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NVEC > SEC Filings for NVEC > Form 10-Q on 23-Jul-2014All Recent SEC Filings

Show all filings for NVE CORP /NEW/

Form 10-Q for NVE CORP /NEW/


23-Jul-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 the revenue potential of new products, risks related to material weaknesses in our internal control over financial reporting, and other specific risks that may be alluded to in this Report or in the documents incorporated by reference in this Report.

Further information regarding our risks and uncertainties are contained in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended March 31, 2014.

General
NVE Corporation, referred to as NVE, we, us, or our, develops and sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store and transmit information. We manufacture high-performance spintronic products including sensors and couplers that are used to acquire and transmit data. We have also licensed our spintronic magnetoresistive random access memory technology, commonly known as MRAM.

Critical accounting policies
A description of our critical accounting policies is provided in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2014. At June 30, 2014 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.


Table of Contents

Quarter ended June 30, 2014 compared to quarter ended June 30, 2013 The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:

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

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

The increase in product sales from the prior-year quarter was due to new customers, increased purchase volume by existing customers, and favorable order timing. The decrease in research and development revenue was due to completion of a particular contract and a challenging environment for new U.S. Government contract funding. In addition to direct Government funding, certain of our non-Government customers and prospective customers depend on Government support to fund their contracts with us. Contract research and development activities can fluctuate for a number of reasons, some of which are beyond our control, and there can be no assurance of additional or follow-on contracts for expired or completed contracts.

Gross profit margin increased to 82% of revenue for the first quarter of fiscal 2015 compared to 78% for the first quarter of fiscal 2014, due to a more favorable revenue mix and a more favorable product sales mix.

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

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

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

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


Table of Contents

Liquidity and capital resources
At June 30, 2014 we had $100,249,227 in cash plus short-term and long-term marketable securities compared to $95,644,701 at March 31, 2014. Our entire portfolio of short-term and long-term marketable securities is classified as available for sale. The increase in cash plus marketable securities in the first quarter of fiscal 2015 was primarily due to $4,483,268 in net cash provided by operating activities.

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

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

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


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