UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2002
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act.
NVE Corporation
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(Exact name of registrant as specified in its charter)
Minnesota
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(State or other jurisdiction of incorporation)
000-12196 41-1424202
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Commission File Number I.R.S. Employer
Identification number
11409 Valley View Road, Eden Prairie, Minnesota 55344
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (952) 829-9217
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $.01 Par Value - 20,785,549 shares outstanding as
of July 25, 2002.
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEET
JUNE 30, 2002
ASSETS
Current assets:
Cash $ 873,688
Investment securities 5,283,731
Accounts receivable 1,129,385
Inventories 514,796
Prepaid expenses and other assets 120,922
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Total current assets 7,922,522
Fixed assets:
Machinery and equipment 2,376,796
Furniture and fixtures 35,499
Leasehold improvements 356,833
Construction in progress 70,411
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2,839,539
Less accumulated depreciation 1,592,465
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Total fixed assets 1,247,074
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Total assets $9,169,596
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 311,470
Accrued payroll and other 367,915
Deferred revenue 1,193,273
Current portion of capital lease obligations 144,898
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Total current liabilities 2,017,556
Capital lease obligations, less current portion 340,038
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Total liabilities 2,357,594
Shareholders' equity:
Common stock 207,855
Additional paid-in capital 11,943,158
Accumulated other comprehensive income 23,098
Accumulated deficit (5,362,109)
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Total shareholders' equity 6,812,002
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Total liabilities and shareholders' equity $9,169,596
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SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30:
2002 2001
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Revenue
Contract research and development $1,535,851 $1,112,596
Product sales 529,188 369,045
License revenue 97,917 181,249
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Total revenue 2,162,956 1,662,890
Cost of sales 1,340,146 1,202,081
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Gross profit 822,810 460,809
Expenses
Research and development 328,602 277,073
Selling, general & administrative 446,999 359,956
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Total expenses 775,601 637,029
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Income (loss) from operations 47,209 (176,220)
Interest income 40,250 10,376
Other income 4,770 71,308
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Net income (loss) 92,229 (94,536)
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Net income (loss) per
basic and diluted share - (.01)
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Weighted average shares outstanding:
Basic 20,192,362 16,945,607
Diluted 21,711,367 16,945,607
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30:
2002 2001
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OPERATING ACTIVITIES
Net income (loss) $ 92,229 $ (94,536)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 106,551 65,219
Changes in operating assets and liabilities:
Accounts receivable 131,788 138,022
Inventories (2,581) 1,423
Prepaid expenses and other (61,717) (19,009)
Accounts payable and accrued expenses (136,097) (110,475)
Deferred revenue (372,034) (336,585)
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Net cash used in operating activities (241,861) (355,941)
INVESTING ACTIVITIES
Purchases of fixed assets (128,020) (466,831)
Purchase of investment securities (5,260,633) -
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Net cash used in investing activities (5,388,653) (466,831)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 6,219,867 80,001
Repayment of note payable and capital lease obligations (252,923) (13,491)
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Net cash provided by financing activities 5,966,944 66,510
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Increase (decrease) in cash 336,430 (756,262)
Cash at beginning of period 537,258 1,492,080
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Cash at end of period $ 873,688 $ 735,818
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SEE ACCOMPANYING NOTES.
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 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 the Company believes 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 the Company's latest
annual financial statements included in its report on Form 10-KSB. The results
of operations for the three month period ended June 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 utilize 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 the Company has
completed its obligations under the terms of the agreements. Revenue from
royalties is recognized upon the shipment of product from the Company's
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
The Company calculates its 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
The Company has 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
The Company classifies and accounts 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. Technology exchange agreement
On April 19, 2002 the Company closed a technology exchange agreement
accompanied by an investment by Cypress Semiconductor Corporation ("Cypress").
Cypress purchased 3.433 million shares of NVE Common Stock for $6.228 million.
Cypress also received a warrant for the purchase of up to an additional two
million shares of Common Stock for $3.00 per share for a term of three years.
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.
Three months ended June 30, 2002 compared to three months ended June 30, 2001
The table shown below summarizes the percentage of revenues for the various
items for the periods indicated:
Three Months Ended June 30,
2002 2001
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Revenue:
Research and development 71.0 % 66.9 %
Product sales 24.5 22.2
License fees 4.5 10.9
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Total revenues 100.0 100.0
Cost of sales 62.0 72.3
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Gross profit 38.0 27.7
Total expenses 33.8 33.4
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Net income (loss) 4.2 % (5.7)%
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Revenue for the three months ended June 30, 2002 were $2,162,956,
an increase of 30% from revenue of $1,662,890 for the three months ended
June 30, 2001. The increase was due primarily to a 43% increase in commercial
product sales from $369,045 to $529,188. Contract research revenue increased
38%, from $1,112,596 to $1,535,851 due to increased government contract revenue
and new revenue recognized under an agreement with Agilent Technologies, Inc.
("Agilent"). Increases in product revenue and contract research were partially
offset by a decrease in license revenue from $181,249 to $97,917.
Gross profit increased to 38% for the three months ended June 30, 2002 as
compared to 27% for the three months ended June 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 increased 19% to $328,602 for the
quarter ended June 30, 2002 as compared to $277,073 in the prior year's
quarter. The increase was due to a greater emphasis on commercial product
development.
Selling, general and administrative expenses for the quarter ended
June 30, 2002 increased by 24% to $446,999 compared to $359,956 in the
prior year. The increase was primarily due to higher expenses associated with
commercial selling activities and additional expenses associated with the
Cypress technology exchange.
We reported net income of $92,229 for the quarter ended June 30,
2002 compared to a net loss of $94,536 for the quarter ended June 30, 2001. The
profit was due to a change from operational losses to profits, and higher
interest income on the Company's increased investments.
Liquidity and capital resources
Net proceeds of $6,213,719 from the sale of common stock to Cypress
Semiconductor Corporation in April 2002 were used primarily to retire debt and
invest in available-for-sale securities. At June 30, 2002, the Company had
$5,283,731 in available-for-sale securities, consisting of marketable fixed-
income investments. We had cash on June 30, 2002 of $873,688 and working
capital of $5,904,996. We believe our working capital is adequate for our
current needs.
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 the Company has
completed its obligations under the terms of the agreements. Revenue from
royalties is recognized upon the shipment of product from the Company's
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
The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Inventory
The Company reduces the stated value of its inventory for obsolescence or
impairment 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 the Company's net deferred tax
assets, the Company 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. Management evaluates the realizability of
the deferred assets quarterly and assesses the need for valuation allowances or
reduction of existing allowances quarterly.
PART II--OTHER INFORMATION
Item 2. Changes in Securities.
On April 12, 2002, we sold 3.433 million shares of unregistered Common
Stock to Cypress Semiconductor Corporation. Net proceeds from the sale were
$6,213,719, net of expenses. As part of the sale, Cypress was also granted a
warrant to purchase up to an additional two million shares of Common Stock at
a price of $3.00 per share for a term of three years. The sale was under Rule
506 of Regulation D promulgated under Section 4(2) of the Securities Act of
1933, as amended.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
10.1 Stock Purchase Agreement dated April 12, 2002 with Cypress
Semiconductor Corporation.
10.2 Cypress Semiconductor Corporation Common Stock Purchase
Warrant dated April 12, 2002.
10.3 License Agreement dated April 12, 2002 with Cypress
Semiconductor Corporation
(confidential treatment has been requested with respect to
portions of this exhibit, and such confidential portions have
been deleted and separately filed with the Securities and
Exchange Commission pursuant to Rule24b-2 or Rule 406).
b. Reports on Form 8-K
None.
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
Dated: July 31, 2002 By /s/ Daniel A. Baker
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Daniel A. Baker
President and Chief Executive Officer
By /s/ Richard George
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Richard George
Chief Financial Officer