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NVEC > SEC Filings for NVEC > Form 10-Q on 22-Jan-2014All Recent SEC Filings

Show all filings for NVE CORP /NEW/

Form 10-Q for NVE CORP /NEW/


22-Jan-2014

Quarterly Report


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 uncertainties related to the economic environments in the industries we serve, uncertainties related to direct and indirect U.S. Government funding, uncertainties relating to future revenue and growth, risks related to developing marketable products, uncertainties relating to the revenue potential of new products, risks in the enforcement of our patents, litigation risks, 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, 2013.

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, 2013. At December 31, 2013 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred taxes estimation.


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Quarter ended December 31, 2013 compared to quarter ended December 31, 2012 The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

                                         Percentage of Revenue        Quarter-
                                         Quarter Ended Dec. 31       to-Quarter
                                                                       Change
                                         2013                2012
Revenue
Product sales                             99.6 %             88.3 %      11.9 %
Contract research and development          0.4 %             11.7 %     (96.7 )%
Total revenue                            100.0 %            100.0 %      (0.8 )%
Cost of sales                             22.4 %             26.6 %     (16.6 )%
Gross profit                              77.6 %             73.4 %       5.0 %
Expenses
Selling, general, and administrative       8.4 %              8.8 %      (4.7 )%
Research and development                  14.0 %              7.7 %      80.6 %
Total expenses                            22.4 %             16.5 %      35.2 %
Income from operations                    55.2 %             56.9 %      (3.7 )%
Interest income                            8.2 %              9.2 %     (11.7 )%
Income before taxes                       63.4 %             66.1 %      (4.8 )%
Provision for income taxes                20.5 %             21.7 %      (6.1 )%
Net income                                42.9 %             44.4 %      (4.2 )%

Total revenue for the quarter ended December 31, 2013 (the third quarter of fiscal 2014) decreased 1% compared to the quarter ended December 31, 2012 (the third quarter of fiscal 2013). The decrease was due to a 97% decrease in contract research and development revenue, partially offset by a 12% increase in product sales.

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

Gross profit margin increased to 78% of revenue for the third quarter of fiscal 2014 compared to 73% for the third quarter of fiscal 2013, due to a more favorable revenue mix and a more favorable product sales mix.

Total expenses increased 35% for the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013, primarily due to an 81% increase in research and development expense. The increase in research and development expense was due to increased product development activities, and a decrease in contract research and development activities, which caused resources to be reallocated to expensed research and development activities. Research and development expense can fluctuate significantly depending on staffing, project requirements, and contract research and development activities. Selling, general, and administrative expense can also fluctuate significantly depending on a number of factors including legal expenses.

Interest income for the third quarter of fiscal 2014 decreased 12% due to lower interest rates on our marketable securities.

The 4% decrease in net income in the third quarter of fiscal 2014 compared to the prior-year quarter was primarily due to decreased contract research and development revenue, increased research and development expense, and decreased interest income, partially offset by increased product sales and increased gross profit margin as a percentage of revenue.


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Nine months ended December 31, 2013 compared to nine months ended December 31, 2012
The table shown below summarizes the percentage of revenue and period-to-period changes for various items:

                                             Percentage of Revenue           Period-
                                           Nine Months Ended Dec. 31        to-Period
                                                                              Change
                                          2013                      2012
Revenue
Product sales                               98.5 %                  91.0 %      9.0 %
Contract research and development            1.5 %                   9.0 %    (83.3 )%
Total revenue                              100.0 %                 100.0 %      0.7 %
Cost of sales                               21.7 %                  26.0 %    (15.9 )%
Gross profit                                78.3 %                  74.0 %      6.5 %
Expenses
Selling, general, and administrative         8.8 %                   8.6 %      2.5 %
Research and development                    13.8 %                   9.1 %     52.3 %
Total expenses                              22.6 %                  17.7 %     28.0 %
Income from operations                      55.7 %                  56.3 %     (0.2 )%
Interest income                              7.9 %                   9.0 %    (11.6 )%
Income before taxes                         63.6 %                  65.3 %     (1.8 )%
Provision for income taxes                  20.6 %                  21.3 %     (2.1 )%
Net income                                  43.0 %                  44.0 %     (1.7 )%

Total revenue for the nine months ended December 31, 2013 increased 1% compared to the nine months ended December 31, 2012. The increase was due to an 9% increase in product sales, partially offset by an 83% decrease in contract research and development revenue.

The increase in product sales from the prior-year period was due to increased purchase volume by existing customers. The decrease in research and development revenue was due to completion of the majority of activities on a large 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 78% of revenue for the first nine months of fiscal 2014 compared to 74% for the first nine months of fiscal 2013, due to a more favorable revenue mix, a more favorable product sales mix, and more efficient product manufacturing.

Total expenses increased 28% for the first nine months of fiscal 2014 compared to the first nine months of fiscal 2013, primarily due to a 52% increase in research and development expense. The increase in research and development expense was due to increased product development activities, and a decrease in contract research and development activities, which caused resources to be reallocated to expensed research and development activities.

Interest income for the first nine months of fiscal 2014 decreased 12% due to lower interest rates on our marketable securities.

The 2% decrease in net income in the first nine months of fiscal 2014 compared to the prior-year period was primarily due to decreased contract research and development revenue, increased research and development expense, and decreased interest income, partially offset by increased product sales and increased gross profit margin as a percentage of revenue.


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Liquidity and capital resources
At December 31, 2013 we had $92,839,231 in cash plus short-term and long-term marketable securities compared to $85,260,969 at March 31, 2013. 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 2014 was primarily due to $9,818,028 in net cash provided by operating activities less $1,263,405 for repurchases of our Common Stock and a $1,197,542 unrealized loss from marketable securities.

We had $33,893 in purchases of fixed assets in the first nine months of fiscal 2014. Purchases of fixed assets were $1,607,130 in the first nine months of fiscal 2013, primarily for expansion of production space and infrastructure upgrades. Our capital expenditures can vary significantly depending on our needs, equipment purchasing opportunities, and production expansion activities.

We repurchased $1,263,405 of our Common Stock in the first nine months of fiscal 2014. The repurchases were under a program announced January 21, 2009 authorizing the repurchase of up to $2,500,000 of our Common Stock, $1,236,595 of which remained available as of December 31, 2013. The repurchase program may be modified or discontinued at any time without notice.

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


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