UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the year ended March 31, 2001
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) I.R.S. Employer
Identification number
11409 Valley View Road, Eden Prairie, Minnesota 55344
----------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (952) 829-9217
--------------
|
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
stock, $0.01 par value ("Common Stock")
Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the most recent fiscal year ended March 31, 2001 totaled $7,165,665.
Based upon the $1.00 per share closing sales price of the registrant's common stock as of June 1, 2001, the aggregate value of the shares of Common Stock held by nonaffiliates as of such date was approximately $4,230,000.
Common Stock - 16,921,228 shares outstanding as of June 1, 2001.
Transitional Small Business Disclosure Format (check one) YES [ ] NO [X]
Documents Incorporated By Reference Portions of the Proxy Statement for NVE Corporation's 2001 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-KSB to the extent described in Part III.
PART I
FORWARD LOOKING STATEMENTS
Certain statements included in this Annual Report on Form 10-KSB,
except for the historical information contained herein, may be forward-looking
statements within the meaning of Section 21E of the Exchange Act, which are
subject to the safe harbor created by that statute, and further, may contain
forward-looking statements that are made in reliance upon the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The words
or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," "believe" or similar expressions identify
forward-looking statements. Actual results may be different from those
described in the forward-looking statements. Future events involve risks and
uncertainties. Some of these risks and uncertainties are outside the control of
management. Readers are cautioned against placing undue reliance on the
forward-looking statements due to these risks and uncertainties and are
cautioned to review the historical information and statements of risk contained
in the Company's Securities and Exchange Commission reports.
ITEM 1. BUSINESS.
HISTORY AND BACKGROUND
NVE Corporation ("NVE" or "the Company") develops, produces and
markets components that combine giant magnetoresistance ("GMR") materials with
integrated circuits.
On November 20, 2000, the shareholders of Nonvolatile Electronics, Incorporated (NVE) approved the merger of the company with and into Premis Corporation ("Premis"), a publicly-traded corporation, with Premis surviving under the new name NVE Corporation. Premis developed, marketed and supported a line of enterprise-wide solutions to meet the information needs of multi-store specialty and general merchandise retailing chains. In November 1999, Premis completed a series of transactions resulting in the sale of substantially all of its operating assets. By September, 2000, Premis had ceased all business operations.
NVE was incorporated under the laws of the state of Minnesota in 1989 as the result of research completed by the Company's founder, Dr. James Daughton, while employed with Honeywell. Historically, NVE has been a research and development (R&D) company funded largely by government contracts, and to a lesser extent by licenses, royalties and the sales of products and equity. Contract R&D has not only supplied revenues, but additionally, it has helped to supplement the R&D required for the product areas and fund operations.
NVE first sold and shipped products using GMR materials in 1995, and produced the first known products combining GMR materials with integrated circuits in 1998. NVE is recognized as a leader in both the development and application of GMR materials and other advanced magnetic materials. NVE's largest customer is the United States government and, although no current problems exist with respect to any government contract or with the Company's vibrant relationship with the government funding vehicles, disqualification as a vendor to the United States government would cause serious setbacks for the Company on a going forward basis and would likely hamper future R&D activity.
NVE developed the capability to deposit and optically define conductor, dielectric and metal films, and to fully integrate circuit and magnetic device design. Additionally, NVE acquired certification to manufacture products under ISO 9001. The Company's product areas, including sensors, signal isolators and nonvolatile memories, are discussed below.
PRODUCTS
SENSORS. Sensors combine integrated circuits with GMR material. This
GMR material is deposited in layers and lithographically formed into resistors
which change value when introduced to a magnetic field. The resistors are then
connected together with transistors to form circuits that are sensitive to
magnetic fields. These circuits are then packaged in much the same way as
conventional integrated circuits. Other products developed by NVE are
produced by similar methods.
Sensors are quite small and they are very sensitive to magnetic fields. In addition, they are able to operate at relatively high temperatures (125 degrees Centigrade and higher). This combination of attributes should allow them to be used in a variety of industrial control applications.
Over the past year, NVE has concentrated its marketing efforts on pneumatic cylinder position sensing. As a result, three of the top four users of sensors have started integrating the NVE sensor, and several other smaller users are in the process of converting to the NVE sensor. New applications the Company may target include in-bearing sensors, pacemakers, anti-skid brake systems ("ABS"), currency detection and medical electronics.
The Company has a portfolio of US and foreign patents for the GMR materials used in its sensor and a US patent for the circuit configuration. The Company has also obtained know-how in the following areas: sputtering of the GMR materials; maintenance of process and packaging compatibility with integrated circuits; plating of thick magnetic materials for shielding and flux concentration; sensor and circuit design; and testing techniques. At this time, the Company does not know of any direct competitor that manufactures a similar sensor.
Historically, NVE has used a combination of distributors, manufacturers' representatives and direct sales for sales of the sensor. The Company plans to continue to use this combination for the foreseeable future. Distributors handle smaller orders (typically under $1,000), while manufacturers' representatives and direct sales account for larger orders. The largest sensor order from NVE totaled approximately $100,000.
NVE is in the process of developing sensors for the industrial controls, ABS and currency detection markets. The Company will continue this development, as it typically takes from three to five years from start of development to sales in the automotive markets, and from one to three years from the start of development to sales in the industrial controls market.
ISOLATORS. Isolators reduce or eliminate ground noise in communications carried by wire which is the result of connecting electrical circuits having independent grounds. In some cases, isolators may also provide for limited protection against electrical damage. The isolator developed by NVE uses the ISOLOOP-Registered Trademark-, an integrated coil made by integrated circuit techniques that is electrically insulated from a sensor made from GMR resistors and integrated circuits, and packaged in a standard integrated circuit package. The resulting isolator is faster and smaller than any other existing known approach, as well as being very cost competitive.
The two main competing technologies of which the Company is aware are opto-isolators and inductive isolators. The fastest opto-isolators currently run at frequencies below 20 million cycles per second, whereas ISOLOOP isolators operate at 100 million cycles per second, with the potential to run ten times faster than the frequency currently achieved. Inductive isolators require special data encoding in order to transmit logic signals, whereas ISOLOOP isolators do not require such signals. Furthermore, ISOLOOP isolators require less board area than either the opto-isolators or the inductive isolators.
Isolators are commonly used in a variety of communication networks. Differences in ground potentials between pieces of electronics gear are virtually impossible to eliminate, and the resulting noise is often much larger than the logic signals transmitted. The isolator can virtually eliminate this noise.
As a result of the high speed of the ISOLOOP isolators, signal isolation in high speed communications will be possible for systems using random signal transmission in wires. Isolation in back planes of PC's and other high speed systems may enable these systems to operate at higher speeds.
As ISOLOOP products have the potential for high growth, the Company currently anticipates that the sales of isolator products will account for a significant portion of the Company's revenues in the future.
NVE has received a basic patent on the use of a magnetic sensor and integrated coils to construct an isolator. Patents containing several improvements on this basic patent have also been filed. These patents, together with know-how in the design, processing, packaging and testing of the ISOLOOP products, are the primary barriers to those competing with the Company's isolator products.
Initial distribution channels for isolators have been established in the United States, Europe, Japan, Korea, China and Taiwan. Domestically, up to the time of the Merger, NVE had used direct sales and appointed distributors for distribution of its isolators, however, future distribution may include the use of additional distributors or manufacturers' representatives. Additionally, the Company has participated in initial discussions with a major producer of opto-isolators who may be interested in "private labeling" of ISOLOOP products. Isolators have been sold for design analysis and low volume production. The Company believes that, initially, its isolators may be used in applications of data communications in the industrial and telecommunications markets. The typical time from design to production orders in these markets is one to three years.
MRAM. Magnetoresistive computer memory technology ("MRAM") is a nonvolatile memory, meaning that data is retained after electrical power to the memory chip is removed, invented by Dr. Arthur Pohm and Dr. James Daughton while they were employed at Honeywell. In MRAM, data is stored in the magnetism of thin films of iron, nickel and cobalt alloys and then recovered through the magnetoresistive properties of devices made chiefly of these alloys. Dr. James Daughton founded NVE with the intent to develop one or more commercial applications for MRAM and other GMR products. After the discovery of GMR, and in conjunction therewith, a considerable amount of innovative work in MRAM had been done at NVE. NVE invented several memory cells and modes of operation that are being adapted by several large companies including Motorola, IBM and Honeywell. Although MRAM is not currently in production at the Company or elsewhere, there are ongoing development efforts at various companies, including Motorola, Honeywell, USTC, IBM and Hewlett Packard. Motorola has announced that it plans to be in production of MRAM in 2004.
The advantages that MRAM has over other solid state nonvolatile memory
technologies are its ability to write fast (less than 100 billionths of a
second) and indefinitely (other competing technologies are limited to about one
million write cycles and will wear out with continuous writing in less than a
second). Applications that could potentially use these properties include:
cameras and copiers, reconfigurable computing, cell phones and other "imbedded"
memory applications.
The Company believes its MRAM patent coverage is broad. It has its own MRAM, intellectual property, as well as a license to use Honeywell MRAM technology and rights under license agreements with Motorola and Union Semiconductor Technology Corporation (USTC). If MRAM products are produced under the Company's license agreements, it could potentially earn significant revenues from initial payments and royalties.
There is also potential for the Company to produce MRAM niche products. The Company is currently funded under a research contract to develop a memory chip for use in reconfigurable computing.
As MRAM is still in development stages at the Company and elsewhere, it is difficult to forecast the potential revenues that the Company could earn from the licensing and sale of niche memory. Current forecasts anticipate minor revenues from MRAM for the next several years, however, this forecast may change if holders of MRAM licenses have success in their product development and introduction.
CONTRACT R&D
Contract R&D provides a majority of the Company's revenues. Contract
R&D was the source of NVE's underlying patents and product developments for the
sensor, isolator and MRAM products.
The Company has over 30 US patents issued or pending, as well as several foreign patents issued or pending. It is projected that activities in this area will result in additional intellectual property, enhancement to current product lines, license revenue and possibilities for future product areas. While contract R&D will be a very important component of the Company's business, the percentage of total revenues from contract R&D may shrink if there is significant growth in product sales.
COMPETITION
Three of the Company's chief competitors in sensors are Honeywell,
Allegro and Phillips. Honeywell and Phillips make magnetoresistive sensors
using a traditional nickel iron alloy rather than the GMR materials used by the
Company. Allegro makes very cost competitive sensors using a Silicon Hall,
however, Silicon Hall sensors are not as sensitive to magnetic fields as those
of the Company. These competitors, as well as several other sensor producers,
have greater financial resources and larger R&D budgets and more fully
developed distribution systems than those of the Company.
Agilient, a Hewlett Packard spin-off, is the leading producer of high speed opto-isolators. Some of the other top producers of opto-isolators are Infineon, NEC, Toshiba and Fairchild Semiconductor. Other non-optical isolators use inductive or capacitive isolation. Competitors in this category include Analog Devices, Linear Technology and Maxim. The Company believes that its ISOLOOP has higher speed, higher noise immunity and smaller components than these competitors. These competitors have greater financial resources and larger R&D budgets and more fully developed distribution systems than those of the Company.
Motorola, IBM, Hewlett Packard, USTC and Honeywell have significant R&D efforts in MRAM technology. Hewlett Packard and USTC have stated they plan to introduce MRAM products in the next year, and Motorola has stated that it plans to introduce MRAM products within the next couple of years. Significant new inventions by larger companies with greater financial resources and R&D budgets could erode the value of the Company's MRAM technology, and the licenses thereto.
RESEARCH AND DEVELOPMENT
In Fiscal 2001 the Company's research and development consisted
primarily of contract research and development and commercial product research
and development. Contract research and development is primarily for U.S.
government agencies, which fund such developments. Major commercial product
research and development programs in the past fiscal year included the
development of anti-skid brake sensors, new position sensors, and medical
sensors. The cost of these sensor programs were at least partially borne by
customers. Additional commercial product research and development was directed
toward new configurations of the Company's ISOLOOP products, including ultra-
high-speed data transceivers. The costs of ISOLOOP research and development are
generally not borne by customers.
Total research and development expenses were $5.05 million and $5.22 million for the years ended March 31, 2001 and 2000, respectively, of which $3.68 million and $4.39 million, respectively, was contract research and development. The balance was primarily commercial product research and development in both periods.
SUPPLIERS
The Company has several single-source semiconductor foundry suppliers
for certain integrated circuit wafers critical to production of its commercial
products. Significant interruption of supply from any of these vendors could
have a material adverse effect on the Company.
EMPLOYEES
As of March 31, 2001, the Company had 61 employees, 55 of whom were
full time. Of the full-time employees, there were five general and
administrative employees, six sales and marketing employees, 23 technicians and
27 scientists. Eleven employees have earned doctorate degrees. No employee of
the Company is represented by a labor union or is subject to a collective
bargaining agreement, and the Company believes that it maintains good relations
with its employees.
ITEM 2. PROPERTIES.
The principal offices of the Company are located at 11409 Valley View
Road, Eden Prairie, Minnesota 55344. The Company leases this space, which
consists of approximately 20,000 square feet of office, production, and
laboratory space. The lease agreement has a term of five years, expiring
on December 31, 2003.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any pending legal proceeding
nor is any property of the Company subject to such proceeding. Furthermore, the
Company is not aware of any potential claims, by any governmental authority or
otherwise, that may be brought against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to security holders during the quarter ended
March 31, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the OTC Bulletin Board
under the symbol, "NVEC." The following table sets forth, for the fiscal
quarters indicated, a summary of the range of high and low bid information of
the common stock of the Company. Prices through the second quarter of fiscal
year ended March 31, 2001 ("Fiscal 2001"), represent high and low bids as
reported on the OTC Bulletin Board. Prices for the third quarter of Fiscal 2001
represent high and low bids as reported on the OTC Bulletin Board for the post-
dividend and post-merger period of December 6, 2000, to December 31, 2001.
Prices for the fourth quarter of Fiscal 2001 represent high and low bids as
reported on the OTC Bulletin Board. Such bid information reflects inter-dealer
prices, without retail mark-up, mark-down or commissions and does not
necessarily reflect actual transactions.
COMMON STOCK
------------
LOW HIGH
------ ------
FISCAL 2000 (YEAR ENDED MARCH 31, 2000)
First Quarter $.594 $ .938
Second Quarter .734 1.000
Third Quarter .250 1.282
Fourth Quarter .375 1.406
FISCAL 2001 (YEAR ENDED MARCH 31, 2001)
First Quarter $.438 $1.031
Second Quarter .438 .818
Third Quarter .75 1.250
Fourth Quarter .875 1.438
|
The Company has never paid or declared any cash dividends on its common stock. On December 4, 1999, in connection with the final sale of assets, Premis Corporation made a distribution in partial liquidation to its shareholders. The Company does not anticipate paying any dividends in the foreseeable future, and intends to retain any earnings it may generate to provide for the operation and projected expansion of its business.
The Company issued unregistered securities in fiscal year 2001 under Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended. Approximately 15.9 million shares were issued to approximately 75 shareholders of Nonvolatile Electronics, Incorporated, in connection with the merger by and between Nonvolatile Electronics, Incorporated and Premis Corporation. The Company also issued approximately 69,000 shares to three individuals in connection with the exercise of warrants provided in exchange for services rendered.
The Company has approximately 175 shareholders of record, and approximately 980 total shareholders.
ITEM 6.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is in the business of developing, producing and selling
components that combine certain magnetic materials with integrated circuits.
Over the past several years, NVE engaged in materials and device research and
development funded principally by contracts and grants from agencies of the US
government. NVE was able to license some of its technology, principally
nonvolatile memory technology, and has used license payments to establish
product designs and production of sensor and isolator products. The Company
will seek to expand product revenue while still relying on government contracts
for basic technology development. The expansion of product revenue will require
additional product development and marketing expenditures as well as increased
working capital to fund receivables and inventories.
PRO FORMA COMBINED FINANCIAL INFORMATION
On November 21, 2000, Nonvolatile Electronics, Incorporated (NVE)
merged with NVE Corporation (f/k/a Premis Corporation). The merger has been
accounted for using the reverse purchase method of accounting. As the Company
issued shares of common stock of NVE Corporation in exchange for outstanding
shares of common stock of Merged NVE, the pre-merger shareholders of the
Company retain approximately 6% of the outstanding shares of common stock of
the Company. In applying generally accepted accounting principles ("GAAP"), the
merger was accounted for as a reverse acquisition by Merged NVE. Under GAAP,
the merger is deemed to be equivalent, for accounting purposes, to Merged NVE's
issuance of its capital stock in exchange for the fair market value of the
assets and liabilities of the Company. As a result, no goodwill was recorded,
and the assets of Merged NVE will continue to be recorded at their historic
values.
The following pro forma financial statement is presented as a combination of the respective statements of Nonvolatile Electronics, Incorporated (NVE) and NVE Corporation (f/k/a Premis Corporation) for the for the year ended March 31, 2000, giving effect to the merger of NVE Corporation as if such transaction had occurred on April 1, 1999. The statement has been
prepared pursuant to the rules of the SEC and, therefore, does not include all information and notes required by generally accepted accounting principles for complete financial statements. The pro forma statement is not necessarily indicative of the statements of operations that would have been reported had the merger of NVE Corporation occurred on the dates indicated.
NVE CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2000
NONVOLATILE NVE CORP.
ELECTRONICS (F/K/A
INC. (NVE) PREMIS CORP.) ADJUSTMENTS PRO FORMA
--------------------------------------------------------
Revenues
Research and development $5,118,729 $5,118,729
Product sales 372,805 372,805
License fees 483,333 250,000(2) 733,333
System sales 3,198,703 (3,198,703)(1) -
Maintenance fees and other revenue 658,590 (658,590)(1) -
--------------------------------------------------------
5,974,867 3,857,293 (3,607,293) 6,224,867
Expenses
Research and development 5,223,708 5,223,708
Cost of sales 204,754 204,754
Selling, general & administrative 1,017,872 434,456 (434,456)(1) 1,017,872
Maintenance fees and other 176,521 (176,521)(1) -
--------------------------------------------------------
Total expenses 6,446,334 610,977 (610,977) 6,446,334
--------------------------------------------------------
(Loss) income from operations (471,467) 3,246,316 (2,996,316) (221,467)
Gain on sale of Premis Systems Canada - 1,529,537 (1,529,537)(1) -
Interest income 15,083 129,705 144,788
Interest expense (44,019) 34,132 (9,887)
Option to purchase technology -
Other -
--------------------------------------------------------
(Loss) income before extraordinary item (500,403) 4,939,690 (4,525,853) (86,066)
Cumulative effect of accounting change (611,110) 611,110 (2) -
Taxes (244,328) 244,328 (1) -
--------------------------------------------------------
Net (loss) income (1,111,513) 4,695,362 (3,670,415) (86,066)
========================================================
Net loss per share - basic and diluted 0.92
Weighted average shares outstanding 5,099,412 11,506,168 (3) 16,927,523
|
The following is a summary of the adjustments reflected in the unaudited pro forma consolidated statements of operations:
1. Reflects the elimination of discontinued operations of NVE Corporation prior to merger.
2. Reflects the impact of SAB 101 adoption which occurred January 1, 2000.
3. Represents the increase in the number of outstanding shares of common stock to reflect the reverse stock-split of 0.2 shares of common stock of NVE Corporation and, similarly, as of the date of merger, the conversion of all outstanding Nonvolatile Electronics, Incorporated (NVE) common shares into 3.5 shares of NVE Corporation common stock.
RESULTS FROM OPERATIONS
Results reported herein are for prior periods and not necessarily indicative of results which may be expected in the future. Management has made no predictions or estimates as to future operations, and no inferences as to future operations should be drawn.
The March 31, 2000 information presented has been calculated by adding the three months ended March 31, 2000 to the year ended December 31, 1999 results of operations and subtracting the three months ended March 31, 1999. March 31, 2000 information also includes adjustments for a change in accounting principle.
The table shown below summarizes the percentage of revenues for the various items for the periods indicated.
Years Ended March 31,
2001 2000
------- -------
Revenue:
Research and development 62.0 % 82.2 %
Product sales 10.4 6.0
License fees 27.6 11.8
------- -------
Total revenues 100.0 100.0
Total expenses 98.2 101.4
------- -------
Net (loss) income 1.8 % (1.4)%
======= =======
|
Revenues for the fiscal year ended March 31, 2001 ("Fiscal 2001") were $7,165,000, an increase of 15% from revenues of $6,225,000 for the year ended March 31, 2000 ("Fiscal 2000"). The increase in revenue was due to increased license fees and product sales, offset by a decline in research and development revenues.
Research and development expenses decreased by 3% to $5,048,000 for Fiscal 2001, as compared to $5,224,000 for Fiscal 2000. The decrease was due to a lower volume of research contracts as the Company emphasized product sales rather than contract research and development.
Selling, general and administrative expenses for Fiscal 2001 increased by 34% to $1,369,000 compared to $1,018,000 in the prior year. The increase is due in part to higher expenses associated with commercial selling activities.
Other Income/Expenses showed a gain of $16,000 for Fiscal 2001 compared to $135,000 for Fiscal 2000. This was primarily due to lower interest income and higher interest expense.
NVE had a net income for Fiscal 2001 of $127,000 compared to a net loss of $86,000 for Fiscal 2000. Higher license revenue in 2001 more than offset higher expenses associated with increased investment in commercial selling activities.
FOREIGN CURRENCY TRANSACTIONS
Due to product sales abroad, the Company has some limited revenue
risks from fluctuations in values of foreign currency. Foreign sales are
generally made in US currency, and currency transaction gains or losses in the
past two fiscal years were not significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow for Fiscal 2001 shows an increase of $1,110,000. The Company
had cash on March 31, 2001 of $1,492,000. The increase in cash is primarily due
to increased license revenue and cash from the merger. Cash continues to be
used for investing in commercial selling activities. Management believes
working capital is adequate for its current needs.
INFLATION
Inflation has not had a significant impact on the operations of
NVE since its inception. Prices for products of NVE and for the materials and
labor going into their products are governed by market conditions. It is
possible that inflation in future years could impact both materials and labor
in the production of NVE's products. Rates paid by the US Government on
research and development contracts are adjustable with inflation.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements and Notes are set forth on this Form
10-KSB following the signature page.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company at the time of the filing of
this Form 10-KSB are as follows:
Daniel A. Baker, President, Chief Executive Officer and Director, age 43, was elected as an officer and director of the Company in January, 2001. He previously served as the President, Chief Executive Officer and Director of Printware, Inc., from 1993 to the time he joined the Company. Dr. Baker has 25 years of experience in high-tech industries and has held executive positions with both Minntech Corporation and Percom Data Corporation. He personally holds 15 patents. Dr. Baker earned Ph.D. and M.S. degrees in engineering from the University of Minnesota, an M.B.A. in finance from the University of Minnesota and a B.S. in engineering from Case Western Reserve University.
James Daughton, Chief Technical Officer and Director, age 64, has been a director of the Company since its inception and Chief Technical Officer since January, 2001. Prior to January 2001, Dr. Daughton had served as NVE's Chairman and Chief Executive Officer. From 1974 to 1989, Dr. Daughton held various positions in research and product development, including the position of Vice President of The Solid State Development Center for Honeywell, Inc. From 1964 to 1974, Dr. Daughton held various positions in the development of magnetic and semiconductor memory devices for IBM Corporation. Dr. Daughton received a doctorate in electrical engineering from Iowa State University in 1963. He is a member of advisory boards at Iowa State University and the University of New Orleans, and is an adjunct professor of physics at the University of Minnesota. He has more than 20 issued or pending patents, primarily dealing with thin magnetic films and devices.
Richard George, Treasurer and Chief Financial Officer, age 57, has served as the Chief Financial Officer of NVE since March, 1995. From 1991 to 1995, Mr. George served as Controller for NVE. From 1966 to 1991, Mr. George held various financial and financial management positions in the areas of operations and contracts at Honeywell Inc. Mr. George received a B.A. in economics in 1966 from the University of Minnesota, where he later took graduate courses in law and management.
Other information required by this Item will be contained in the Company's Proxy Statement for its 2001 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated herein by
reference to the section titled "Executive Compensation" contained in the
Company's Proxy Statement for its 2001 Annual Meeting of Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 11 is incorporated herein by
reference to the section entitled "Security Ownership Of Certain Beneficial
Owners and Management" contained in the Company's Proxy Statement for its 2001
Annual Meeting of Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 12 is incorporated herein by
reference to the section entitled "Certain Transactions" contained in the
Company's Proxy Statement for its 2001 Annual Meeting of Shareholders.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits.
2.1 Agreement and Plan of Merger, dated as of September 22, 2000, by and
between Nonvolatile Electronics, Incorporated and Premis
Corporation.(1)
3.1 Articles of Incorporation of NVE Corporation.(1)
3.2 By-laws of NVE Corporation.(2)
10.1 NVE Corporation 2000 Stock Option Plan.(3)
10.2 Employment Agreement between the Company and Daniel A. Baker (filed herewith).
(2) Incorporated by reference to the Company's filing on Form 8-K dated November 21, 2000.
(3) Incorporated by reference to the Company's filing on Form 8-K/A dated February 2, 2001.
(b) Reports on Form 8-K. The Company submitted an Amended Form 8-K dated February 2, 2001, Amendment No. 1 relating to the merger between Nonvolatile Electronics, Incorporated and Premis Corporation, including financial statement schedules for the period ended September 30, 2000.
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: June 1, 2001 By /s/ Daniel A. Baker
-------------------------------------
Daniel A. Baker
President and Chief Executive Officer
By /s/ Richard George
-------------------------------------
Richard George
Chief Financial Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on the dates in the capacities indicated.
Name Title Date
------------------ ------------------------------- ------------
/s/ Terrence Glarner Director and June 1, 2001
------------------ Chairman of the Board ------------
Terrence Glarner
/s/ Daniel A. Baker Director, June 1, 2001
------------------ President & Chief Executive Officer ------------
Daniel A. Baker (Principal Executive Officer)
/s/ Richard George Treasurer and June 1, 2001
------------------ Chief Financial Officer ------------
Richard George (Principal Financial and
Accounting Officer)
/s/ James Daughton Director and June 1, 2001
------------------ Chief Technical Officer ------------
James Daughton
/s/ Herbert Goronkin Director June 1, 2001
------------------ ------------
Herbert Goronkin
/s/ Robert Irish Director June 1, 2001
------------------ ------------
Robert Irish
|
REPORT OF INDEPENDENT AUDITORS
Board of Directors
NVE Corporation
|
We have audited the accompanying balance sheet of NVE Corporation as of March 31, 2001 and the related statements of operations, shareholders' equity and cash flows for the years ended March 31, 2001 and December 31, 1999, and the three-month period ended March 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NVE Corporation at March 31, 2001 and the results of its operations and its cash flows for the years ended March 31, 2001 and December 31, 1999, and the three-month period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States.
As discussed in Note 2 to the financial statements, effective January 1, 2000, the Company changed its method of accounting for recognizing revenue on technology licensing activities.
/s/ Ernst & Young LLP Minneapolis, Minnesota May 15, 2001 |
NVE CORPORATION
BALANCE SHEET
MARCH 31, 2001
ASSETS
Current assets:
Cash $1,492,080
Grants and contracts receivable 1,316,728
Inventories 1,087,816
Prepaid expenses and other assets 73,879
----------
Total current assets 3,970,503
Fixed assets:
Machinery and equipment 1,500,823
Furniture and fixtures 35,499
Leasehold improvements 352,640
Construction in progress 165,802
----------
2,054,764
Less accumulated depreciation 1,356,469
----------
Assets 698,295
----------
Total $4,668,798
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable $ 267,888
Accounts payable 384,300
Accrued expenses 237,244
Deferred revenue 1,315,422
----------
Total current liabilities 2,204,854
Shareholders' equity:
Common Stock 169,213
Additional paid-in capital 5,648,627
Accumulated Deficit (3,353,896)
-----------
Total shareholders' equity 2,463,944
-----------
Total liabilities and shareholders' equity $4,668,798
===========
|
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2001, THREE MONTHS ENDED MARCH 31, 2000, AND
YEAR ENDED DECEMBER 31, 1999
YEAR ENDED THREE MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 1999 1999
--------------------------------------------------------
(unaudited)
Revenues
Research and development $4,441,259 $1,239,488 $1,149,117 $5,028,358
Product sales 749,407 140,113 41,823 274,515
License fees 1,974,999 83,333 100,000 500,000
--------------------------------------------------------
7,165,665 1,462,934 1,290,940 5,802,873
Expenses
Research and development 5,047,924 1,241,713 1,064,576 5,046,571
Cost of sales 638,219 45,740 35,031 194,045
Selling, general & administrative 1,368,767 352,627 295,779 961,024
--------------------------------------------------------
Total expenses 7,054,910 1,640,080 1,395,386 6,201,640
--------------------------------------------------------
Income (loss) from operations 110,755 (177,146) (104,446) (398,767)
Royalty expense (21,239) - - -
Interest income 52,514 3,712 8,789 20,160
Interest expense (33,919) (8,043) (8,750) (44,726)
Other income 19,147 - - -
--------------------------------------------------------
Income (loss) before cumulative effect
of a change in accounting principle 127,258 (181,477) (104,407) (423,333)
Cumulative effect of a change
in accounting principle - (611,110) - -
--------------------------------------------------------
Net income (loss) 127,258 (792,587) (104,407) (423,333)
========================================================
Net income (loss) per share, basic and
diluted, before cumulative effect of
a change in accounting principle .01 (.01) (.01) (.03)
Net income (loss) per share, basic and
diluted, from cumulative effect of
a change in accounting principle - (.04) - -
--------------------------------------------------------
Net income (loss) per
basic and diluted share .01 (.05) (.01) (.03)
========================================================
Pro forma net loss and net loss per
share assuming change in accounting
principle is applied retroactively:
Net loss - - (21,074) (90,000)
Net loss per basic and diluted share - - - -
Weighted average shares outstanding:
Basic 16,852,042 16,561,400 15,947,191 15,873,469
Diluted 17,708,709 16,561,400 15,947,191 15,873,469
|
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED MARCH 31, 2001, THREE MONTHS ENDED MARCH 31, 2000, AND
YEAR ENDED DECEMBER 31, 1999
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
----------------------------------------------------------------------------------
Balance, December 31, 1998 1,675,000 $ 16,750 2,562,992 $ 25,630 $4,342,426 $(2,265,234) $2,119,572
Issuance of common stock 191,336 1,914 366,498 368,412
Net loss for year ended
December 31, 1999 (423,333) (423,333)
----------------------------------------------------------------------------------
Balance, December 31, 1999 1,675,000 16,750 2,754,328 27,544 4,708,924 (2,688,567) 2,064,651
Issuance of common stock 59,500 595 24,122 24,717
Net loss for three months
ended March 31, 2000 (792,587) (792,587)
----------------------------------------------------------------------------------
Balance, March 31, 2000 1,675,000 16,750 2,813,828 28,139 4,733,046 (3,481,154) 1,296,781
Exercise of stock
options and warrants 47,120 471 6,444 6,915
Repurchase of common stock (3,823) (38) (19,022) (19,060)
Recapitalization in
connection with merger
of Premis Corp. (1,675,000) (16,750) 14,064,103 140,641 928,159 1,052,050
Net income for year ended
March 31, 2001 - 127,258 127,258
----------------------------------------------------------------------------------
Balance, March 31, 2001 - $ - 16,921,228 $169,213 $5,648,627 $(3,353,896) $2,463,944
==================================================================================
|
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 2001, THREE MONTHS ENDED MARCH 31, 2000, AND
YEAR ENDED DECEMBER 31, 1999
YEAR ENDED THREE MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 1999 1999
--------------------------------------------------------
(unaudited)
OPERATING ACTIVITIES
Net income (loss) $ 127,258 $(792,587) $ (104,407) $ (423,333)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 256,275 67,249 54,850 236,977
Cumulative effect of a change
in accounting principle - 611,110 - -
Changes in operating
assets and liabilities:
Grants and contracts receivable (358,570) (2,844) (63,608) (167,191)
Inventories (503,841) 79,241 (128,654) (168,784)
Prepaid expenses and other (32,252) 1,049 (3,381) (17,127)
Accounts payable and
accrued expenses 271,837 11,802 (89,809) (73,278)
Deferred revenue 787,645 (83,333) - -
Billings in excess of costs on
research contracts (82,879) (56,594) (62,436) 95,055
--------------------------------------------------------
Net cash provided by (used in)
operating activities 465,473 (164,907) (397,445) (517,681)
INVESTING ACTIVITIES
Purchases of fixed assets (359,556) (27,180) (70,170) (292,409)
--------------------------------------------------------
Net cash used in investing activities (359,556) (27,180) (70,170) (292,409)
--------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from sale of common stock 6,915 24,717 7,881 261,081
Repurchase of common stock (19,060) - - -
Net proceeds from sale of common stock
from merger 1,052,050 - - -
Net proceeds from (repayment of)
note payable (36,015) (13,985) - (32,112)
--------------------------------------------------------
Net cash provided by financing activities 1,003,890 10,732 7,881 228,969
--------------------------------------------------------
Increase (decrease) in cash 1,109,807 (181,355) (459,734) (581,121)
Cash at beginning of period 382,273 563,628 1,144,749 1,144,749
--------------------------------------------------------
Cash at end of period $1,492,080 $ 382,273 $ 685,015 563,628
========================================================
|
SEE ACCOMPANYING NOTES.
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS NVE Corporation ("NVE" or "the Company") develops, produces and markets components that combine giant magnetoresistance ("GMR") materials with integrated circuits. It has historically been a research and development company funded largely by government contracts, and to a lesser extent by product sales, licenses and royalties. The Company first sold and shipped products using GMR materials in 1995 and produced the first known products combining GMR materials with integrated circuits in 1998. The Company has the capability to deposit and optically define conductor, dielectric and metal films, and to fully integrate circuit and magnetic device design. The Company's product areas include sensors, signal isolators and Magnetoresistive Random Access Memory ("MRAM"). The Company is in the product development and introduction stage for these products and has not earned significant revenue from its operations. Nearly all revenues are generated from sources within the United States.
Basis of Presentation
On November 21, 2000, then privately-owned Nonvolatile Electronics,
Incorporated ("NVE") and publicly-held Premis Corporation completed a merger
with Premis surviving under the new name NVE Corporation. The Company issued
new shares of Common Stock in exchange for outstanding shares of NVE capital
stock. The shares of Common Stock issued to NVE shareholders represented 94% of
the common shares outstanding immediately following the consummation of the
merger. In applying generally-accepted accounting principles ("GAAP"), the
Merger has been deemed to be equivalent, for accounting purposes, to NVE's
issuance of capital stock in exchange for the fair-market value of the assets
and liabilities of the Company. As a result, no goodwill has been recorded, and
the assets of NVE are recorded at their historic values.
Concurrent with the merger, NVE Corporation adopted the Premis Corporation fiscal year ended March 31. The audited transition period report from January 1, 2000, to March 31, 2000 has been presented along with the unaudited comparative prior period transition period from January 1, 1999 to March 31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a remaining maturity
of three months or less when purchased to be cash equivalents.
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.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB 101 requires that license and other up-front fees
received from research collaborators be recognized over the term of the
agreement unless the fee is in exchange for products delivered or services
performed that represent the culmination of a separate earnings process.
Effective January 1, 2000, the Company adopted SAB 101. As a result of the
adoption, the Company reported a cumulative effect of a change in accounting
principle in the amount of $611,110, or $.04 per share, which represents the
deferral of recoupable up-front license fees for which the earnings process is
not complete. The Company recognized $333,332 and $83,333 of revenue that was
included in the cumulative effect adjustment for the year ended March 31, 2001
and the three months ended March 31, 2000, respectively. The effect of that
revenue was to increase income by the amounts reported.
In June, 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires an entity recognize all derivatives as either assets or liabilities at fair value. This statement is effective for all fiscal quarters beginning after June 15, 2000. The Company adopted SFAS No. 133 effective April 1, 2001. The adoption of SFAS No. 133 did not impact the Company's financial position or its results of operations.
INVENTORIES
Inventories are stated at lower of cost, first-in, first-out (FIFO) method, or
market.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation of machinery and equipment, and
furniture and fixtures is recorded over the estimated useful lives of the
assets, generally five years, using the straight-line method. Amortization of
leasehold improvements is recorded using the straight-line method over the
lesser of the lease term or useful life of five years.
SUBLICENSE AGREEMENT
The sublicense agreement is stated at cost. Amortization was recorded over the
ten-year life of the agreement using the straight-line method.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of FASB No.
123, "Accounting for Stock-Based Compensation," but applies Accounting
Principles Board ("APB") Opinion No. 25 and related interpretations in
accounting for its plans. Under APB 25, when the exercise price of employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
NET INCOME PER COMMON SHARE
The Company calculates its income (loss) per share pursuant to SFAS No. 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 for all
periods except fiscal year 2001 because these securities would be anti-
dilutive. Stock options were not included in the computation of diluted
earnings per share per share if the exercise prices of the options were greater
than the market price of the common stock. The following table reflects the
components of common shares outstanding in accordance with SFAS 128. The
results for March 31, 2000 and December 31, 1999 reflect the conversion of NVE
shares at a rate of 3.5:1 and the conversion of Premis Corporation shares at a
ratio of 1:5.
YEAR ENDED 3 MOS. ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, DEC. 31,
2001 2000 1999 1999
--------------------------------------------------
Weighted avg. common shares outstanding-basic 16,852,042 16,561,400 15,947,191 15,873,469
Effect of dilutive securities:
Stock options 848,374 - - -
Stock warrants 8,293 - - -
--------------------------------------------------
Shares used in computing net income (loss)
per common share - diluted 17,708,709 16,561,400 15,947,191 15,873,469
==================================================
|
SEGMENT INFORMATION
The Company follows the provisions of SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." The Company derives its revenue from
one industry segment, government contracts. Until such time as the Company
diversifies its operations, this pronouncement has no significant impact on the
reporting practices of the Company.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences between the financial
reporting and tax bases of assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from the estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
short-term trade receivables and accounts and note payable. The carrying values
of the Company's financial instruments approximate fair value due to their
short-term nature.
ACCOUNTING FOR LONG-LIVED ASSETS
The Company records losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
3. INVENTORIES Inventories consist of the following:
MARCH 31,
2001
-----------
Raw materials $ 346,151
Work-in-progress 589,099
Finished goods 302,566
----------
1,237,816
Less obsolescence reserve (150,000)
-----------
$1,087,816
===========
|
4. INCOME TAXES As of March 31, 2001, the Company had net operating loss carry forwards of approximately $3,158,000 which expire in fiscal years 2006 through 2020 and $128,000 in research and development credits which can be used to offset federal income taxes. Credits will expire in fiscal years 2004 through 2006. 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. Significant components of the Company's deferred tax assets and liabilities are as follows:
MARCH 31,
2001
------------
Deferred tax assets:
Net operating loss carryforwards $ 1,140,000
Book over tax depreciation 53,000
Accrued vacation 161,000
Tax credit carryforward 128,000
------------
1,482,000
Valuation allowance (1,482,000)
------------
$ -
============
|
5. NOTES PAYABLE The Company has a note payable to a bank totaling $267,888 at March 31, 2001. The note accrues interest at a rate equal to 1.5% above the bank's index rate (9.0% at March 31, 2001). The note was amended in July 2000 and requires monthly payments of $6,532 with a balloon payment of the outstanding principal due July 15, 2001. Substantially all of the Company's assets are pledged as collateral on the note.
Interest paid was $31,769, $44,726 and $8,043 for the years ended March 31, 2001 and December 31, 1999, and the three-month period ended March 31, 2000, respectively.
6. STOCK OPTIONS AND WARRANTS The Company has an Employee Incentive Stock Option Plan. The plan provides for issuance to employees, Directors, and certain service providers of incentive stock options and non-statutory stock options. Generally, the options may be exercised at any time prior to expiration, subject to vesting based on terms of employment. Options granted are exercisable over a one- to six-year period or a one- to seven-year period from date of grant at prices not less than fair market value at the date the options are granted as determined by the Board of Directors. A summary of the Incentive Stock Options is shown in the following table:
WEIGHTED AVERAGE
SHARES OPTIONS EXERCISE PRICE
RESERVED OUTSTANDING PER SHARE
-----------------------------------------------
Balance at December 31, 1998 2,268,787 1,508,500 .13
Granted (82,250) 82,250 .17
Exercised - (29,750) .09
Terminated 8,750 (8,750) .15
---------------------------
Balance at December 31, 1999 2,195,287 1,552,250 .13
Granted (169,750) 169,750 .17
Exercised - (208,250) .11
Terminated 47,250 (47,250) .13
---------------------------
Balance at March 31, 2000 2,072,787 1,466,500 .14
Adjustment for change in stock plans (1,443,037) - -
Granted (631,500) 631,500 .96
Exercised - (96,250) .07
Terminated 1,750 (1,750) .16
---------------------------
Balance at March 31, 2001 * 2,000,000 $.49
===========================
|
*Pursuant to a certain employment agreement, the Company has committed to 378,250 option shares in excess of those authorized. The company plans to seek shareholder approval to amend the Company's 2000 Stock Option Plan to increase the shares reserved for issuance under the Plan.
As of March 31, 2001 and 2000 and December 31, 1999 there were exercisable options outstanding covering 1,124,958, 752,510 and 884,597 shares, respectively, at a weighted average exercise price of $.32, $.11 and $.11 per share, respectively. The fair value of options granted was $.98, $.17 and $.15 for 2001, 2000 and 1999 respectively. The remaining average exercisable life was 4.0 years at March 31, 2001.
The Company has elected to follow APB No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and income per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
risk-free interest rate of 5.6% for fiscal year 2001 and 6.0% for 2000, and
1999 respectively, expected volatility of 55%, a weighted-average expected life
of the options of four to six years, and no dividend yield.
Option valuation models were developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
YEAR ENDED 3 MOS. ENDED YEAR ENDED
MARCH 31, MARCH 31, DEC. 31,
2001 2000 1999
-------------------------------------
Net (loss) income applicable to common shares:
As reported $ 127,268 $(792,587) $(423,333)
Pro forma adjustment for stock options (228,649) (1,489) $ (10,775)
Pro forma net (loss) income (101,341) (794,076) (434,108)
|
During the initial phase-in period, the effects of applying SFAS 123 for recognizing compensation cost may not be representative of the effects on reported net income for future years because the options in the Incentive Stock Option Plans vest over several years and additional awards will be made in the future.
In fiscal year 2001, the Company issued five-year warrants in return for leasing rights. The warrants issued were exercisable immediately to purchase up to 20,370 shares of the Company's Common Stock at an exercise price of $.57 per share. The value assigned to these warrants of $13,823 is being amortized over the 36-month life of the leases.
7. COMMON STOCK The authorized stock of the Company is stated as 30,000,000 shares of Common Stock, $.01 par value and 50,000,000 shares of all types. The Company's Board of Directors may designate any series and fix any relative rights and preferences to authorized but undesignated stock.
8. PREFERRED STOCK At March 31, 2001, the Company had no Preferred Stock outstanding. Prior to the merger the Company had 1,675,000 shares of Preferred Stock outstanding, all of which was converted to Common Stock at a 3.5:1 ratio.
9. SUBLICENSE AGREEMENT The Company's founder, upon founding the Company, obtained a Technology License Agreement (the "Agreement") with Honeywell Inc. (now Honeywell International Inc.). The Agreement, which has been sublicensed to the Company, allows the use and sublicense of certain property dealing with MRAM technology in markets which are not central to the present or presently intended business markets of Honeywell, the developer of the technology.
In December 2000, the Company and Honeywell entered into a new agreement under which the Company gave up the right to further sublicense Honeywell MRAM technology from this date forward in exchange for a lump sum payment of $1.2 million. Under this agreement, the Company retains the right to access and use the Honeywell MRAM technology for product development.
10. LICENSE AGREEMENTS The Company has entered into two separate license agreements which provided for advanced payments plus royalties of 1.0% based upon revenue generated by the respective parties. To date, no royalty revenue has been recognized under either agreement.
11. LEASES The Company leases its facility under an operating lease that expires on December 31, 2003. Operating expenses, including maintenance, utilities, real estate taxes and insurance, are paid by the Company.
The Company also leases various pieces of equipment under operating leases. Terms of the leases range from 36 to 60 months through March 2005, with payments due the first of each month.
Total rent expense for operating leases, including building and equipment, was $773,517, $659,464 and $156,610 for the years ended March 31, 2001 and December 31, 1999, and the three-month period ended March 31, 2000, respectively.
Future minimum payments under non-cancelable operating leases, consist of the following at March 31, 2001:
YEAR OPERATING LEASE
ENDED FUTURE MINIMUM
MARCH 31, PAYMENTS
--------- ---------------
2002 $ 411,100
2003 378,228
2004 269,322
2005 7,796
2006 -
---------
Total minimum lease payments $ 382,746
=========
|
12. COMMITMENTS
Minnesota Technology, Inc. (formerly the "Greater Minnesota Corporation"), a
Minnesota nonprofit economic development organization, provided a grant of
$60,000 to the Company in funds for the research and development of new
products. The Company must repay the grant plus interest at a rate of 8% in
the form of a royalty of not less than $60,000 at the rate of 2.5% of sales
of products developed, unless the grant is terminated by the Minnesota
Technology, Inc. or the research is unsuccessful. The grant was accounted for
as a reduction in the cost of the research and development, and any payments
made to Minnesota Technology, Inc. will be charged to operations as royalty
expense. No royalties have been paid under this agreement.
13. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan. All employees are eligible to
participate in the plan the first quarter subsequent to attaining the age of
21. Employees may contribute up to 15% of their gross wages. Effective January
1, 1999, the Company began matching contributions equal to 100% of the first 2%
of elective salary deferral contributions made by eligible participants. The
Company made matching contributions of $60,884, $55,839 and $15,510 for the
years ended March 31, 2001 and December 31, 1999, and the three months ended
March 31, 2000, respectively.
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is effective as of this 29th day of January, 2001, by and between NVE Corp. ("Employer") and Daniel Baker ("Employee"). (The term "Employer" includes any present or future related or affiliated companies.)
WHEREAS, Employer desires to employ Employee as its President and Chief Executive Officer and Employee desires to be employed by Employer in such capacity.
NOW THEREFORE, in consideration of the foregoing the mutual promises contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT
(a) Employer agrees to employ Employee on a full time basis. Employee accepts such employment and agrees, so long as he continues to be employed by Employer, to devote his full time and skills to the conduct of Employer's business operations, performing such duties as are ordinarily performed by an employee in his position and as directed by the Board of Directors of Employer. Employee agrees to serve Employer diligently and faithfully to advance its best interests. Notwithstanding the foregoing, Employee is an employee at will and Employer has the right to terminate Employee at any time, with or without cause, under this Agreement.
(b) Employee will not, without the express written permission of Employer, engage in any substantial private business activities (whether or not entered into for profit) outside, or separate from his employment with Employer which would materially affect Employee's ability to perform his obligations hereunder. Nothing in this Agreement prohibits Employee from investing resources in a business enterprise.
2. COMPENSATION
(a) Salary. Upon the effective date of this Agreement Employee shall receive an annual base salary (the "Salary"), paid according to customary and usual payroll practices for employees of a similar class and status and subject to state and federal taxes, social security and other applicable withholdings, equal to one hundred seventy-five thousand dollars ($175,000). Salary increases, if any, are to be paid as determined by Employer's Board of Directors, in its sole discretion.
(b) Bonus. Employee shall also have the ability to earn an annual bonus in cash compensation equal to up to forty percent (40%) of the Salary (the "Bonus"). The Bonus shall be determined at the conclusion of each year of employment and shall be granted in the sole and absolute discretion of Employer's Board of Directors.
(c) Stock Options. Upon the effective date of this Agreement Employer will, subject to compliance with applicable tax, securities laws, and other legal requirements, grant to Employee and option to purchase up to seven hundred thousand (700,000) shares of Employer's common stock (the "Option"). The Option will be granted pursuant to a separate written stock option agreement in the customary form provided under Employer's 2000 Stock Option Plan and Employer agrees to structure the grants in a way which is tax advantageous to the Employee (including a possible mix of qualified and non-qualified stock options). The Option will have an exercise price not less than the fair market value of Employer's common stock on the date of grant, and will have a term of ten (10) years. The vesting of the Option will be as follows: 25% (175,000 shares) shall vest upon the effective date of this Agreement, An additional 25% (175,000 shares) shall vest upon each of January 29, 2002, January 29, 2003, and January 29, 2004.
(d) Benefits. Employer also agrees to provide Employee such benefits as are normally offered to other full time executive employees, all in accordance with the policies of Employer in effect from time to time during the term of this Agreement in connection with any such benefits.
3. TERM AND TERMINATION. Employee's employment hereunder is terminable
at will by Employer or Employee at any time. Accordingly, either Employer or Employee may terminate Employee's employment by Employer at any time with or without cause or reason. Employee's right to receive the compensation and benefits provided in this Agreement shall cease upon the effective date of termination under this Agreement. Any additional vesting of the Option shall cease upon the effective date of the termination under this Agreement.
4. CONFIDENTIAL INFORMATION ASSIGNMENT OF INVENTIONS
(a) CONFIDENTIAL INFORMATION means information, not generally known, and proprietary to Employer or to a third party for whom Employer is performing work, including, without limitation, patent or trade secret information, about Employer's processes and products, information relating to research, development, manufacture, purchasing, accounting, engineering, marketing, customer lists, merchandising, selling, leasing, servicing, finance and business systems and techniques. All information disclosed to Employee, or to which Employee obtain access, whether originated by Employee or by others, during the period of his employment, which he has reasonable basis to believe to be Confidential Information, or which is treated by Employer as being Confidential Information, shall be presumed to be Confidential Information.
(b) INVENTIONS means discoveries, improvements and ideas (whether or not shown or described in writing or reduced to practice) and works of authorship, whether or not patentable or copyrightable, (1) which relate directly to the business of Employer, or (2) which relate to Employer's actual or demonstrably anticipated research or development, or (3) which result from any work performed by me for Employer, (4) for which equipment, supplies, facility or trade secret information of Employer is used, or (5) which is developed on any Employer time.
(c) With respect to Inventions made, authored or conceived by Employer, either solely or jointly with others during his employment, whether or not during normal working hours or whether or not at Employer's premises, Employee will:
1. Keep accurate, complete and timely records of such Inventions, which records shall be Employer property and be retained on Employer's premises.
2. Promptly and fully disclose and describe such Inventions in writing to Employer
3. Assign to Employer all of his rights to such Inventions, and to applications for letters patent and/or copyright in all countries and to letters patent and/or copyrights granted upon such Inventions in all countries.
4. Acknowledge and deliver promptly to Employer (without charge to Employer but at the expense of Employer) such written instruments and to do such other acts as may be necessary in the opinion of Employer to preserve property rights against forfeiture, abandonment or loss and to obtain and maintain letters patent and/or copyrights and to vest the entire right and title thereto in Employer.
(d) The above provision of this Agreement does not apply to an Invention for which no equipment, supplies, facility or trade secret information of Employer was used and which was developed entirely on Employee's own time, and (1) which does not relate (a) directly to the business of Employer or (b) to Employer's actual or demonstrably anticipated research or development, or (2) which does not result from any work performed by Employee for Employer.
(e) Except as required in Employee's duties to Employer, Employee will never, either during his employment by Employer or thereafter, use or disclose any Confidential Information as defined herein.
(f) Upon termination of his employment with Employer, all records and any compositions, articles, devices, and other items which disclose or embody Confidential Information including all copies or specimens thereof in Employee's possession, whether prepared or made by Employee or others, will be returned by Employer to Employee.
5. GENERAL PROVISIONS
(a) Injunctive Relief. In recognition of the irreparable harm that violation of the covenants contained herein would cause Employer, Employee agrees that, in addition to any relief afforded by law, an injunction against such violation or violations may be issued against him and every other person concerned thereby. The parties understand that both damages and an injunction shall be proper modes of relief and are not to be considered alternative remedies.
(b) Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. The parties agree that any action brought under the terms of this Agreement shall be venued in Hennepin County in the State of Minnesota.
(c) Attorneys' Fees. If any legal action or other proceeding is brought to enforce this Agreement or because of an alleged dispute, breach, default or misrepresentation in connection with any provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.
(d) Notices. All notices, requests and other communications from any of the parties hereto to another shall be in writing and shall be personally served or sent by registered or certified mail, return receipt requested, and shall be deemed to have been given on the day when deposited in the United States Mails addressed to the other party as follows, provided that either party may from time to time change the address to which notices to it are to be sent by giving written notice to the other in accordance herewith. Notices to Employer shall be given to Employer at its registered office which, as of the date of this Agreement, is 11409 Valley View Road, Eden Prairie, Minnesota 55344. Notices to Employee shall be addressed to Employee at Employee's residence address as the same appears on Employer's records.
(e) Entirety of Agreement. This Agreement constitutes the final expression of the parties' agreement, and it is a complete and exclusive statement of the terms of that agreement. There are no agreements or understandings between Employer and Employee with respect to the subject matter hereof except as expressly herein stated. This Agreement supersedes and replaces any prior employment agreement between the parties whether oral or written relating generally to the same subject matter. Except as expressly provided herein, so long as Employee is employed by Employer, Employee will continue to be subject to Employer's written policies and procedures as may be amended from time to time and of which Employee receives a copy.
(f) Amendments. This Agreement may be modified or rescinded only by an instrument in writing signed by Employer and Employee. No amendment, alteration or modification of the express terms of this Agreement shall be binding unless set forth in an instrument in writing signed by Employer and Employee.
(g) Waiver. Waiver by either Employer or Employee of a breach of any provision, term or condition hereof shall not be deemed or construed as a further or continuing waiver thereof or a waiver of any breach of any other provision, term or condition of this Agreement.
(h) Assignment. The rights and obligations of Employer hereunder may be transferred or assigned to any successor, representative or assign of Employer. No assignment of this Agreement shall be made by Employee, and any purported assignment shall be null and void. All obligations of Employer and Employee arising out of this Agreement shall be binding upon their heirs, spouses, legal representatives, successors and permitted assigns.
(i) Severability. All provisions of this Agreement shall be deemed severable. The enforceability, illegality or invalidity of any provision herein or portion thereof shall not affect the enforceability, legality or validity of any other, further or additional provision hereof, all of which shall remain valid, binding and enforceable in accordance with their terms. Should any provision, term or condition of this Agreement be held unenforceable, illegal or invalid as being too broad with respect to duration, scope or subject matter, such provision, term or condition shall be deemed and construed to be reduced to the maximum duration, scope or subject matter allowable under applicable law.
(j) At-Will Employment. No provision of this Agreement shall be construed as giving Employee any right of continuing employment with Employer, it being understood that this Agreement and the employment relationship between Employer and Employee are terminable at will by Employer, with or without cause or reason.
(k) Survival of Obligations. Employee's obligations under Section 3 shall survive the termination of this Agreement and Employee's employment with Employer.
(l) Counterparts. This Agreement may be executed in any number of counterparts each of which shall be deemed an original, but all of which shall constitute one and the same instrument.
(m) Captions. The captions contained in this Agreement are for convenience of reference only and do not affect the meaning of any terms or provisions.
(n) Consideration; Reasonable and Necessary Provisions. The parties agree that the provisions of this Agreement are reasonable and necessary for the protection of Employer and that Employer's agreement to grant to Employee the Option constitutes consideration for Employee agreeing to be bound by the terms and conditions of this Agreement.
EMPLOYER: NVE CORP.
Dated: 1/29/01 By /s/ James M. Daughton
------------------------------------------
James M. Daughton, Chief Technical Officer
(Print Name and Title)
EMPLOYEE:
Dated: 1/29/01 By /s/ Daniel Baker
-------------------------------------------
Daniel Baker
|