NVE CORP /NEW/ (NVEC)

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 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 and uncertainties related to tariffs, customs, duties, and other trade barriers, 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 is contained in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2026.

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 fiscal year ended March 31, 2026. As of June 30, 2026, our critical accounting policies and estimates continued to include marketable securities valuation, inventory valuation, and deferred tax estimation.

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Quarter ended June 30, 2026, compared to quarter ended June 30, 2025

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

Total revenue for the quarter ended June 30, 2026 (the first quarter of fiscal 2027) increased 81% compared to the quarter ended June 30, 2025 (the first quarter of fiscal 2026). The increase was due to an 82% increase in product sales and a 53% increase in contract research and development revenue. The increase in product sales was due to increases in both defense and non-defense sales, as well as increases in sales through both direct and distributor channels. The increase in contract research and development revenue was due to progress on existing contracts.

Total operating expenses increased 50% for the first quarter of fiscal 2027 compared to the first quarter of fiscal 2026, due to a 31% increase in research and development expense and an 81% increase in selling, general, and administrative expense. The increase in research and development expense was due to increased staffing and new product development activities. The increase in selling, general, and administrative expenses was primarily due to increased performance-based compensation.

Interest income decreased 10% due to a decrease in our marketable securities portfolio as proceeds from bond maturities partially funded dividends and fixed asset purchases in the prior fiscal year.

The 79% increase in net income in the first quarter of fiscal 2027 compared to the prior-year quarter was primarily due to increased revenue, partially offset by increased operating expenses and decreased interest income.

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Liquidity and Capital Resources

Overview

Cash and cash equivalents were $2,896,148 as of June 30, 2026, compared to $1,714,040 as of March 31, 2026. The $1,182,108 increase in cash and cash equivalents during the first quarter of fiscal 2027 was due to $5,306,318 of net cash provided by operating activities and $712,956 of net cash provided by investing activities, partially offset by $4,837,166 of cash used in financing activities.

Operating Activities

Net cash provided by operating activities related to product sales and research and development contract revenue was our primary source of working capital for the current and prior-year quarters.

Accounts receivable increased $3,136,772 during the first quarter of fiscal 2027 primarily due to increased sales and timing of customer payments. Inventories decreased $409,594 primarily due to increased sales. Prepaid expenses and other assets decreased $1,174,494 as the accrual for fiscal 2027 federal and state taxes offset prior-year’s estimated taxes overpayment.

Investing Activities

Cash provided by investing activities during the quarter ended June 30, 2026, consisted $5,000,000 in proceeds from maturities of marketable securities, partially offset by $4,230,211 of marketable securities purchases and $56,833 of fixed asset purchases. We currently expect fixed asset purchases in the fiscal year ending March 31, 2027, to be significantly less than for the year ended March 31, 2026 with the completion of our expansion in the past fiscal year.

Financing Activities

Cash used in financing activities during the quarter ended June 30, 2026, consisted of $4,837,166 of cash dividends paid to shareholders.

In addition to cash dividends to shareholders paid in the first quarter of fiscal 2027, on July 22, 2026, we announced that our Board of Directors had declared a cash dividend of $1.00 per share of Common Stock, or $4,837,166 based on shares outstanding as of June 30, 2026, to be paid on August 31, 2026.

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, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read this discussion together with our Financial Statements and Notes included elsewhere in this Report. In addition to historical information, the following discussion contains forward-looking information that involves risks and uncertainties. Our actual future results could differ materially from those presently anticipated due to a variety of factors, including those discussed in Item 1A of this Report.

General

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. We manufacture high-performance spintronic products including sensors and couplers to revolutionize data sensing and transmission. We also receive contracts for research and development and are a licensor of spintronic magnetoresistive random access memory technology, commonly known as MRAM.

Application of Critical Accounting Policies and Estimates

In accordance with SEC guidance, those material accounting policies that we believe are the most critical to an investor’s understanding of our financial results and condition and require complex management judgment are discussed below.

Marketable Securities

Marketable securities consist of debt investments and are recorded at their estimated fair value. Debt securities are considered available for sale. Unrealized holding gains and losses on available-for-sale debt securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive income until realized. The costs of available-for-sale debt marketable securities are determined by specific identification for purposes of computing unrealized and realized gains and losses.

Available-for-sale debt marketable securities are classified as short-term or long-term on the balance sheet based on their maturity date or expectations regarding future sales. We evaluated the available-for-sale debt securities for impairment and available-for-sale debt securities in loss position for greater than twelve months during fiscal 2026 and 2025.

We monitor our debt marketable securities to determine whether a loss exists related to the credit quality of the issuer. If the present value of the cash flows expected to be collected from the security is less than the amortized cost basis of the security, then a credit loss exists and an allowance against the security for credit losses is recorded. The allowance is limited to the amount by which fair value is below amortized cost, recognizing that the investment could be sold at fair value. Credit losses continue to be remeasured in subsequent reporting periods. Credit losses and recoveries related to debt securities are included in other income (expenses) in the income statement. When developing an estimate of expected credit losses, we consider all relevant information including, historical experience, current conditions and reasonable forecast of expected future cash flows. There were no credit losses and recoveries during fiscal 2026 or 2025.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first in, first out method. Where there is evidence that inventory could be disposed of at less than carrying value, the inventory is written down to the net realizable value in the current period. Additionally, we periodically examine our inventory in the context of inventory turnover, sales trends, competition, and other market factors, and we record provisions to inventory reserve when we determine certain inventory is unlikely to be sold. If reserved inventory is subsequently sold, corresponding reductions in inventory and inventory reserves are made. Our inventory reserve was $215,000 as of March 31, 2026 and March 31, 2025.

Deferred Tax Estimation

In determining the carrying value of our net deferred tax assets, we must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions to realize the benefit of these assets. We evaluate the realizability of the deferred assets quarterly and assess the need for valuation allowances or reduction of existing allowances quarterly. No valuation allowance was recorded as we believe it is more likely than not that all of the deferred tax assets will be realized.

We had net deferred tax liabilities of $248,284 as of March 31, 2026 and net deferred tax assets of $1,867,069 as of March 31, 2025. Net deferred tax liabilities as of March 31, 2026 include $139,228 for stock-based compensation deductions and net deferred tax assets as of March 31, 2025 include $118,810 for stock-based compensation deductions.

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Results of Operations

The following table summarizes the percentage of revenue and year-to-year changes for various items for the last two fiscal years:

Total revenue for fiscal 2026 increased 1.8% compared to fiscal 2025 due to a 2.4% increase in product sales, partially offset by an 11% decrease in contract research and development revenue. The increase in product sales was primarily due to price increases and increased purchases by existing customers. The decrease in contract research and development revenue was due to the completion of certain research and development contracts.

Gross profit was 79% of revenue for fiscal 2026 compared to 84% for fiscal 2025. The decrease in gross margin percentage was due to a less profitable product mix and increased distributor sales. Distributor sales typically have lower gross margin than direct sales.

Total expenses decreased 15% for fiscal 2026 compared to fiscal 2025 due a 13% decrease in research and development expense and an 18% decrease in selling, general, and administrative expense. The decrease in research and development expense was due to the completion of some of our wafer-level chip scale packaging activities and reassignment of some research and development resources to manufacturing. The decrease in selling, general, and administrative expenses was primarily due to reassignment of some selling, general and administrative resources to manufacturing and new product development.

Other income decreased by $131,465 for fiscal 2026 compared to fiscal 2025. Other income in fiscal 2025 was primarily from reclaiming precious metals used in our manufacturing process in the prior year.

Our effective tax rate, which is the provision for income taxes as a percentage of income before taxes, decreased to 15% for fiscal 2026 compared to 16% for fiscal 2025. The decrease in our effective tax rate was primarily due to an increase in research and development and manufacturing tax credits, partially offset by a decrease in foreign-derived intangible income deductions. The fiscal 2026 provision for income taxes included $1,067,993 in advanced manufacturing investment tax credits. We expect such credits to decrease significantly in fiscal 2027 since we expect manufacturing equipment purchases to decrease significantly with the completion of our expansion.

Net income increased 1% to $15,199,195 for fiscal 2026 compared to $15,064,516 the prior year. The increase was primarily due to increased revenue, decreased expenses, and decreased taxes, partially offset by decreased gross profit margin and decreased other income.

Liquidity and Capital Resources

Overview

Our liquidity and operating capital requirements are primarily for purchases of raw materials such as foundry wafers, purchases of packaging services, and the maintenance of work-in-process inventories.

Cash and cash equivalents were $1,714,040 as of March 31, 2026, compared to $8,036,564 as of March 31, 2025. The $6,322,524 decrease in cash and cash equivalents was due to $19,348,664 of cash used in financing activities and $3,631,857 of net cash used in investing activities, partially offset by $16,657,997 of cash provided by operating activities.

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Operating Activities

Net cash provided by operating activities related to product sales and research and development contract revenue was our primary source of working capital for fiscal 2026 and 2025. Net cash provided by operating activities increased to $16,657,997 for fiscal 2026 compared to $14,310,418 for fiscal 2025.

Non-cash operating lease expenses decreased $107,863 primarily due to our receipt of a $100,000 leasehold improvement allowance.

Accounts receivable decreased $180,327 primarily due to the timing of customer payments.

Inventories decreased $366,262 primarily due to increased product sales and conversion of raw materials and work-in-process inventories to finished goods to support increased product demand.

Prepaid expenses and other assets increased $1,427,001 primarily due to increased accrued bond interest and overpayment of Federal estimated taxes for fiscal 2026.

Accrued payroll and other current liabilities decreased $173,557 primarily due to the payment of federal and state taxes balance due as of March 31, 2025 in the first quarter of fiscal 2026.

Investing Activities

Net cash used in investing activities for fiscal 2026 consisted of $15,242,719 of marketable securities purchases and $2,189,138 of fixed asset purchases, partially offset by $13,800,000 in proceeds from maturities of marketable securities. Fixed asset purchases were primarily of production equipment. We expect fixed asset purchases to decrease significantly in fiscal 2027 with the completion of our expansion.

Financing Activities

Net cash used in financing activities in fiscal 2026 consisted of $19,348,664 of cash dividends paid to shareholders.

In addition to cash dividends to shareholders paid in fiscal 2026, on May 6, 2026, we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,837,166 based on shares outstanding as of March 31, 2026, to be paid May 29, 2026. 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, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.