10-Q

 

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, 2017

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes  [   ] No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 [   ]
	Emerging growth company [   ]

 
     If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]
 
     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 – 4,842,010 shares outstanding as of January 12, 2018

 

NVE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

          Balance Sheets

          Statements of Income for the Quarters Ended December 31, 2017 and 2016

          Statements of Comprehensive Income for the Quarters Ended December 31, 2017 and 2016

          Statements of Income for the Nine Months Ended December 31, 2017 and 2016

          Statements of Comprehensive Income for the Nine Months Ended December 31, 2017 and 2016

          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 1. Legal Proceedings

     Item 1A. Risk Factors

     Item 4. Mine Safety Disclosures

     Item 6. Exhibits

SIGNATURES

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PART I–FINANCIAL INFORMATION

Item 1. Financial Statements.

NVE CORPORATION
BALANCE SHEETS
 

	(Unaudited) December 31, 2017			March 31, 2017*
ASSETS
Current assets
Cash and cash equivalents	$	4,728,352		$	8,199,364
Marketable securities, short-term		18,808,203			19,591,833
Accounts receivable, net of allowance for uncollectible accounts of $15,000		2,165,866			3,436,802
Inventories		3,596,326			3,358,298
Prepaid expenses and other assets	967,958			607,283
Total current assets		30,266,705			35,193,580
Fixed assets
Machinery and equipment		9,504,983			9,007,455
Leasehold improvements	1,751,646			1,644,419
		11,256,629			10,651,874
Less accumulated depreciation and amortization	9,742,050			9,238,626
Net fixed assets		1,514,579			1,413,248
Long-term deferred tax assets	333,023			357,055
Marketable securities, long-term	56,729,730			56,810,923
Total assets	$	88,844,037		$	93,774,806
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	258,869		$	376,275
Accrued payroll and other	534,194			576,313
Deferred revenue	-			142,733
Total current liabilities		793,063			1,095,321
Shareholders’ equity
Common stock, $0.01 par value, 6,000,000 shares authorized; 4,842,010 issued and outstanding as of December 31, 2017 and 4,841,010 issued and outstanding as of March 31, 2017		48,420			48,410
Additional paid-in capital		19,599,298			19,507,348
Accumulated other comprehensive loss		(265,991	)		(38,298	)
Retained earnings	68,669,247			73,162,025
Total shareholders’ equity	88,050,974			92,679,485
Total liabilities and shareholders’ equity	$	88,844,037		$	93,774,806

*The March 31, 2017 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, 2017.

See accompanying notes.


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NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)

	Quarter Ended Dec. 31
	2017		2016
Revenue
Product sales	$	6,448,831	$	7,116,931
Contract research and development	911,958		345,748
Total revenue		7,360,789		7,462,679
Cost of sales	1,657,700		1,502,848
Gross profit		5,703,089		5,959,831
Expenses
Selling, general, and administrative		313,033		384,322
Research and development	852,739		826,816
Total expenses	1,165,772		1,211,138
Income from operations		4,537,317		4,748,693
Interest income	404,665		395,207
Income before taxes		4,941,982		5,143,900
Provision for income taxes	1,370,380		1,660,156
Net income	$	3,571,602	$	3,483,744
Net income per share – basic	$	0.74	$	0.72
Net income per share – diluted	$	0.74	$	0.72
Cash dividends declared per common share	$	1.00	$	1.00
Weighted average shares outstanding
Basic		4,841,369		4,836,336
Diluted		4,847,290		4,839,777

STATEMENTS OF COMPREHENSIVE INCOME
     (Unaudited)

	Quarter Ended Dec. 31
	2017			2016
Net income	$	3,571,602		$	3,483,744
Unrealized loss from marketable securities, net of tax	(295,458		)	(571,862		)
Comprehensive income	$	3,276,144		$	2,911,882

 
 
See accompanying notes.


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NVE CORPORATION
STATEMENTS OF INCOME
(Unaudited)

	Nine Months Ended Dec. 31
	2017		2016
Revenue
Product sales	$	19,718,584	$	19,782,529
Contract research and development	2,246,105		1,690,461
Total revenue		21,964,689		21,472,990
Cost of sales	4,809,235		4,628,840
Gross profit		17,155,454		16,844,150
Expenses
Selling, general, and administrative		1,060,757		1,117,925
Research and development	2,788,968		2,353,372
Total expenses	3,849,725		3,471,297
Income from operations		13,305,729		13,372,853
Interest income	1,154,303		1,263,924
Income before taxes		14,460,032		14,636,777
Provision for income taxes	4,429,780		4,715,291
Net income	$	10,030,252	$	9,921,486
Net income per share – basic	$	2.07	$	2.05
Net income per share – diluted	$	2.07	$	2.05
Cash dividends declared per common share	$	3.00	$	3.00
Weighted average shares outstanding
Basic		4,841,130		4,835,639
Diluted		4,846,036		4,837,815

STATEMENTS OF COMPREHENSIVE INCOME
     (Unaudited)
 

	Nine Months Ended Dec. 31
	2017			2016
Net income	$	10,030,252		$	9,921,486
Unrealized loss from marketable securities, net of tax	(227,693		)	(587,068		)
Comprehensive income	$	9,802,559		$	9,334,418

 

See accompanying notes.

 
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NVE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)

 

	Nine Months Ended Dec. 31
	2017			2016
OPERATING ACTIVITIES
Net income	$	10,030,252		$	9,921,486
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		726,842			868,218
Stock-based compensation		40,920			22,000
Excess tax deficiencies		-			293
Deferred income taxes		153,954			(61,076	)
Changes in operating assets and liabilities:
Accounts receivable		1,270,936			782,427
Inventories		(238,028	)		42,755
Prepaid expenses and other assets		(360,675	)		(16,909	)
Accounts payable and accrued expenses		(159,525	)		162,906
Deferred revenue		(142,733	)		(714,805	)
Net cash provided by operating activities		11,321,943			11,007,295
INVESTING ACTIVITIES
Purchases of fixed assets		(604,755	)		(200,447	)
Purchases of marketable securities		(16,256,210	)		(11,528,240	)
Proceeds from maturities of marketable securities		16,540,000			11,400,000
Net cash used in investing activities		(320,965	)		(328,687	)
FINANCING ACTIVITIES
Proceeds from sale of common stock		51,040			92,310
Excess tax (deficiencies)		-			(293	)
Payment of dividends to shareholders		(14,523,030	)		(14,506,030	)
Net cash used in financing activities		(14,471,990	)		(14,414,013	)
Decrease in cash and cash equivalents		(3,471,012	)		(3,735,405	)
Cash and cash equivalents at beginning of period	8,199,364			7,534,593
Cash and cash equivalents at end of period	$	4,728,352		$	3,799,188
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$	4,615,019		$	4,720,000

 
 
See accompanying notes.


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NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

NOTE 1. DESCRIPTION OF BUSINESS
     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 prepared consistent with accounting principles generally accepted in the United States and in accordance 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, 2017. The results of operations for the quarter or nine months ended December 31, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2018.

NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting Pronouncements Recently Adopted
     In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory that is recorded using the first-in, first-out method to be measured at the lower of cost or net realizable value. We adopted ASU 2015-11 prospectively in the first quarter of the current fiscal year, and the adoption has not had a significant impact on our financial statements.

     In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company’s payments for tax withholdings should be classified. We adopted ASU 2016-09 prospectively in the first quarter of the fiscal year ending March 31, 2018. The adoption did not have a significant impact on our financial statements.

Future Accounting Pronouncements
     In May 2014, the FASB issued ASU No. 2014-09, which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, which will be fiscal 2019 for us. We plan to adopt the guidance retrospectively with any effect of initially applying the guidance recognized at the date of initial application. Under this approach, we would not restate prior financial statements presented. Based on an evaluation, we do not expect there to be a material impact on our financial statements, because we do not expect to change the manner or timing of recognizing revenue. We have evaluated each of our revenue streams, product sales and contract research and development. We recognize revenue on product sales to customers and distributors when we satisfy our performance obligations as the products are shipped. We recognize contract research and development revenue pro-rata as work progresses using costs incurred relative to the total expected costs as the measurement basis for progress toward completion. We are currently evaluating the impact of new disclosure requirements required under the guidance.

     Information regarding all other applicable recently issued accounting standards, on which our position have not changed since our latest annual financial statements, are contained in the financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2017.
 
 

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NOTE 4. NET INCOME PER SHARE
     Net income per basic share is computed based on the weighted-average number of common shares issued and outstanding during each period. Net income per diluted share amounts assume exercise of all stock options. Stock options totaling 4,000 for the quarter and 6,000 for the nine months ended December 31, 2016 were not included in the computation of diluted earnings per share because the exercise prices were greater than the market price of the common stock. The following tables show the components of diluted shares: 

	Quarter Ended Dec. 31
	2017	2016
Weighted average common shares outstanding – basic	4,841,369	4,836,336
Dilutive effect of stock options	5,921	3,441
Shares used in computing net income per share – diluted	4,847,290	4,839,777

	Nine Months Ended Dec. 31
	2017	2016
Weighted average common shares outstanding – basic	4,841,130	4,835,639
Dilutive effect of stock options	4,906	2,176
Shares used in computing net income per share – diluted	4,846,036	4,837,815

NOTE 5. MARKETABLE SECURITIES
     Marketable securities with remaining maturities less than one year are classified as short-term, and those with remaining maturities greater than one year are classified as long-term. The fair value of our marketable securities as of December 31, 2017, by maturity, were as follows:

Total		<1 Year		1–3 Years		3–5 Years
$	75,537,933	$	18,808,203	$	29,512,416	$	27,217,314

 
     As of December 31 and March 31, 2017, our marketable securities were as follows:
 

	As of December 31, 2017									As of March 31, 2017
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value		Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Corporate bonds	$	75,955,697	$	27,442	$	(445,206	)	$	75,537,933	$	75,158,087	$	187,001	$	(246,935	)	$	75,098,153
Municipal bonds	-		-		-			-		1,304,817		-		(214		)	1,304,603
Total	$	75,955,697	$	27,442	$	(445,206	)	$	75,537,933	$	76,462,904	$	187,001	$	(247,149	)	$	76,402,756

 
     Fifteen securities were in unrealized loss positions as of December 31, 2017. The following table shows the gross unrealized losses and fair value of our investments with unrealized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position as of December 31 and March 31, 2017:
 

		Less Than 12 Months					12 Months or Greater					Total
		Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses
As of December 31, 2017
	Corporate bonds	$	44,282,521	$	(325,912	)	$	9,224,878	$	(119,294	)	$	53,507,399	$	(445,206	)
	Municipal bonds	-		-			-		-			-		-
	Total	$	44,282,521	$	(325,912	)	$	9,224,878	$	(119,294	)	$	53,507,399	$	(445,206	)
As of March 31, 2017
	Corporate bonds	$	32,198,766	$	(246,935	)	$	-	$	-		$	32,198,766	$	(246,935	)
	Municipal bonds	1,304,603		(214		)	-		-			1,304,603		(214		)
	Total	$	33,503,369	$	(247,149	)	$	-	$	-		$	33,503,369	$	(247,149	)

     Three bonds, with a total fair market value of $9,224,878, had been in continuous unrealized loss positions for 12 months or greater as of December 31, 2017. For these securities, we also considered the severity of unrealized losses, which were less than 2% of adjusted cost for each security.
 
 

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     Because we expect to recover the cost basis of investments held, we do not consider any of our marketable securities to be impaired as of December 31, 2017.
 
NOTE 6. INVENTORIES
     Inventories are shown in the following table:

	December 31, 2017		March 31, 2017
Raw materials	$	1,044,845	$	786,775
Work in process		1,710,799		1,968,990
Finished goods	840,682		602,533
Total inventories	$	3,596,326	$	3,358,298

NOTE 7. STOCK-BASED COMPENSATION
     Stock-based compensation expense was $40,920 for the first nine months of fiscal 2018 and $22,000 for the first nine months of fiscal 2017. The stock-based compensation expenses were due to the automatic issuance to our non-employee directors of options to purchase 1,000 shares of stock on their reelection to our Board. We calculate the share-based compensation expense using the Black-Scholes standard option-pricing model. The increase in stock-based compensation expense for fiscal 2018 compared to fiscal 2017 was due to an increase in the model valuation for the same number of options to purchase shares.
 
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.

     The Act “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “Tax Reform Act”) was enacted December 22, 2017. The Tax Reform Act reduced certain Federal corporate income tax rates effective January 1, 2018 and changed certain other provisions. Effective tax rates for the quarter and nine months ended December 31, 2017 are blended rates reflecting the estimated benefit of one quarter of Federal tax rate reductions for fiscal 2018. These benefits were partially offset by a one-time $206,693 unfavorable impact of a revaluation of our deferred tax assets that increased income tax provisions for the quarter and nine months ended December 31, 2017 and reduced long-term deferred tax assets as of December 31, 2017. As a result of the Tax Reform Act, our estimated tax rate decreased from 32% to 29% for fiscal 2018.
 
     We had no unrecognized tax benefits as of December 31, 2017, and we do not expect any significant unrecognized tax benefits within 12 months of the reporting date. We recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2017 we had no accrued interest related to uncertain tax positions. The tax years 1999 and 2013 through 2016 remain open to examination by the major taxing jurisdictions to which we are subject.

NOTE 9. FAIR VALUE MEASUREMENTS
     Generally accepted accounting principles establish a framework for measuring fair value, provide a definition of fair value and prescribe required disclosures about fair-value measurements. Generally accepted accounting principles define fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Generally accepted accounting principles utilize a valuation hierarchy for disclosure of fair value measurements. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:

     Level 1 – Financial instruments with quoted prices in active markets for identical assets or liabilities. Our Level 1 financial instruments consist of publicly-traded marketable corporate debt securities, which are classified as available-for-sale. On the balance sheets, these securities are included in “Marketable securities, short term” and “Marketable securities, long term.” All of our marketable securities were Level 1 as of December 31, 2017. The fair value of these securities was $75,537,933 as of December 31, 2017 and $75,098,153 as of March 31, 2017.

     Level 2 – Financial instruments with quoted prices in active markets for similar assets or liabilities. Level 2 fair value measurements are determined using either prices for similar instruments or inputs that are either directly or indirectly observable, such as interest rates. We had no Level 2 financial instruments as of December 31, 2017. We had one Level 2 instrument, a municipal debt security with a fair value of $1,304,603, as of March 31, 2017. This security was classified as available-for-sale and included in “Marketable securities, short term” on the March 31, 2017 balance sheet.

     Level 3 – Inputs to the fair value measurement are unobservable inputs or valuation techniques. We do not have any financial assets or liabilities being measured at fair value that are classified as Level 3 financial instruments.

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NOTE 10. STOCK REPURCHASE PROGRAM
     On January 21, 2009 we announced that our Board of Directors authorized the repurchase of up to $2,500,000 of our Common Stock, and on August 27, 2015 we announced that our Board authorized $5,000,000 of additional repurchases. We did not repurchase any of our Common Stock under the program during the quarter ended December 31, 2017. The remaining authorization was $4,540,806 as of December 31, 2017. The Repurchase Program may be modified or discontinued at any time without notice.

NOTE 11. SUBSEQUENT EVENTS
     On January 17, 2018 we announced that our Board had declared a quarterly cash dividend of $1.00 per share of Common Stock to be paid February 28, 2018 to shareholders of record as of the close of business January 29, 2018.

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 future contract research and development revenue, uncertainties related to future stock repurchases and dividend payments, uncertainties related to the future impact of Federal tax reform, 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, 2017, as updated in Part II, Item 1A of this Quarterly Report 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, 2017. As of December 31, 2017 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.

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Quarter ended December 31, 2017 compared to quarter ended December 31, 2016
     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
	2017		2016
Revenue
Product sales	87.6	%	95.4	%	(9.4	)%
Contract research and development	12.4	%	4.6	%	163.8	%
Total revenue	100.0	%	100.0	%	(1.4	)%
Cost of sales	22.5	%	20.1	%	10.3	%
Gross profit	77.5	%	79.9	%	(4.3	)%
Expenses
Selling, general, and administrative	4.3	%	5.2	%	(18.5	)%
Research and development	11.6	%	11.1	%	3.1	%
Total expenses	15.9	%	16.3	%	(3.7	)%
Income from operations	61.6	%	63.6	%	(4.5	)%
Interest income	5.5	%	5.3	%	2.4	%
Income before taxes	67.1	%	68.9	%	(3.9	)%
Provision for income taxes	18.6	%	22.2	%	(17.5	)%
Net income	48.5	%	46.7	%	2.5	%

 
     Total revenue for the quarter ended December 31, 2017 (the third quarter of fiscal 2018) decreased 1% compared to the quarter ended December 31, 2016 (the third quarter of fiscal 2017). The decrease was due to a 9% decrease in product sales, partially offset by a 164% increase in contract research and development revenue.

     The decrease in product sales from the prior-year quarter was primarily due to decreased purchases by existing customers. The increase in contract research and development revenue for the third quarter of fiscal 2018 was due to new contracts.

     Gross profit margin decreased to 77% of revenue for the third quarter of fiscal 2018 compared to 80% for the third quarter of fiscal 2017 due to a less profitable revenue mix.

     Total expenses decreased 4% for the third quarter of fiscal 2018 compared to the third quarter of fiscal 2017, due to a 19% decrease in selling, general, and administrative expense, partially offset by a 3% increase in research and development expense. The decrease in selling, general, and administrative expense was due to decreased performance-based compensation and decreased legal expenses. The increase in research and development expense was due to increased new product development activities.

     Interest income for the third quarter of fiscal 2018 increased 2% due to an increase in the average interest rates on our marketable securities, partially offset by a decrease in our securities.

     Our effective tax rate was 27.7% of net income before taxes for the quarter, compared to 32.3% in the prior-year quarter. The decrease was due to the blended effect of a decrease in the Federal tax rate with the enactment of the Tax Reform Act, partially offset by a $206,693 one-time increase in our provision for income taxes from the effect of the new rate on our deferred tax assets. Although we have not yet fully assessed the impact of the Tax Reform Act on our future taxes or net income, we currently expect our effective tax rate to be approximately 29% for the quarter ending March 31, 2018. See Note 8 to the financial statements for more information on income taxes.

     The 3% increase in net income in the third quarter of fiscal 2018 compared to the prior-year quarter was primarily due to increased contract research and development revenue, decreased selling, general, and administrative expense, and a decrease in the provision for income taxes, partially offset by decreased product sales, decreased gross profit margin, and increased research and development expense.

11

Table of Contents

Nine months ended December 31, 2017 compared to nine months ended December 31, 2016
     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
	2017		2016
Revenue
Product sales	89.8	%	92.1	%	(0.3	)%
Contract research and development	10.2	%	7.9	%	32.9	%
Total revenue	100.0	%	100.0	%	2.3	%
Cost of sales	21.9	%	21.6	%	3.9	%
Gross profit	78.1	%	78.4	%	1.8	%
Expenses
Selling, general, and administrative	4.8	%	5.2	%	(5.1	)%
Research and development	12.7	%	10.9	%	18.5	%
Total expenses	17.5	%	16.1	%	10.9	%
Income from operations	60.6	%	62.3	%	(0.5	)%
Interest income	5.2	%	5.9	%	(8.7	)%
Income before taxes	65.8	%	68.2	%	(1.2	)%
Provision for income taxes	20.1	%	22.0	%	(6.1	)%
Net income	45.7	%	46.2	%	1.1	%

 
     Total revenue for the nine months ended December 31, 2017 increased 2% compared to the nine months ended December 31, 2016. The increase was due to a 33% increase in contract research and development revenue. The increase in contract research and development revenue from the prior-year period was due to new contracts.

     Total expenses increased 11% for the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017, due to a 19% increase in research and development expense, partially offset by a 5% decrease in selling, general, and administrative expense. The decrease in selling, general, and administrative expense was primarily due to decreased sales commissions. The increase in research and development expense was due to increased new product development activities.

     Interest income for the first nine months of fiscal 2018 decreased 9% due to a decrease in marketable securities.

     Our effective tax rate was 30.6% of net income before taxes for the first nine months of fiscal 2018, compared to 32.2% in the prior-year period. The decreased rate was due to a decrease in the Federal tax rate with the enactment of the Tax Reform Act, partially offset by a $206,693 one-time increase in our provision for income taxes from the effect of the new rate on our deferred tax assets. Although we have not yet fully assessed the impact of the Tax Reform Act on our future taxes or net income, we currently expect our effective tax rate to decrease to approximately 29% for the full fiscal year ending March 31, 2018, and to approximately 22% for the fiscal year ending March 31, 2019. The lower Federal tax rate is effective for one quarter of fiscal 2018 and all of fiscal 2019. See Note 8 to the financial statements for more information on income taxes.

     The 1% increase in net income in the first nine months of fiscal 2018 compared to the prior-year period was primarily due to increased contract research and development revenue and a decrease in the provision for income taxes, partially offset by increased research and development expense and decreased interest income.
 

12

Table of Contents

Liquidity and capital resources

Overview
     Cash and cash equivalents were $4,728,352 as of December 31, 2017 compared to $8,199,364 as of March 31, 2017. The $3,471,012 decrease in cash and cash equivalents during the nine months ended December 31, 2017 was due to $14,471,990 cash used in financing activities and $320,965 cash used in investing activities, partially offset by $11,321,943 in net cash provided by operating 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.

Operating Activities
     Accounts receivable as of December 31, 2017 decreased $1,270,936 compared to March 31, 2017, primarily due to the timing of sales to and payments from certain customers.

Investing Activities
     Cash used in investing activities in the nine months ended December 31, 2017 was due to $16,256,210 in purchases of marketable securities and $604,755 in purchases of fixed assets, partially offset by $16,540,000 of marketable security maturities.
 
Financing Activities
     Cash used in financing activities in the first nine months of fiscal 2018 was primarily due to $14,523,030 of cash dividends paid to shareholders. In addition to dividends paid in the first nine months of fiscal 2018, on January 17, 2018 we announced that our Board had declared a cash quarterly dividend of $1.00 per share of common stock, or $4,842,010 based on shares outstanding as of January 12, 2018, to be paid February 28, 2018. We plan to fund dividends through cash provided by operating activities and proceeds from maturities and sales of marketable securities. All future dividends will be subject to Board approval and subject to the company’s results of operations, cash and marketable security balances, estimates of future cash requirements, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
     As discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, we are exposed to financial market risks, primarily marketable securities and, to a lesser extent, changes in currency exchange rates.
 
Marketable Securities
     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 securities including 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 or loss, net of estimated tax. Our marketable securities as of December 31, 2017 had remaining maturities between 12 days and 56 months. Marketable securities had a market value of $75,537,933 as of December 31, 2017, representing approximately 85% of our total assets. We have not used derivative financial instruments in our investment portfolio.
 
 

13

Table of Contents
 
Item 4. Controls and Procedures.
Disclosure 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 that are defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “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 December 31, 2017, our disclosure controls and procedures were effective.

Changes in Internal Controls
     During the quarter ended December 31, 2017, 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.
 
 

PART II–OTHER INFORMATION

Item 1. Legal Proceedings.
     In the ordinary course of business we may become involved in litigation. At this time we are not aware of any material pending or threatened legal proceedings or other proceedings contemplated by governmental authorities that we expect would have a material adverse impact on our future results of operation and financial condition.


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, 2017, except the following risk factor is added:

The impacts of the Tax Reform Act could be materially different from our current estimates.
     The Act “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “Tax Reform Act”) was enacted December 22, 2017. The Tax Reform Act reduced Federal corporate income tax rates effective January 1, 2018 and changed certain other provisions. We expect the new law to significantly reduce our tax rate in future periods, and we expect our fourth-quarter tax provision to reflect the benefit of a Federal tax rate reduction. Our estimated impacts of the new law are based on our current knowledge and assumptions, and recognized impacts could be materially different from current estimates based on our actual results in the fourth quarter of fiscal 2018 and our further analysis of the Act.


Item 4. Mine Safety Disclosures.
     Not applicable.

 

14

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.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

     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 17, 2018	/s/ DANIEL A. BAKER
Date	Daniel A. Baker
	President and Chief Executive Officer
January 17, 2018	/s/ CURT A. REYNDERS
Date	Curt A. Reynders
	Chief Financial Officer

 
 

15

EX-31

Exhibit 31.1

CERTIFICATION

I, Daniel A. Baker, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NVE Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 17, 2018

 

/s/ DANIEL A. BAKER

Daniel A. Baker

President and Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATION

I, Curt A. Reynders, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NVE Corporation;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 17, 2018

 

/s/ CURT A. REYNDERS

Curt A. Reynders

Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)

The undersigned certify pursuant to 18 U.S.C. Section 1350, that to the undersigned’s knowledge:

1.The accompanying Quarterly Report of NVE Corporation (the “Company”) on Form 10-Q for the quarter ended December 31, 2017, 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 results of operations of the Company.

Date: January 17, 2018

/s/ DANIEL A. BAKER

Daniel A. Baker

President and Chief Executive Officer

/s/ CURT A. REYNDERS

Curt A. Reynders

Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Dec. 31, 2017	Jan. 12, 2018
Document Information [Line Items]
Entity Registrant Name	NVE CORP /NEW/
Entity Central Index Key	0000724910
Trading Symbol	nvec
Current Fiscal Year End Date	--03-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		4,842,010
Document Type	10-Q
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Balance Sheets (Current Period Unaudited) - USD ($)	Dec. 31, 2017	Mar. 31, 2017
ASSETS
Cash and cash equivalents	$ 4,728,352	$ 8,199,364
Marketable securities, short-term	18,808,203	19,591,833
Accounts receivable, net of allowance for uncollectible accounts of $15,000	2,165,866	3,436,802
Inventories	3,596,326	3,358,298
Prepaid expenses and other assets	967,958	607,283
Total current assets	30,266,705	35,193,580
Fixed assets
Machinery and equipment	9,504,983	9,007,455
Leasehold improvements	1,751,646	1,644,419
	11,256,629	10,651,874
Less accumulated depreciation and amortization	9,742,050	9,238,626
Net fixed assets	1,514,579	1,413,248
Long-term deferred tax assets	333,023	357,055
Marketable securities, long-term	56,729,730	56,810,923
Total assets	88,844,037	93,774,806
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	258,869	376,275
Accrued payroll and other	534,194	576,313
Deferred revenue		142,733
Total current liabilities	793,063	1,095,321
Shareholders’ equity
Common stock, $0.01 par value, 6,000,000 shares authorized; 4,842,010 issued and outstanding as of December 31, 2017 and 4,841,010 issued and outstanding as of March 31, 2017	48,420	48,410
Additional paid-in capital	19,599,298	19,507,348
Accumulated other comprehensive loss	(265,991)	(38,298)
Retained earnings	68,669,247	73,162,025
Total shareholders’ equity	88,050,974	92,679,485
Total liabilities and shareholders’ equity	$ 88,844,037	$ 93,774,806

XML

Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Dec. 31, 2017	Mar. 31, 2017
Allowance for uncollectible accounts	$ 15,000	$ 15,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	6,000,000	6,000,000
Common stock, shares issued (in shares)	4,842,010	4,841,010
Common stock, shares outstanding (in shares)	4,842,010	4,841,010

XML

Statements of Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Revenue
Product sales	$ 6,448,831	$ 7,116,931	$ 19,718,584	$ 19,782,529
Contract research and development	911,958	345,748	2,246,105	1,690,461
Total revenue	7,360,789	7,462,679	21,964,689	21,472,990
Cost of sales	1,657,700	1,502,848	4,809,235	4,628,840
Gross profit	5,703,089	5,959,831	17,155,454	16,844,150
Expenses
Selling, general, and administrative	313,033	384,322	1,060,757	1,117,925
Research and development	852,739	826,816	2,788,968	2,353,372
Total expenses	1,165,772	1,211,138	3,849,725	3,471,297
Income from operations	4,537,317	4,748,693	13,305,729	13,372,853
Interest income	404,665	395,207	1,154,303	1,263,924
Income before taxes	4,941,982	5,143,900	14,460,032	14,636,777
Provision for income taxes	1,370,380	1,660,156	4,429,780	4,715,291
Net income	$ 3,571,602	$ 3,483,744	$ 10,030,252	$ 9,921,486
Net income per share – basic (in dollars per share)	$ 0.74	$ 0.72	$ 2.07	$ 2.05
Net income per share – diluted (in dollars per share)	0.74	0.72	2.07	2.05
Cash dividends declared per common share (in dollars per share)	$ 1	$ 1	$ 3	$ 3
Weighted average shares outstanding
Basic (in shares)	4,841,369	4,836,336	4,841,130	4,835,639
Diluted (in shares)	4,847,290	4,839,777	4,846,036	4,837,815

XML

Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Net income	$ 3,571,602	$ 3,483,744	$ 10,030,252	$ 9,921,486
Unrealized loss from marketable securities, net of tax	(295,458)	(571,862)	(227,693)	(587,068)
Comprehensive income	$ 3,276,144	$ 2,911,882	$ 9,802,559	$ 9,334,418

XML

Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
OPERATING ACTIVITIES
Net income	$ 10,030,252	$ 9,921,486
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	726,842	868,218
Stock-based compensation	40,920	22,000
Excess tax deficiencies		293
Deferred income taxes	153,954	(61,076)
Changes in operating assets and liabilities:
Accounts receivable	1,270,936	782,427
Inventories	(238,028)	42,755
Prepaid expenses and other assets	(360,675)	(16,909)
Accounts payable and accrued expenses	(159,525)	162,906
Deferred revenue	(142,733)	(714,805)
Net cash provided by operating activities	11,321,943	11,007,295
INVESTING ACTIVITIES
Purchases of fixed assets	(604,755)	(200,447)
Purchases of marketable securities	(16,256,210)	(11,528,240)
Proceeds from maturities of marketable securities	16,540,000	11,400,000
Net cash used in investing activities	(320,965)	(328,687)
FINANCING ACTIVITIES
Proceeds from sale of common stock	51,040	92,310
Excess tax (deficiencies)		(293)
Payment of dividends to shareholders	(14,523,030)	(14,506,030)
Net cash used in financing activities	(14,471,990)	(14,414,013)
Decrease in cash and cash equivalents	(3,471,012)	(3,735,405)
Cash and cash equivalents at beginning of period	8,199,364	7,534,593
Cash and cash equivalents at end of period	4,728,352	3,799,188
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes	$ 4,615,019	$ 4,720,000

XML

Note 1 - Description of Business

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

NOTE

1.

DESCRIPTION OF BUSINESS

     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.

XML

Note 2 - Interim Financial Information

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Quarterly Financial Information [Text Block]

NOTE

2.

INTERIM FINANCIAL INFORMATION

     The accompanying unaudited financial statements of NVE Corporation are prepared consistent with accounting principles generally accepted in the United States and in accordance 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,

2017.

The results of operations for the quarter or

nine

months ended

December 

31,

2017

are

not

necessarily indicative of the results that

may

be expected for the full fiscal year ending

March 

31,

2018.

XML

Note 3 - Recently Issued Accounting Standards

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

NOTE

3.

RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting Pronouncements Recently Adopted

     In

July 2015,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

No.

2015

-

11,

Simplifying the Measurement of Inventory.

ASU

2015

-

11

requires inventory that is recorded using the

first

-in,

first

-out method to be measured at the lower of cost or net realizable value. We adopted ASU 

2015

-

11

prospectively in the

first

quarter of the current fiscal year, and the adoption has

not

had a significant impact on our financial statements.

     In

March 2016,

the FASB issued ASU

No.

2016

-

09,

Compensation—Stock Compensation

, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company’s payments for tax withholdings should be classified. We adopted ASU 

2016

-

09

prospectively in the

first

quarter of the fiscal year ending

March 31, 2018.

The adoption did

not

have a significant impact on our financial statements.

Future Accounting Pronouncements

     In

May 2014,

the FASB issued ASU 

No.

2014

-

09,

which supersedes the revenue recognition requirements in Accounting Standards Codification

605,

Revenue Recognition

. ASU 

2014

-

09

is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The guidance permits

two

methods of adoption: retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. In

August 

2015,

the FASB issued ASU

No.

 

2015

-

14,

Revenue from Contracts with Customers: Deferral of the Effective Date

, which deferred the effective date of ASU 

2014

-

09

by

one

year. As a result, ASU 

2014

-

09

is effective for fiscal years beginning after

December 

15,

2017

and interim periods within those fiscal years, which will be fiscal

2019

for us. We plan to adopt the guidance retrospectively with any effect of initially applying the guidance recognized at the date of initial application. Under this approach, we would

not

restate prior financial statements presented. Based on an evaluation, we do

not

expect there to be a material impact on our financial statements, because we do

not

expect to change the manner or timing of recognizing revenue. We have evaluated each of our revenue streams, product sales and contract research and development. We recognize revenue on product sales to customers and distributors when we satisfy our performance obligations as the products are shipped. We recognize contract research and development revenue pro-rata as work progresses using costs incurred relative to the total expected costs as the measurement basis for progress toward completion. We are currently evaluating the impact of new disclosure requirements required under the guidance.

     Information regarding all other applicable recently issued accounting standards, on which our position have

not

changed since our latest annual financial statements, are contained in the financial statements included in our Annual Report on Form

10

-K for the year ended

March 31, 2017.

XML

Note 4 - Net Income Per Share

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

4.

NET INCOME PER SHARE

     Net income per basic share is computed based on the weighted-average number of common shares issued and outstanding during each period. Net income per diluted share amounts assume exercise of all stock options. Stock options totaling

4,000

for the quarter and

6,000

for the

nine

months ended

December 

31,

2016

were

not

included in the computation of diluted earnings per share because the exercise prices were greater than the market price of the common stock. The following tables show the components of diluted shares: 

	Quarter Ended Dec. 31
	2017		2016
Weighted average common shares outstanding – basic		4,841,369		4,836,336
Dilutive effect of stock options		5,921		3,441
Shares used in computing net income per share – diluted		4,847,290		4,839,777

	Nine Months Ended Dec. 31
	2017		2016
Weighted average common shares outstanding – basic		4,841,130		4,835,639
Dilutive effect of stock options		4,906		2,176
Shares used in computing net income per share – diluted		4,846,036		4,837,815

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Note 5 - Marketable Securities

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE

5.

MARKETABLE SECURITIES

     Marketable securities with remaining maturities less than

one

year are classified as short-term, and those with remaining maturities greater than

one

year are classified as long-term. The fair value of our marketable securities as of

December 

31,

2017,

by maturity, were as follows:

Total		<1 Year		1 –3 Years		3 –5 Years
$	75,537,933	$	18,808,203	$	29,512,416	$	27,217,314

 

     As of

December 

31

and

March 

31,

2017,

our marketable securities were as follows:
 

	As of December 31, 2017									As of March 31, 2017
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value		Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Corporate bonds	$	75,955,697	$	27,442	$	(445,206	)	$	75,537,933	$	75,158,087	$	187,001	$	(246,935	)	$	75,098,153
Municipal bonds		-		-		-			-		1,304,817		-		(214	)		1,304,603
Total	$	75,955,697	$	27,442	$	(445,206	)	$	75,537,933	$	76,462,904	$	187,001	$	(247,149	)	$	76,402,756

 

     Fifteen securities were in unrealized loss positions as of

December 

31,

2017.

The following table shows the gross unrealized losses and fair value of our investments with unrealized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position as of

December 

31

and

March 

31,

2017:

 

	Less Than 12 Months					12 Months or Greater					Total
	Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses
As of December 31, 2017
Corporate bonds	$	44,282,521	$	(325,912	)	$	9,224,878	$	(119,294	)	$	53,507,399	$	(445,206	)
Municipal bonds		-		-			-		-			-		-
Total	$	44,282,521	$	(325,912	)	$	9,224,878	$	(119,294	)	$	53,507,399	$	(445,206	)
As of March 31, 2017
Corporate bonds	$	32,198,766	$	(246,935	)	$	-	$	-		$	32,198,766	$	(246,935	)
Municipal bonds		1,304,603		(214	)		-		-			1,304,603		(214	)
Total	$	33,503,369	$	(247,149	)	$	-	$	-		$	33,503,369	$	(247,149	)

     Three bonds, with a total fair market value of

$9,224,878

,

had been in continuous unrealized loss positions for

12

 months or greater as of

December 

31,

2017.

For these securities, we also considered the severity of unrealized losses, which were less than

2%

of adjusted cost for each security.

     Because we expect to recover the cost basis of investments held, we do

not

consider any of our marketable securities to be impaired as of

December 

31,

2017.

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Note 6 - Inventories

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE

6.

INVENTORIES

     Inventories are shown in the following table:

	December 31, 2017		March 31, 2017
Raw materials	$	1,044,845	$	786,775
Work in process		1,710,799		1,968,990
Finished goods		840,682		602,533
Total inventories	$	3,596,326	$	3,358,298

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Note 7 - Stock-based Compensation

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE

7.

STOCK-BASED COMPENSATION

     Stock-based compensation expense was

$40,920

for the fir

st

nine

months of fiscal

2018

and

$22,000

for the

first

nine

months of fiscal

2017.

The stock-based compensation expenses were due to the automatic issuance to our non-employee directors of options to purchase

1,000

shares of stock on their reelection to our Board. We calculate the share-based compensation expense using the Black-Scholes standard option-pricing model. The increase in stock-based compensation expense for fiscal

2018

compared to fiscal

2017

was due to an increase in the model valuation for the same number of options to purchase shares.

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Note 8 - Income Taxes

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

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.

 

     The Act “To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year

2018”

(the “Tax Reform Act”) was enacted

December

 

22,

2017.

The Tax Reform Act reduced certain Federal corporate income tax rates effective

January 1, 2018

and changed certain other provisions. Effective tax rates for the quarter and

nine

months ended

December 

31,

2017

are blended rates reflecting the estimated benefit of

one

quarter of Federal tax rate reductions for fiscal

2018.

These benefits were partially offset by a

one

-time

$206,693

unfavorable impact of a revaluation of our deferred tax assets that increased income tax provisions for the quarter and

nine

months ended

December 31, 2017

and reduced long-term deferred tax assets as of

December 31, 2017.

As a result of the Tax Reform Act, our estimated tax rate decreased from

32%

to

29%

for fiscal

2018.

     We had

no

unrecognized tax benefits as of

December 

31,

2017,

and we do

not

expect any significant unrecognized tax benefits within

12

 months of the reporting date. We recognize interest and penalties related to income tax matters in income tax expense. As of

December 

31,

2017

we had

no

accrued interest related to uncertain tax positions. The tax years

1999

and

2013

through

2016

remain open to examination by the major taxing jurisdictions to which we are subject.

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Note 9 - Fair Value Measurements

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE

9.

FAIR VALUE MEASUREMENTS

     Generally accepted accounting principles establish a framework for measuring fair value, provide a definition of fair value and prescribe required disclosures about fair-value measurements. Generally accepted accounting principles define fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Generally accepted accounting principles utilize a valuation hierarchy for disclosure of fair value measurements. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:

     Level

1

– Financial instruments with quoted prices in active markets for identical assets or liabilities. Our Level 

1

financial instruments consist of publicly-traded marketable corporate debt securities, which are classified as available-for-sale. On the balance sheets, these securities are included in “Marketable securities, short term” and “Marketable securities, long term.” All of our marketable securities were Level 

1

as of

December 

31,

2017.

The fair value of these securities was

$75,537,933

as of

December 

31,

2017

and

$75,098,153

as of

March 

31,

2017.

     Level

2

– Financial instruments with quoted prices in active markets for similar assets or liabilities. Level 

2

fair value measurements are determined using either prices for similar instruments or inputs that are either directly or indirectly observable, such as interest rates. We had

no

Level 

2

financial instruments as of

December 

31,

2017.

We had

one

Level 

2

instrument, a municipal debt security with a fair value of

$1,304,603,

as of

March 

31,

2017.

This security was classified as available-for-sale and included in “Marketable securities, short term” on the

March 

31,

2017

balance sheet.

     Level

3

– Inputs to the fair value measurement are unobservable inputs or valuation techniques. We do

not

have any financial assets or liabilities being measured at fair value that are classified as Level 

3

financial instruments.

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Note 10 - Stock Repurchase Program

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Stock Repurchase Plan Disclosure [Text Block]

NOTE

10.

STOCK REPURCHASE PROGRAM

     On

January 

21,

2009

we announced that our Board of Directors authorized the repurchase of up to

$2,500,000

of our Common Stock, and on

August 

27,

2015

we announced that our Board authorized

$5,000,000

of additional repurchases. We did

not

repurchase any of our Common Stock under the program during the quarter ended

December 

31,

2017.

The remaining authorization was

$4,540,806

as of

December 

31,

2017.

The Repurchase Program

may

be modified or discontinued at any time without notice.

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Note 11 - Subsequent Events

9 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Subsequent Events [Text Block]

NOTE

11.

SUBSEQUENT EVENTS

     On

January 

17,

2018

we announced that our Board had declared a quarterly cash dividend of

$1.00

per share of Common Stock to be paid

February 

28,

2018

to shareholders of record as of the close of business

January 

29,

2018

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Note 4 - Net Income Per Share (Tables)

9 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Weighted Average Number of Shares [Table Text Block]

	Quarter Ended Dec. 31
	2017		2016
Weighted average common shares outstanding – basic		4,841,369		4,836,336
Dilutive effect of stock options		5,921		3,441
Shares used in computing net income per share – diluted		4,847,290		4,839,777

	Nine Months Ended Dec. 31
	2017		2016
Weighted average common shares outstanding – basic		4,841,130		4,835,639
Dilutive effect of stock options		4,906		2,176
Shares used in computing net income per share – diluted		4,846,036		4,837,815

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Note 5 - Marketable Securities (Tables)

9 Months Ended

Dec. 31, 2017

Notes Tables

Marketable Securities [Table Text Block]

Total		<1 Year		1 –3 Years		3 –5 Years
$	75,537,933	$	18,808,203	$	29,512,416	$	27,217,314

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	As of December 31, 2017									As of March 31, 2017
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value		Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Corporate bonds	$	75,955,697	$	27,442	$	(445,206	)	$	75,537,933	$	75,158,087	$	187,001	$	(246,935	)	$	75,098,153
Municipal bonds		-		-		-			-		1,304,817		-		(214	)		1,304,603
Total	$	75,955,697	$	27,442	$	(445,206	)	$	75,537,933	$	76,462,904	$	187,001	$	(247,149	)	$	76,402,756

Schedule of Unrealized Loss on Investments [Table Text Block]

	Less Than 12 Months					12 Months or Greater					Total
	Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses
As of December 31, 2017
Corporate bonds	$	44,282,521	$	(325,912	)	$	9,224,878	$	(119,294	)	$	53,507,399	$	(445,206	)
Municipal bonds		-		-			-		-			-		-
Total	$	44,282,521	$	(325,912	)	$	9,224,878	$	(119,294	)	$	53,507,399	$	(445,206	)
As of March 31, 2017
Corporate bonds	$	32,198,766	$	(246,935	)	$	-	$	-		$	32,198,766	$	(246,935	)
Municipal bonds		1,304,603		(214	)		-		-			1,304,603		(214	)
Total	$	33,503,369	$	(247,149	)	$	-	$	-		$	33,503,369	$	(247,149	)

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Note 6 - Inventories (Tables)

9 Months Ended

Dec. 31, 2017

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	December 31, 2017		March 31, 2017
Raw materials	$	1,044,845	$	786,775
Work in process		1,710,799		1,968,990
Finished goods		840,682		602,533
Total inventories	$	3,596,326	$	3,358,298

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Note 4 - Net Income Per Share (Details Textual) - shares	3 Months Ended	9 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	4,000	6,000

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Note 4 - Net Income Per Share - Components of Common Shares Outstanding (Details) - shares	3 Months Ended		9 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Weighted average common shares outstanding – basic (in shares)	4,841,369	4,836,336	4,841,130	4,835,639
Dilutive effect of stock options (in shares)	5,921	3,441	4,906	2,176
Shares used in computing net income per share – diluted (in shares)	4,847,290	4,839,777	4,846,036	4,837,815

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Note 5 - Marketable Securities (Details Textual)	Dec. 31, 2017 USD ($)	Mar. 31, 2017 USD ($)
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	$ 9,224,878
Number of Other-than-temporarily Impaired Marketable Securities	0
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	9,224,878
Corporate Bond Securities [Member]
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	$ 9,224,878
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year	2

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Note 5 - Marketable Securities - Fair Value of Marketable Securities by Maturity (Details) - USD ($)	Dec. 31, 2017	Mar. 31, 2017
Total	$ 75,537,933	$ 76,402,756
Less than 1 year	18,808,203
1-3 years	29,512,416
3-5 years	$ 27,217,314

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Note 5 - Marketable Securities - Reconciliation of Marketable Securities (Details) - USD ($)	Dec. 31, 2017	Mar. 31, 2017
Adjusted Cost	$ 75,955,697	$ 76,462,904
Gross Unrealized Gains	27,442	187,001
Gross Unrealized Losses	(445,206)	(247,149)
Fair Market Value	75,537,933	76,402,756
Corporate Bond Securities [Member]
Adjusted Cost	75,955,697	75,158,087
Gross Unrealized Gains	27,442	187,001
Gross Unrealized Losses	(445,206)	(246,935)
Fair Market Value	75,537,933	75,098,153
Municipal Bonds [Member]
Adjusted Cost		1,304,817
Gross Unrealized Gains
Gross Unrealized Losses		(214)
Fair Market Value		$ 1,304,603

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Note 5 - Marketable Securities - Securities in a Continuous Loss Position (Details) - USD ($)	9 Months Ended	12 Months Ended
	Dec. 31, 2017	Mar. 31, 2017
Fair market value, less than 12 months	$ 44,282,521	$ 33,503,369
Gross unrealized losses, less than 12 months	(325,912)	(247,149)
Fair market value, greater than 12 months	9,224,878
Gross unrealized losses, greater than 12 months	(119,294)
Total fair market value	53,507,399	33,503,369
Total gross unrealized losses	(445,206)	(247,149)
Corporate Bond Securities [Member]
Fair market value, less than 12 months	44,282,521	32,198,766
Gross unrealized losses, less than 12 months	(325,912)	(246,935)
Fair market value, greater than 12 months	9,224,878
Gross unrealized losses, greater than 12 months	(119,294)
Total fair market value	53,507,399	32,198,766
Total gross unrealized losses	(445,206)	(246,935)
Municipal Bonds [Member]
Fair market value, less than 12 months		1,304,603
Gross unrealized losses, less than 12 months		(214)
Fair market value, greater than 12 months
Gross unrealized losses, greater than 12 months
Total fair market value		1,304,603
Total gross unrealized losses		$ (214)

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Note 6 - Inventories - Summary of Inventories (Details) - USD ($)	Dec. 31, 2017	Mar. 31, 2017
Raw materials	$ 1,044,845	$ 786,775
Work in process	1,710,799	1,968,990
Finished goods	840,682	602,533
Total inventories	$ 3,596,326	$ 3,358,298

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Note 7 - Stock-based Compensation (Details Textual) - USD ($)	9 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Allocated Share-based Compensation Expense	$ 40,920	$ 22,000
Non-employee Director Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	1,000

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Note 8 - Income Taxes (Details Textual) - USD ($)	9 Months Ended	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2018
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability	$ 206,693
Effective Income Tax Rate Reconciliation, Percent	32.00%
Unrecognized Tax Benefits	$ 0
Significant Change in Unrecognized Tax Benefits is Reasonably Possible, Amount of Unrecorded Benefit	0
Unrecognized Tax Benefits, Interest on Income Taxes Accrued	$ 0
Open Tax Year	1999
Earliest Tax Year [Member]
Open Tax Year	2013
Latest Tax Year [Member]
Open Tax Year	2016
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, Percent		29.00%

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Note 9 - Fair Value Measurements (Details Textual) - USD ($)	Dec. 31, 2017	Mar. 31, 2017
Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	$ 75,537,933	$ 75,098,153
Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities	0	$ 1,304,603
Fair Value, Inputs, Level 3 [Member]
Financial and Nonfinancial Liabilities, Fair Value Disclosure	0
Assets, Fair Value Disclosure	$ 0

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Note 10 - Stock Repurchase Program (Details Textual) - USD ($)	3 Months Ended
	Dec. 31, 2017	Aug. 27, 2015	Jan. 21, 2009
Stock Repurchase Program, Authorized Amount			$ 2,500,000
Stock Repurchase Program Authorized Additional Amount		$ 5,000,000
Stock Repurchased and Retired During Period, Value	$ 0
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 4,540,806

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Note 11 - Subsequent Events (Details Textual) - $ / shares		3 Months Ended		9 Months Ended
	Jan. 17, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2017	Dec. 31, 2016
Common Stock, Dividends, Per Share, Declared		$ 1	$ 1	$ 3	$ 3
Subsequent Event [Member]
Common Stock, Dividends, Per Share, Declared	$ 1
Dividends Payable, Date to be Paid	Feb. 28, 2018
Dividends Payable, Date of Record	Jan. 29, 2018