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, 2008
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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [X] |
|
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
|
Smaller
reporting company [ ]
|
Indicate by check mark whether the registrant is a shell company (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 – 4,665,333 shares outstanding as of January 16, 2009
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Item 1. Financial Statements
Balance Sheets
Statements of Income for the Quarters Ended December 31, 2008 and 2007
Statements of Income for the Nine Months Ended December 31, 2008 and 2007
Statements of Cash Flows
Notes to Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1A. Risk Factors
Item 6. Exhibits
SIGNATURES
Table of Contents
PART I–FINANCIAL INFORMATION
Item 1. Financial Statements.
BALANCE SHEETS
|
(Unaudited)
December 31, 2008 |
March
31, 2008*
|
|||||||
| ASSETS | ||||||||
| Current assets | ||||||||
|
Cash and cash equivalents
|
$ | 2,438,109 |
$
|
1,885,867
|
||||
|
Marketable
securities, short term
|
498,835
|
795,728
|
||||||
|
Accounts
receivable, net of allowance for
|
||||||||
|
uncollectible
accounts of $15,000
|
2,699,346
|
3,226,027
|
||||||
|
Inventories
|
2,462,098
|
2,456,804
|
||||||
|
Deferred
tax assets
|
509,271
|
453,405
|
||||||
|
Prepaid
expenses and other assets
|
614,516
|
529,616
|
||||||
| Total current assets |
9,222,175
|
9,347,447
|
||||||
| Fixed assets | ||||||||
|
Machinery
and equipment
|
5,328,531
|
5,205,288
|
||||||
|
Leasehold
improvements
|
450,546
|
436,794
|
||||||
|
5,779,077
|
5,642,082
|
|||||||
|
Less
accumulated depreciation
|
4,356,826
|
4,276,680
|
||||||
| Net fixed assets |
1,422,251
|
1,365,402
|
||||||
| Marketable securities, long term |
29,179,003
|
22,055,279
|
||||||
| Total assets |
$
|
39,823,429
|
$
|
32,768,128
|
||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
|
Accounts
payable
|
$
|
405,815
|
$
|
434,808
|
||||
|
Accrued
payroll and other
|
612,011
|
632,338
|
||||||
|
Deferred
revenue
|
125,000
|
187,500
|
||||||
|
Total
current liabilities
|
1,142,826
|
1,254,646
|
||||||
| Shareholders’ equity | ||||||||
|
Common
stock
|
46,653
|
46,387
|
||||||
|
Additional
paid-in capital
|
19,100,787
|
18,539,538
|
||||||
|
Accumulated
other comprehensive income
|
37,363
|
|
103,158
|
|||||
|
Retained
earnings
|
19,495,800
|
12,824,399
|
||||||
| Total shareholders’ equity |
38,680,603
|
31,513,482
|
||||||
| Total liabilities and shareholders’ equity |
$
|
39,823,429
|
$
|
32,768,128
|
||||
*The March 31, 2008 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, 2008.
See
accompanying notes.
Table of Contents
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
|
Quarter
Ended December 31
|
|||||||
|
2008
|
2007
|
||||||
| Revenue | |||||||
|
Product
sales
|
$
|
4,596,948
|
$
|
4,249,809
|
|||
|
Contract
research and development
|
1,287,165
|
515,716
|
|||||
| Total revenue |
5,884,113
|
4,765,525
|
|||||
| Cost of sales |
1,763,090
|
1,663,045
|
|||||
| Gross profit |
4,121,023
|
3,102,480
|
|||||
| Expenses | |||||||
|
Selling,
general, and administrative
|
508,953
|
492,771
|
|||||
|
Research
and development
|
258,998
|
347,344
|
|||||
| Total expenses |
767,951
|
840,115
|
|||||
| Income from operations |
3,353,072
|
2,262,365
|
|||||
| Interest income | 306,814 | 259,865 | |||||
| Other income |
800
|
62,930
|
|||||
| Income before taxes |
3,660,686
|
2,585,160
|
|||||
| Provision for income taxes |
1,192,282
|
882,867
|
|||||
| Net income |
$
|
2,468,404
|
$
|
1,702,293
|
|||
| Net income per share – basic |
$
|
0.53
|
$
|
0.37
|
|||
| Net income per share – diluted |
$
|
0.52
|
$
|
0.36
|
|||
| Weighted average shares outstanding | |||||||
|
Basic
|
4,665,333
|
4,637,275
|
|||||
|
Diluted
|
4,783,633
|
4,764,430
|
|||||
See
accompanying notes.
Table of Contents
NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
|
Nine
Months Ended Dec. 31
|
|||||||
|
2008
|
2007
|
||||||
| Revenue | |||||||
|
Product
sales
|
$
|
14,015,651
|
$
|
12,830,771
|
|||
|
Contract
research and development
|
2,460,038
|
1,648,657
|
|||||
| Total revenue |
16,475,689
|
14,479,428
|
|||||
| Cost of sales |
4,918,140
|
4,956,973
|
|||||
| Gross profit |
11,557,549
|
9,522,455
|
|||||
| Expenses | |||||||
|
Selling,
general, and administrative
|
1,623,810
|
1,631,936
|
|||||
|
Research
and development
|
925,893
|
1,169,018
|
|||||
| Total expenses |
2,549,703
|
2,800,954
|
|||||
| Income from operations |
9,007,846
|
6,721,501
|
|||||
| Interest income |
838,323
|
731,243
|
|||||
| Other income |
4,200
|
62,930
|
|||||
| Income before taxes |
9,850,369
|
7,515,674
|
|||||
| Provision for income taxes |
3,178,968
|
2,581,272
|
|||||
| Net income |
$
|
6,671,401
|
$
|
4,934,402
|
|||
| Net income per share – basic |
$
|
1.43
|
$
|
1.06
|
|||
| Net income per share – diluted |
$
|
1.40
|
$
|
1.04
|
|||
| Weighted average shares outstanding | |||||||
|
Basic
|
4,656,758
|
4,634,102
|
|||||
|
Diluted
|
4,774,925
|
4,761,112
|
|||||
See
accompanying notes.
Table of Contents
NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
|
Nine
Months Ended Dec. 31
|
|||||||
|
2008
|
2007
|
||||||
|
OPERATING
ACTIVITIES
|
|||||||
|
Net income
|
$
|
6,671,401
|
$
|
4,934,402
|
|||
|
Adjustments
to reconcile net income to net cash
provided
by operating activities:
|
|||||||
|
Depreciation
|
343,711
|
387,453
|
|||||
|
Stock-based
compensation
|
81,074
|
164,008
|
|||||
|
Excess
tax benefits
|
(236,524
|
) |
(33,773
|
) | |||
|
Gain
on sale of fixed assets
|
(4,200
|
)
|
(1,500
|
) | |||
|
Gain
on marketable securities, net
|
-
|
(61,430
|
)
|
||||
|
Deferred
income taxes
|
218,134
|
848,999
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
526,681
|
(177,757
|
)
|
||||
|
Inventories
|
(5,294
|
) |
(476,954
|
) | |||
|
Prepaid
expenses and other assets
|
(84,900
|
) |
(505,450
|
)
|
|||
|
Accounts
payable and accrued expenses
|
(49,320
|
) |
(107,431
|
) | |||
|
Deferred
revenue
|
(62,500
|
) |
207,744
|
||||
|
Net cash
provided by operating activities
|
7,398,263
|
5,178,311
|
|||||
|
INVESTING
ACTIVITIES
|
|||||||
|
Purchases
of fixed assets
|
(400,560
|
) |
(642,170
|
) | |||
|
Proceeds
from sale of fixed assets
|
4,200
|
1,500
|
|
||||
|
Purchases
of marketable securities
|
(8,367,695
|
) |
(11,153,044
|
) | |||
|
Proceeds
from maturities and sales of marketable securities
|
1,437,593
|
7,388,884
|
|||||
|
Net cash
used in investing activities
|
(7,326,462
|
)
|
(4,404,830
|
) | |||
|
FINANCING
ACTIVITIES
|
|||||||
|
Net proceeds
from sale of common stock
|
243,917
|
47,024
|
|||||
|
Excess
tax benefits
|
236,524
|
33,773
|
|||||
|
Net cash
provided by financing activities
|
480,441
|
80,797
|
|||||
|
Increase in cash and cash equivalents
|
552,242
|
|
854,278
|
|
|||
|
Cash and
cash equivalents at beginning of period
|
1,885,867
|
397,423
|
|||||
|
Cash and
cash equivalents at end of period
|
$
|
2,438,109
|
$
|
1,251,701
|
|||
|
Supplemental
disclosures of cash flow information:
|
|||||||
|
Cash
paid during the period for:
|
|||||||
|
Income
taxes
|
$
|
2,806,000
|
$
|
2,209,313
|
|||
See
accompanying notes.
6
Table of Contents
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements
of NVE Corporation 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-K for the fiscal
year ended March 31, 2008. The results of operations for the quarter ended
December 31, 2008 are not necessarily indicative of the results that may be expected
for the full fiscal year ending March 31, 2009.
NOTE 3. NET INCOME PER SHARE
We calculate our net income per share in accordance
with Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share. Basic earnings per share
are computed based on the weighted-average number of common shares issued and
outstanding during each period. Diluted net income per share amounts assume conversion,
exercise or issuance of all potential common stock instruments (stock options
and warrants). Stock options and warrants totaling 60,000 for the quarter and
nine months ended December 31, 2008 and 56,000 for the quarter and nine months
ended December 31, 2007 were not included in the computation of diluted earnings
per share because the exercise prices of the options and warrants were greater
than the market price of the common stock. The following table reflects the components
of common shares outstanding in accordance with SFAS No. 128:
| Quarter Ended Dec. 31 | |||
| 2008 | 2007 | ||
|
Weighted
average common shares outstanding – basic
|
4,665,333 |
4,637,275
|
|
|
Effect
of dilutive securities:
|
|||
|
Stock
options
|
113,670
|
122,734
|
|
|
Warrants
|
4,630
|
4,421
|
|
|
Shares
used in computing net income per share – diluted
|
4,783,633 |
4,764,430
|
|
| Nine Months Ended Dec. 31 | |||
| 2008 | 2007 | ||
|
Weighted
average common shares outstanding – basic
|
4,656,758 |
4,634,102
|
|
|
Effect
of dilutive securities:
|
|||
|
Stock
options
|
113,537
|
122,589
|
|
|
Warrants
|
4,630
|
4,421
|
|
|
Shares
used in computing net income per share – diluted
|
4,774,925 |
4,761,112
|
|
NOTE 4. MARKETABLE SECURITIES
Proceeds from maturities of marketable securities were $1,437,593 in the nine months ended December 31, 2008, and there were no gross gains or gross losses on the maturities of those securities. Proceeds from maturities and sales of marketable securities were $7,388,884 in the nine months ended December 31, 2007, with gross gains of $65,931 and gross losses of $4,501 for those maturities and sales. We use a specific-identification cost basis to determine gains and losses.
Table of Contents
NOTE 5. COMPREHENSIVE INCOME
The components of comprehensive income are as
follows:
|
Quarter
Ended Dec. 31
|
|||||||
|
2008
|
2007
|
||||||
| Net income |
$
|
2,468,404
|
$
|
1,702,293
|
|||
| Unrealized gain from marketable securities |
393,117
|
36,317
|
|||||
| Comprehensive income |
$
|
2,861,521
|
$
|
1,738,610
|
|||
|
Nine
Months Ended Dec. 31
|
|||||||
|
2008
|
2007
|
||||||
| Net income |
$
|
6,671,401
|
$
|
4,934,402
|
|||
| Unrealized (loss) gain from marketable securities |
(65,795
|
) |
77,641
|
||||
| Comprehensive income |
$
|
6,605,606
|
$
|
5,012,043
|
|||
NOTE 6. INVENTORIES
Inventories consisted of the following:
| December
31 2008 |
March
31 2008 |
||||||
|
Raw materials
|
$
|
614,230
|
$
|
741,361
|
|||
| Work-in-process |
1,282,485
|
1,184,062 | |||||
| Finished goods | 865,383 | 811,381 | |||||
|
2,762,098
|
2,736,804
|
||||||
|
Less inventory
reserve
|
(300,000
|
)
|
(280,000
|
)
|
|||
|
Total
inventories
|
$
|
2,462,098
|
$
|
2,456,804
|
|||
NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation recognized under SFAS No. 123 (revised 2004), Share-Based Payment, was $5,598 for the third quarter of fiscal 2009, $5,598 for the third quarter of fiscal 2008, $81,074 for the first nine months of fiscal 2009, and $164,008 for the first nine months of fiscal 2008. The decrease in expense under SFAS No. 123(R) for the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008 was due to a decrease to 1,000 share options granted to each non-employee director on their reelection to our Board, compared to 2,000 shares in the prior-year period, in consideration of the addition of cash compensation for non-employee directors. We calculate the share-based compensation expense on a straight-line basis over the vesting periods of the related share-based awards.
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. Tax provisions of $236,524 for the nine months ended December 31, 2008 and $33,773 for the nine months ended December 31, 2007 were credited to “Additional paid-in capital.”
At December 31, 2008 we had no unrecognized tax benefits. We do not believe unrecognized tax benefits will significantly change within twelve months of the reporting date. We recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2008 we had no accrued interest related to uncertain tax positions. The years 2005 through 2007 remain open to examination by the major taxing jurisdictions to which we are subject.
NOTE 9. FAIR VALUE MEASUREMENTS
We have marketable securities that we record at fair value based on quoted prices in an active market. The marketable securities consist of publicly-traded securities that are classified as available-for-sale securities. On the balance sheet, available-for-sale securities are classified as “Marketable securities, short term” and “Marketable securities, long term.” The fair value of our available-for-sale securities was $29,677,838 at December 31, 2008 and $22,851,007 at March 31, 2008.
Table of Contents
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 adverse economic conditions, competition including
entry of new competitors, progress in research and development activities by
us and others, variations in costs that are beyond our control, adverse legal
proceedings, lower sales, failure of suppliers to meet our requirements, failure
to obtain new customers, inability to carry out marketing and sales plans, inability
to meet customer technical requirements, inability to consummate license agreements,
ineligibility for SBIR awards, loss of key executives, 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, 2008 as updated in our
subsequently-filed Quarterly Reports 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, 2008. At December 31, 2008 our critical accounting policies
and estimates continued to include research and development contract percentage
of completion estimation, product warranty estimation, inventory valuation,
allowance for doubtful accounts estimation, and deferred tax assets estimation.
Table of Contents
Quarter ended
December 31, 2008 compared to quarter ended December 31, 2007
The table shown below summarizes the percentage
of revenue and quarter-to-quarter changes for various items:
| Percentage of Revenue Quarter Ended Dec. 31 |
Quarter- to-Quarter Change |
|||||||
| 2008 | 2007 | |||||||
| Revenue | ||||||||
|
Product
sales
|
78.1
|
%
|
89.2
|
%
|
8.2
|
%
|
||
|
Contract research and development
|
21.9
|
%
|
10.8
|
%
|
149.6
|
%
|
||
|
Total
revenue
|
100.0
|
%
|
100.0
|
%
|
23.5
|
%
|
||
|
Cost of
sales
|
30.0
|
%
|
34.9
|
%
|
6.0
|
%
|
||
|
Gross
profit
|
70.0
|
%
|
65.1
|
%
|
32.8
|
%
|
||
| Expenses | ||||||||
|
Selling,
general, and administrative
|
8.6
|
%
|
10.3
|
%
|
3.3
|
%
|
||
|
Research and development
|
4.4
|
%
|
7.3
|
%
|
(25.4
|
)%
|
||
|
Total
expenses
|
13.0
|
%
|
17.6
|
%
|
(8.6
|
)%
|
||
|
Income
from operations
|
57.0
|
%
|
47.5
|
%
|
48.2
|
%
|
||
|
Interest
and other income
|
5.2
|
%
|
6.7
|
%
|
(4.7
|
)%
|
||
|
Income
before taxes
|
62.2
|
%
|
54.2
|
%
|
41.6
|
%
|
||
|
Provision
for income taxes
|
20.2
|
%
|
18.5
|
%
|
35.0
|
%
|
||
|
Net income
|
42.0
|
%
|
35.7
|
%
|
45.0
|
%
|
||
Total revenue for the quarter ended December 31,
2008 (the third quarter of fiscal 2009) increased 23%
to $5,884,113 compared to $4,765,525 for the
quarter ended December 31, 2007 (the third quarter of fiscal 2008). The increase
was due to an 8% increase in product sales and a 150% increase in contract research and development revenue. The increase in product
sales was due to increased volume from the addition of new customers and increased
purchase volume by existing customers. The increase in research and development
revenue was due to new contracts. The increase in research and development
revenue may not be representative of future trends and there can be no assurance of additional or follow-on contracts for expired or completed contracts.
Gross profit margin increased to 70% of revenue
for the third quarter of fiscal 2009 compared to 65% for the third quarter of
fiscal 2008. The increase was due to higher margins on both product sales and
research and development revenue.
Research and development expense decreased 25%
for the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008
due to the completion of certain research and development projects and an increase
in contract research and development obligations. This decrease may not be representative
of future expense trends. Our research and development expense can fluctuate significantly
depending on staffing, project requirements, and contract research and development
obligations.
Interest income increased 18%
to $306,814 for the third quarter of fiscal
2009 compared to $259,865 for the third quarter of fiscal 2008. The increase was
due to an increase in interest-bearing marketable securities. Other income was
$800 for the third quarter of fiscal 2009
compared to $62,930 for the third quarter of fiscal 2008. Other income for the third quarter of fiscal 2008
consisted primarily of a $61,430 net gain on maturities and sales of marketable
securities.
The provision for income taxes was $1,192,282,
or 33% of income before taxes, for the third
quarter of fiscal 2009 compared to $882,867, or 34% of income before taxes, for
the third quarter of fiscal 2008. The decrease in the effective tax rate may not
be representative of future trends because the effective tax rate can fluctuate
from quarter to quarter due to a number of factors, some of which are outside
our control.
The 45% increase
in net income in the third quarter of fiscal 2009 compared to the prior-year quarter
was primarily due to increases in total revenue and gross profit margin, and a decrease in research and development expense.
Table of Contents
Nine months
ended December 31, 2008 compared to nine months ended December 31, 2007
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 |
|||||||
| 2008 | 2007 | |||||||
| Revenue | ||||||||
|
Product
sales
|
85.1
|
%
|
88.6
|
%
|
9.2
|
%
|
||
|
Contract research and development
|
14.9
|
%
|
11.4
|
%
|
49.2
|
%
|
||
|
Total
revenue
|
100.0
|
%
|
100.0
|
%
|
13.8
|
%
|
||
|
Cost of
sales
|
29.9
|
%
|
34.2
|
%
|
(0.8
|
)%
|
||
|
Gross
profit
|
70.1
|
%
|
65.8
|
%
|
21.4
|
%
|
||
| Expenses | ||||||||
|
Selling, general, and administrative
|
9.8
|
%
|
11.3
|
%
|
(0.5
|
)%
|
||
|
Research and development
|
5.6
|
%
|
8.1
|
%
|
(20.8
|
)%
|
||
|
Total
expenses
|
15.4
|
%
|
19.4
|
%
|
(9.0
|
)%
|
||
|
Income
from operations
|
54.7
|
%
|
46.4
|
%
|
34.0
|
%
|
||
|
Interest
and other income
|
5.1
|
%
|
5.5
|
%
|
6.1
|
%
|
||
|
Income
before taxes
|
59.8
|
%
|
51.9
|
%
|
31.1
|
%
|
||
|
Provision
for income taxes
|
19.3
|
%
|
17.8
|
%
|
23.2
|
%
|
||
|
Net income
|
40.5
|
%
|
34.1
|
%
|
35.2
|
%
|
||
Total revenue for the nine months ended December 31, 2008 increased 14% to $16,475,689 compared to $14,479,428 for the nine months ended December 31, 2007. The increase was due to a 9% increase in product sales and a 49% increase in research and development revenue. The increase in product sales was due to increased volume from the addition of new customers and increased purchase volume by existing customers. The increase in research and development revenue was due to new contracts.
Gross profit margin increased to 70% of revenue for the first nine months of fiscal 2009 compared to 66% for the first nine months of fiscal 2008. The increase was due to higher margins on both product sales and research and development revenue.
Research and development expense decreased 21% for the first nine months of fiscal 2009 compared to the first nine months of fiscal 2008 due to the completion of certain research and development projects and an increase in contract research and development obligations.
Interest and other income increased 6% to $842,523 for the first nine months of fiscal 2009 compared to $794,173 for the nine months ended December 31, 2007. The increase was primarily due to an increase in interest-bearing marketable securities. Other income for the nine months ended December 31, 2007 consisted primarily of a $61,430 net gain on maturities and sales of marketable securities.
The provision for income taxes was $3,178,968 or 32% of income before taxes for the first nine months of fiscal 2009 compared to $2,581,272 or 34% of income before taxes for the first nine months of fiscal 2008. The decrease in the effective tax rate may not be representative of future trends because the effective tax rate can fluctuate from quarter to quarter due to a number of factors, some of which are outside our control.
The 35% increase in net income in the first nine months of fiscal 2009 compared to the prior-year period was primarily due to increases in total revenue and gross profit margin, and a decrease in research and development expense.
Table of Contents
Seasonality
Product sales for the third quarter of fiscal
2009 were less than the immediately preceding quarter,
which is the same pattern as each of the three previous fiscal years. This pattern
may be due in part to distributor ordering patterns or customer vacations and
shutdowns late in calendar years. We do not know if this pattern will continue, and we do not know if product sales will increase in the fourth quarter of fiscal
2009 compared to the third quarter of fiscal 2009 as they have in the three previous fiscal years.
Liquidity and capital resources
At December 31, 2008 we had $32,115,947 in
cash plus short-term and long-term marketable securities compared to $24,736,874
at March 31, 2008. 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 nine months of fiscal 2009 was primarily
due to $7,398,263 in net cash provided by operating activities.
Accounts receivable decreased $526,681
in the first nine months of fiscal 2009 due to collection of receivables related
to revenue late in the fiscal year ended March 31, 2008.
Purchases of fixed assets were $400,560 for the
first nine months of fiscal 2009 compared to $642,170 for the first nine months
of fiscal 2008. Purchases during both periods were primarily for capital equipment
to increase our production capacity and were financed with cash provided by
operating activities.
We currently believe our working capital is adequate
for our needs at least for the next 12 months.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
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 December 31, 2008 had
remaining maturities between 11 weeks and 52 months. Our short-term
and long-term marketable securities had a fair market value of $29,677,838 at
December 31, 2008, representing approximately 75% of our total assets.
We have not used derivative financial instruments in our investment portfolio.
Item 4. 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 (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 December 31, 2008,
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.
12
Table of Contents
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, 2008 except as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 and as follows.
The following risk factor is added:
Our marketable securities are subject to risks which may affect the liquidity of these investments or cause losses.
At December 31, 2008, we held $29,677,838 in short-term and long-term marketable securities, which included government agency obligations, municipal obligations, and corporate obligations. The ongoing credit crisis has significantly affected issuer credit rating, insurer financial condition and credit rating, liquidity, market, and interest rates for these and other types of obligations. The financial market risks associated with our marketable securities may have an adverse effect on our financial condition, results of operations, or cash flows.
The risk factor titled “We face an uncertain economic environment in our industry that could adversely
affect our business and operations” is replaced in its entirety by the following risk factor:
We face an uncertain economic environment in the industries we serve, which could adversely
affect our business.
A significant portion of our product sales are into industries affected by the recent worldwide economic downturn. This downturn has resulted in a significant decrease in the semiconductor market, which is the primary
market for our products. Industries we serve that have been affected by the economic downturn include industrial control, factory automation, scientific instruments, and certain medical industries. We cannot predict the timing, strength, or duration of any economic slowdown or subsequent recovery, worldwide or in the industries we serve. A material adverse
impact on our business and revenue is likely if the economy or industries we serve do not improve from their present levels.
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, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
14
Table of Contents
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
21, 2009
|
/s/ DANIEL A. BAKER |
|
Date
|
Daniel A. Baker |
| President and Chief Executive Officer | |
|
January 21, 2009
|
/s/
CURT A. REYNDERS
|
|
Date
|
Curt A. Reynders |
| Chief Financial Officer |