UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2003
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act.
NVE Corporation
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(Exact name of registrant as specified in its charter)
Minnesota
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(State or other jurisdiction of incorporation)
000-12196 41-1424202
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Commission File Number I.R.S. Employer
Identification number
11409 Valley View Road, Eden Prairie, Minnesota 55344
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (952) 829-9217
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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.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $.01 Par Value - 4,203,678 shares outstanding as of
July 24, 2003.
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEET
JUNE 30, 2003
Current assets:
Cash $ 1,455,259
Investment securities 5,051,867
Accounts receivable, net of allowance for
uncollectible accounts of $15,000 1,115,670
Inventories 941,175
Prepaid expenses and other assets 97,997
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Total current assets 8,661,968
Fixed assets:
Machinery and equipment 2,941,637
Furniture and fixtures 35,499
Leasehold improvements 365,187
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3,342,323
Less accumulated depreciation 1,982,376
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Total fixed assets 1,359,947
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Total assets $10,021,915
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 469,766
Accrued payroll and other 485,818
Deferred revenue 877,689
Capital lease obligations 157,441
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Total current liabilities 1,990,714
Capital lease obligations, less current portion 182,597
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Total liabilities 2,173,311
Shareholders' equity:
Common stock 41,847
Additional paid-in capital 12,179,019
Accumulated other comprehensive income 100,808
Accumulated deficit (4,473,070)
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Total shareholders' equity 7,848,604
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Total liabilities and shareholders' equity $10,021,915
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SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
Three Months Ended June 30
2003 2002
--------------------------
Revenue
Contract research and development $ 1,720,906 $ 1,535,851
Product sales 1,098,943 529,188
License revenue - 97,917
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Total revenue 2,819,849 2,162,956
Cost of sales 1,908,995 1,340,146
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Gross profit 910,854 822,810
Expenses
Research and development 178,669 328,602
Selling, general & administrative 450,863 446,999
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Total expenses 629,532 775,601
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Income from operations 281,322 47,209
Interest income 49,013 40,250
Interest expense (7,691) (12,905)
Other income 11,774 17,675
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Net income $ 334,418 $ 92,229
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Net income per share-basic $ .08 $ .02
============ ============
Net income per share-diluted $ .07 $ .02
============ ============
Weighted average shares outstanding:
Basic 4,174,913 4,038,472
Diluted 4,571,254 4,342,273
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
Three Months Ended June 30
2003 2002
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OPERATING ACTIVITIES
Net income $ 334,418 $ 92,229
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 119,164 106,551
Changes in operating assets and liabilities:
Accounts receivable (87,380) 131,788
Inventories (100,399) (2,581)
Prepaid expenses and other 72,323 (61,717)
Accounts payable and accrued expenses 19,171 (136,097)
Deferred revenue (11,938) (372,034)
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Net cash provided by (used in) operating activities 345,359 (241,861)
INVESTING ACTIVITIES
Purchases of fixed assets (304,630) (128,020)
Sales (purchases) of investment securities 847,837 (5,260,633)
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Net cash provided by (used in) investing activities 543,207 (5,388,653)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 8,285 6,219,867
Repayment of note payable and
capital lease obligations (37,360) (252,923)
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Net cash (used in) provided by
financing activities (29,075) 5,966,944
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Increase in cash 859,491 336,430
Cash and cash equivalents at beginning of period 595,768 537,258
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Cash and cash equivalents at end of period $ 1,455,259 $ 873,688
============ ============
SEE ACCOMPANYING NOTES.
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
1. 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 SEC 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
condensed financial statements be read in conjunction with the audited
financial statements and the notes included in our latest annual financial
statements included in our report on Form 10-KSB. The results of operations
for the three months ended June 30, 2003 are not necessarily indicative of the
results that may be expected for the full year ending March 31, 2004.
2. NATURE OF BUSINESS
We develop and sell "spintronics" devices, which rely on electron spin
rather than electron charge to acquire, store, and transmit information.
3. REVENUE RECOGNITION
Revenue from product sales to direct customers is recognized upon shipment.
Revenue from licensing and technology development programs, which is
nonrefundable and for which no significant future obligations exist, is
recognized when the license is signed. Revenue from licensing and technology
development programs, which is refundable, recoupable against future royalties,
or for which future obligations exist, is recognized when we have completed our
obligations under the terms of the agreements. Revenue from royalties is
recognized upon the shipment of product from our technology license partners to
direct customers. Certain research and development activities are conducted for
third parties and such revenue is recognized as the services are performed.
4. EARNINGS PER SHARE
We calculate our income (loss) per share pursuant to Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share. Basic earnings
per share is computed based upon the weighted average number of common shares
issued and outstanding during each year. Diluted net income per share amounts
assume conversion, exercise or issuance of all potential common stock
instruments (stock options, warrants and convertible preferred stock).
5. INVESTMENTS
We classify and account for debt and equity securities in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. The
Company's entire portfolio is classified as available for sale; thus,
securities are recorded at fair market value and any associated unrealized gain
or loss, net of tax, is included as a separate component of shareholders'
equity, "Accumulated other comprehensive income."
6. COMPREHENSIVE INCOME
The components of comprehensive income (loss) are as follows:
Three months ended
June 30 June 30
2003 2002
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Net income $ 334,418 $ 92,229
Change in unrealized gains 27,587 23,098
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Comprehensive income $ 362,005 $ 115,327
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7. INVENTORIES
Inventories consist of the following:
Raw materials $ 336,568
Work-in-process 582,386
Finished goods 277,221
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1,196,175
Less obsolescence reserve (255,000)
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$ 941,175
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8. STOCK SPLIT
We executed a one-for-five reverse split of our Common Stock to stockholders of
record at the close of business on November 21, 2002. All share and per share
amounts have been restated for the quarter ended June 30, 2002 in the
accompanying financial statements.
9. STOCK-BASED COMPENSATION
We have adopted the disclosure-only provisions of SFAS Nos. 123 and 148,
Accounting for Stock-Based Compensation, but apply Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for our plans. Under APB 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 of that
Statement. 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% for the three months ended
June 30, 2003 and 2002, expected volatility of 55%, a weighted-average expected
life of the options of four to seven 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:
Three Months Ended June 30
2003 2002
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Net income applicable to common shares:
As reported $ 334,418 $ 92,229
Pro forma adjustment
for stock options (81,325) (164,709)
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Pro forma net income (loss) $ 253,093 $ (72,480)
============ ============
Earnings per share:
Basic - as reported $ 0.08 $ 0.02
Basic - pro forma $ 0.06 $ (0.02)
Diluted - as reported $ 0.07 $ 0.02
Diluted - pro forma $ 0.06 $ (0.02)
10. TECHNOLOGY EXCHANGE AGREEMENT
On April 19, 2002 the Company closed a technology exchange agreement
accompanied by an investment by Cypress Semiconductor Corporation ("Cypress").
Cypress purchased 686,849 shares of NVE Common Stock for $6.228 million.
Cypress also received a warrant for the purchase of up to an additional
400,000 shares of Common Stock for $15.00 per share for a term of three years.
Item 1. Legal Proceedings.
None.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General
We develop and sell "spintronics" devices, which are integrated circuit
type devices that rely on electron spin rather than electron charge to acquire,
store, and transmit information in electronic systems. We derive revenue from
three sources:
1) contract spintronics research and development (principally government
contracts);
2) commercial sales of spintronic sensor and coupler products; and
3) licenses for our magnetic random-access memory (MRAM)
intellectual property.
Critical accounting policies
It is important to understand our significant accounting policies in order
to understand our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. These accounting principles require us to make estimates and
assumptions that affect amounts reported in our consolidated financial
statements and the accompanying notes. Actual results are likely to differ
from those estimates, but we do not believe such differences will materially
affect our financial position or results of operations for the periods
presented in this report.
Revenue recognition
Revenue from product sales to direct customers is recognized upon
shipment. Revenue from licensing and technology development programs, which is
nonrefundable and for which no significant future obligations exist, is
recognized when the license is signed. Revenue from licensing and technology
development programs, which is refundable, recoupable against future royalties,
or for which future obligations exist, is recognized when we complete our
obligations under the terms of the agreements. Revenue from royalties is
recognized upon the shipment of product from our technology license partners
to direct customers. Certain research and development activities are conducted
for third parties and such revenue is recognized as the services are
performed. Payments received from licensing and technology development
programs relating to future obligations as well as prepayments for future
discounts on product sales are recorded as deferred revenue.
Bad Debt
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments.
If the financial condition of our customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may
be required.
Inventory
We reduce the stated value of our inventory for excess quantities or
obsolescence in an amount equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions are less
favorable than those projected by management, additional reductions in stated
value may be required.
Income Taxes
In determining the carrying value of our net deferred tax assets, we must
assess the likelihood of sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions to realize the benefit of
these assets. Our management evaluates the realizability of the deferred
assets quarterly and assesses the need for valuation allowances or reduction
of existing allowances quarterly.
The table below summarizes the percentage of revenue for the various
items for the periods indicated:
Three Months Ended June 30
2003 2002
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Revenue:
Research and development 61.0 % 71.0 %
Product sales 39.0 24.5
License fees - 4.5
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Total revenue 100.0 100.0
Cost of sales 67.7 62.0
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Gross profit 32.3 38.0
Total expenses 20.4 33.8
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Net income 11.9 % 4.2 %
======= =======
Revenue for the three months ended June 30, 2003 ("Fiscal 2003") was
$2,819,849, an increase of 30% from revenue of $2,162,956 for the three months
ended June 30, 2002. The revenue increase was due to increases in commercial
product sales and research and development revenue. Commercial product sales
increased 108% to $1,098,943 from $529,188. Research and development revenue
increased 12% to $1,720,906 from $1,535,851 due to increased government
contract revenue, partially offset by the completion of revenue recognized
under our agreement with Agilent Technologies, Inc. Such revenues from Agilent
were $150,000 for the three months ended June 30, 2002. Increases in commercial
product sales and research and development revenue were partially offset by a
decrease in license revenue due to completion of revenue recognition for our
MRAM license agreements. Such MRAM license agreements contributed $97,917 in
revenues for the three months ended June 30, 2002.
Gross profit margins decreased to 32% for the three months ended June 30,
2003 as compared to 38% for the three months ended June 30, 2002. The decrease
was due to $97,917 in license revenue and $150,000 in revenue recognized under
our agreement with Agilent Technologies, Inc. for the three months ended June
30, 2002 which have not recurred. The decreases in gross profit were partially
offset by higher commercial product margins due to successful yield improvement
programs.
Research and development expenses decreased by 46% to $178,669 for the
three months ended June 30, 2003 as compared to $328,602 for the three months
ended June 30, 2002. The decrease was due to completion of the development of
some of our commercial products.
Selling, general and administrative expenses for the three months ended
June 30, 2003 increased by 1% to $450,863 compared to $446,999 for the three
months ended June 30, 2002.
Net income totaled $334,418 for the three months ended June 30, 2003
compared to $92,229 for the three months ended June 30, 2002. The increase in
net income was due to higher revenues and higher commercial product margins.
Liquidity and capital resources
At June 30, 2003 we had $5,051,867 in available-for-sale securities,
consisting of marketable fixed-income investments. We had cash on June 30, 2003
of $1,455,259 and working capital of $6,671,254.
Cash plus available-for-sale securities were $6,507,126 at June 30, 2003,
compared to 6,475,865 at March 31, 2003. The increase was due to net income
partially offset by investments in machinery and equipment and increases
accounts receivable and inventories related to the growth of our commercial
product sales.
We expect to continue to invest in machinery and equipment in the balance
of the fiscal year to continue to increase our manufacturing capacity. We
believe our working capital is adequate to meet our requirements for at least
the next twelve months.
Outlook
We expect to broaden our sensor and coupler product lines, and to improve
the effectiveness of our domestic manufacturers' representative network. We
expect commercial product revenues to continue to grow in the rest of Fiscal
2004 and we expect to continue to be profitable in Fiscal 2004.
Item 4. Internal Controls and Procedures.
(a) Disclosure Controls and Procedures: Within 90 days prior to the date
of filing of this report, we carried out an evaluation, under the supervision
and with the participation of our management, including the Chief Executive
Officer and the Chief Financial Officer, of the design and operation of our
disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective for gathering, analyzing and disclosing
the information we are required to disclose in the reports we file under the
Securities Exchange Act of 1934, within the time periods specified in the SEC's
rules and forms. There have been no significant changes in our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of this evaluation.
(b) Internal Controls: There were no significant changes in our internal
controls or, to our knowledge, in other factors which could significantly
affect these controls subsequent to the date of their evaluation.
PART II--OTHER INFORMATION
Item 5. Other Information
SHARE REPURCHASE PROGRAM EXPIRED
On November 11, 2002, we announced that our board of directors had
authorized the repurchase of up to 50,000 shares of our Common Stock. The
program expired May 25, 2003 and we did not repurchased any shares under the
program.
SBIR ELIGIBILITY RESTORED
On July 1, 2003, we announced that the U.S. Small Business Administration
(SBA) had found us to be ineligible for Small Business Innovation Research
(SBIR) awards because of the Company's ownership structure. Specifically, 13
CFR Section 121.702(a) requires a business concern to be at least 51% owned and
controlled by one or more individuals to be eligible to compete for SBIR
awards.
Our largest shareholder, Norwest Equity Partners, transferred most of its
holdings to an individual to facilitate recertification, and on July 21, 2003
we were notified we had been recertified as eligible to compete for SBIR
awards.
We do not expect the brief period of SBIR ineligibility to have a
significant impact on our SBIR revenue or total revenue, however we rely on
government contracts for a large percentage of our revenues, and there can be
no assurance that these contracts will continue at their current level.
Disqualification from or a material decrease in U.S. government funding
research would cause serious setbacks and would likely hamper our future
research and development activity.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
99.1 Certification by Daniel A. Baker pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by Richard L. George pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
b. Reports on Form 8-K.
We submitted a Form 8-K on April 24, 2003 including our press release
reporting results from the quarter and the year ended March 31, 2003. This
information was provided under Item 12, Results of Operations and Financial
Condition.
We submitted a Form 8-K on June 20, 2003 including a transcript of a
radio interview with our CEO. This information was provided under Item 9,
Regulation FD Disclosure.
We submitted a Form 8-K on June 27, 2003 including our 2003 Letter to
Shareholders. This information was provided under Item 9, Regulation FD
Disclosure.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on behalf of the undersigneds thereunto duly authorized.
NVE CORPORATION
Date: July 24, 2003
By /s/ Daniel A. Baker
-------------------------------------
Daniel A. Baker
President and Chief Executive Officer
By /s/ Richard L. George
-------------------------------------
Richard L. George
Chief Financial Officer
CERTIFICATIONS PURSUANT TO SECTION 302
I, Daniel A. Baker, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NVE Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls, which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: July 24, 2003
/s/ Daniel A. Baker
-------------------------------------
Daniel A. Baker
President and Chief Executive Officer
I, Richard L. George, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NVE Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls, which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: July 24, 2003
/s/ Richard L. George
-----------------------
Richard L. George
Chief Financial Officer
10QSB Quarter Ended 6/30/03
p. 17