# NVE Corp: Form 10-Q for the period ended Sep 30, 2011

- Company: [NVE Corp](/companies/nvec.md) (CIK 724910)
- Form: 10-Q
- Filed: 2011-10-19
- Accepted by EDGAR: Oct 19, 2011, 20:21 ET
- Period: 2011-09-30
- Accession: 0000724910-11-000033
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/724910/000072491011000033/q2q12.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/724910/000072491011000033/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2011-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2011-07-01 to 2011-09-30 | $6.6m | us-gaap:Revenues |
| Revenue | 6 months, 2011-04-01 to 2011-09-30 | $14.8m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2011-07-01 to 2011-09-30 | $2.3m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2011-04-01 to 2011-09-30 | $4.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2011-07-01 to 2011-09-30 | $4.3m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2011-04-01 to 2011-09-30 | $9.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2011-07-01 to 2011-09-30 | $611.6k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2011-04-01 to 2011-09-30 | $1.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2011-07-01 to 2011-09-30 | $606.8k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2011-04-01 to 2011-09-30 | $1.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2011-07-01 to 2011-09-30 | $3.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2011-04-01 to 2011-09-30 | $7.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2011-07-01 to 2011-09-30 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2011-04-01 to 2011-09-30 | $2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2011-07-01 to 2011-09-30 | $2.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2011-04-01 to 2011-09-30 | $6.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2011-07-01 to 2011-09-30 | $0.52 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2011-04-01 to 2011-09-30 | $1.22 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2011-07-01 to 2011-09-30 | $0.53 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2011-04-01 to 2011-09-30 | $1.26 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2011-07-01 to 2011-09-30 | 4,896,525 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2011-04-01 to 2011-09-30 | 4,896,525 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2011-04-01 to 2011-09-30 | $6.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2011-04-01 to 2011-09-30 | $294.2k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2011-09-30 | $1.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2011-09-30 | $20.3m | us-gaap:AssetsCurrent |
| Total assets | at 2011-09-30 | $77.0m | us-gaap:Assets |
| Current liabilities | at 2011-09-30 | $1.4m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2011-09-30 | $75.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 12,811 characters.

### 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 associated with competition, progress in research and development activities by us and others, variations in costs that are beyond our control, decreased sales, failure of suppliers to meet our requirements, failure to obtain new customers, inability to meet customer technical requirements, inability to consummate license agreements, ineligibility for SBIR awards, 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, 2011, as updated in Part II, Item 1A of this Quarterly Report on Form 10-Q.

### 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, 2011. At September 30, 2011 our critical accounting policies and estimates continued to include research and development contract percentage of completion estimation, inventory valuation, allowance for doubtful accounts estimation, and deferred tax assets estimation.

### Quarter ended September 30, 2011 compared to quarter ended September 30, 2010

The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

*Revenue*

| 2011 | Percentage of Revenue Quarter Ended Sept. 30 | 2010 | Quarter- to-Quarter Change |
| --- | ---: | ---: | ---: |
| Product sales | 84.2% | 82.1% | (13.3)% |
| Contract research and development | 15.8% | 17.9% | (25.5)% |
| Total revenue | 100.0% | 100.0% | (15.5)% |
| Cost of sales | 34.5% | 33.4% | (12.6)% |
| Gross profit | 65.5% | 66.6% | (17.0)% |
| Expenses |  |  |  |
| Selling, general, and administrative | 9.2% | 8.1% | (4.4)% |
| Research and development | 9.3% | 4.0% | 97.4% |
| Total expenses | 18.5% | 12.1% | 29.0% |
| Income from operations | 47.0% | 54.5% | (27.2)% |
| Interest and other income | 9.1% | 6.4% | 20.0% |
| Income before taxes | 56.1% | 60.9% | (22.2)% |
| Provision for income taxes | 17.4% | 19.8% | (26.2)% |
| Net income | 38.7% | 41.1% | (20.3)% |

Total revenue for the quarter ended ended September 30, 2011 (the second quarter of fiscal 2012) decreased 16% to $6,598,633 compared to $7,809,160 for the quarter ended ended September 30, 2010 (the second quarter of fiscal 2011). The decrease was due to a 13% decrease in product sales and a 26% decrease in contract research and development revenue.

The decrease in product sales from the prior-year period was due to decreased purchase volume by existing customers.

The decrease in research and development revenue was due to the completion of certain contracts and contract activities. Contract research and development activities can fluctuate for a number of reasons, some of which are beyond our control, and there can be no assurance of additional or follow-on contracts for expired or completed contracts.

Gross profit margin decreased to 65% of revenue for the second quarter of fiscal 2012 compared to 67% for the second quarter of fiscal 2011, due to decreased product sales and increased labor cost.

Total expenses increased 29% for the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011 due to a 97% increase in research and development expense. The increase in research and development expense was due to increased product development activities, and a decrease in contract research and development activities, which caused resources to be reallocated to expensed research and development activities. Research and development expense can fluctuate significantly depending on staffing, project requirements, and contract research and development activities.

Interest income increased 20% to $597,363 for the second quarter of fiscal 2012 compared to $497,731 for the second quarter of fiscal 2011. The increase was due to an increase in interest-bearing marketable securities.

The provision for income taxes was $1,144,535 for the second quarter of fiscal 2012 compared to $1,551,535 for the second quarter of fiscal 2011. The effective tax rate was 31% of income before taxes for the second quarter of fiscal 2012 compared to 33% for the second quarter of fiscal 2011. The decrease in effective tax rate was due to lower State and Federal effective tax rates. Our effective tax rates can fluctuate due to a number of factors, some of which are outside our control.

The 20% decrease in net income in the second quarter of fiscal 2012 compared to the prior-year quarter was primarily due to decreased product sales, decreased contract research and development revenue, and increased research and development expense, partially offset by increased interest income.

### Six months ended September 30, 2011 compared to six months ended September 30, 2010

The table shown below summarizes the percentage of revenue and period-to-period changes for various items:

*Revenue*

| 2011 | Percentage of Revenue Six Months Ended Sept. 30 | 2010 | Period- to-Period Change |
| --- | ---: | ---: | ---: |
| Product sales | 84.9% | 83.7% | (0.2)% |
| Contract research and development | 15.1% | 16.3% | (8.8)% |
| Total revenue | 100.0% | 100.0% | (1.6)% |
| Cost of sales | 32.9% | 31.1% | 4.1% |
| Gross profit | 67.1% | 68.9% | (4.2)% |
| Expenses |  |  |  |
| Selling, general, and administrative | 8.2% | 8.4% | (3.2)% |
| Research and development | 7.5% | 4.3% | 69.8% |
| Total expenses | 15.7% | 12.7% | 21.7% |
| Income from operations | 51.4% | 56.2% | (10.0)% |
| Interest and other income | 7.8% | 6.4% | 19.5% |
| Income before taxes | 59.2% | 62.6% | (7.0)% |
| Provision for income taxes | 18.7% | 20.7% | (11.0)% |
| Net income | 40.5% | 41.9% | (5.0)% |

Total revenue for the six months ended September 30, 2011 decreased 2% to $14,812,395 compared to $15,050,454 for the six months ended September 30, 2010. The decrease was due to a 9% decrease in contract research and development revenue.

The decrease in research and development revenue was due to the completion of certain contracts and contract activities. Contract research and development activities can fluctuate for a number of reasons, some of which are beyond our control, and there can be no assurance of additional or follow-on contracts for expired or completed contracts.

Gross profit margin decreased to 67% of revenue for the first six months of fiscal 2012 compared to 69% for the first six months of fiscal 2011, due to increased labor cost.

Total expenses increased 22% for the first six months of fiscal 2012 compared to the first six months of fiscal 2011 due to a 70% increase in research and development expense. The increase in research and development expense was due to increased product development activities, and a decrease in contract research and development activities, which caused resources to be reallocated to expensed research and development activities. Research and development expense can fluctuate significantly depending on staffing, project requirements, and contract research and development activities.

Interest income increased 19% to $1,162,892 for the first six months of fiscal 2012 compared to $973,461 for the first six months of fiscal 2011. The increase was due to an increase in interest-bearing marketable securities.

The provision for income taxes was $2,778,300 for the first six months of fiscal 2012 compared to $3,121,609 for the first six months of fiscal 2011. The effective tax rate was 32% of income before taxes for the first six months of fiscal 2012 compared to 33% for the first six months of fiscal 2011. The decrease in effective tax rate was due to lower State and Federal effective tax rates. Our effective tax rates can fluctuate due to a number of factors, some of which are outside our control.

The 5% decrease in net income in the first six months of fiscal 2012 compared to the prior-year period was primarily due to decreased contract research and development revenue and increased research and development expense, partially offset by increased interest income.

### Contractual obligations

There have been no material changes outside the ordinary course of business to the information in our contractual obligations table disclosed in our Annual Report of Form 10-K for the fiscal year ended March 31, 2011, except that on August 2, 2011 we executed a fourth amendment to the lease agreement between us and Carlson Real Estate Company covering the building housing our principal executive offices and manufacturing facility. Our lease would have expired December 31, 2015 without the fourth amendment. The fourth amendment extends the lease for an additional term of five years, expiring December 31, 2020. The amendment provides for monthly base rent of $13,422.46 in 2016, increasing 2.5% each subsequent year during the extended term. The fourth amendment is incorporated in this Report by reference to our Current Report on Form 8-K/A filed August 3, 2011.

The following table provides aggregate information about our operating lease payment obligations and the periods in which payments are due, including the fourth amendment to the lease agreement. Operating lease obligations are primarily for our facility lease.

*Operating Lease Payments Due by Period*

| Total | April 1, 2011 to March 31, 2012 | April 1, 2012 to March 31, 2014 | April 1, 2014 to March 31, 2016 | After March 31, 2016 |
| ---: | ---: | ---: | ---: | ---: |
| $2,612,644 | $254,053 | $519,055 | $530,953 | $1,308,583 |

Our future minimum lease payments, including the fourth amendment to the lease agreement, are shown in the following table:

| Year Ending March 31 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | Total |
| ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| $254,053 | $257,685 | $261,370 | $264,142 | $266,811 | $267,826 | $271,885 | 275,997 | $280,269 | $212,606 | $2,612,644 |

### Liquidity and capital resources

At September 30, 2011 we had $67,596,598 in cash plus short-term and long-term marketable securities compared to $62,179,707 at March 31, 2011. Our entire portfolio of short-term and long-term marketable securities is classified as available for sale. The increase in cash plus marketable securities in the first six months of fiscal 2012 was primarily due to $6,383,502 in net cash provided by operating activities, partially offset by a $672,377 net decrease in the market value of our marketable securities.

The $3,152,097 increase in short-term marketable securities in the first six months of fiscal 2012 was due to marketable securities previously classified as long-term approaching maturity.

We currently believe our working capital and cash generated from operations will be adequate for our needs at least for the next 12 months.

## Market risk

As filed, 1,034 characters.

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 a variety of securities including government agency obligations, 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, net of estimated tax. Marketable securities as of September 30, 2011 had remaining maturities between six and 254 weeks. Our short-term and long-term marketable securities had a fair market value of $66,272,362 at September 30, 2011, representing approximately 86% of our total assets. We have not used derivative financial instruments in our investment portfolio.

## Controls and procedures

As filed, 1,285 characters.

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

During the quarter ended September 30, 2011, 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.

## Risk factors

As filed, 1,986 characters.

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, 2011, except the risk factor titled “the loss of supply from any of our single-source packaging vendors could impact our ability to produce and deliver products and cause loss of revenue” is replaced in its entirety by the following:

***The loss of supply from any of our packaging vendors could impact our ability to produce and deliver products and cause loss of revenue.***

We are dependent on our packaging vendors including Circuit Electronic Industries Public Co., Ltd. (“CEI”) of Ayutthaya, Thailand. Some of our products use processes or tooling unique to a particular packaging vendor, and it might be expensive, time-consuming, or impractical to convert to another vendor in the event of a supply interruption. CEI has been operating under voluntary debt rehabilitation under Thailand law since 2005. Additionally, in October 2011 CEI reported that it had temporarily shut down due to flooding of its facility in Ayutthaya. We have alternate vendors or potential alternate vendors for the substantial majority of our product sales and have moved production of many products from CEI to alternate vendors, but it could prove expensive, time-consuming, or technically challenging to convert certain products to an alternate vendor. We might not be able to recover work in process or finished goods in their possession if one of our packaging vendors were to become insolvent or disrupted by acts of God, including floods, typhoons, or earthquakes. Furthermore, an alternate vendor may not have sufficient capacity available to meet our requirements. Any supply interruptions or loss of inventory could seriously jeopardize our ability to provide products that are critical to our business and operations and may cause us to lose revenue.

This risk factor is being updated because of the effects of recent widespread flooding in Thailand.

Filed Oct 19, 2011.
Source: SEC EDGAR, the filing index for accession 0000724910-11-000033. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.