION AS TO EMPLOYEE STOCK PURCHASE, SAVINGS, AND SIMILAR PLANS
All of our employees are eligible to participate in our 401(k) savings plan the first quarter after reaching age 18. Employees may contribute up to the Internal Revenue Code maximum. We make matching contributions of 100% of the first 3% of participants’ salary deferral contributions. Our matching contributions were $27,078 for the first quarter of fiscal 2024 and $28,426for the first quarter of fiscal 2023.
NOTE 13. SUBSEQUENT EVENTS
On January 17, 2018July 19, 2023, we announced that our Board of Directors had declared a quarterly cash dividend of $1.00 per share of Common Stock to be paid February 28, 2018August 31, 2023, to shareholders of record as of the close of business January 29, 2018.July 31, 2023.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements
Some of the statements made in this Report or in the documents incorporated by reference in this Report and in other materials filed or to be filed by us with the Securities and Exchange Commission (“SEC”) as well as information included in verbal or written statements made by us constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the reform act. Forward-looking statements may be identified by the use of the terminology such as may, will, expect, anticipate, intend, believe, estimate, should, or continue, or the negatives of these terms or other variations on these words or comparable terminology. To the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects, or any other aspect of NVE, you should be aware that our actual financial condition, operating results, and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we currently believe may cause actual future experience and results to differ from their current expectations. These differences may be caused by a variety of factors, including but not limited to risks related to our reliance on several large customers for a significant percentage of revenue, our dependence on critical suppliers and packaging vendors, uncertainties related to the economic environments in the industries we serve, uncertainties related to future contract researchsales and development revenue,revenues, risks of credit losses, risks and uncertainties related to future stock repurchases and dividend payments, uncertainties related to the future impact of Federal tax reform, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.
Further information regarding our risks and uncertainties areis contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2017,2023, as updated in Part II, Item 1A of this Quarterly Report on Form 10-Q.
report.
General
NVE Corporation referred to as NVE, we, us, or our, develops and sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store, and transmit information. We manufacture high-performance spintronic products including sensors and couplers that are used to acquire and transmit data. We have also licensed our spintronic magnetoresistive random access memory technology, commonly known as MRAM.
Critical accounting policies
A description of our critical accounting policies is provided in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2017.2023. As of December 31, 2017June 30, 2023, our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
Quarter ended December 31, 2017June 30, 2023, compared to quarter ended December 31, 2016
June 30, 2022
The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:
Percentage of Revenue Quarter Ended Dec. 31 | Quarter- to-Quarter Change | |||||||
2017 | 2016 | |||||||
Revenue | ||||||||
Product sales | 87.6 | % | 95.4 | % | (9.4 | )% | ||
Contract research and development | 12.4 | % | 4.6 | % | 163.8 | % | ||
Total revenue | 100.0 | % | 100.0 | % | (1.4 | )% | ||
Cost of sales | 22.5 | % | 20.1 | % | 10.3 | % | ||
Gross profit | 77.5 | % | 79.9 | % | (4.3 | )% | ||
Expenses | ||||||||
Selling, general, and administrative | 4.3 | % | 5.2 | % | (18.5 | )% | ||
Research and development | 11.6 | % | 11.1 | % | 3.1 | % | ||
Total expenses | 15.9 | % | 16.3 | % | (3.7 | )% | ||
Income from operations | 61.6 | % | 63.6 | % | (4.5 | )% | ||
Interest income | 5.5 | % | 5.3 | % | 2.4 | % | ||
Income before taxes | 67.1 | % | 68.9 | % | (3.9 | )% | ||
Provision for income taxes | 18.6 | % | 22.2 | % | (17.5 | )% | ||
Net income | 48.5 | % | 46.7 | % | 2.5 | % |
| Percentage of Revenue Quarter Ended June 30, |
|
| Quarter- to-Quarter |
| |||
| 2023 |
|
| 2022 |
|
| Change |
|
Revenue |
|
|
|
|
|
|
|
|
Product sales | 98.5 | % |
| 96.4 | % |
| 23.0 | % |
Contract research and development | 1.5 | % |
| 3.6 | % |
| (50.2 | )% |
Total revenue | 100.0 | % |
| 100.0 | % |
| 20.4 | % |
Cost of sales | 23.5 | % |
| 22.5 | % |
| 25.9 | % |
Gross profit | 76.5 | % |
| 77.5 | % |
| 18.8 | % |
Expenses |
|
|
|
|
|
|
|
|
Research and development | 7.9 | % |
| 8.2 | % |
| 15.6 | % |
Selling, general, and administrative | 5.4 | % |
| 5.1 | % |
| 28.0 | % |
Credit loss expense | 2.4 | % |
| - | % |
| - | % |
Total expenses | 15.7 | % |
| 13.3 | % |
| 42.2 | % |
Income from operations | 60.8 | % |
| 64.2 | % |
| 13.9 | % |
Interest income | 4.9 | % |
| 3.9 | % |
| 54.2 | % |
Income before taxes | 65.7 | % |
| 68.1 | % |
| 16.2 | % |
Provision for income taxes | 15.8 | % |
| 11.7 | % |
| 64.0 | % |
Net income | 49.9 | % |
| 56.4 | % |
| 6.4 | % |
Total revenue for the quarter ended December 31, 2017June 30, 2023 (the thirdfirst quarter of fiscal 2018) decreased 1%2024) increased 20% compared to the quarter ended December 31, 2016June 30, 2022 (the thirdfirst quarter of fiscal 2017)2023). The decreaseincrease was due to a 9% decrease23% increase in product sales, partially offset by a 164% increase50% decrease in contract research and development revenue.
The decreaseincrease in product sales from the prior-year quarter was primarily due to decreasedincreased purchases by existing and new customers. Product sales increased in most of our markets and product lines. The increasedecrease in contract research and development revenue was due to the completion of certain contracts.
Total expenses increased 42% for the thirdfirst quarter of fiscal 2018 was due2024 compared to new contracts. Gross profit margin decreased to 77% of revenue for the thirdfirst quarter of fiscal 2018 compared to 80% for the third quarter of fiscal 20172023 due to a less profitable revenue mix. Total expenses decreased 4% for the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017, due to16% increase in research and development expense, a 19% decrease28% increase in selling, general, and administrative expense, partially offset byand a 3% increase$212,440 credit loss expense for the most recent quarter. The increases in research and development expense. The decrease inand selling, general, and administrative expense was due to decreased performance-based compensation and decreased legal expenses. The increase in research and development expense wasexpenses were primarily due to increased new product development activities. Interest income for the third quarter of fiscal 2018staffing and increased 2%employee compensation expenses. The credit loss expense was due to an increase in our allowance for credit losses under ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements, which we adopted beginning with the average interest ratesquarter ended June 30, 2023 (see Note 3 to the financial statements).
Interest income for the first quarter of fiscal 2024 increased 54% due to higher yields on our marketable securities partially offset by a decrease in our securities.
purchased after June 30, 2022.
Our effective tax rate, was 27.7% of net income before taxes forwhich is the quarter, compared to 32.3% in the prior-year quarter. The decrease was due to the blended effect of a decrease in the Federal tax rate with the enactment of the Tax Reform Act, partially offset by a $206,693 one-time increase in our provision for income taxes from the effectas a percentage of the new rate on our deferred tax assets. Although we have not yet fully assessed the impact of the Tax Reform Act on our futureincome before taxes, or net income, we currently expect our effective tax rateincreased to be approximately 29%24% for the first quarter ending March 31, 2018. See Note 8of fiscal 2024 compared to 17% for the financial statements for more information on income taxes.
first quarter of fiscal 2023. The 3%increase was due to changes in the timing and availability of tax credits.
The 6% increase in net income in the thirdfirst quarter of fiscal 20182024 compared to the prior-year quarter was primarily due to increased contract research and development revenue decreased selling, general, and administrative expense, and a decrease in the provision for income taxes, partially offset by decreased product sales, decreased gross profit margin, and increased research and development expense.
Percentage of Revenue Nine Months Ended Dec. 31 | Period- to-Period Change | |||||||
2017 | 2016 | |||||||
Revenue | ||||||||
Product sales | 89.8 | % | 92.1 | % | (0.3 | )% | ||
Contract research and development | 10.2 | % | 7.9 | % | 32.9 | % | ||
Total revenue | 100.0 | % | 100.0 | % | 2.3 | % | ||
Cost of sales | 21.9 | % | 21.6 | % | 3.9 | % | ||
Gross profit | 78.1 | % | 78.4 | % | 1.8 | % | ||
Expenses | ||||||||
Selling, general, and administrative | 4.8 | % | 5.2 | % | (5.1 | )% | ||
Research and development | 12.7 | % | 10.9 | % | 18.5 | % | ||
Total expenses | 17.5 | % | 16.1 | % | 10.9 | % | ||
Income from operations | 60.6 | % | 62.3 | % | (0.5 | )% | ||
Interest income | 5.2 | % | 5.9 | % | (8.7 | )% | ||
Income before taxes | 65.8 | % | 68.2 | % | (1.2 | )% | ||
Provision for income taxes | 20.1 | % | 22.0 | % | (6.1 | )% | ||
Net income | 45.7 | % | 46.2 | % | 1.1 | % |
Liquidity and capital resourcesCapital Resources
Overview
Cash and cash equivalents were $4,728,352$1,439,933 as of December 31, 2017June 30, 2023, compared to $8,199,364$1,669,896 as of March 31, 2017.2023. The $3,471,012$229,963 decrease in cash and cash equivalents during the nine months ended December 31, 2017first quarter of fiscal 2024 was due to $14,471,990$4,713,299 of cash used in financing activities and $320,965$541,966 of cash used inby investing activities, partially offset by $11,321,943$5,025,302 in net cash provided by operating activities. We currently believe our working capital and cash generated from operations will be adequate for our needs at least for the next 12 months.
Operating Activities
Net cash provided by operating activities related to product sales and research and development contract revenue was our primary source of working capital for the current and prior-year quarters. Net cash provided by operating activities was $5,025,302 for the first quarter of fiscal 2024 compared to $3,331,143 for the first quarter of fiscal 2023.
Accounts receivable asdecreased $1,126,312 during the first quarter of December 31, 2017 decreased $1,270,936 compared to March 31, 2017,fiscal 2024 primarily due to the timing of salescustomer payments and an increase in our allowance for credit losses due to and payments from certain customers.
the adoption of ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements (see Note 3).
Investing Activities
Cash used inby investing activities induring the nine monthsquarter ended December 31, 2017 was due to $16,256,210 in purchasesJune 30, 2023, consisted of $3,937,835 of marketable securities purchases and $604,755$4,131 of fixed asset purchases, partially offset by $3,400,000 in purchasesproceeds from maturities of marketable securities. Purchases of fixed assets partially offset by $16,540,000 of marketable security maturities.
can vary from quarter to quarter depending on our needs and equipment purchasing opportunities. Such purchases could increase significantly in future quarters.
Financing Activities
Cash used in financing activities induring the first nine monthsquarter ended June 30, 2023, consisted of fiscal 2018 was primarily due to $14,523,030$4,830,826 of cash dividends paid to shareholders. shareholders, partially offset by $117,527 in proceeds from the exercise of stock options.
In addition to cash dividends to shareholders paid in the first nine monthsquarter of fiscal 2018,2024, on January 17, 2018July 19, 2023, we announced that our Board of Directors had declared a cash quarterly dividend of $1.00 per share of common stock,Common Stock, or $4,842,010$4,833,401 based on shares outstanding as of January 12, 2018,July 14, 2023, to be paid February 28, 2018. August 31, 2023.
We plan to fund dividends through cash provided by operating activities and proceeds from maturities and sales of marketable securities. All future dividends will be subject to Board approval and subject to the company’s results of operations, cash and marketable security balances, estimates of future cash requirements, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.Item 3. Quantitative and Qualitative Disclosures About Market Risk. As discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, we are exposed to financial market risks, primarily marketable securities and, to a lesser extent, changes in currency exchange rates.Marketable Securities The primary objective of our investment activities is to preserve principal while at the same time maximizing after-tax yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents and marketable securities in securities including municipal obligations, corporate obligations, and money market funds. Short-term and long-term marketable securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income or loss, net of estimated tax. Our marketable securities as of December 31, 2017 had remaining maturities between 12 days and 56 months. Marketable securities had a market value of $75,537,933 as of December 31, 2017, representing approximately 85% of our total assets. We have not used derivative financial instruments in our investment portfolio.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer and ChiefPrincipal 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 ChiefPrincipal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation,Although there have been changes in personnel involved in our Chief Executive Officercontrols, processes, and Chief Financial Officerprocedures, our management concluded that, as of December 31, 2017,June 30, 2023, our disclosure controls and procedures were effective.
Changes in Internal Controls
During the quarter ended December 31, 2017,June 30, 2023, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings.
In the ordinary course of business, we may become involved in litigation. At this time, we are not aware of any material pending or threatened legal proceedings or other proceedings contemplated by governmental authorities that we expect would have a material adverse impact on our future results of operation and financial condition.
Item 1A. Risk Factors.
There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017,2023, except the following risk factor is added:
added to “Risks Related to Our Business”:
The impactsWe face risk of the Tax Reform Act could be materially different fromcredit losses
ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements requires us to measure our current estimates. The Act “To provideallowance for reconciliation pursuant to titles II and V of the concurrent resolutioncredit losses based on the budgetexpected credit losses over the life of our receivables, rather than the historical loss experience. We may need to increase our allowance for fiscal year 2018” (the “Tax Reform Act”) was enacted December 22, 2017. The Tax Reform Act reduced Federal corporate income tax rates effective January 1, 2018 and changed certain other provisions. We expectcredit losses when we believe that the new law to significantly reduce our tax rate in future periods, and we expect our fourth-quarter tax provision to reflect the benefit of a Federal tax rate reduction. Our estimated impacts of the new law are basedexpected credit losses on our current knowledge and assumptions, and recognized impactsreceivables have increased. Factors that could be materially different from current estimates basedaffect credit losses include late payments or defaults on our actual resultsreceivables and changes in the fourth quarter of fiscal 2018economic environment that adversely affect our customers’ ability to make payments. Any increases in our allowance for credit losses would have a negative impact on our financial results, including reducing our net income and our further analysis of the Act.
net income per share.
Item 4. Mine Safety Disclosures. Not applicable.
None.
Item 6. Exhibits.
Exhibit # | Description |
Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a). | |
Certification by | |
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NVE CORPORATION | |||
(Registrant) | |||
July 19, 2023 | /s/ DANIEL A. BAKER | ||
Date | Daniel A. Baker | ||
President and Chief Executive Officer | |||
July 19, 2023 | /s/ DANIEL NELSON | ||
Date | Daniel Nelson | ||
Principal Financial Officer |
18