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: September 30, 2002
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act.
NVE Corporation
---------------
(Exact name of registrant as specified in its charter)
Minnesota
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(State or other jurisdiction of incorporation)
000-12196 41-1424202
-------------------------------- ------------------------
Commission File Number I.R.S. Employer
Identification number
11409 Valley View Road, Eden Prairie, Minnesota 55344
----------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (952) 829-9217
--------------
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 - 20,799,549 shares outstanding as of
October 25, 2002.
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEET
SEPTEMBER 30, 2002
Current assets:
Cash $ 470,653
Investment securities 5,653,311
Accounts receivable, net 1,291,361
Inventories 636,796
Prepaid expenses and other assets 197,337
-----------
Total current assets 8,249,458
Fixed assets:
Machinery and equipment 2,612,803
Furniture and fixtures 35,499
Leasehold improvements 365,187
Construction in progress 11,826
-----------
3,025,315
Less accumulated depreciation 1,717,659
-----------
Total fixed assets 1,307,656
-----------
Total assets $9,557,114
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 491,314
Accrued payroll and other 508,566
Deferred revenue 1,065,590
Current portion of capital lease obligations 147,937
-----------
Total current liabilities 2,213,407
Capital lease obligations, less current portion 301,894
-----------
Total liabilities 2,515,301
Shareholders' equity:
Common stock 207,943
Additional paid-in capital 11,944,569
Accumulated other comprehensive income 91,114
Accumulated deficit (5,201,813)
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Total shareholders' equity 7,041,813
-----------
Total liabilities and shareholders' equity $9,557,114
===========
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30:
2002 2001
--------------------------
Revenue
Contract research and development $1,633,915 $ 959,747
Product sales 612,812 326,920
License revenue 97,917 181,249
--------------------------
Total revenue 2,344,644 1,467,916
Cost of sales 1,508,900 1,281,766
--------------------------
Gross profit 835,744 186,150
Expenses
Research and development 288,256 380,210
Selling, general & administrative 456,441 483,563
--------------------------
Total expenses 744,697 863,773
--------------------------
Income (loss) from operations 91,047 (677,623)
Interest income 55,430 4,208
Interest expense (9,992) (6,181)
Other income 23,811 2,809
--------------------------
Net income (loss) $ 160,296 $ (676,787)
==========================
Net income (loss) per
basic and diluted share $ .01 $ (.04)
==========================
Weighted average shares outstanding:
Basic 20,786,895 17,012,861
Diluted 22,192,426 17,012,861
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30:
2002 2001
--------------------------
Revenue
Contract research and development $3,169,766 $2,072,343
Product sales 1,142,000 695,965
License revenue 195,834 362,498
--------------------------
Total revenue 4,507,600 3,130,806
Cost of sales 2,849,046 2,483,847
--------------------------
Gross profit 1,658,554 646,959
Expenses
Research and development 616,858 657,283
Selling, general & administrative 903,440 843,519
--------------------------
Total expenses 1,520,298 1,500,802
--------------------------
Income (loss) from operations 138,256 (853,843)
Interest income 95,680 14,584
Interest expense (22,898) (12,591)
Other income 41,487 80,527
--------------------------
Net income (loss) $ 252,525 $ (771,323)
==========================
Net income (loss) per
basic and diluted share $ .01 $ (.05)
==========================
Weighted average shares outstanding:
Basic 20,489,628 16,979,234
Diluted 21,895,159 16,979,234
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30:
2002 2001
--------------------------
OPERATING ACTIVITIES
Net income (loss) $ 252,525 $ (771,323)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 243,682 127,132
Changes in operating assets and liabilities:
Accounts receivable (50,285) 179,323
Agilent receivable - (1,100,000)
Inventories (124,581) 37,853
Prepaid expenses and other (118,035) 35,132
Accounts payable and accrued expenses 184,398 (76,767)
Deferred revenue (499,717) 675,389
--------------------------
Net cash used in operating activities (112,013) (893,261)
INVESTING ACTIVITIES
Purchases of fixed assets (313,796) (253,983)
Purchases of investment securities (5,574,134)
--------------------------
Net cash used in investing activities (5,887,930) (253,983)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 6,221,366 83,699
Repayment of note payable and
capital lease obligations (288,028) (23,016)
--------------------------
Net cash provided by financing activities 5,933,338 60,683
--------------------------
Decrease in cash (66,605) (1,086,561)
Cash at beginning of period 537,258 1,492,080
--------------------------
Cash at end of period $ 470,653 $ 405,519
==========================
SEE ACCOMPANYING NOTES.
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
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 that
these condensed financial statements be read in conjunction with the audited
financial statements and the notes there to included in our latest annual
financial statements included in its report on Form 10-KSB. The results of
operations for the three and six month periods ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the full year
ending March 31, 2003.
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).
Potentially dilutive securities including warrants and stock options are
excluded from diluted earnings per share during net loss periods because these
securities would be anti-dilutive.
5. RECLASSIFICATION
We reclassified certain research and development costs related to contract
research and development programs to cost of sales. Previously, these costs
were included with research and development costs reported as operating
expenses.
6. 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."
7. COMPREHENSIVE INCOME
The components of comprehensive income (loss) are as follows:
Three months Six months
ended September 30, ended September 30,
2002 2001 2002 2001
-------- ---------- -------- ----------
Net income (loss) $160,296 $(676,787) $252,525 $(771,323)
Change in unrealized gains 68,016 - 91,114 -
-------- ---------- -------- ----------
Comprehensive income (loss) $228,312 $(676,787) $343,639 $(771,323)
======== ========== ======== ==========
8. INVENTORIES
Inventories consist of the following:
Raw materials $187,864
Work-in-process 487,262
Finished goods 161,670
---------
836,796
Less obsolescence reserve (200,000)
---------
$636,796
=========
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.
Internal Controls
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, our management has
reviewed our disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) as of a date within 90 days prior to this quarterly
report (the "Evaluation Date"). Our management believes that such disclosure
controls and procedures as of the Evaluation Date were adequate to ensure that
material information relating to the company is made known to management by
others within the company. To management's knowledge, there were no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the Evaluation Date.
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
The table shown below summarizes the percentage of revenue for the
various items for the periods indicated:
Three months ended September 30,
2002 2001
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Revenue:
Research and development 69.7 % 65.4 %
Product sales 26.1 22.3
License fees 4.2 12.3
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Total revenue 100.0 100.0
Cost of sales 64.4 87.3
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Gross profit 35.6 12.7
Total expenses 28.8 58.8
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Net (loss) income 6.8 % (46.1)%
======= =======
Revenue for the three months ended September 30, 2002 was $2,344,644, an
increase of 60% from revenue of $1,467,916 for the three months ended September
30, 2001. The revenue increase was due to increases in commercial product sales
and research and development revenue. Commercial product sales increased 87% to
$612,812 from $326,920. Research and development revenue increased 70% to
$1,633,915 from $959,747 due to increased government contract revenue and new
revenue recognized under an agreement with Agilent Technologies, Inc. Increases
in commercial product sales and research and development revenue were partially
offset by a decrease in license revenue from $181,249 to $97,917. The decrease
in license revenue was due to completion of revenue recognition for one of our
MRAM license agreements.
Gross profit increased to 36% for the three months ended September 30,
2002 as compared to 13% for the three months ended September 30, 2001. Gross
profit on commercial product sales increased to 51% and gross profit on
contract research and development increased to 26% for the three months ended
September 30, 2002 as compared to (5%) and 1% for the three months ended
September 30, 2001. This increase was due to higher yields on commercial
products as well as increased margins on contract research and development.
Research and development expenses decreased 24% to $288,256 for the
three months ended September 30, 2002 as compared to $380,210 in the three
months ended September 30, 2001. 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
September 30, 2002 decreased by 6% to $456,441 compared to $483,563 in the
prior year. The decrease was primarily due to general and administrative
efficiencies and cost-containment.
Net income totaled $160,296 for the three months ended September 30,
2002 compared to a net loss of $676,787 for the three months ended September
30, 2001. The profit was due to a change from operational losses to profits,
lower interest expense from the retirement of high-cost debt, and higher
interest income from our investments.
SIX MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 2001
The table shown below summarizes the percentage of revenue for the
various items for the periods indicated:
Six Months Ended September 30,
2002 2001
------- -------
Revenue:
Research and development 70.3 % 66.2 %
Product sales 25.3 22.2
License fees 4.4 11.6
------- -------
Total revenue 100.0 100.0
Cost of sales 63.2 79.3
------- -------
Gross profit 36.8 20.7
Total expenses 31.2 45.3
------- -------
Net income (loss) 5.6 % (24.6)%
======= =======
Revenue for the six months ended September 30, 2002 was $4,507,600, an
increase of 44% from revenue of $3,130,806 for the six months ended September
30, 2001. The revenue increase was due to increases in commercial product
sales and research and development revenue. Commercial product sales
increased 64% to $1,142,000 from $695,965. Research and development revenue
increased 53% to $3,169,766 from $2,072,343 due to increased government
contract revenue and new revenue recognized under an agreement with Agilent
Technologies, Inc. Increases in commercial product sales and research and
development revenue were partially offset by a decrease in license revenue from
$362,498 to $195,834. The decrease in license revenue was due to completion of
revenue recognition for one of our MRAM license agreements.
Research and development expenses decreased by 6% to $616,858 for the six
months ended September 30, 2002 as compared to $657,283 in the six months ended
September 30, 2001. The decrease was due to completion of the development of
some of our commercial products.
Gross profit margins increased to 37% for the six months ended September
30, 2002 as compared to 21% for the six months ended September 30, 2001. Gross
profit on commercial product sales increased to 50% and gross profit on
contract research and development increased to 28% for the six months ended
September 30, 2002 as compared to 24% and 6% for the six months ended
September 30, 2001. This increase was due to higher yields on commercial
products as well as increased margins on contract research and development.
Selling, general and administrative expenses for the six months ended
September 30, 2002 increased by 7% to $903,440 compared to $843,519 in the
prior year. The increase was primarily due to higher expenses associated with
a ramp-up in commercial selling activities.
Net income totaled $252,525 for the six months ended September 30, 2002
compared to a net loss of $771,323 for the six months ended September 30, 2001.
The profit was due to a change from operational losses to profits, lower
interest expense from the retirement of high-cost debt, and higher interest
income on our increased investments.
Liquidity and capital resources
At September 30, 2002, we had $5,653,311 in available-for-sale securities,
consisting of marketable fixed-income investments. We had cash on September 30,
2002 of $470,653 and working capital of $6,036,051. We believe our working
capital is adequate for our current needs.
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of shareholders was held on July 25, 2002. There were
20,785,549 shares of common stock entitled to vote at the meeting with a total
of 17,457,328 shares or 84.0% represented at the meeting.
The shareholders elected six directors for a term of one year. The
shareholders present in person or by proxy cast the following number of votes
in connection with the election of directors, resulting in the election of all
the nominees:
Votes For Votes Withheld
Terrence Glarner 17,454,158 3,170
Daniel A. Baker 17,454,158 3,170
James Daughton 17,454,158 3,170
Herbert Goronkin 17,454,158 3,170
Robert Irish 17,454,158 3,170
Jeffrey K. Kaszubinski 17,449,158 8,170
Item 5. Other Information
On September 18, 2002, we executed an amended lease for our principal
offices, located at 11409 Valley View Road, Eden Prairie, Minnesota 55344. The
space consists of 21,362 square feet of offices, production space, and
laboratories. The amendment extends through December 31, 2006 a lease which
would have expired December 31, 2003. We believe this space will be adequate
for our needs for the next several years.
The new amendment reduces our base rent due in calendar year 2003 from
$15,773 per month to $9,375 per month. In addition to base rent, we pay
operating expenses for the space including maintenance, utilities, real estate
taxes and insurance.
The original lease and the recent lease amendment are filed herein.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
Exhibit 10.1: Lease dated October 1, 1998 between the Registrant
and Glenborough Properties, L.P.
Exhibit 10.2: Amendment dated September 18, 2002 to lease between
the Registrant and Glenborough Properties, L.P.
b. Reports on Form 8-K
We submitted a Form 8-K on August 8, 2002 including certifications
for our Quarterly Report on Form 10-QSB for the period ending June
30, 2002 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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: October 25, 2002
By /s/ Daniel A. Baker
-------------------------------------
Daniel A. Baker
President and Chief Executive Officer
By /s/ Richard George
-------------------------------------
Richard George
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of NVE Corporation (the "Company")
on Form 10-QSB for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"),
each of the undersigned, in the capacities and on the dates indicated below,
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Company.
Date: October 25, 2002
By /s/ Daniel A. Baker
-------------------------------------
Daniel A. Baker
President and Chief Executive Officer
By /s/ Richard George
-------------------------------------
Richard 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: October 25, 2002
/s/ Daniel A. Baker
-------------------------------------
Daniel A. Baker
President and Chief Executive Officer
I, Richard 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: October 25, 2002
/s/ Richard George
-----------------------
Richard George
Chief Financial Officer