UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2005
Commission File Number: 000-12196
NVE Corporation
(Exact name of registrant as specified in its charter)
Minnesota 41-1424202
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
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 - 4,576,454 shares outstanding as of
October 14, 2005
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 2005 AND MARCH 31, 2005
(Unaudited)
Sept. 30, 2005 March 31, 2005*
-------------- ---------------
ASSETS
Current assets
Cash and cash equivalents $ 1,696,519 $ 1,240,205
Short-term investments 1,000,145 252,775
Accounts receivable, net of allowance for
uncollectible accounts of $15,000 1,974,299 2,285,472
Inventories 1,681,660 1,572,759
Deferred tax assets 810,038 756,074
Prepaid expenses and other assets 117,791 130,873
-------------- --------------
Total current assets 7,280,452 6,238,158
Fixed assets
Machinery and equipment 4,102,089 4,140,307
Leasehold improvements 413,482 413,482
-------------- --------------
4,515,571 4,553,789
Less accumulated depreciation 3,066,060 2,826,227
-------------- --------------
Net fixed assets 1,449,511 1,727,562
Long-term investments 6,695,794 6,224,284
-------------- --------------
Total assets $ 15,425,757 $ 14,190,004
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 386,481 $ 319,427
Accrued payroll and other 505,063 465,930
Deferred revenue 139,504 267,355
Capital lease obligations 67,719 67,430
-------------- --------------
Total current liabilities 1,098,767 1,120,142
Capital lease obligations, less current portion - 33,281
-------------- --------------
Total liabilities 1,098,767 1,153,423
Shareholders' equity:
Common stock 45,765 45,698
Additional paid-in capital 14,550,876 14,064,625
Accumulated other comprehensive loss (104,754) (132,228)
Accumulated deficit (164,897) (941,514)
-------------- --------------
Total shareholders' equity 14,326,990 13,036,581
-------------- --------------
Total liabilities and shareholders' equity $ 15,425,757 $ 14,190,004
============== ==============
*The March 31, 2005 Balance Sheet is from the audited financial statements
contained in our Annual Report on Form 10-KSB for the year ended
March 31, 2005.
See accompanying notes.
NVE CORPORATION
STATEMENTS OF INCOME
QUARTERS ENDED SEPTEMBER 30, 2005 AND 2004
(Unaudited)
Quarter Ended September 30
2005 2004
------------ ------------
Revenue
Product sales $ 2,021,672 $ 1,450,052
Contract research and development 1,030,250 1,645,662
------------ ------------
Total revenue 3,051,922 3,095,714
Cost of sales 1,627,673 1,960,797
------------ ------------
Gross profit 1,424,249 1,134,917
Expenses
Research and development 517,939 306,593
Selling, general, and administrative 394,980 481,648
------------ ------------
Total expenses 912,919 788,241
------------ ------------
Income from operations 511,330 346,676
Interest income 77,119 58,497
Interest expense (1,695) (3,605)
Other income 5,751 21,730
------------ ------------
Income before taxes 592,505 $ 423,298
Provision for income taxes 228,537 -
------------ ------------
Net income $ 363,968 $ 423,298
============ ============
Net income per share - basic $ 0.08 $ 0.09
============ ============
Net income per share - diluted $ 0.08 $ 0.09
============ ============
Weighted average shares outstanding
Basic 4,573,168 4,499,180
Diluted 4,679,335 4,932,500
See accompanying notes.
NVE CORPORATION
STATEMENTS OF INCOME
SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Unaudited)
Six Months Ended Sept. 30
2005 2004
------------ ------------
Revenue
Product sales $ 3,805,922 $ 2,813,192
Contract research and development 2,271,548 3,171,749
------------ ------------
Total revenue 6,077,470 5,984,941
Cost of sales 3,308,791 3,586,678
------------ ------------
Gross profit 2,768,679 2,398,263
Expenses
Research and development 894,739 667,852
Selling, general, and administrative 804,574 966,244
------------ ------------
Total expenses 1,699,313 1,634,096
------------ ------------
Income from operations 1,069,366 764,167
Interest income 145,438 113,366
Interest expense (3,748) (8,062)
Other income 36,566 37,498
------------ ------------
Income before taxes 1,247,622 906,969
Provision for income taxes 471,005 -
------------ ------------
Net income $ 776,617 $ 906,969
============ ============
Net income per share - basic $ 0.17 $ 0.20
============ ============
Net income per share - diluted $ 0.17 $ 0.18
============ ============
Weighted average shares outstanding
Basic 4,571,524 4,495,442
Diluted 4,677,691 4,928,762
See accompanying notes.
NVE CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(Unaudited)
Six Months Ended Sept. 30
2005 2004
------------ ------------
OPERATING ACTIVITIES
Net income $ 776,617 $ 906,969
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 284,884 254,531
Gain on sale of fixed assets (25,500) -
Deferred income taxes 458,005 -
Changes in operating assets and liabilities:
Accounts receivable 311,173 (808,664)
Inventories (108,901) 59,683
Prepaid expenses and other assets 13,082 117,298
Accounts payable and accrued expenses 106,187 1,358
Deferred revenue (127,851) (75,578)
------------ ------------
Net cash provided by operating activities 1,687,696 455,597
INVESTING ACTIVITIES
Proceeds from the sale of fixed assets 25,500 -
Purchases of fixed assets - (679,812)
Purchases of investment securities (1,252,203) (19,921)
------------ ------------
Net cash used in investing activities (1,226,703) (699,733)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 28,313 79,147
Repayment of capital lease obligations (32,992) (82,040)
------------ ------------
Net cash used in financing activities (4,679) (2,893)
------------ ------------
Increase (decrease) in cash and cash equivalents 456,314 (247,029)
Cash and cash equivalents at beginning of period 1,240,205 1,055,796
------------ ------------
Cash and cash equivalents at end of period $ 1,696,519 $ 808,767
============ ============
See accompanying notes.
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
(Unaudited)
NOTE 1. NATURE OF BUSINESS
We develop, manufacture, and sell "spintronics" devices, a nanotechnology
which relies on electron spin rather than electron charge to acquire, store,
and transmit information.
NOTE 2. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements of NVE Corporation (the
"Company") are consistent with accounting principles generally accepted in the
United States and reporting 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,
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-KSB
for the fiscal year ended March 31, 2005. The results of operations for the
quarter ended September 30, 2005 are not necessarily indicative of the results
that may be expected for the full fiscal year ending March 31, 2006.
NOTE 3. FINANCIAL INSTRUMENTS
Our financial instruments consist of cash and cash equivalents,
investments, short-term trade receivables, and accounts payable. Because of
their short-term nature, carrying values of our financial instruments
approximate their fair value.
NOTE 4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
Quarter Ended September 30
2005 2004
------------ ------------
Net income $ 363,968 $ 423,298
Unrealized (loss) gain from investments (51,720) 73,150
------------ ------------
Comprehensive income $ 312,248 $ 496,448
============ ============
Six Months Ended September 30
2005 2004
------------ ------------
Net income $ 776,617 $ 906,969
Unrealized gain (loss) from investments 27,474 (85,095)
------------ ------------
Comprehensive income $ 804,091 $ 821,874
============ ============
NOTE 5. INVENTORIES
Inventories consisted of the following:
September 30 March 31
2005 2005
------------ ------------
Raw materials $ 625,752 $ 754,456
Work-in-process 803,840 614,337
Finished goods 432,068 383,966
------------ ------------
1,861,660 1,752,759
Less obsolescence reserve (180,000) (180,000)
------------ ------------
$ 1,681,660 $ 1,572,759
============ ============
NOTE 6. STOCK-BASED COMPENSATION
We have adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) Nos. 123 and 148, Accounting for Stock-Based
Compensation, but apply Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
our plans. Under APB Opinion No. 25, when the exercise price of employee stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized.
Pro forma information regarding net income and income per share is
required by SFAS Nos. 123 and 148, and has been determined as if we had
accounted for our employee stock options under the fair value method. The fair
value for these options was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
risk-free interest rate of 2.7% to 3.9% for the three and six months ended
September 30, 2005 and 2004; expected volatility of 55% to 99% for the three
and six months ended September 30, 2005 and 2004; a weighted-average expected
life of the options of one to five years, and no dividend yield.
Option valuation models were developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because our employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of our employee stock options.
The pro forma information is as follows:
Quarter Ended September 30
2005 2004
------------ ------------
Net income applicable to common shares:
As reported $ 363,968 $ 423,298
Pro forma adjustment for stock options (105,084) (241,196)
------------ ------------
Pro forma net income $ 258,884 $ 182,102
============ ============
Earnings per share:
Basic - as reported $ 0.08 $ 0.09
Basic - pro forma $ 0.06 $ 0.04
Diluted - as reported $ 0.08 $ 0.09
Diluted - pro forma $ 0.06 $ 0.04
Six Months Ended September 30
2005 2004
------------ ------------
Net income applicable to common shares:
As reported $ 776,617 $ 906,969
Pro forma adjustment for stock options (115,403) (383,982)
------------ ------------
Pro forma net income $ 661,214 $ 522,987
============ ============
Earnings per share:
Basic - as reported $ 0.17 $ 0.20
Basic - pro forma $ 0.14 $ 0.12
Diluted - as reported $ 0.17 $ 0.18
Diluted - pro forma $ 0.14 $ 0.11
NOTE 7. 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 reversed $155,096 and $332,313 for the three and six months ended
September 30, 2004 of our valuation allowance due to the utilization of net
operating loss carryforwards, resulting in no income tax expense for the
three and six months ended September 30, 2004.
We do not expect to pay taxes in the near future, other than possibly
alternative minimum tax, because we have stock-based compensation
deductions. However, we began recognizing tax expenses for reporting
purposes in fiscal 2006 because under SFAS No. 109, Accounting for Income
Taxes, stock-based compensation deductions do not reduce provision for
income taxes reported for book purposes. Regardless of our expectations,
there can be no assurance that we will generate any specific level of
continuing earnings.
NOTE 8. SUBSEQUENT EVENT
On October 17, 2005, our Board of Directors voted to terminate the NVE
Corporation 2001 Employee Stock Purchase Plan effective January 1, 2006. The
plan was approved by our shareholders in 2001 and allowed us to issue up to
200,000 shares of common stock. Since the plan was implemented, we issued
7,009; 12,566; 8,917; and 2,839 shares of common stock under the plan for
fiscal years 2005, 2004, 2003, and 2002, respectively. The termination was in
anticipation of the impact of Financial Accounting Standards Board Statement of
Financial Accounting Standards ("SFAS") No. 123(R), which we believe would have
required recognizing expenses associated with the issuance of shares under the
Plan. Public entities that do not file as small business issuers will be
required to apply SFAS No. 123(R) as of the first annual reporting period
beginning after June 15, 2005. The termination of the Plan will not affect
participants' options to purchase shares under the Plan on December 31, 2005.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
Forward-looking statements
Some of the statements made in this Report 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 adverse economic
conditions, intense competition including entry of new competitors, our ability
to obtain sufficient financing to support our operations, progress in research
and development activities by us and others, variations in costs that are
beyond our control, adverse federal, state and local government regulations,
unexpected costs, lower sales and net income or higher net losses than
forecasted, price increases for equipment, our dependence on significant
suppliers including Taiwan Semiconductor Manufacturing Corporation for foundry
semiconductor wafers, our ability to meet stringent customer technical
requirements, our ability to consummate additional license agreements, our
ability to continue eligibility for SBIR awards, our inability to raise prices,
failure to obtain new customers, the possible fluctuation and volatility of our
operating results and financial condition, inability to carry out marketing and
sales plans, loss of key executives, and other specific risks that may be
alluded to in this Report and those discussed in Exhibit 99 to this Report, as
well as those discussed in Exhibit 99 to our Annual Report on Form 10-KSB for
the year ended March 31, 2005.
General
We develop, manufacture, and sell devices using "spintronics," a
nanotechnology we helped pioneer, which utilizes electron spin rather than
electron charge to acquire, store and transmit information. We are a licensor
of spintronic magnetic random access memory technology, commonly referred to as
MRAM, which we believe has the potential to revolutionize electronic memory. We
also manufacture high-performance spintronic products including sensors and
couplers to revolutionize data sensing and transmission.
Quarter ended September 30, 2005 compared to the quarter ended
September 30, 2004
The table below summarizes certain summary information for various items
for the periods indicated:
Percentage of Revenue Period-
Quarter Ended September 30 to-Period
2005 2004 Change
------- ------- ---------
Revenue
Product sales 66.2 % 46.8 % 39.4 %
Research and development 33.8 % 53.2 % (37.4)%
------- -------
Total revenue 100.0 % 100.0 % (1.4)%
Cost of sales 53.3 % 63.3 %
------- -------
Gross profit 46.7 % 36.7 %
Total expenses 29.9 % 25.5 % 15.8 %
------- -------
Income from operations 16.8 % 11.2 % 47.5 %
Net interest and other income 2.6 % 2.5 % 5.9 %
------- -------
Income before taxes 19.4 % 13.7 % 40.0 %
Provision for income taxes 7.5 % - -
------- -------
Net income 11.9 % 13.7 % (14.0)%
======= =======
Total revenue for the quarter ended September 30, 2005 (the second quarter
of fiscal 2006) was $3,051,922, a decrease of 1% from $3,095,714 for the
quarter ended September 30, 2004 (the second quarter of fiscal 2005). The
decrease was due to a 37% decrease in contract research and development revenue
to $1,030,250 from $1,645,662, partially offset by a 39% increase in product
sales to $2,021,672 from $1,450,052. The decrease in contract research and
development revenue was due to a shift from government-funded to company-funded
research and a decrease in U.S. government contract awards to us. The increase
in product sales was due to increased sales of spintronic couplers and other
products.
Gross profit margin increased to 47% for the second quarter of fiscal 2006
from 37% for the same quarter of fiscal 2005. The increase in gross profit
margin was due to a more profitable revenue mix and higher product margins due
to the deployment of lower-cost coupler designs.
Research and development expenses increased 69% to $517,939 for the
quarter ended September 30, 2005 compared to $306,593 for the quarter ended
September 30, 2004. The increase was due to efforts to develop new and improved
products and a shift from government-funded to company-funded research.
Selling, general and administrative expenses for the quarter ended
September 30, 2005 decreased 18% to $394,980 compared to $481,648 for the
quarter ended September 30, 2004. The decrease was due to a shift to
distributors to sell our products rather than manufacturers' representatives.
This shift reduced commissions we paid and expenses associated with supporting
manufacturers' representatives.
Net interest and other income increased 6% to $81,175 for the quarter
ended September 30, 2005 from $76,622 for the quarter ended September 30, 2004.
The increase was mostly due to an increase in interest-bearing investments.
Income before taxes increased 40% to $592,505 for the quarter ended
September 30, 2005 from $423,298 for the quarter ended September 30, 2004. The
increase was due to an increase in revenue, an increase in gross profit margin,
and a decrease in selling, general and administrative expenses. These changes
were partially offset by an increase in research and development expense.
The provision for income taxes for the quarter ended September 30, 2005 is
due to the exhaustion of our net operating losses in fiscal 2005. We do not
expect to pay cash taxes in the near future because we have significant stock-
based compensation deductions.
Net income totaled $363,968 for the quarter ended September 30, 2005
compared to $423,298 for the quarter ended September 30, 2004. The decrease in
net income was primarily due to the provision for income taxes in the quarter
ended September 30, 2005.
Diluted weighted average shares outstanding decreased to 4,679,335 shares
for the quarter ended September 30, 2005 from 4,932,500 shares for the quarter
ended September 30, 2004. The decrease was due to the expiration of a warrant
issued to Cypress Semiconductor Corporation for the purchase of up to 400,000
shares of common stock.
Diluted earnings per share were $0.08 for the quarter ended
September 30, 2005 compared to $0.09 for the quarter ended September 30, 2004.
The decrease was due to the provision for income taxes in the quarter ended
September 30, 2005.
Six months ended September 30, 2005 compared to the six months ended
September 30, 2004
The table below summarizes certain summary information for various items
for the periods indicated:
Percentage of Revenue Period-
Six Months Ended Sept. 30 to-Period
2005 2004 Change
------- ------- ---------
Revenue
Product sales 62.6 % 47.0 % 35.3 %
Research and development 37.4 % 53.0 % (28.4)%
------- -------
Total revenue 100.0 % 100.0 % 2.0 %
Cost of sales 54.4 % 59.9 %
------- -------
Gross profit 45.6 % 40.1 %
Total expenses 28.0 % 27.3 % 4.0 %
------- -------
Income from operations 17.6 % 12.8 % 39.9 %
Net interest and other income 2.9 % 2.4 % 24.8 %
------- -------
Income before taxes 20.5 % 15.2 % 37.6 %
Provision for income taxes 7.7 % - -
------- -------
Net income 12.8 % 15.2 % (14.4)%
======= =======
Total revenue for the six months ended September 30, 2005 was $6,077,470,
an increase of 2% from revenue of $5,984,941 for the six months ended September
30, 2004. The increase was due to a 35% increase in product sales to $3,805,922
from $2,813,192 partially offset by a 28% decrease in contract research and
development revenue to $2,271,548 from $3,171,749. The decrease in contract
research and development revenue was due to a shift from government-funded to
company-funded research and a decrease in U.S. government contract awards to
us. The increase in product sales was due to increased sales of spintronic
couplers and other products.
Gross profit margin increased to 46% for the first six months of fiscal
2006 from 40% for the first six months fiscal 2005. The increase in gross
profit margin was due to a more profitable revenue mix and higher product
margins due to the deployment of lower-cost coupler designs.
Research and development expenses increased by 34% to $894,739 for the six
months ended September 30, 2005 compared to $667,852 for the six months ended
September 30, 2004. The increase was due to efforts to develop new and improved
products and a shift from government-funded to company-funded research.
Selling, general and administrative expenses for the six months ended
September 30, 2005 decreased 17% to $804,573 compared to $966,244 for the six
months ended September 30, 2004. The decrease was due to a shift to
distributors to sell our products rather than manufacturers' representatives.
This shift reduced commissions we paid and expenses associated with supporting
manufacturers' representatives.
Net interest and other income increased 25% to $178,256 for the six months
ended September 30, 2005 from $142,802 for the six months ended September 30,
2004. The increase was due to an increase in interest-bearing investments.
Income before taxes increased 38% to $1,247,622 for the six months ended
September 30, 2005 from $906,969 for the six months ended September 30, 2004.
The increase was due to an increase in revenue, an increase in gross profit
margin, and a decrease in selling, general and administrative expenses. These
changes were partially offset by an increase in research and development
expense.
The provision for income taxes for the for the six months ended September
30, 2005 is due to the exhaustion of our net operating losses in fiscal 2005.
We do not expect to pay cash taxes in the near future because we have
significant stock-based compensation deductions.
Net income totaled $776,617 for the six months ended September 30, 2005
compared to $906,969 for the six months ended September 30, 2004. The decrease
in net income was due to provisions for income taxes.
Diluted weighted average shares outstanding decreased to 4,677,691 shares
for the six months ended September 30, 2005 from 4,928,762 shares for the six
months ended September 30, 2004. The decrease was due to the expiration of a
warrant issued to Cypress Semiconductor Corporation for the purchase of up to
400,000 shares of common stock.
Diluted earnings per share were $0.17 for the six months ended September
30, 2005 compared to $0.18 for the six months ended September 30, 2004. The
decrease was due to provisions for income taxes in the six months ended
September 30, 2005.
Liquidity and capital resources
At September 30, 2005 we had $9,392,458 in cash plus investments compared
to $7,717,264 at March 31, 2005. The increase was due to cash generated from
operations as well as non-operating income, and a net increase in the carrying
value of our investments. Our entire portfolio of short-term and long-term
investments is classified as available for sale.
Working capital plus long-term investments increased to $12,877,479 from
$11,342,300. The increase was due to cash provided by operating activities.
Working capital consists of current assets less current liabilities.
We currently have no material commitments for capital expenditures. We
believe our working capital is adequate for our needs at least for the next 12
months.
Our outlook
Product revenue may continue to increase in fiscal 2006 compared to fiscal
2005 due to growth in the medical market and sales of new coupler and sensor
products.
Although we have not observed a historical pattern of seasonality in our
revenues, we had weak product sales in the quarter ended December 31, 2004.
Some of the weakness may have been due to a slowdown in purchasing activities
around holidays and year-end buying patterns.
Research and development revenue may continue to decrease in fiscal 2006
compared to the prior year due to more limited availability of government
research funds, our shift in emphasis from government-funded to company-funded
research, particularly new product development, and our focus of contract
research on certain strategic areas. Total revenue may continue to decrease in
fiscal 2006 compared to the prior year due to a decrease in research and
development revenue.
We expect gross profit margin to continue to increase in fiscal 2006
compared to the prior year due to a continued shift in our revenue mix to
product sales from research and development revenue, and as a result of lower-
cost product designs completed in fiscal 2005.
Selling, general and administrative expenses could increase in fiscal 2006
as we attempt to acquire additional MRAM license agreements and enforce
existing MRAM license agreements.
Research and development expenses may increase in fiscal 2006 compared to
the prior year as we develop new products and continue to shift from
government-funded to company-funded research and development. Expenses may
decrease in the quarter ended December 31, 2005 compared to the quarter ended
September 30, 2005 as we complete development of certain new products.
We do not expect to pay any significant income taxes in fiscal 2006 due to
our stock-based compensation deductions, however we expect to recognize
provisions for income taxes at an effective rate of approximately 37% percent
of net income. Unlike net operating loss carryforwards, stock-based
compensation deductions do not reduce taxes reported for book purposes when
realized.
Although we anticipate being profitable in the remainder of fiscal 2006,
no assurance can be given that we will be successful in achieving this goal.
We are not currently planning any significant capital expenditures in
fiscal 2006, although we evaluate capital investments as needs and
opportunities arise. We would likely fund any capital expenditures from
operating profits, our cash and cash equivalents, or from the sale of a portion
of our investments.
Recent accounting pronouncements
In June 2005 the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements.
SFAS No. 154 changes the requirements for the accounting for and the reporting
of a change in accounting principle. Previously, most voluntary changes in
accounting principles required recognition by recording a cumulative effect
adjustment within net income in the period of change. SFAS No. 154 requires
retrospective application to prior periods' financial statements, unless it is
impracticable to determine either the specific period effects or the cumulative
effect of the change. SFAS No. 154 is effective for accounting changes made in
fiscal years beginning after December 15, 2005. We do not expect that adoption
of SFAS No. 154 will have a material effect on our financial position, results
of operations, or liquidity.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our interest income is subject to interest rate risks on cash, cash
equivalents, and investments. Our investments in fixed-rate debt securities,
which were classified as available for sale as of September 30, 2005, have
remaining maturities from one to 60 months, and are exposed to the risk of
fluctuating interest rates. Available-for-sale securities had a market value of
$7,695,939 at September 30, 2005, representing 50% of our total assets. The
primary objective of our investment activities is to preserve capital. We have
not used derivative financial instruments in our investment portfolio.
We performed a sensitivity analysis assuming a hypothetical 10% adverse
movement in interest rates applicable to fixed rate instruments maturing during
the next 12 months that are subject to reinvestment risk. As of September 30,
2005, the analysis indicated that these hypothetical market movements would not
have a material effect on our financial position, results of operations, or
cash flow.
Item 4. Controls and Procedures.
As of the end of the period covered by this Report, we conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of our disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. There was no change
in our internal control over financial reporting during our most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
Our Annual Meeting of Shareholders was held on August 16, 2005. Proxies
for the meeting were solicited pursuant to Regulation 14 under the Exchange
Act. There was no solicitation in opposition to the nominees as listed in our
proxy statement. There were 4,570,104 shares of common stock entitled to vote
at the meeting with a majority represented at the meeting. Our board of
directors was reelected in its entirety to serve until our next Annual Meeting
of Shareholders, with each director receiving more than 98% of the shares voted
in their favor.
Item 6. Exhibits.
31.1 Certification by Daniel A. Baker pursuant to
Rule 13a-14(a)/15d-14(a).
31.2 Certification by Richard L. George pursuant to
Rule 13a-14(a)/15d-14(a).
32 Certification by Daniel A. Baker and Richard L. George pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99 Cautionary statements for purposes of the "safe harbor" provisions of
The Private Securities Litigation Reform Act.
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)
October 19, 2005 /s/ Daniel A. Baker
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Date Daniel A. Baker
President and Chief Executive Officer
October 19, 2005 /s/ Richard L. George
---------------- -------------------------------------
Date Richard L. George
Chief Financial Officer