NVE (NVEC) 10-Q 2020 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended   December 31, 2019

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                   to                                   

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.)
11409 Valley View Road, Eden Prairie, Minnesota	55344
(Address of principal executive offices)	(Zip Code)
(952) 829-9217
(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.

[X] Yes  [   ] No

     Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

[X] 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 [X]
Non-accelerated filer [   ]	Smaller reporting company [X]
	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 – 4,846,010 shares outstanding as of January 17, 2020
 

NVE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

          Balance Sheets

          Statements of Income for the Quarters Ended December 31, 2019 and 2018

          Statements of Comprehensive Income for the Quarters Ended December 31, 2019 and 2018

          Statements of Income for the nine Months Ended December 31, 2019 and 2018

          Statements of Comprehensive Income for the nine Months Ended December 31, 2019 and 2018

          Statements of Shareholders’ Equity for Periods Ended December 31, 2019

          Statements of Shareholders’ Equity for Periods Ended December 31, 2018

          Statements of Cash Flows

          Notes to Financial Statements

     Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Item 4. Controls and Procedures

PART II. OTHER INFORMATION

     Item 1. Legal Proceedings

     Item 1A. Risk Factors

     Item 4. Mine Safety Disclosures

     Item 6. Exhibits

SIGNATURES

2

Table of Contents

PART I–FINANCIAL INFORMATION

Item 1. Financial Statements.

NVE CORPORATION
BALANCE SHEETS
 

	(Unaudited) Dec. 31, 2019		March 31, 2019*
ASSETS
Current assets
Cash and cash equivalents	$	10,153,173	$	6,877,304
Marketable securities, short-term		12,055,363		12,487,821
Accounts receivable, net of allowance for uncollectible accounts of $15,000		2,119,037		2,995,638
Inventories		4,159,742		4,264,876
Prepaid expenses and other assets	845,194		816,045
Total current assets		29,332,509		27,441,684
Fixed assets
Machinery and equipment		9,381,906		9,365,806
Leasehold improvements	1,797,245		1,787,269
		11,179,151		11,153,075
Less accumulated depreciation and amortization	10,529,317		10,258,240
Net fixed assets		649,834		894,835
Deferred tax assets	63,467		353,735
Marketable securities, long-term	50,920,291		54,925,633
Right-of-use asset – operating lease	151,749		-
Total assets	$	81,117,850	$	83,615,887
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	153,470	$	375,188
Accrued payroll and other	558,762		460,488
Operating lease	174,916		-
Total current liabilities		887,148		835,676
Shareholders’ equity
Common stock, $0.01 par value, 6,000,000 shares authorized; 4,846,010 issued and outstanding as of December 31, 2019 and March 31, 2019		48,460		48,460
Additional paid-in capital		19,958,918		19,910,558
Accumulated other comprehensive income (loss)		697,291		(82,725	)
Retained earnings	59,526,033		62,903,918
Total shareholders’ equity	80,230,702		82,780,211
Total liabilities and shareholders’ equity	$	81,117,850	$	83,615,887

*The March 31, 2019 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, 2019.

See accompanying notes.


3

Table of Contents

NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)

	Quarter Ended Dec. 31
	2019		2018
Revenue
Product sales	$	6,160,967	$	5,991,241
Contract research and development	303,629		278,164
Total revenue		6,464,596		6,269,405
Cost of sales	1,263,806		1,169,406
Gross profit		5,200,790		5,099,999
Expenses
Research and development		771,468		1,126,975
Selling, general, and administrative	327,989		268,905
Total expenses	1,099,457		1,395,880
Income from operations		4,101,333		3,704,119
Interest income	443,478		457,204
Income before taxes		4,544,811		4,161,323
Provision for income taxes	814,147		739,918
Net income	$	3,730,664	$	3,421,405
Net income per share – basic	$	0.77	$	0.71
Net income per share – diluted	$	0.77	$	0.71
Cash dividends declared per common share	$	1.00	$	1.00
Weighted average shares outstanding
Basic		4,846,010		4,845,010
Diluted		4,847,436		4,850,507

STATEMENTS OF COMPREHENSIVE INCOME
     (Unaudited)

	Quarter Ended Dec. 31
	2019		2018
Net income	$	3,730,664	$	3,421,405
Unrealized gain from marketable securities, net of tax	31,237		101,891
Comprehensive income	$	3,761,901	$	3,523,296

 
 
See accompanying notes.


4

Table of Contents

NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)

	Nine Months Ended Dec. 31
	2019		2018
Revenue
Product sales	$	18,434,039	$	19,916,864
Contract research and development	827,198		966,522
Total revenue		19,261,237		20,883,386
Cost of sales	3,701,941		3,918,256
Gross profit		15,559,296		16,965,130
Expenses
Research and development		2,671,131		3,087,964
Selling, general, and administrative	1,026,448		975,114
Total expenses	3,697,579		4,063,078
Income from operations		11,861,717		12,902,052
Interest income	1,358,826		1,325,299
Income before taxes		13,220,543		14,227,351
Provision for income taxes	2,060,398		2,578,287
Net income	$	11,160,145	$	11,649,064
Net income per share – basic	$	2.30	$	2.41
Net income per share – diluted	$	2.30	$	2.40
Cash dividends declared per common share	$	3.00	$	3.00
Weighted average shares outstanding
Basic		4,846,010		4,843,355
Diluted		4,848,506		4,850,120

STATEMENTS OF COMPREHENSIVE INCOME
     (Unaudited)
 

	Nine Months Ended Dec. 31
	2019		2018
Net income	$	11,160,145	$	11,649,064
Unrealized gain from marketable securities, net of tax	780,016		46,101
Comprehensive income	$	11,940,161	$	11,695,165

 

See accompanying notes.

 
5

Table of Contents

NVE CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)

 

				Additional Paid-In Capital		Accumulated Other Comprehen- sive (Loss) Income				Retained Earnings
	Common Stock
	Shares	Amount											Total
Balance as of March 31, 2019	4,846,010	$	48,460	$	19,910,558	$	(82,725	)		$	62,903,918		$	82,780,211
Comprehensive income:
Unrealized gain on marketable securities, net of tax							570,063		570,063
Net income											3,607,419			3,607,419
Total comprehensive income														4,177,482
Cash dividends declared ($1.00 per share of common stock)										(4,846,010		)	(4,846,010		)
Balance as of June 30, 2019	4,846,010		48,460		19,910,558		487,338				61,665,327			82,111,683
Comprehensive income:
Unrealized gain on marketable securities, net of tax							178,716		178,716
Net income											3,822,062			3,822,062
Total comprehensive income														4,000,778
Stock-based compensation					48,360									48,360
Cash dividends declared ($1.00 per share of common stock)										(4,846,010		)	(4,846,010		)
Balance as of September 30, 2019	4,846,010		48,460		19,958,918		666,054				60,641,379			81,314,811
Comprehensive income:
Unrealized gain on marketable securities, net of tax							31,237		31,237
Net income											3,730,664			3,730,664
Total comprehensive income														3,761,901
Cash dividends declared ($1.00 per share of common stock)										(4,846,010		)	(4,846,010		)
Balance as of December 31, 2019	4,846,010	$	48,460	$	19,958,918	$	697,291			$	59,526,033		$	80,230,702

 
 
See accompanying notes.


6

Table of Contents

NVE CORPORATION
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)

 

				Additional Paid-In Capital		Accumulated Other Comprehen- sive (Loss) Income				Retained Earnings
	Common Stock
	Shares	Amount											Total
Balance as of March 31, 2018	4,842,010	$	48,420	$	19,599,298	$	(915,635	)		$	67,709,657		$	86,441,740
Comprehensive income:
Unrealized loss on marketable securities, net of tax							(107,027	)	(107,027						)
Net income											3,945,049			3,945,049
Total comprehensive income														3,838,022
Cash dividends declared ($1.00 per share of common stock)										(4,842,010		)	(4,842,010		)
Cumulative effect of accounting change							(60,365	)		60,365
Balance as of June 30, 2018	4,842,010		48,420		19,599,298		(1,083,027	)			66,873,061			85,437,752
Exercise of stock options	2,000		20		124,430									124,450
Comprehensive income:
Unrealized gain on marketable securities, net of tax							51,237		51,237
Net income											4,282,610			4,282,610
Total comprehensive income														4,333,847
Stock-based compensation					93,360									93,360
Cash dividends declared ($1.00 per share of common stock)										(4,842,010		)	(4,842,010		)
Balance as of September 30, 2018	4,844,010		48,440		19,817,088		(1,031,790	)			66,313,661			85,147,399
Exercise of stock options	2,000		20		93,470									93,490
Comprehensive income:
Unrealized gain on marketable securities, net of tax							101,891		101,891
Net income											3,421,405			3,421,405
Total comprehensive income														3,523,296
Cash dividends declared ($1.00 per share of common stock)										(4,844,010		)	(4,844,010		)
Balance as of December 31, 2018	4,846,010	$	48,460	$	19,910,558	$	(929,899	)		$	64,891,056		$	83,920,175

 
 
See accompanying notes.


7

Table of Contents

NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)

 

	Nine Months Ended December 31
	2019			2018
OPERATING ACTIVITIES
Net income	$	11,160,145		$	11,649,064
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		403,691			531,685
Stock-based compensation		48,360			93,360
Deferred income taxes		71,800			(30,648	)
Changes in operating assets and liabilities:
Accounts receivable		876,601			171,051
Inventories		105,134			(491,042	)
Prepaid expenses and other assets		80,746			(120,646	)
Accounts payable and other liabilities		(210,172	)		(123,775	)
Net cash provided by operating activities		12,536,305			11,679,049
INVESTING ACTIVITIES
Purchases of fixed assets		(26,076	)		(68,265	)
Purchases of marketable securities		(7,196,330	)		(11,649,227	)
Proceeds from maturities of marketable securities		12,500,000			15,800,000
Cash provided by investing activities		5,277,594			4,082,508
FINANCING ACTIVITIES
Proceeds from sale of common stock		-			217,940
Payment of dividends to shareholders		(14,538,030	)		(14,528,030	)
Cash used in financing activities		(14,538,030	)		(14,310,090	)
Increase in cash and cash equivalents		3,275,869			1,451,467
Cash and cash equivalents at beginning of period	6,877,304			4,755,082
Cash and cash equivalents at end of period	$	10,153,173		$	6,206,549
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	1,931,661		$	2,696,045

 
 
See accompanying notes.


8

Table of Contents

NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS
     We develop and sell devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store, and transmit information.

NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
     The accompanying unaudited financial statements of NVE Corporation are prepared consistent with accounting principles generally accepted in the United States and in accordance with Securities and Exchange Commission rules and regulations. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the financial statements. Although we believe that the disclosures are adequate to make the information presented not misleading, certain disclosures have been omitted as allowed, and it is suggested that these unaudited financial statements be read in conjunction with the audited financial statements and the notes included in our latest annual financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019. The results of operations for the quarter and nine months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2020.

Significant Accounting Policies
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, upon product shipment or delivery to our customer or distributor as determined by agreed upon shipping terms. Shipping charges billed to customers are included in product sales and the related shipping costs are included in 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 December 31, 2019 or March 31, 2019.

     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.
 
 

9

Table of Contents
 
NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS
 
Recently Adopted Accounting Standards
     In July 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-07, Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. ASU 2019-07 aligns the guidance in various SEC sections of the codification with the requirements of certain SEC final rules and is effective immediately. These rules include requiring filers to include in their interim financial statements a reconciliation of changes in shareholders’ equity. We adopted all of the applicable rules for our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and subsequent interim reports. The adoption of ASU 2019-07 only affected presentation and disclosure.

     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 is fiscal 2020 for us. In July 2018, the FASB issued ASU No. 2018-11, Leases Topic (842): Targeted Improvements. ASU 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 adopted the new lease guidance using that method in the quarter ended June 30, 2019. Currently our only lease is the lease for our facility. We recognized $298,983 of leased liabilities a right-of-use asset of $261,644 as of April 1, 2019. The leased liabilities and right-of-use asset exclude non-lease components. There was no effect on our results of operations or cash flows.
 
New Accounting Standards Not Yet Adopted
     In December 2019, the FASB issued 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, with early adoption permitted. 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. 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, which delays the effective date of ASU 2016-13 by three years for certain Smaller Reporting Companies such as us. In accordance with ASU 2019-10, ASU 2016-13 is effective for certain Smaller Reporting Companies for financial statements issued for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, which will be fiscal 2024 for 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.

 
 

10

Table of Contents 
 
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. The following tables show the components of diluted shares:
 

	Quarter Ended Dec. 31
	2019	2018
Weighted average common shares outstanding – basic	4,846,010	4,845,010
Dilutive effect of stock options	1,426	5,497
Shares used in computing net income per share – diluted	4,847,436	4,850,507

	Nine Months Ended Dec. 31
	2019	2018
Weighted average common shares outstanding – basic	4,846,010	4,843,355
Dilutive effect of stock options	2,496	6,765
Shares used in computing net income per share – diluted	4,848,506	4,850,120

NOTE 5. 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 income (loss) 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 December 31, 2019 by maturity were as follows:

Total		<1 Year		1–3 Years		3–5 Years
$	72,853,414	$	21,933,123	$	33,904,811	$	17,015,480

     Total available-for-sale securities represented approximately 90% of our total assets. Marketable securities as of December 31, 2019 had remaining maturities between 10 and 50 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:
 
 

11

Table of Contents
 
     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.

     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 December 31, 2019						As of March 31, 2019
	Level 1		Level 2		Total		Level 1		Level 2		Total
Money market funds	$	9,877,760	$	-	$	9,877,760	$	6,703,809	$	-	$	6,703,809
Corporate bonds		-		62,975,654		62,975,654		-		67,413,454		67,413,454
Total	$	9,877,760	$	62,975,654	$	72,853,414	$	6,703,809	$	67,413,454	$	74,117,263

 
     Our available-for-sale securities as of December 31 and March 31, 2019, aggregated into classes of securities, were as follows:

	As of December 31, 2019									As of March 31, 2019
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Money market    funds	$	9,877,760	$	-	$	-		$	9,877,760	$	6,703,809	$	-	$	-		$	6,703,809
Corporate bonds		62,083,066		902,126		(9,538	)		62,975,654		67,519,350		315,902		(421,798	)		67,413,454
Total	$	71,960,826	$	902,126	$	(9,538	)	$	72,853,414	$	74,223,159	$	315,902	$	(421,798	)	$	74,117,263

 
     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 December 31 and March 31, 2019.

		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 December 31, 2019
	Corporate bonds	$	4,169,606	$	(9,538	)	$	-	$	-		$	4,169,606	$	(9,538	)
	Total	$	4,169,606	$	(9,538	)	$	-	$	-		$	4,169,606	$	(9,538	)
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	)

 
     We did not consider any of our available-for-sale securities to be impaired as of December 31, 2019. None of the securities were impaired at acquisition, and subsequent declines in fair value are not attributed to declines in credit quality. 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 December 31, 2019.
 
 

12

Table of Contents

NOTE 6. INVENTORIES
     Inventories are shown in the following table:

	December 31, 2019		March 31, 2019
Raw materials	$	1,139,246	$	1,130,917
Work in process		1,906,679		2,325,238
Finished goods	1,113,817		808,721
Total inventories	$	4,159,742	$	4,264,876

 
NOTE 7. STOCK-BASED COMPENSATION
     There were no stock-based compensation expenses for the third quarters of fiscal 2020 or 2019. Stock-based compensation expense was $48,360 for the first nine months of fiscal 2020 and $93,360 for the first nine months of fiscal 2019. 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. We calculate the share-based compensation expense using the Black-Scholes standard option-pricing model.
 
NOTE 8. 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.
 
     We had no unrecognized tax benefits as of December 31, 2019, 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, 2019 we had no accrued interest related to uncertain tax positions. The tax years 2016 through 2018 remain open to examination by the major taxing jurisdictions to which we are subject.
 
NOTE 9. LEASES
     We conduct our operations in a leased facility under a non-cancellable lease through December 31, 2020. 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:

	Quarter Ended December 31, 2019			Nine Months Ended December 31, 2019
Operating lease cost	$	38,641		$	115,923
Variable lease cost		30,227			90,681
Total		68,868		$	206,604
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for leases	$	43,365		$	130,095
Remaining lease term		1 year
Discount rate		3.5	%
The following table presents the maturities of lease liabilities as of December 31, 2019:
Year Ending March 31				Operating Leases
2020				$	44,433
2021				133,299
Total lease payments				177,732
Imputed lease interest				(2,816		)
Total lease liabilities				$	174,916

13

Table of Contents

NOTE 10. 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, and on August 27, 2015 we announced that our Board authorized $5,000,000 of additional repurchases. We did not repurchase any of our Common Stock under the program during the quarter ended December 31, 2019. The remaining authorization was $4,540,806 as of December 31, 2019. The Repurchase Program may be modified or discontinued at any time without notice.

NOTE 11. 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 $22,456 for the third quarter of fiscal 2020, $68,512 for the first nine months of fiscal 2020, $21,733 for the third quarter of fiscal 2019, and $67,327 for the first nine months of fiscal 2019.

NOTE 12. SUBSEQUENT EVENTS
     On January 22, 2020 we announced that our Board had declared a quarterly cash dividend of $1.00 per share of Common Stock to be paid February 28, 2020 to shareholders of record as of the close of business February 3, 2020.
 
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, uncertainties related to the economic environments in the industries we serve, uncertainties related to future sales and revenues, risks related to changes in tariffs and other trade barriers, uncertainties related to future stock repurchases and dividend payments, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.

     Further information regarding our risks and uncertainties are contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended March 31, 2019.
 
General
     NVE Corporation, referred to as NVE, we, us, or our, develops and sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store and transmit information. We manufacture high-performance spintronic products including sensors and couplers that are used to acquire and transmit data.
 
Critical accounting policies
     A description of our critical accounting policies is provided in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2019. As of December 31, 2019 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.
 
 

14

Table of Contents

Quarter ended December 31, 2019 compared to quarter ended December 31, 2018
     The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

	Percentage of Revenue Quarter Ended December 31				Quarter- to-Quarter Change
	2019		2018
Revenue
Product sales	95.3	%	95.6	%	2.8	%
Contract research and development	4.7	%	4.4	%	9.2	%
Total revenue	100.0	%	100.0	%	3.1	%
Cost of sales	19.5	%	18.7	%	8.1	%
Gross profit	80.5	%	81.3	%	2.0	%
Expenses
Research and development	12.0	%	17.9	%	(31.5	)%
Selling, general, and administrative	5.1	%	4.3	%	22.0	%
Total expenses	17.1	%	22.2	%	(21.2	)%
Income from operations	63.4	%	59.1	%	10.7	%
Interest income	6.9	%	7.3	%	(3.0	)%
Income before taxes	70.3	%	66.4	%	9.2	%
Provision for income taxes	12.6	%	11.8	%	10.0	%
Net income	57.7	%	54.6	%	9.0	%

 
     Total revenue for the quarter ended December 31, 2019 (the third quarter of fiscal 2020) increased 3% compared to the quarter ended December 31, 2018 (the third quarter of fiscal 2019). The increase was due to an 3% increase in product sales and a 9% increase in contract research and development revenue.

     The increase in product sales from the prior-year quarter was primarily due to increased purchases by existing customers. The increase in contract research and development revenue the third quarter of fiscal 2020 was due to the timing of progress towards contract completion.

     Total expenses decreased 21% in the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 due to a 32% decrease in research and development expense, partially offset by a 22% increase in selling, general, and administrative expense. The decrease in research and development expense was primarily due to staffing changes and the completion of certain product development activities. The increase in selling, general, and administrative expense was primarily due to staffing changes.

     Interest income for the third quarter of fiscal 2020 decreased 3% due to a decrease in the average interest rates on our marketable securities and money market funds.

     The 9% increase in net income in the third quarter of fiscal 2020 compared to the prior-year quarter was primarily due to a decrease in total expenses and an increase in total revenue.

 

15

Table of Contents

Nine months ended December 31, 2019 compared to nine months ended December 31, 2018
     The table shown below summarizes the percentage of revenue and period-to-period changes for various items:

	Percentage of Revenue Nine Months Ended Dec. 31				Period- to-Period Change
	2019		2018
Revenue
Product sales	95.7	%	95.4	%	(7.4	)%
Contract research and development	4.3	%	4.6	%	(14.4	)%
Total revenue	100.0	%	100.0	%	(7.8	)%
Cost of sales	19.2	%	18.8	%	(5.5	)%
Gross profit	80.8	%	81.2	%	(8.3	)%
Expenses
Research and development	13.9	%	14.8	%	(13.5	)%
Selling, general, and administrative	5.3	%	4.6	%	5.3	%
Total expenses	19.2	%	19.4	%	(9.0	)%
Income from operations	61.6	%	61.8	%	(8.1	)%
Interest income	7.0	%	6.3	%	2.5	%
Income before taxes	68.6	%	68.1	%	(7.1	)%
Provision for income taxes	10.7	%	12.3	%	(20.1	)%
Net income	57.9	%	55.8	%	(4.2	)%

 
     Total revenue for the nine months ended December 31, 2019 decreased 8% compared to the nine months ended December 31, 2018, due to a 7% decrease in product sales and a 14% decrease in contract research and development revenue.

     The decrease in product sales from the prior-year period was due to decreased purchase volumes by existing customers. The decrease in contract research and development revenue was due to the completion of certain contracts.

      Total expenses decreased 9% for the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019 due to a 14% decrease in research and development expense, partially offset by a 5% increase in selling, general, and administrative expense. The decrease in research and development expense was primarily due to staffing changes and the completion of certain product development activities. The increase in selling, general, and administrative expense was primarily due to staffing changes.

     Interest income for the first nine months of fiscal 2020 increased 3% due to an increase in the average interest rates on our marketable securities.

     The provision for income taxes for the first nine months of fiscal 2020 decreased 20% due to tax benefits from the Federal Tax Reform Act enacted in 2017. We currently expect our tax rate for the fourth quarter of fiscal 2020 to be approximately 18%, and our rate for the full fiscal year to be approximately 16%.

     The 4% decrease in net income in the first nine months of fiscal 2020 compared to the prior-year period was primarily due to a decrease in total revenue, partially offset by a decrease in research and development expense and a decrease in the provision for income taxes.
 
      Comprehensive income increased 2% to $11,940,161 compared to $11,695,165 for the prior-year period. The increase in comprehensive income was due to an unrealized gain from marketable securities of $780,016 compared to $46,101 in the prior-year period, partially offset by a decrease in net income. The unrealized gain was due to strong bond market conditions in the first nine months of fiscal 2020.

16

Table of Contents

Liquidity and capital resources
Overview
     Cash and cash equivalents were $10,153,173 as of December 31, 2019 compared to $6,877,304 as of March 31, 2019. The $3,275,869 increase in cash and cash equivalents during the nine months ended December 31, 2019 was due to $12,536,305 in net cash provided by operating activities and $5,277,594 of cash provided by investing activities, partially offset by $14,538,030 of cash used in financing 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.

Investing Activities
     Cash provided by investing activities in the nine months ended December 31, 2019 was due to $12,500,000 of marketable security maturities, partially offset by $7,196,330 of marketable securities purchases and $26,076 of fixed asset purchases.
 
Financing Activities
     Cash used in financing activities in the first nine months of fiscal 2020 was due to $14,538,030 of cash dividends paid to shareholders. In addition to the dividends already paid in fiscal 2020, on January 22, 2020 we announced that our Board had declared a cash quarterly dividend of $1.00 per share of common stock, or $4,846,010 based on shares outstanding as of January 17, 2020, to be paid February 28, 2020. 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 4. 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 December 31, 2019, our disclosure controls and procedures were effective.

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

17

Table of Contents

PART II–OTHER INFORMATION

Item 1. Legal Proceedings.
     In the ordinary course of business we may become involved in litigation. At this time we are not aware of any material pending or threatened legal proceedings or other proceedings contemplated by governmental authorities that we expect would have a material adverse impact on our future results of operation and financial condition.

Item 1A. Risk Factors.
     There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

Item 4. Mine Safety Disclosures.
     Not applicable.
 

 

18

Table of Contents

Item 6. Exhibits.

Exhibit #	Description
31.1	Certification by Daniel A. Baker pursuant to Rule 13a-14(a)/15d-14(a).
31.2	Certification by 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

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NVE CORPORATION
	(Registrant)
January 22, 2020	/s/ DANIEL A. BAKER
Date	Daniel A. Baker
	President and Chief Executive Officer
January 22, 2020	/s/ CURT A. REYNDERS
Date	Curt A. Reynders
	Chief Financial Officer

19