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 risks related to our reliance on several large customers for a significant percentage of revenue, uncertainties related to the economic environments in the industries we serve, uncertainties related to future sales and revenues, risks related to the COVID-19 pandemic, risks and uncertainties related to future stock repurchases and dividend payments, 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, 2020.

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.

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, 2020. As of June 30, 2020 our critical accounting policies and estimates continued to include investment valuation, inventory valuation, and deferred tax assets estimation.


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Quarter ended June 30, 2020 compared to quarter ended June 30, 2019

The table shown below summarizes the percentage of revenue and quarter-to-quarter changes for various items:



                                         Percentage of Revenue        Quarter-
                                         Quarter Ended June 30       to-Quarter
                                                                       Change
                                         2020                2019
Revenue
Product sales                             95.0 %             96.7 %     (28.4 )%

Contract research and development          5.0 %              3.3 %      10.2 %

Total revenue                            100.0 %            100.0 %     (27.1 )%
Cost of sales                             18.2 %             17.3 %     (23.4 )%
Gross profit                              81.8 %             82.7 %     (27.9 )%
Expenses
Research and development                  19.2 %             15.5 %      (9.5 )%

Selling, general, and administrative       7.7 %              5.2 %       7.6 %

Total expenses                            26.9 %             20.7 %      (5.1 )%
Income from operations                    54.9 %             62.0 %     (35.5 )%
Interest income                            8.7 %              7.2 %     (13.0 )%
Income before taxes                       63.6 %             69.2 %     (33.1 )%
Provision for income taxes                11.0 %             11.9 %     (32.9 )%
Net income                                52.6 %             57.3 %     (33.1 )%

Total revenue for the quarter ended June 30, 2020 (the first quarter of fiscal 2021) decreased 27% compared to the quarter ended June 30, 2019 (the first quarter of fiscal 2020). The decrease was due to a 28% decrease in product sales partially offset by a 10% 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 the first quarter of fiscal 2021 was due to the timing of progress towards contract completion.

Total expenses decreased 5% in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 due to a 9% decrease in research and development expense, partially offset by a 8% increase in selling, general, and administrative expense. The decrease in research and development expense was primarily due to staffing changes and the completion of certain product development activities. The increase in selling, general, and administrative expense was primarily due to staffing changes.

Interest income for the first quarter of fiscal 2021 decreased 13% due to a decrease in the average interest rates on our marketable securities and money market funds.

The 33% decrease in net income in the first quarter of fiscal 2021 compared to the prior-year quarter was primarily due to a decrease in product sales.

The Impact of the COVID-19 Pandemic

We believe the COVID-19 pandemic had a significant impact on total revenue and net income for the quarter ended June 30, 2020 compared to the prior-year quarter due to its effects on market conditions in certain industries, especially medical devices. Total revenue and net income will likely continue to decrease for future quarters compared to prior-year quarters due to the effects of the COVID-19 pandemic.


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Liquidity and Capital Resources
Overview

Cash and cash equivalents were $6,402,983 as of June 30, 2020 compared to $8,065,594 as of March 31, 2020. The $1,662,611 decrease in cash and cash equivalents was due to $4,835,038 of cash used in financing activities consisting of cash dividends paid to shareholders, partially offset by $3,172,427 in net cash provided by operating activities.

Investing Activities

We had no maturities or purchases of debt securities and no capital expenditures during the quarter ended June 30, 2020. Capital expenditures can vary from quarter to quarter depending on our needs and equipment purchasing opportunities.

Financing Activities

In addition to cash dividends to shareholders paid in fiscal 2021, on July 22, 2020 we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,835,038 based on shares outstanding as of July 17, 2020, to be paid August 31, 2020. We plan to fund dividends through cash provided by operating activities and proceeds from maturities 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, the impacts of the COVID-19 pandemic, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.

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

Off-Balance-Sheet Arrangements

Our off-balance sheet arrangements consist of purchase commitments. We believe such arrangements have no material current or anticipated future effect on our profitability, cash flows, or financial position.


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