NVE CORP /NEW/ (NVEC)

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 2025 and 2024.

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 2025 or 2024.

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, 2025 and March 31, 2024.

Deferred Tax Assets 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 $1,867,069 of net deferred tax assets as of March 31, 2025 and $1,453,704 as of March 31, 2024. Net deferred tax assets include $118,810 in deferred tax assets for stock-based compensation deductions as of March 31, 2025, and $101,668 as of March 31, 2024.

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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 2025 decreased 13% compared to fiscal 2024 due to a 16% decrease in product sales, partially offset by a 112% increase in contract research and development revenue. The decrease in product sales was primarily due to decreased purchases by existing customers. The increase in contract research and development revenue was due to new contracts in fiscal 2025.

Gross profit as a percentage of revenue increased to 84% for fiscal 2025 from 77% for fiscal 2024. The increase in gross margin percentage was due to a more profitable product mix and a larger portion of direct rather than distributor sales.

Total expenses increased 25% for fiscal 2025 compared to fiscal 2024 due to a 33% increase in research and development expense and a 13% increase in selling, general, and administrative expense. The increase in research and development expense was due to increased new product development. The increase in selling, general, and administrative expenses was primarily due to increased sales and marketing activities.

Interest income for fiscal 2025 decreased 2% due to a decrease in marketable securities, partially offset by higher yields on marketable securities purchased during the past year.

Other income for fiscal 2025 was primarily from reclaiming precious metals used in our manufacturing process.

The 12% decrease in net income for fiscal 2025 compared to the prior year was primarily due to decreased revenue and increased operating expenses, partially offset by increased gross profit margin.

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 $8,036,564 as of March 31, 2025, compared to $10,283,550 as of March 31, 2024. The $2,246,986 decrease in cash and cash equivalents was due to $19,225,522 of net cash used in financing activities, partially offset by $14,310,418 of cash provided by operating activities and $2,668,118 of net cash provided by investing 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 2025 and 2024. Net cash provided by operating activities was $14,310,418 for fiscal 2025 compared to $18,247,411 for fiscal 2024.

Accounts receivable increased $444,435 during fiscal 2025 due to increased revenue in the fourth quarter of fiscal 2025 compared to the prior-year quarter and the timing of customer payments. Inventory increased $290,498 during fiscal 2025 due to increased costs and our decisions to maintain inventories as a buffer against supply-chain disruptions or other disruptions such as tariffs.

Prepaid expenses and other assets decreased $255,935 primarily due to the differences in Federal and State taxes compared to estimated taxes paid.

Investing Activities

Net cash provided by investing activities in fiscal 2025 consisted of $15,205,000 in proceeds from maturities of marketable securities, partially offset by $1,257,109 of fixed asset purchases and $11,279,773 of marketable securities purchases. Fixed asset purchases consist primarily of a $1,125,437 downpayment on production equipment that has not been placed into service, and is expected to be delivered in fiscal 2026. We plan to significantly increase fixed asset purchases in fiscal 2026 compared to fiscal 2025 to between $2,000,000 and $3,000,000 to support increases in production capacity and new product development. These plans are subject to change. We expect to finance future capital equipment purchases with a combination of cash provided by operating activities and marketable security maturities.

Financing Activities

Net cash used in financing activities in fiscal 2025 consisted of $19,339,684 of cash dividends paid to shareholders, partially offset by $114,162 in proceeds from the exercise of stock options.

In addition to cash dividends to shareholders paid in fiscal 2025, on May 7, 2025, 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, 2025, to be paid May 30, 2025. 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 supply-chain shortages, the impacts of cost inflation, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.

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.

Investment Valuation

Our investments consist primarily of corporate obligations. We have generally invested excess cash in high-quality investment-grade long-term marketable securities with less than five years to maturity. We classify all of our marketable securities as available-for-sale, thus securities are recorded at fair value and any associated unrealized gain or loss, net of tax, is included as a separate component of shareholders’ equity, “Accumulated other comprehensive income.” If we judged a decline in fair value for any security to be other than temporary, the cost basis of the individual security would be written down and a charge recognized to net income. The fair values for our securities are determined based on quoted market prices as of the valuation date and observable prices for similar assets. We consider a number of factors in determining whether other-than-temporary impairment exists, including credit market conditions; the credit ratings of the securities; historical default rates for securities of comparable credit rating; the presence of insurance of the securities and, if insured, the credit rating and financial condition of the insurer; the effect of market interest rates on the value of the securities; and the duration and extent of any unrealized losses. We also consider the likelihood that we will be required to sell the securities prior to maturity based on our financial condition and anticipated cash flows. If any of these conditions and estimates change in the future, or, if different estimates are used, the fair value of the investments may change significantly and could result in an other-than-temporary decline in value, which could have an adverse impact on our results of operations.

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, 2024 and March 31, 2023.

Deferred Tax Assets 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 $1,453,704 of net deferred tax assets as of March 31, 2024, and $572,038 as of March 31, 2023. Net deferred tax assets included $101,668 in deferred tax assets for stock-based compensation deductions as of March 31, 2024, and $71,734 as of March 31, 2023.

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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 2024 decreased 22% compared to fiscal 2023 due to a 21% decrease in product sales and a 45% decrease in contract research and development revenue. The decrease in product sales was primarily due to decreased purchases by existing customers due to the downturn in the semiconductor industry. The decrease in contract research and development revenue was due to fewer research and development contracts in fiscal 2024 compared to the prior year.

Gross profit as a percentage of revenue decreased to 77% for fiscal 2024 from 79% for fiscal 2023. The decrease was due to increases in material, labor, and production overhead costs.

Total expenses decreased 1% for fiscal 2024 compared to fiscal 2023 due to a 10% decrease in selling, general, and administrative expense, partially offset by a 6% increase in research and development expense. The increase in research and development expense was due to increased new product development activities. The decrease in selling, general, and administrative expense was primarily due to decreased performance-based accruals.

Interest income for fiscal 2024 increased 35% due to increased yields on marketable securities purchased in fiscal 2024.

Our effective tax rate was 16% for fiscal 2024 and fiscal 2023 compared to the statutory tax rate of 21%. Our lower effective tax rate was primarily due to Federal tax credits and deductions.

The 25% decrease in net income for fiscal 2024 compared to the prior year was primarily due to decreased revenue, partially offset by decreased expenses and increased interest 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. We maintain most of our marketable securities as long-term to maximize yield and fund future dividends.

Cash and cash equivalents were $10,283,550 as of March 31, 2024, compared to $1,669,896 as of March 31, 2023. The $8,613,654 increase in cash and cash equivalents was due to $18,247,411 of net cash provided by operating activities and $9,580,084 of net cash provided by investing activities, partially offset by $19,213,841 of net cash used in financing 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 2024 and 2023. Net cash provided by operating activities was $18,247,411 for fiscal 2024 compared to $19,091,498 for fiscal 2023.

Accounts receivable decreased $3,368,997 during fiscal 2024 due to decreased revenue and the timing of customer payments.

Inventory increased $741,575 during fiscal 2024 primarily due to our decision to increase raw material and finished goods inventories in anticipation of a semiconductor industry recovery. This will enable us to quickly respond to sales opportunities and to mitigate supply-chain risks.

Accounts payables and accrued expenses decreased $964,152 during fiscal 2024 due to decreased performance-based accrual and the timing of purchases and vendor payments.

Investing Activities

Net cash provided by investing activities in fiscal 2024 consisted of $15,700,000 in proceeds from maturities of marketable securities, partially offset by $16,731 of fixed asset purchases and $6,103,185 of marketable securities purchases.

Our capital expenditures can vary significantly from year to year depending on our needs, strategic goals, and equipment purchasing opportunities. We are currently planning $4,000,000 to $5,000,000 of investments during fiscal years 2025 and 2026 to increase our production capacity and capabilities.  These plans are subject to change. We expect to finance future capital equipment purchases with a combination of cash provided by operating activities and marketable security maturities.

Financing Activities

Net cash used in financing activities in fiscal 2024 consisted of $19,331,304 of cash dividends paid to shareholders, partially offset by $117,463 in proceeds from the exercise of stock options.

In addition to cash dividends to shareholders paid in fiscal 2024, on May 1, 2024, we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,833,676 based on shares outstanding as of April 26, 2024, to be paid May 31, 2024. 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 supply-chain shortages, the impacts of cost inflation, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.

Labor Practices

In the past fiscal year, we significantly increased average pay to attract, retain, and motivate top-performing employees despite a tight labor market. These increased compensation costs are allocated to cost of sales and expenses in our income statements.

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.

Investment Valuation

Our investments consist primarily of corporate obligations. We have generally invested excess cash in high-quality investment grade long-term marketable securities with less than five years to maturity. We classify all of our marketable securities as available-for-sale, thus securities are recorded at fair value and any associated unrealized gain or loss, net of tax, is included as a separate component of shareholders’ equity, “Accumulated other comprehensive income.” If we judged a decline in fair value for any security to be other than temporary, the cost basis of the individual security would be written down and a charge recognized to net income. The fair values for our securities are determined based on quoted market prices as of the valuation date and observable prices for similar assets. We consider a number of factors in determining whether other-than-temporary impairment exists, including credit market conditions; the credit ratings of the securities; historical default rates for securities of comparable credit rating; the presence of insurance of the securities and, if insured, the credit rating and financial condition of the insurer; the effect of market interest rates on the value of the securities; and the duration and extent of any unrealized losses. We also consider the likelihood that we will be required to sell the securities prior to maturity based on our financial condition and anticipated cash flows. If any of these conditions and estimates change in the future, or, if different estimates are used, the fair value of the investments may change significantly and could result in other-than-temporary decline in value, which could have an adverse impact on our results of operations.

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, 2023 and March 31, 2022.

Deferred Tax Assets 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 $572,038 of net deferred tax assets as of March 31, 2023, and $483,469 as of March 31, 2022. Net deferred tax assets included $71,734 in deferred tax assets for stock-based compensation deductions as of March 31, 2023 and $88,710 as of March 31, 2022.

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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 2023 increased 42% compared to fiscal 2022 due to a 44% increase in product sales, partially offset by a 6% decrease in contract research and development revenue. The increase in product sales was primarily due to increased purchases by existing customers, and sales increased in most of our markets and product lines. The decrease in contract research and development revenue was due to the completion of certain contracts.

Gross profit as a percentage of revenue increased to 79% for fiscal 2023 from 77% for fiscal 2022. The increase was primarily due to economies of scale from increased production and increased prices, partially offset by increased material and labor costs.

Total expenses increased 4% for fiscal 2023 compared to fiscal 2022 due primarily to a 34% increase in selling, general, and administrative expense, partially offset by a 12% decrease in research and development expense. The decrease in research and development expense was primarily due to the reallocation of resources to revenue-generating activities. The increase in selling, general, and administrative expense was primarily due to staffing changes and increased employee compensation.

Interest income for fiscal 2023 increased 24% due to an increase in our available-for-sale securities and an increase in the average interest rates on those securities.

Our effective tax rate for fiscal 2023 decreased to 16% of income before taxes from 17% for fiscal 2022. The decrease was due to $197,008 in investment tax credits under the CHIPS and Science Act of 2022. Such credits require qualifying investments, and eligibility criteria are subject to changes in Federal tax policies. Therefore, our effective tax rate in fiscal 2023 may not be indicative of the rate for future periods.

The 56% increase in net income in fiscal 2023 compared to the prior year was primarily due to increased product sales, increased gross profit margin, and increased interest 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. We maintain most of our marketable securities as long-term to maximize yield and fund future dividends.

Cash and cash equivalents were $1,669,896 as of March 31, 2023, compared to $10,449,510 as of March 31, 2022. The $8,779,614 decrease in cash and cash equivalents was due to $19,344,004 net cash used in financing activities and $8,527,108 net cash used by investing activities, partially offset by $19,091,498 in net 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 as our primary source of working capital for fiscal 2023 and 2022. Net cash provided by operating activities was $19,091,498 for fiscal 2023 and $12,503,679 for fiscal 2022.

Accounts receivable increased $1,818,515 primarily due to increased product sales and the timing of sales to customers.

Inventory increased $1,328,375 primarily due to our decisions to increase inventories to support increased product sales and to mitigate supply-chain risks.

Investing Activities

Net cash used in investing activities in fiscal 2023 was due to marketable securities purchases of $28,441,317 and fixed assets purchases of $935,791, partially offset by marketable securities maturations of $20,750,000 and the receipt of a $100,000 tenant-improvement allowance.

The $935,791 of fixed asset purchases in fiscal 2023 was a significant increase from $484,579 in fiscal 2022. Purchases in fiscal 2023 and 2022 were primarily for capital equipment to increase our production throughput and capacity and were financed with cash provided by operating activities. Our capital expenditures can vary significantly from year to year depending on our needs and equipment purchasing opportunities.

Financing Activities

Net cash used in financing activities in fiscal 2023 was due to $19,323,304 in cash dividends to shareholders and $20,700 of common stock repurchases.

In addition to cash dividends to shareholders paid in fiscal 2023, on May 3, 2023, we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,830,826 based on shares outstanding as of April 28, 2023, to be paid May 31, 2023. 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 supply-chain shortages, the impacts of cost inflation, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.

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.

Investment Valuation

Our investments consist primarily of corporate obligations. We have generally invested excess cash in high-quality investment grade long-term marketable securities with less than five years to maturity. We classify all of our marketable securities as available-for-sale, thus securities are recorded at fair value and any associated unrealized gain or loss, net of tax, is included as a separate component of shareholders’ equity, “Accumulated other comprehensive income.” If we judged a decline in fair value for any security to be other than temporary, the cost basis of the individual security would be written down and a charge recognized to net income. The fair values for our securities are determined based on quoted market prices as of the valuation date and observable prices for similar assets. We consider a number of factors in determining whether other-than-temporary impairment exists, including: credit market conditions; the credit ratings of the securities; historical default rates for securities of comparable credit rating; the presence of insurance of the securities and, if insured, the credit rating and financial condition of the insurer; the effect of market interest rates on the value of the securities; and the duration and extent of any unrealized losses. We also consider the likelihood that we will be required to sell the securities prior to maturity based on our financial condition and anticipated cash flows. If any of these conditions and estimates change in the future, or, if different estimates are used, the fair value of the investments may change significantly and could result in other-than-temporary decline in value, which could have an adverse impact on our results of operations.

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, 2022 and $230,000 as of March 31, 2021.

Deferred Tax Assets 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 $483,469 of net deferred tax assets as of March 31, 2022 and $73,538 as of March 31, 2021. Net deferred tax assets included $88,710 in deferred tax assets for stock-based compensation deductions as of March 31, 2022 and $75,189 as of March 31, 2021.

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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 2022 increased 26% compared to fiscal 2021 due to a 26% increase in product sales and a 36% increase in contract research and development revenue. The increase in product sales was primarily due to increased purchases by existing customers, and sales increased in most of our markets and product lines. The increase in contract research and development revenue was due to new contracts..

Gross profit as a percentage of revenue decreased to 77% for fiscal 2022 from 81% for fiscal 2021 primarily due to increased costs, partially offset by increased prices. Material, labor, and services costs increased significantly in the most recent fiscal year.

Total expenses decreased 2% for fiscal 2022 compared to fiscal 2021 due primarily to a 8% decrease in research and development expense, partially offset by a 12% 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 and increased employee compensation.

Interest income for fiscal 2022 decreased 22% due to a decrease in our available-for-sale securities and a decrease in the average interest rates on those securities.

The 24% increase in net income in fiscal 2022 compared to the prior year was primarily due to an increase in total revenue.

The Impact of the COVID-19 Pandemic

We believe the impact of the COVID-19 pandemic on customer demand was less in the year ended March 31, 2022 compared to the prior year. We believe the impact of the pandemic on our supply chain, however, was significantly more in the year ended March 31, 2022 than in the prior year. Supply-chain shortages may have been exacerbated by COVID-19 lockdowns in China in late fiscal 2022. We expect supply-chain shortages to continue in fiscal 2023.

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 for the maintenance of work-in-process inventories. We maintain most of our marketable securities as long-term to maximize yield and fund future dividends.

Cash and cash equivalents were $10,449,510 as of March 31, 2022 compared to $10,427,340 as of March 31, 2021. The $22,170 increase in cash and cash equivalents was due to $12,503,679 in net cash provided by operating activities and $7,015,421 net cash provided by investing activities, partially offset by $19,496,930 net cash used in financing activities.

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Operating Activities

Net cash provided by operating activities related to product sales and research and development contract revenue as our primary source of working capital for fiscal 2022 and 2021. Net cash provided by operating activities was $12,503,679 for fiscal 2022 and $13,364,832 for fiscal 2021.

Accounts receivable increased $2,740,548 primarily due to the timing of sales to and payments from customers.

Inventory increased $1,187,858 primarily due to our decisions to increase work in process in order to mitigate longer vendor lead-times.

Accounts payable and accrued expenses increased $1,422,677 due to an $815,783 increase in accrued expenses and a $606,944 increase in accounts payable. The increase in accounts payable was due to the timing of vendor payments. The increase in accrued expenses was due to increases in accrued payroll and income taxes payable.

Investing Activities

Net cash provided by investing activities in fiscal 2022 was due to marketable security maturities of $7,500,000 and fixed assets purchases of $484,579.

The $484,579 of fixed asset purchases in fiscal 2022 were a significant increase from $62,727 in fiscal 2021. Purchases in fiscal 2022 were primarily for capital equipment to increase our production throughput and capacity and were financed with cash provided by operating activities. Our capital expenditures can vary significantly from year to year depending on our needs and equipment purchasing opportunities.

Financing Activities

Net cash used in financing activities in fiscal 2022 was due to $19,333,409 in cash dividends to shareholders and $163,521 in repurchases of our common stock.

In addition to cash dividends to shareholders paid in fiscal 2022, on May 4, 2022 we announced that our Board had declared a cash dividend of $1.00 per share of Common Stock, or $4,830,826 based on shares outstanding as of April 29, 2022, to be paid May 31, 2022. 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 supply-chain shortages, the impacts of cost inflation, and other factors the Board may deem relevant. Furthermore, dividends may be modified or discontinued at any time without notice.