# NVE Corp: Form 10-Q for the period ended Jun 30, 2014

- Company: [NVE Corp](/companies/nvec.md) (CIK 724910)
- Form: 10-Q
- Filed: 2014-07-23
- Accepted by EDGAR: Jul 23, 2014, 20:19 ET
- Period: 2014-06-30
- Accession: 0000724910-14-000032
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/724910/000072491014000032/NVE_Q1_FY2015_10Q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/724910/000072491014000032/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-04-01 to 2014-06-30 | $8.5m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2014-04-01 to 2014-06-30 | $1.6m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2014-04-01 to 2014-06-30 | $6.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2014-04-01 to 2014-06-30 | $803.4k | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2014-04-01 to 2014-06-30 | $629.6k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-04-01 to 2014-06-30 | $5.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2014-04-01 to 2014-06-30 | $2.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2014-04-01 to 2014-06-30 | $4.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-04-01 to 2014-06-30 | $0.83 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2014-04-01 to 2014-06-30 | $0.83 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2014-04-01 to 2014-06-30 | 4,867,459 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2014-04-01 to 2014-06-30 | $4.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2014-04-01 to 2014-06-30 | $27.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2014-06-30 | $3.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-06-30 | $22.3m | us-gaap:AssetsCurrent |
| Total assets | at 2014-06-30 | $111.3m | us-gaap:Assets |
| Current liabilities | at 2014-06-30 | $3.0m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2014-06-30 | $107.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 7,599 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 uncertainties related to the economic environments in the industries we serve, uncertainties related to direct and indirect U.S. Government funding, uncertainties relating to the revenue potential of new products, risks related to material weaknesses in our internal control over financial reporting, 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, 2014.

### 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, 2014. At June 30, 2014 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

### Quarter ended June 30, 2014 compared to quarter ended June 30, 2013

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

*Revenue*

| 2014 | Percentage of Revenue Quarter Ended June 30 | 2013 | Quarter- to-Quarter Change |
| --- | ---: | ---: | ---: |
| Product sales | 98.8% | 96.7% | 39.7% |
| Contract research and development | 1.2% | 3.3% | (48.1)% |
| Total revenue | 100.0% | 100.0% | 36.8% |
| Cost of sales | 18.4% | 22.3% | 13.1% |
| Gross profit | 81.6% | 77.7% | 43.7% |
| Expenses |  |  |  |
| Selling, general, and administrative | 7.5% | 8.9% | 13.9% |
| Research and development | 9.5% | 15.6% | (16.6)% |
| Total expenses | 17.0% | 24.5% | (5.5)% |
| Income from operations | 64.6% | 53.2% | 66.4% |
| Interest and other income | 6.5% | 8.5% | 4.2% |
| Income before taxes | 71.1% | 61.7% | 57.8% |
| Provision for income taxes | 23.3% | 20.1% | 58.8% |
| Net income | 47.8% | 41.6% | 57.3% |

Total revenue for the quarter ended June 30, 2014 (the first quarter of fiscal 2015) increased 37% compared to the quarter ended June 30, 2013 (the first quarter of fiscal 2014). The increase was due to a 40% increase in product sales, partially offset by a 48% decrease in contract research and development revenue.

The increase in product sales from the prior-year quarter was due to new customers, increased purchase volume by existing customers, and favorable order timing. The decrease in research and development revenue was due to completion of a particular contract and a challenging environment for new U.S. Government contract funding. In addition to direct Government funding, certain of our non-Government customers and prospective customers depend on Government support to fund their contracts with us. 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 increased to 82% of revenue for the first quarter of fiscal 2015 compared to 78% for the first quarter of fiscal 2014, due to a more favorable revenue mix and a more favorable product sales mix.

Total expenses decreased 5% for the first quarter of fiscal 2015 compared to the first quarter of fiscal 2014, due to a 17% decrease in research and development expense, partially offset by a 14% increase in selling, general, and administrative expense. The increase in selling, general, and administrative expense was primarily due to increased sales commissions and performance-based compensation. The decrease in research and development expense was due to completion of certain product development activities. Research and development expense can fluctuate significantly depending on staffing, project requirements, and contract research and development activities.

Interest income for the first quarter of fiscal 2015 increased 4% due to an increase in interest-bearing marketable securities, partially offset by a decrease in interest rates earned on reinvested funds.

The provision for income taxes was $1,973,055 for the first quarter of fiscal 2015 compared to $1,242,377 for the first quarter of fiscal 2014. The effective tax rate was 33% of income before taxes for the first quarters of fiscal 2015 and 2014.

The 57% increase in net income in the first quarter of fiscal 2015 compared to the prior-year quarter was primarily due to increased product sales and increased gross margin as a percentage of revenue.

### Liquidity and capital resources

At June 30, 2014 we had $100,249,227 in cash plus short-term and long-term marketable securities compared to $95,644,701 at March 31, 2014. 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 quarter of fiscal 2015 was primarily due to $4,483,268 in net cash provided by operating activities.

Income taxes payable increased $1,744,427 in the first quarter of fiscal 2015 because we had no estimated income tax payments due in the quarter.

We purchased $27,710 of fixed assets in the first quarter of fiscal 2015 and none in the first quarter of fiscal 2014. Investments both quarters were lower than most quarters in our history because we completed an upgrade of our production capabilities in 2013. Our capital expenditures can vary significantly from quarter to quarter depending on our needs, equipment purchasing opportunities, and production expansion 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.

## Market risk

As filed, 967 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 securities including municipal obligations, corporate obligations, and money market funds. Short-term and long-term marketable securities are generally classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income or loss, net of estimated tax. Our marketable securities as of June 30, 2014 had remaining maturities between three months and 258 weeks. Marketable securities had a market value of $96,936,178 at June 30, 2014, representing approximately 87% of our total assets. We have not used derivative financial instruments in our investment portfolio.

## Controls and procedures

As filed, 3,627 characters.

### Evaluation of 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 management’s identification of previously reported deficiencies in internal control over financial reporting that it considers to be material weaknesses related to insufficient segregation of duties within the financial accounting and information technology environments, in conjunction with insufficient documented controls within revenue and journal entry processes, insufficient documentation regarding precision of monitoring controls and insufficient compensating reconciliation and review controls, management has concluded that disclosure controls and procedures were not effective at June 30, 2014. Steps to remediate these weaknesses are discussed below, and we currently expect the material weakness to be fully remediated by March 31, 2015.

Notwithstanding the material weaknesses described below, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

### Changes in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As reported in our assessment of the effectiveness of our internal control over financial reporting as of March 31, 2014, included in “Item 9A. Controls and Procedures” of Form 10-K for the year ended March 31, 2014, material weaknesses existed in our internal control over financial reporting related to insufficient segregation of duties within the financial accounting and information technology environments, in conjunction with insufficient documented controls within revenue and journal entry processes, insufficient documentation regarding precision of monitoring controls and insufficient compensating reconciliation and review controls.

In the quarter ended June 30, 2014 we implemented new controls as remediation of the material weaknesses, including more segregation of duties within the financial accounting and information technology environments, additional documented controls within revenue and journal entry processes, additional documentation regarding precision of monitoring controls, and enhanced compensating reconciliation and review controls. The new controls have not been operating long enough to evaluate their operating effectiveness.

## Risk factors

As filed, 143 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, 2014.

Filed Jul 23, 2014.
Source: SEC EDGAR, the filing index for accession 0000724910-14-000032. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.