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

- Company: [NVE Corp](/companies/nvec.md) (CIK 724910)
- Form: 10-Q
- Filed: 2014-10-22
- Accepted by EDGAR: Oct 22, 2014, 20:24 ET
- Period: 2014-09-30
- Accession: 0000724910-14-000046
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/724910/000072491014000046/NVE_Q2_FY2015_10Q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/724910/000072491014000046/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-07-01 to 2014-09-30 | $8.3m | us-gaap:Revenues |
| Revenue | 6 months, 2014-04-01 to 2014-09-30 | $16.7m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2014-07-01 to 2014-09-30 | $1.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2014-04-01 to 2014-09-30 | $3.2m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2014-07-01 to 2014-09-30 | $6.7m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2014-04-01 to 2014-09-30 | $13.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2014-07-01 to 2014-09-30 | $787.3k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2014-04-01 to 2014-09-30 | $1.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2014-07-01 to 2014-09-30 | $625.6k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2014-04-01 to 2014-09-30 | $1.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-07-01 to 2014-09-30 | $5.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2014-04-01 to 2014-09-30 | $10.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2014-07-01 to 2014-09-30 | $1.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2014-04-01 to 2014-09-30 | $3.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2014-07-01 to 2014-09-30 | $3.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2014-04-01 to 2014-09-30 | $7.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-07-01 to 2014-09-30 | $0.80 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2014-04-01 to 2014-09-30 | $1.63 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2014-07-01 to 2014-09-30 | $0.80 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2014-04-01 to 2014-09-30 | $1.63 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2014-07-01 to 2014-09-30 | 4,872,029 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2014-04-01 to 2014-09-30 | 4,868,769 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2014-04-01 to 2014-09-30 | $7.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2014-04-01 to 2014-09-30 | $27.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2014-04-01 to 2014-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2014-09-30 | $3.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-09-30 | $26.0m | us-gaap:AssetsCurrent |
| Total assets | at 2014-09-30 | $113.1m | us-gaap:Assets |
| Current liabilities | at 2014-09-30 | $1.2m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2014-09-30 | $111.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 10,146 characters.

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

### Quarter ended September 30, 2014 compared to quarter ended September 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 Sept. 30 | 2013 | Quarter- to-Quarter Change |
| --- | ---: | ---: | ---: |
| Product sales | 98.1% | 99.0% | 12.2% |
| Contract research and development | 1.9% | 1.0% | 119.3% |
| Total revenue | 100.0% | 100.0% | 13.2% |
| Cost of sales | 19.5% | 20.6% | 7.1% |
| Gross profit | 80.5% | 79.4% | 14.8% |
| Expenses |  |  |  |
| Selling, general, and administrative | 7.6% | 9.0% | (5.2)% |
| Research and development | 9.5% | 12.0% | (10.2)% |
| Total expenses | 17.1% | 21.0% | (8.0)% |
| Income from operations | 63.4% | 58.4% | 23.1% |
| Interest income | 6.8% | 7.1% | 8.1% |
| Income before taxes | 70.2% | 65.5% | 21.5% |
| Provision for income taxes | 23.3% | 21.3% | 24.5% |
| Net income | 46.9% | 44.2% | 20.0% |

Total revenue for the quarter ended September 30, 2014 (the second quarter of fiscal 2015) increased 13% compared to the quarter ended September 30, 2013 (the second quarter of fiscal 2014). The increase was due to a 12% increase in product sales and a 119% increase in contract research and development revenue.

The increase in product sales from the prior-year quarter was due to increased purchase volume by existing customers, favorable order timing, and new customers. The increase in contract research and development revenue was due to new contracts, and the increase may not be representative of future periods. 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 81% of revenue for the second quarter of fiscal 2015 compared to 79% for the second quarter of fiscal 2014, due to a more favorable product sales mix.

Total expenses decreased 8% for the second quarter of fiscal 2015 compared to the second quarter of fiscal 2014, due to a 5% decrease in selling, general, and administrative expense and a 10% decrease in research and development expense. The decrease in research and development expense was due to the completion of certain product development activities. Research and development expense can fluctuate significantly depending on a number of factors including staffing, project requirements, and contract research and development activities. The decrease in selling, general, and administrative expense was primarily due to decreased legal expenses. Selling, general, and administrative expense can fluctuate significantly depending on a number of factors including staffing, sales commissions, performance-based compensation, and legal expenses. The decreases in expenses may not be representative of future periods.

Interest income for the second quarter of fiscal 2015 increased 8% due to an increase in interest-bearing marketable securities, partially offset by a decrease in interest rates earned on reinvested funds.

The 20% increase in net income in the second quarter of fiscal 2015 compared to the prior-year quarter was primarily due to increased product sales, increased contract research and development revenue, increased gross profit margin as a percentage of revenue, decreased expenses, and increased interest income.

### Six months ended September 30, 2014 compared to six months ended September 30, 2013

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

*Revenue*

| 2014 | Percentage of Revenue Six Months Ended Sept. 30 | 2013 | Period- to-Period Change |
| --- | ---: | ---: | ---: |
| Product sales | 98.5% | 98.0% | 24.7% |
| Contract research and development | 1.5% | 2.0% | (5.1)% |
| Total revenue | 100.0% | 100.0% | 24.1% |
| Cost of sales | 18.9% | 21.4% | 9.9% |
| Gross profit | 81.1% | 78.6% | 27.9% |
| Expenses |  |  |  |
| Selling, general, and administrative | 7.5% | 9.0% | 3.5% |
| Research and development | 9.5% | 13.6% | (13.5)% |
| Total expenses | 17.0% | 22.6% | (6.8)% |
| Income from operations | 64.1% | 56.0% | 41.9% |
| Interest income | 6.6% | 7.7% | 6.1% |
| Income before taxes | 70.7% | 63.7% | 37.6% |
| Provision for income taxes | 23.4% | 20.7% | 39.7% |
| Net income | 47.3% | 43.0% | 36.5% |

Total revenue for the six months ended September 30, 2014 increased 24% compared to the six months ended September 30, 2013. The increase was due to a 25% increase in product sales, partially offset by a 5% decrease in contract research and development revenue.

The increase in product sales from the prior-year period was due to due to increased purchase volume by existing customers, favorable order timing, and new customers. The decrease in contract research and development revenue was due to completion of the majority of activities on a large contract.

Gross profit margin increased to 81% of revenue for the first six months of fiscal 2015 compared to 79% for the first six months of fiscal 2014, due to a more favorable product sales mix.

Total expenses decreased 7% for the first six months of fiscal 2015 compared to the first six months of fiscal 2014, due to a 14% decrease in research and development expense, partially offset by a 3% 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 the 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 six months of fiscal 2015 increased 6% due to an increase in interest-bearing marketable securities, partially offset by a decrease in interest rates earned on reinvested funds.

Net income increased 37% for the first six months of fiscal 2015 compared to the prior-year period due to increased product sales, increased gross profit margin as a percentage of revenue, decreased expenses, and increased interest income.

### Liquidity and capital resources

At September 30, 2014 we had $102,457,644 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 six months of fiscal 2015 was primarily due to $7,000,366 in net cash provided by operating activities.

We purchased $27,710 of fixed assets in the first six months of fiscal 2015 and none in the first six months of fiscal 2014. Investments both periods were lower than most in our history because we completed an upgrade of our production capabilities in 2013. Our capital expenditures can vary significantly 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, 972 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 September 30, 2014 had remaining maturities between one day and 250 weeks. Marketable securities had a market value of $99,176,144 at September 30, 2014, representing approximately 88% of our total assets. We have not used derivative financial instruments in our investment portfolio.

## Controls and procedures

As filed, 3,636 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 September 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.

During 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 Oct 22, 2014.
Source: SEC EDGAR, the filing index for accession 0000724910-14-000046. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.