UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO.1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): February 2, 2001
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NVE Corporation
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(Exact name of registrant as specified in its charter)
Minnesota
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(State or other jurisdiction of incorporation)
0-12196 41-1424202
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Commission File Number I.R.S. Employer
Identification number
11409 Valley View Road, Eden Prairie, Minnesota 55344
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (952) 829-9217
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PREMIS Corporation
13220 County Road 6, Plymouth, Minnesota 55441
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(Former name or former address, if changed since last report)
This filing is an amendment to NVE Corporation's previously filed Form
8-K dated November 21, 2000, regarding the merger of Nonvolatile Electronics,
Incorporated (NVE), a Minnesota corporation ("Merged NVE"), with and into PREMIS
Corporation, a Minnesota corporation ("Premis"), with Premis surviving under the
new name NVE Corporation (the "Company").
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The Merger of Merged NVE with and into Premis, with the Company
surviving, was a stock for stock transaction and no loans were utilized in the
transaction. The consideration provided by the parties pursuant to the Agreement
was negotiated between Merged NVE and Premis. In evaluating the Merger, Premis
considered whether it would be in best interests of its shareholders to acquire
a technology business through a merger or whether it should liquidate the
corporation and distribute the remaining assets to its shareholders. Merged NVE
considered the value of Premis's status as a publicly reporting company, its
ability to succeed to the reporting status of Premis and the cash assets of
Premis.
As of the Effective Date, pursuant to Rule 12g-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Company became the
successor issuer to Premis for reporting purposes under the Exchange Act and
elects to report under the Exchange Act as of the Effective Date. As such, in
order to comply with that certain letter dated as of April 7, 2000, addressed to
the Director of Listing Qualifications of the Nasdaq Stock Exchange, Inc., by
the Office of Small Business of the Securities and Exchange Commission, the
Company is providing the forgoing information.
FORWARD LOOKING STATEMENTS
Statements included in this Current Report on Form 8-K, 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.
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DESCRIPTION OF THE BUSINESS
GENERAL
As a result of the Merger, the Company has acquired the business of
developing, producing and marketing components that combine giant
magnetoresistance (GMR) materials with integrated circuits. Merged NVE was
formed in 1989 as the result of research completed by Dr. James Daughton while
employed with Honeywell. Historically, Merged 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 stock.
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. In each
of 1999 and 1998, Merged NVE spent approximately 825,000 hours on R&D
activities. In 1999, approximately $4,847,000 of the costs associated with such
R&D were borne directly by the customers of Merged NVE, and in 1998,
approximately $3,906,000 of the costs associated with such R&D were borne
directly by the customers of Merged NVE.
Merged 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. At the time of the Merger, Merged NVE was recognized as a
leader in both the development and application of GMR materials and other
advanced magnetic materials. The largest customer of Merged NVE at the time of
the Merger was 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 be a serious setback for the Company on a
going forward basis and would likely hamper future R&D activity.
Merged NVE developed the capability to deposit and optically define
conductor, dielectric and metal films, and to fully integrate circuit and
magnetic device design. Additionally, Merged NVE acquired certification to
manufacture products under ISO 9001. Due to product sales abroad, however,
Merged NVE also acquired some limited revenue risks from fluctuations in values
of foreign currency. The product areas acquired by the Company, 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 Merged 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, Merged 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 Merged NVE sensor, and several other
smaller users are in the process of converting to the Merged NVE sensor. New
applications the Company may target include currency detection, in-bearing
sensors, pacemakers, anti-skid brake systems ("ABS"), currency detection and
medical electronics.
As a result of the Merger, the Company has acquired US and foreign
patents for the GMR materials used in its sensor and a US patent for the circuit
configuration. The Company has also
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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, Merged 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 $1000), while manufacturers'
representatives and direct sales account for larger orders. The largest sensor
order from Merged NVE totaled approximately $100,000.
Prior to the Merger, Merged NVE was 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 Merged NVE uses the ISOLOOP-Registered Trademark-, an integrated
coil made by integrated circuit techniques that are 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-Registered Trademark- 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-Registered Trademark- isolators do not require
such signals. Furthermore, ISOLOOP-Registered Trademark- 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-Registered Trademark-
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-Registered Trademark- 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.
The Company has acquired Merged NVE's 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-Registered Trademark- products, are the primary
barriers to those competing with the Company' 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, Merged NVE had used direct sales and appointed
distributors for distribution of its isolators, however, future distribution
may include the use of
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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-Registered Trademark-products. Prior to the Merger, sales of
isolators have typically been for purposes of design analysis and low volume
production. Additionally, isolators have been sold to many large electronics
and semiconductor corporations for testing purposes. 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 Merged 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 Merged NVE. In fact, Merged 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.
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 that the patent coverage it acquired from
Merged NVE for MRAM is broad. Not only did it acquire the intellectual
property of Merged NVE relating to MRAM, but further, the Company has
acquired a license to use Honeywell MRAM technology. The Company further
acquired rights under license agreements with Motorola and 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
As was the case for Merged NVE, contract R&D will provide a majority of
the Company's revenues. Contract R&D was the source of Merged NVE's underlying
patents and product developments for the sensor, isolator and MRAM products.
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The Company acquired 16 US patents and 14 patents pending, from
Merged NVE. Additionally, the Company acquired 2 foreign patents and 6
foreign patents 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 Semi-conductor. These competitors,
as well as several other isolator producers, 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.
EMPLOYEES
As of December 1, 2000, the Company had 56 employees, 49 of which
were full-time employees: one executive, four administrative employees, six
sales and marketing employees, 20 technicians and 25 scientists. Nine
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.
RISK FACTORS
THE LIQUIDITY OF THE COMMON STOCK OF THE COMPANY MAY BE LIMITED BY
BROKER-DEALER REGULATIONS CONCERNING SALES OF "PENNY STOCK." Federal regulations
promulgated under the Exchange Act regulate the trading of so-called "penny
stocks" (the "Penny Stock Rules"), which are generally defined as any security
not listed on a national securities exchange or Nasdaq, priced at less than
$5.00 per share and offered by an issuer with limited net tangible assets and
revenues. In addition, equity securities listed on Nasdaq that are priced at
less than $5.00 per share are deemed penny stocks for the limited purpose of
Section 15(b)(6) of the Exchange Act. Therefore, trading of common stock of the
Company, if it is priced below $5.00 per share (which is consistent with current
pricing), will be subject to the provisions of Section 15(b)(6) of the Exchange
Act, which make it unlawful for any broker-dealer to participate in a
distribution of any penny stock without the consent of the SEC if, in the
exercise of reasonable care, the
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broker-dealer is aware of or should have been aware of the participation of a
previously sanctioned person. In such event, it may be more difficult for
broker-dealers to sell the common stock of the Company, and purchasers of shares
of common stock of the Company may experience difficulty in selling such shares
in the future in secondary trading markets.
So long as the common stock of the Company is not traded in the Nasdaq
SmallCap Market or Nasdaq National Market, trading, if any, is subject to the
Penny Stock Rules. Under Exchange Act Rule 15g-8, broker-dealers must take
certain steps prior to selling a penny stock. Many brokers refrain from any
trading in such stock as a result of the requirements which include:
- obtaining financial and investment information from the
investor;
- obtaining a written suitability questionnaire and purchase
agreement signed by the investor;
- providing the investor with a written identification of the
shares being offered and in what quantity; and
- delivering to the investor a written statement setting forth
the basis on which the broker-dealer approved the investor's
account for the transaction.
If the Penny Stock Rules are not followed, the investor has no
obligation to purchase the shares. Accordingly, the application of the Penny
Stock Rules makes it more difficult for broker-dealers to sell the common stock,
and purchasers may have difficulty in selling the shares in secondary trading
markets.
EFFECTIVE ON JULY 17, 1998, THE COMMON STOCK OF THE COMPANY WAS
DELISTED FROM TRADING ON THE NASDAQ NATIONAL MARKET AND THE NASDAQ SMALLCAP
MARKET. The Company may apply for initial listing of its common stock on the
Nasdaq SmallCap Market. To qualify, however, the Company must comply with the
applicable requirements for initial inclusion on the Nasdaq SmallCap Market.
Failure to comply with these requirements, which requirements are not currently
being met by the Company, may result in the common stock of the Company not
qualifying for listing on the Nasdaq SmallCap Market. For listing on the Nasdaq
National Market, the Company would have to comply with certain initial listing
requirements that are more stringent than the comparable initial listing
requirements for the Nasdaq SmallCap Market.
YOU MAY EXPERIENCE VOLATILITY IN THE PRICE OF THE COMMON STOCK OF THE
COMPANY. The market price of the common stock of the Company may be highly
volatile and could be subject to wide fluctuations in response to quarterly
variations in operating results; announcements of technological innovations or
new software by the Company or its competitors, services or products; changes in
financial estimates by securities analysts or other events or factors; and
significant sales into a low volume trading market, many of which are beyond the
control of the Company. In addition, the stock market has experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many technology and service companies and
that often have been unrelated to the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of the
common stock of the Company. In the past, following periods of volatility in the
market price for a company's securities, securities class action litigation
often has been instituted. Such litigation could result in substantial costs and
a diversion of management attention and resources, which could have a material
adverse effect on the business, financial condition and operating results of the
Company.
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THE COMPANY DOES NOT INTEND TO PAY DIVIDENDS. The Company plans to
retain all earnings in the foreseeable future for continued growth and does not
expect to declare or pay any cash dividends in the foreseeable future. Moreover,
the ability by the Company to pay dividends in the future may be restricted by
its covenants with commercial lenders and institutional investors.
THE COMPANY WILL BE CONTROLLED BY A SMALL NUMBER OF SHAREHOLDERS.
Currently, the directors, executive officers and certain principal shareholders
of the Company beneficially own approximately 75% of the outstanding common
stock. As a result, such directors, officers and certain principal shareholders
may have the ability to effectively control the election of the entire Board of
Directors and the affairs of the Company, including, but not limited to, all
fundamental corporate transactions such as acquisitions, mergers, consolidations
and the sale of substantially all of the assets of the Company.
THE DIRECTORS OF THE COMPANY MAY CREATE ADDITIONAL CLASSES OF STOCK
WITHOUT SHAREHOLDER ACTION. The Board of Directors of the Company may at any
time, without any action by the shareholders of the Company, designate and issue
such classes or series of capital stock as it deems appropriate, and establish
the rights, preferences and privileges of such capital stock, including
dividend, liquidation and voting rights. No shares of preferred stock or other
senior security are currently designated, and there is no current plan to
designate or issue any such securities. The ability of the Board of Directors of
the Company to designate and issue additional classes or series of capital
stock could impede or deter an unsolicited tender offer or takeover proposal
regarding the Company. The issuance of additional shares having preferential
rights could adversely affect the voting power and other rights of holders of
the common stock of the Company.
MINNESOTA LAW CONTAINS CERTAIN ANTI-TAKEOVER PROVISIONS. Certain
provisions of Minnesota law applicable to the Company could have the effect of
discouraging certain attempts to acquire the Company, which could deprive the
shareholders of the Company of opportunities to sell their shares at prices
higher than prevailing market prices and may also have a depressive effect on
the market price of the securities of the Company.
THE LIABILITY OF THE MANAGEMENT OF THE COMPANY WILL BE LIMITED. The
Articles of Incorporation of the Company provide, as permitted by Minnesota law,
that its directors shall have no personal liability for certain breaches of
their fiduciary duties to the Company. This provision may reduce the likelihood
of derivative litigation against directors and may discourage shareholders from
bringing a lawsuit against directors for a breach of their duty.
THE COMPANY WILL BE DEPENDENT ON KEY PERSONNEL. For the foreseeable
future, the Company will place substantial reliance upon the personal efforts
and abilities of Dr. James Daughton, Chief Technical Officer. The loss of Dr.
Daughton's services likely would have a material adverse effect on the
business, operations, revenues and/or prospects of the Company. The Company
currently has key man life insurance covering Dr. Daughton. The success of
the Company is also dependent upon its ability to retain and hire additional
highly skilled personnel. Competition among technology companies for
experienced personnel is intense. There can be no assurance that the Company
will be able to retain such personnel or hire and retain additional qualified
and skilled personnel.
THE SUCCESS OF THE PROPOSED OPERATIONS OF THE COMPANY IS HIGHLY
SPECULATIVE. The success of the proposed plan of operation will depend to a
great extent on the operations, financial condition and management of the
Company.
THE COMPANY WILL DEPEND ON CONTRACTS WITH VARIOUS GOVERNMENTAL SOURCES.
The contracts that the Company has with the government provide that they may be
cancelled at any time for any or no
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reason. The cancellation of any contract could mean that the Company would have
to curtail or stop operations or close permanently.
THERE ARE RISKS ASSOCIATED WITH MANAGEMENT OF A CHANGING BUSINESS. The
Company has experienced substantial changes in and expansion of its business and
operations and expects that it will continue to experience periods of rapid
change in connection with the intended development of GMR material-based
products. The past expansion of Merged NVE has placed, and any future expansion
of the Company would place, significant demands on the administrative,
operational, financial and other resources of the Company. The Company expects
operating expenses and staffing levels to increase substantially in the future.
In particular, the Company intends to hire a significant number of additional
skilled personnel, including persons with experience in the semiconductor
industry, and, in particular, persons with sales and marketing experience.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to attract or retain additional highly qualified senior
managers and technical persons in the future. The Company also expects to expend
resources with respect to future expansion of its accounting and internal
management systems and the implementation of a variety of new systems and
procedures. In addition, the Company expects that future expansion will continue
to challenge its ability to hire, train, motivate and manage its associates. If
the revenues of the Company do not increase in proportion to its operating
expenses, the management systems of the Company do not expand to meet increasing
demands, the Company fails to attract and retain qualified personnel or the
management of the Company otherwise fails to manage the expansion of the Company
effectively, there would be a material adverse effect on the business, financial
condition and operating results of the Company.
THERE ARE RISKS ASSOCIATED WITH ENTERING NEW MARKETS. To obtain market
share in the sales of sensors and isolators requires time for manufacturers to
test, design and prototype new products. New product development cycles may take
several years before a product is ready for market and sold in volume. During
the development period, the Company or its representatives must assist the
manufacturer with samples and technical support while achieving only minimal
revenues. These long manufacturer development cycles may extend beyond the
financial strength of the Company or the will of its distributors to endure.
THE COMPANY FACES THE RISK OF PRODUCT LIABILITY CLAIMS. The Company,
like all manufacturers, faces the risk of product liability claims. The Company
will obtain product liability insurance to meet its current risks and will
continue to evaluate risks as sales increase and product lines expand. There is
no assurance, however, that the coverage limits of the insurance policy of the
Company will be adequate. Litigation could result in substantial costs to, and a
diversion of effort by, the Company, but may be necessary to defend the Company
against such claims. Adverse determinations in any litigation could subject the
Company to significant liabilities to third parties and prevent the Company from
developing, selling or using its products, any of which could have a material
adverse affect on the business of the Company.
THE COMPANY WILL NEED ADDITIONAL FINANCING. The Company expects that it
will need to raise additional funds in order to support more rapid expansion,
develop new or enhanced services and products, respond to competitive pressures,
acquire complementary businesses or technologies or respond to unanticipated
requirements. If additional funds are raised through the issuance of equity
securities, the percentage ownership of shareholders will be reduced,
shareholders may experience additional dilution in net book value per share or
such equity securities may have rights, preferences or privileges senior to
those of the holders of the common stock of the Company. Additional financing
may not be available when needed on terms favorable to the Company, if at all.
If adequate funds are not available on acceptable terms, the Company may be
unable to develop or enhance its services and products, take advantage of future
opportunities or respond to competitive pressures or unanticipated
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requirements, any of which could have a material adverse effect on the business,
financial condition and operating results of the Company.
THE COMPANY MAY UNDERTAKE ACQUISITIONS, JOINT VENTURES AND OTHER
STRATEGIC RELATIONSHIPS. While the Company has no current agreements with
respect to any potential acquisitions, the Company may make acquisitions in the
future. Acquisitions entail numerous risks, including difficulties in the
assimilation of acquired operations and products, diversion of management's
attention from other business concerns, amortization of acquired intangible
assets and potential loss of key employees of acquired companies. No assurance
can be given as to the ability of the Company to consummate any acquisitions or
integrate successfully any operations, personnel, services or products that
might be acquired in the future, and the failure of the Company to do so could
have a material adverse effect on the business, financial condition and
operating results of the Company.
THE COMPANY WILL BE DEPENDANT UPON ITS PROPRIETARY TECHNOLOGY. The
Company holds several U.S. and foreign patents, as well as several pending
patents. There is no assurance that any of the pending patents will issue.
Additionally, as the Company will rely on a combination of trade secret
practices and non-disclosure agreements with it employees and vendors to protect
its rights to its products, there can be no assurance that any steps taken by
the Company will be adequate to deter misappropriation of its proprietary rights
or the development of competing products. Further, there is no assurance that
the products of the Company do not infringe on the legal rights of others. Any
such claims, with or without merit, can be time consuming and costly to defend.
THE COMPANY MAY FIND ITS MRAM PATENTS AND SUBLICENSE RIGHTS TO BE
INSUFFICIENTLY BROAD TO INSURE ITS PARTICIPATION IN A SUCCESSFUL MRAM MARKET.
The Company believes that the patents it has issued and applied for, and the
license that it has acquired from Honeywell, are important to MRAM
technology. If MRAM becomes a successful application of GMR technology in the
manufacturing of computer memory, no assurances can be given that it will
require the use of the patents of the Company or Honeywell, and therefore,
generate future license fees and royalties for the Company.
DESCRIPTION OF PROPERTY
The principal executive office of the Company is located at 11409
Valley View Road, Eden Prairie, Minnesota 55344. The Company leases this space,
which consists of approximately 5950 square feet of office space, pursuant to a
five year lease agreement. The lease agreement will terminate on December 31,
2003. The annual rent is $54,948, $56,604, $58,272, $ 60,048 and $61,836,
respectively, which is payable in monthly installments on the first day of the
month.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
Name Age Position
- ------------------ --------- ------------------------------------------------
Daniel A. Baker 43 President, Chief Executive Officer and Director
James Daughton 64 Chief Technical Officer and Director
Richard George 56 Treasurer and Chief Financial Officer
Terrance Glarner 57 Director
Herbert Goronkin 64 Director
Robert Irish 61 Director
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Daniel A. Baker, President, Chief Executive Officer and Director,
age 43, was elected as an officer and director of the Company effective as of
January 29, 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 more than 20 years of experience in the high-tech
industry 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 the Effective Date of the Merger and the
Chief Technical Officer since January 29, 2001. Previously, from the
Effective Date of the Merger to January 29, 2001, Dr. Daughton served as the
Chief Executive Officer and Chairman of the Board. Prior to the Merger, Dr.
Daughton served as a director of Merged NVE from its inception in 1989 to the
Effective Date of the Merger, and the President of Merged NVE from 1992 to
the Effective Date of the Merger. 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 56, has been
an officer of the Company since the Effective Date of the Merger. Prior to the
Merger, Mr. George served as the Chief Financial Officer of Merged NVE from
March, 1995 to the Effective Date of the Merger. From 1991 to 1995, Mr. George
served as Controller for Merged 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.
Terrence Glarner, Director and Chairman of the Board, age 57, has
been a director of the Company since the Effective Date of the Merger and the
Chairman of the Board since January 29, 2001. Prior to the Merger, Mr.
Glarner served as a director of Merged NVE from August, 1999 to the Effective
Time of the Merger. Since February, 1993, Mr. Glarner has been the President
of West Concord Ventures, Inc. Mr. Glarner also consults with Norwest Venture
Capital, an entity affiliated with Norwest Growth Fund, Inc. Prior to
starting West Concord Ventures, Inc., Mr. Glarner was the President of North
Star Ventures, Inc. from 1988 to February 1993, a firm which he joined in
1976. From 1968 to 1976, Mr. Glarner was a Securities Analyst and Vice
President in the Research Department of Dain Bosworth, Inc. Mr. Glarner has a
B.A. in English from the University of St. Thomas, a J.D. from the University
of Minnesota School of Law and is a Chartered Financial Analyst. Mr. Glarner
supervised investments in approximately 100 small companies during his
involvement with North Star Ventures. Mr. Glarner currently serves as a
director on the following publicly held companies: Aetrium, Cima Labs,
Datakey and FSI. He is also a director of Oncotech, Inc.
Herbert Goronkin, Director, age 64, has been a director of the Company
since the Effective Date of the Merger. Prior to the Merger, Mr. Goronkin served
as a director of Merged NVE from 1995 to the Effective Date of the Merger. From
1977 to the present, Dr. Goronkin has held various positions including the
position of Vice President and Director of the Physical Research Laboratory at
Motorola Laboratories in Phoenix, Arizona. Dr. Goronkin has more than 25 patents
and has authored numerous papers. He received B.S., M.S. and Doctorate degrees
in physics from Temple University in 1961, 1962 and 1973, respectively. He is a
Fellow of the IEEE and a member of both the American Physical Society and Sigma
Xi.
Robert Irish, Director, age 61, has been a director of the Company
since the Effective Date of the Merger. Prior to the Merger, Mr. Irish served as
a director of Merged NVE from 1992 to the Effective Date of the Merger.
Additionally, Mr. Irish was a founding investor in Merged NVE. Mr. Irish
recently formed the RICE Group to consult in Information Technology. Since 1994,
Mr. Irish has held a number of sales, consulting and technical positions, most
recently with Compuware and Prodea Software. From 1988 to 1994, Mr. Irish acted
as a consultant and co-investor with Norwest Venture Capital. From 1981 to 1988,
Mr. Irish was the Executive Vice President of Centron DPL, responsible for
11
technical marketing, product marketing and research and development. Prior to
that time, from 1966 to 1981, Mr. Irish worked at IBM in management, sales and
systems. Mr. Irish attended Rensselaer Polytechnic Institute and received a B.S.
in Physics from Syracuse University in 1965. He has 3 issued patents dealing
with magnetic intrusion detection systems.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the executive
officers of Merged NVE whose compensation exceeded $100,000 per year for the
years 1999, 1998 and 1997:
ANNUAL OTHER
COMPENSATION COMPENSATION
-------------------------------------------------------------------------
NAME AND TITLE YEAR SALARY BONUS
- -------------- ---- ------ ------
James Daughton(1).................. 1999 $147,500 $80,000 $33,925(2)
President and CEO 1998 $137,500 $40,000 $31,625(2)
1997 $120,000 0 $27,600(2)
John Myers......................... 1999 $102,080 $15,000 $23,478(2)
Vice President 1998 $96,480 $10,000 $22,190(2)
1997 $85,807 0 $19,736(2)
(1) For a description of the stock and options held by Dr. Daughton, please
see the table set forth in Item 1 of this Current Report on Form 8-K
regarding beneficial ownership of the Company.
(2) Representing 2% matching contributions to the Company's Employee
Retirement 401(k), together with other fringe benefits such as
insurance premiums.
It is expected that the Company will compensate outside directors with
stock options of the Company under terms to be determined.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Merger, Terrence Glarner was a member of the Boards of
Directors of both Merged NVE and Premis. Mr. Glarner held shares of common stock
of Premis and options to purchase shares of common stock of both Premis and
Merged NVE. Furthermore, Mr. Glarner acted as an associate of Norwest Venture
Capital, a significant shareholder Merged NVE. Mr. Glarner was instrumental in
the introduction of Premis and Merged NVE. Mr. Glarner did not receive any
special fee or other compensation in connection with the Merger and he abstained
from voting on the Merger as a director of both Merged NVE and Premis. Mr.
Glarner did, however, vote for the Merger on behalf of Norwest Venture Capital
and individually as a shareholder of Premis.
Prior to the Merger, Robert Irish, held shares of common stock of both
Merged NVE and Premis. Mr. Irish voted for the Merger as both a shareholder of
Merged NVE and Premis.
DESCRIPTION OF SECURITIES
CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000
shares, 30,000,000 shares of which are designated common stock, $.01 par value,
and 20,000,000 shares of which are undesignated
12
shares, $.01 par value. As of November 21, 2000, 16,919,008 shares of common
stock of the Company are issued and outstanding, all of which will be fully paid
and non-assessable.
COMMON STOCK
Holders of common stock of the Company have no preemptive,
subscription, conversion or redemption rights pertaining to the shares. The
absence of preemptive rights could result in a dilution of the interest of
existing shareholders, should additional shares of the common stock of the
Company or other capital stock convertible into common stock of the Company be
issued. Holders of shares of common stock of the Company are entitled to receive
such dividends, as may be declared by the Board of Directors of the Company, out
of assets legally available therefore, and to share ratably in the assets of the
Company available upon liquidation. Each share of common stock of the Company
entitles the holder thereof to one vote, in person or by proxy, upon all matters
submitted for a vote by the shareholders of the Company. Holders of common stock
of the Company do not have cumulative voting rights for the election of
directors. Thus, the owners of a majority of the voting power outstanding may
elect all of the directors, if they choose to do so, and the owners of the
balance of such shares would not be able to elect any directors.
The rights of holders of the shares of common stock of the Company may
become subject in the future to prior and superior rights and preferences in the
event that the Board of Directors of the Company establishes one or more
additional classes of common stock, or one or more series of preferred stock.
PREFERRED STOCK
At present, the Company has no plans to authorize or issue any shares
of preferred stock.
WARRANTS AND OPTIONS
As of November 21, 2000, there are options to purchase up to
1,629,314 shares of common stock of the Company, at exercise prices ranging
from approximately $.125 to $25, and warrants to purchase up to 313,145
shares of common stock of the Company, at exercise prices ranging from
approximately $.17 to $.57, currently outstanding. The options expire at
various dates through 2007, and the warrants expire at various dates through
2001.
TRANSFER AGENT
The transfer agent and registrar for the common stock of the Company is
Corporate Stock Transfer, Inc. The offices of Corporate Stock Transfer, Inc. are
located at 3200 Cherry Creek Drive South, #430, Denver, Colorado 80209.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MERGED NVE
GENERAL
As a result of the Merger, the Company acquired the business of
developing, producing and selling components that combine certain magnetic
materials with integrated circuits. Over the past several years, Merged NVE
engaged in materials and device research and development funded principally
by contracts and grants from agencies of the US government. Merged 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. Further, the
Company will seek investment and revenue from license agreements to fund
these expenditures.
RESULTS FROM OPERATIONS
THREE AND SIX-MONTHS ENDED SEPTEMBER 30, 2000.
Revenues for the three and six months ended September 30, 2000 were
$1,337,293 and $2,857,180 respectively, which represent a decrease of 3.9%
and 8.5%, respectively, from revenues of $1,391,651 and $3,123,553 in the
corresponding period of the prior year. Such decreases in revenue were due
primarily to decreases in research and development revenues as the result of
the completion of several large government contracts and the receipt of new
awards moving out to government fiscal 2001 year funding. Product sales
increased in the three months by 203.1% to $166,621 from $54,977 and by
219.4% for the six months to $314,071 from $98,335 in the prior year. License
revenues of $181,250 for the three months and $362,500 for the six months are
the result of the new Securities and Exchange Commission Staff Accounting
Bulletin #101 on Revenue Recognition concerning license amortization over
useful life rather than point of sale.
Expenses decreased by 10.1% and 3.6% respectively to $1,515,008 and
$3,105,065 in the three and six months from $1,684,874 and $3,222,831 in the
same periods of the prior year. Research and development expenses decreased
by 34.6% and 12.7% to $863,281 and $2,072,568 in the three and six months
from $1,319,255 and $2,374,118 primarily as a result of the completion of the
Department of Commerce Advanced Technology Program which helped fund the
isolator development. Such program required matching funding. Costs of sales
for products increased by 87.0% and 25.5% in the three and six months and
were the result of significant increases in product revenues. Selling,
general and administrative expenses increased by 77.4% and 21.1% in the three
and six months to $589,665 and $910,121 from $332,386 and $751,233
respectively in the prior year. The three and six months include increases in
legal fees and professional fees dealing with the merger, licensing
activities and patent expenses.
Net Other Income and Expenses of $2,327 in the three months and
$1,580 in the six months reflect higher interest on bank balances and lower
interest costs on bank borrowings. The Net Loss of $175,388 and $246,305 for
the three and six months are compared to losses of $298,410 and $109,140 for
the prior year. Completion of the Department of Commerce ATP Program and
related matching funds offset the increased product shipments and increased
margins. New research and development programs bid in the last six months for
fiscal year 2002 effort will not require matching funds similar to the ATP
investments. Further anticipated growth in license revenue in the December
2000 ending period is anticipated to produce an operating profit for the full
nine months and to offset the investments made in the six months ending
September 30, 2000.
14
TWELVE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
Revenues for the twelve months ending December 31, 1999 were
$5,802,873, a decrease of 3.6% from revenues of $6,011,293 for the year
ending December 31, 1998. The decrease in revenue was due primarily to an
extraordinarily high license revenue in 1998 of $1,900,000, compared with a
license revenue of $500,000 in 1999.
Costs of sales increased by approximately 13.8% to $4,842,677 for
the year ending December 31, 1999, compared to $4,253,754 for the year ending
December 31, 1998. Much of this cost of sales increase was due to
matching requirements for funding under terms of the Advance Technology
Program on isolators with the Department of Commerce.
Gross Margins decreased by approximately 45.4% to $960,196 for the
current quarter and for the year ending December 31, 1999, as compared to
$1,757,540 for the year ending December 31, 1998. These decreases were due
primarily to higher cost of sales and lower license revenue in 1999.
Research and development expenses (non-contract) decreased by
approximately 35.7% to $304,400 for the year ending December 31, 1999, as
compared to $473,128 for the year ending December 31, 1998. These decreases
were supplemented by contract funding for isolators under the Advanced
Technology Program from the Department of Commerce.
Selling, general and administrative expenses for the year ending
December 31, 1999, increased by 20.1% to $1,052,538 compared to $876,614 for
the year ending December 31, 1998. The increase is due in part to higher
legal costs for patent activities.
Other Income/Expenses showed gains of $24,566 for the year ending
December 31, 1999, compared to $28,758 for the year ending December 31, 1998.
Lower interest income and higher interest expense were the primary causes for
the difference.
Merged NVE had a net loss for the year ending December 31, 1999, of
$423,333 compared to net income of $377,540 for the year ending December 31,
1998. The primary causes were a lower license revenue in 1999 compared to
1998, and an increase in costs of sales due to matching requirements on an
isolator research and development contract from the Department of Commerce.
LIQUIDITY AND CAPITAL RESOURCES
Merged NVE had cash on September 30, 2000 of $670,115, compared with
$531,402 on September 30, 1999. The increase in cash is primarily due to the
collection of receivables from government contracts and increased product
sales. Merged NVE's use of cash has been and continues to be primarily for
isolator product and business development.
INFLATION
Inflation has not had a significant impact on the operations of
Merged NVE since its inception. Prices for products of Merged 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 Merged NVE's products. Rates paid by
the US Government on research and development contracts are adjustable with
inflation.
15
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
The common stock of the Company 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 high and low closing prices of the
common stock of the Company. Prices through July 17, 1998, are high and low
closing sale prices as reported by the Nasdaq National Market. Effective the
close of business on July 17, 1998, the common stock of Premis was delisted
from the Nasdaq National Market for failure to satisfy the revised listing
maintenance standards adopted by Nasdaq. Prices for the period from July 17,
1998, through September 30, 2000, represent high and low bids as reported on
the OTC Bulletin Board. Prices for the third quarter of fiscal 2000 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, 2000. 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 1998
First Quarter $1.125 $1.797
Second Quarter .75 1.406
Third Quarter .75 1.313
Fourth Quarter .375 1.00
FISCAL 1999
First Quarter $.594 $.938
Second Quarter .734 1.000
Third Quarter .250 1.282
Fourth Quarter .375 1.406
FISCAL 2000
First Quarter $.438 $1.031
Second Quarter .438 818
Third Quarter .75 1.875
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
made a distribution in partial liquidation to its shareholders.
As of the Effective Date of the Merger, the Company had approximately
190 shareholders of record.
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.
RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information with respect to all unregistered
sales of securities by Merged NVE within the past three years:
In December 1997, Merged NVE's issued 10,000 shares of its common
stock to an individual in connection with the purchase of vested option
shares at an exercise price of $.125 per share pursuant to Merged NVE's 1990
Stock Option Plan.
16
In 1998 Merged NVE issued an aggregate of 39,600 shares of its
common stock to four individuals in connection with the purchase of vested
option shares at an exercise price ranging from $.125 to $.50 per share
pursuant to its 1990 Stock Option Plan.
In February 1998 and March 1998, Merged NVE issued an aggregate of
8,380 shares of its common stock to three individuals in connection with the
purchase of warrant shares at an exercise price of $.60 per share.
In May 1998 and December 1998, Merged NVE issued nonqualified and
incentive stock options to twelve individuals to purchase an aggregate of
157,500 shares of its common stock at an exercise price of $.60 per share,
exercisable over a five-year period, pursuant to its 1990 Stock Option Plan.
In April 1999 and May 1999, Merged NVE issued an aggregate of 8,500
shares of its common stock to three individuals in connection with the
purchase of vested option shares at an exercise price ranging from $.125 to
$.60 per share pursuant to its 1990 Stock Option Plan.
In December 1999, Merged NVE issued an aggregate of 182,836 shares
of its common stock to nineteen individuals pursuant to a private offering to
its employees at a purchase price of $2.00.
In 1999, Merged NVE issued nonqualified and incentive stock options
to four individuals to purchase an aggregate of 23,500 shares of its common
stock at an exercise price of $.60 per share, exercisable over a five-year
period, pursuant to its 1990 Stock Option Plan.
In 2000, Merged NVE issued an aggregate of 87,000 shares of its
common stock to six individuals in connection with the purchase of vested
option shares at an exercise price ranging from $.125 to $.60 per share
pursuant to its 1990 Stock Option Plan.
In 2000, Merged NVE issued an aggregate of 19,020 shares of its
common stock to two individuals in connection with the purchase of warrant
shares pursuant to a cashless exercise provided such warrants.
In 2000, Merged NVE issued nonqualified and incentive stock options
to eight individuals to purchase an aggregate of 118,500 shares of its common
stock at an exercise price of $.60 per share, exercisable over a five-year
period, pursuant to its 1990 Stock Option Plan.
In 2000, the Company issued nonqualified and incentive stock options
to an individual to purchase 700,000 shares of common stock of the Company at
an exercise price of $1.31562 per share, exercisable over a three-year
period, pursuant to its 2000 Stock Option Plan.
No underwriter was used with respect to any sales of the
unregistered securities described herein. Exemption from registration for the
sales of the securities disclosed above was claimed pursuant to Section 4(2)
of the Securities Act of 1993, as amended, (the "Act") as a transaction by an
issuer not involving a public offering; Regulation D of the Act as a sale of
securities without registration or Rule 701 of the Act as a sale of
securities pursuant to certain compensatory benefit plans and contracts
relating to compensation.
17
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has provisions in its Articles of Incorporation and Bylaws
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty (however, such provisions do not
eliminate liability for breaches of the duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, the improper payment of dividends or redemption of stock or for any
transaction from which the director derived an improper personal benefit) and
(ii) indemnify its directors and officers to the fullest extent permitted by
Minnesota law, including circumstances in which indemnification is otherwise
discretionary. The Company believes that these provisions are necessary to
attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable.
18
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS
1. The following financial statements of Merged NVE are attached hereto
as Appendix A:
i. Report of Independent Auditors dated December 21, 2000.
ii. Audited Balance Sheets as of March 31, 2000 and December 31, 1999
and 1998.
iii. Audited Statements of Operations for the three-months ended March
31, 2000, the years-ended December 31, 1999 and 1998 and the
period from March 8, 1989 (the date of inception of Merged NVE)
to March 31, 2000.
iv. Audited Statements of Shareholders' Equity as of March 31, 2000.
v. Audited Statements of Cash Flows for the three-months ended
March 31, 2000, for the years-ended December 31, 1999 and 1998
and the period from March 8, 1989 (the date of inception of
Merged NVE) to March 31, 2000.
vi. Notes to Financial Statements.
2. The following financial statements of Merged NVE are attached hereto
as Appendix B:
i. Unaudited Balance Sheet as of September 30, 2000.
ii. Unaudited Statement of Operations for the three- and six-months
ended September 30, 2000 and 1999.
iii. Unaudited Statement of Cash Flows for the six-months ended
September 30, 2000 and 1999.
iv. Notes to Financial Statements.
(b) PRO FORMA FINANCIAL INFORMATION
1. The following unaudited pro forma financial information regarding the
merger of Merged NVE with and into the Company is attached hereto as
Appendix C:
i. Introduction.
ii. Unaudited Consolidated Pro Forma Balance Sheet as of September
30, 2000.
iii. Unaudited Consolidated Pro Forma Statement of Operations for the
six-months ended September 30, 2000.
iv. Unaudited Consolidated Pro Forma Statement of Operations for the
twelve-months ended March 31, 2000.
v. Notes to Financial Statements.
(c) EXHIBITS
2.1 Agreement and Plan of Merger, dated as of September 22, 2000, by and
between Nonvolatile Electronics, Incorporated (NVE) 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.
99.1 List of NVE Corporation's Issued U.S. Patents.(2)
99.2 List of NVE Corporation's Issued Foreign Patents.(2)
- ------------------------
(1) Incorporated by reference to the Definitive Proxy Statement on Schedule 14
filed by PREMIS Corporation on November 16, 2000.
(2) Incorporated by reference to the Company's filing on Form 8-K dated
November 21, 2000.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
NVE CORPORATION
Dated: February 2, 2001 By /s/ Dr. David A. Baker
--------------------------------------
Dr. David A. Baker
President and Chief Executive Officer
By /s/ Richard George
--------------------------------------
Richard George
Chief Financial Officer
20
APPENDIX A
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
FINANCIAL STATEMENTS
Three Months ended March 31, 2000 and
Years ended December 31, 1999 and 1998
CONTENTS
Report of Independent Auditors.......................................1
Audited Financial Statements
Balance Sheets.......................................................2
Statements of Operations.............................................4
Statement of Shareholders' Equity....................................5
Statements of Cash Flows............................................11
Notes to Financial Statements.......................................12
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Nonvolatile Electronics, Incorporated (NVE)
We have audited the accompanying balance sheets of Nonvolatile Electronics,
Incorporated (NVE) (a development stage company) as of March 31, 2000 and
December 31, 1999 and 1998, and the related statements of operations,
shareholders' equity and cash flows for the three months ended March 31, 2000
and years ended December 31, 1999 and 1998, and the period from March 8, 1989
(inception) to 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 Nonvolatile Electronics,
Incorporated (NVE) (a development stage company) at March 31, 2000 and December
31, 1999 and 1998, and the results of its operations and its cash flows for the
three months ended March 31, 2000 and years ended December 31, 1999 and 1998,
and the period from March 8, 1989 (inception) to March 31, 2000, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
December 21, 2000
1
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
BALANCE SHEETS
MARCH 31, DECEMBER 31
2000 1999 1998
------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 382,273 $ 563,628 $1,144,749
Grants and contracts receivable 958,158 955,314 788,123
Inventories 583,975 663,216 494,432
Prepaid expenses and other assets 41,627 42,676 25,549
------------------------------------------------------
Total current assets 1,966,033 2,224,834 2,452,853
Fixed assets:
Machinery and equipment 1,279,730 1,254,879 986,591
Furniture and fixtures 35,499 35,499 26,385
Leasehold improvements 348,887 348,887 334,132
Construction in progress 31,092 28,763 28,511
------------------------------------------------------
1,695,208 1,668,028 1,375,619
Less accumulated depreciation 1,100,194 1,032,945 802,218
------------------------------------------------------
595,014 635,083 573,401
Sublicense agreement, net of amortization - - 6,250
------------------------------------------------------
Total assets $2,561,047 $2,859,917 $3,032,504
======================================================
SEE ACCOMPANYING NOTES.
2
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
BALANCE SHEETS
(continued)
MARCH 31, DECEMBER 31
2000 1999 1998
------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable $ 303,903 $ 317,888 $ 350,000
Accounts payable 188,693 132,345 163,619
Accrued expenses 161,014 205,560 247,564
Deferred revenue 527,777 - -
Billings in excess of costs on research contracts
82,879 139,473 44,418
------------------------------------------------------
Total current liabilities 1,264,266 795,266 805,601
Employee Stock Purchase Plan - - 107,331
Shareholders' equity:
Convertible Preferred Stock, Series A:
Authorized, issued and outstanding shares -
1,675,000
Liquidation preference - $2.00 per share 16,750 16,750 16,750
Common Stock, par value $.01 per share:
Authorized shares - 12,000,000
Issued and outstanding shares - 2,813,828 in
2000, 2,754,328 in 1999 and 2,562,992 in
1998 28,139 27,544 25,630
Additional paid-in capital 4,733,046 4,708,924 4,342,426
Deficit accumulated during the development stage
(3,481,154) (2,688,567) (2,265,234)
------------------------------------------------------
Total shareholders' equity 1,296,781 2,064,651 2,119,572
------------------------------------------------------
Total liabilities and shareholders' equity $2,561,047 $2,859,917 $3,032,504
======================================================
SEE ACCOMPANYING NOTES.
3
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
PERIOD FROM
THREE MONTHS MARCH 8, 1989
ENDED (INCEPTION) TO
MARCH 31, YEAR ENDED DECEMBER 31 MARCH 31,
2000 1999 1998 2000
-------------------------------------------------------------
Revenues:
Research and development $1,239,488 $5,028,358 $3,880,318 $25,993,528
Product sales 140,113 274,515 230,975 819,702
License fees 83,333 500,000 1,900,000 4,028,333
-------------------------------------------------------------
1,462,934 5,802,873 6,011,293 30,841,563
Expenses:
Research and development 1,241,713 5,046,571 4,106,116 27,151,478
Cost of sales 45,740 194,045 620,766 1,286,051
Selling, general and administrative 352,627 961,024 878,109 5,484,351
-------------------------------------------------------------
Total expenses 1,640,080 6,201,640 5,604,991 33,921,880
-------------------------------------------------------------
(Loss) income from operations (177,146) (398,767) 406,302 (3,080,317)
Other income (expense):
Interest income 3,712 20,160 4,982 184,240
Interest expense (8,043) (44,726) (33,744) (279,455)
Option to purchase technology - - - 250,000
-------------------------------------------------------------
(Loss) income before extraordinary item and cumulative effect
of a change in accounting principle (181,477) (423,333) 377,540 (2,925,532)
Extraordinary gain on forgiveness of debt - - - 55,488
Cumulative effect of a change in accounting principle (611,110) - - (611,110)
-------------------------------------------------------------
Net (loss) income for the period and deficit accumulated
during the development stage $ (792,587) $ (423,333) $ 377,540 $ (3,481,154)
=============================================================
Net (loss) income per share:
Basic:
Net (loss) income per share before extraordinary item
and cumulative effect of a change in accounting $(0.07) $(0.16) $(0.15)
principle
Net (loss) income per share from cumulative effect of a
change in accounting principle (0.22) - -
----------------------------------------------
Net (loss) income per basic share $(0.29) $(0.16) $(0.15)
==============================================
Net (loss) income per share:
Diluted:
Net (loss) income per share before extraordinary item
and cumulative effect of a change in accounting $(0.07) $(0.16) $ 0.09
principle
Net (loss) income per share from cumulative effect of a
change in accounting principle (0.22) - -
----------------------------------------------
Net (loss) income per diluted share $(0.29) $(0.16) $ 0.09
==============================================
Weighted average shares outstanding:
Basic 2,757,231 2,568,882 2,537,631
Diluted 2,757,231 2,568,882 4,195,680
SEE ACCOMPANYING NOTES.
4
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED
STOCK--SERIES A
--------------------------
TRANSACTION DATE SHARES AMOUNT
- -------------------------- --------------------------
March 1989 through
December 1989 Sale of Common Stock to founder at an average price per share of $.17 - $ -
Net loss for the period ended December 31, 1989 - -
--------------------------
Balance at December 31, 1989 - -
October 1990 Issuance of Common Stock for $.11 per share in exchange for services - -
October 1990 Sale of Series A Preferred Stock, less related costs of $86,243 1,175,000 11,750
October 1990 Issuance of Common Stock for $.125 per share in exchange for services - -
Net loss for the year ended December 31, 1990 - -
--------------------------
Balance at December 31, 1990 1,175,000 11,750
January 1991 Issuance of Common Stock for $.125 per share in exchange for services - -
December 1991 Issuance of Common Stock for options exercised - -
Net loss for the year ended December 31, 1991 - -
--------------------------
Balance at December 31, 1991 1,175,000 11,750
March 1992 Issuance of Common Stock for options exercised for $.125 per share - -
April 1992 Issuance of warrants for cash - -
February 1992 through Common Stock subscriptions sold to employees and existing shareholders
December 1992 for $.50 per share but not issued - -
Net loss for the year ended December 31, 1992 - -
--------------------------
Balance at December 31, 1992 1,175,000 11,750
March 1993 Issuance of warrants for cash - -
July 1993 Issuance of Common Stock for options exercised for $.125 per share - -
January 1993 through Common Stock subscriptions sold to employees and existing shareholders
December 1993 for $.60 per share but not issued - -
December 1993 Issuance of Common Stock under stock purchase plan - -
Net loss for the year ended December 31, 1993 - -
--------------------------
Balance at December 31, 1993 1,175,000 11,750
February 1994 Issuance of Common Stock for options exercised for $.125 per share - -
January 1994 through Common Stock subscriptions sold to employees and existing shareholders
December 1994 for $.75 per share but not issued - -
November 1994 Warrants issued for leasing rights of equipment - -
December 1994 Issuance of Common Stock under stock purchase plan - -
Net loss for the year ended December 31, 1994 - -
--------------------------
Balance at December 31, 1994 (carried forward) 1,175,000 11,750
SEE ACCOMPANYING NOTES.
5
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY
(continued)
DEFICIT
ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL DURING THE
- -------------------------------------SUBSCRIBED BUT PAID-IN DEVELOPMENT SUBSCRIPTION
SHARES AMOUNT NOT ISSUED CAPITAL STAGE RECEIVABLE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
200,000 $ 2,000 $ - $ 31,823 $ - $ - $ 33,823
- - - - (27,776) - (27,776)
- ----------------------------------------------------------------------------------------------------------------------------
200,000 2,000 - 31,823 (27,776) - 6,047
45,200 452 - 4,520 - - 4,972
- - - 2,252,007 - - 2,263,757
9,000 90 - 1,035 - - 1,125
- - - - (316,436) - (316,436)
- ----------------------------------------------------------------------------------------------------------------------------
254,200 2,542 - 2,289,385 (344,212) - 1,959,465
1,000 10 - 115 - - 125
104,000 1,040 - 11,960 - - 13,000
- - - - (1,860,088) - (1,860,088)
- ----------------------------------------------------------------------------------------------------------------------------
359,200 3,592 - 2,301,460 (2,204,300) - 112,502
1,200 12 - 138 - - 150
- - - 150 - - 150
- - 210,865 - - (23,122) 187,743
- - - - (56,812) - (56,812)
- ----------------------------------------------------------------------------------------------------------------------------
360,400 3,604 210,865 2,301,748 (2,261,112) (23,122) 243,733
- - - 125 - - 125
5,500 55 - 633 - - 688
- - 305,788 - - (32,472) 273,316
422,012 4,220 (211,006) 206,786 - 23,263 23,263
- - - - (265,877) - (265,877)
- ----------------------------------------------------------------------------------------------------------------------------
787,912 7,879 305,647 2,509,292 (2,526,989) (32,331) 275,248
3,950 40 - 454 - - 494
- - 168,347 - - (19,053) 149,294
- - - 1,272 - - 1,272
509,404 5,094 (305,642) 300,548 - 32,326 32,326
- - - - (270,876) - (270,876)
- ----------------------------------------------------------------------------------------------------------------------------
1,301,266 13,013 168,352 2,811,566 (2,797,865) (19,058) 187,758
SEE ACCOMPANYING NOTES.
6
NONVOLATIE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY
(continued)
CONVERTIBLE PREFERRED
STOCK--SERIES A
--------------------------
TRANSACTION DATE SHARES AMOUNT
- -------------------------- --------------------------
Balance at December 31, 1994 (brought forward) 1,175,000 $11,750
March 1995 Sale of Series A Convertible Preferred Stock 500,000 5,000
May 1995 Issuance of warrants for leasing rights - -
June 1995 Issuance of Common Stock for options exercised for $.125 per share - -
December 1995 Conversion of Note Payable and accrued interest into Common Stock - -
January through Common Stock subscriptions sold to employees and existing
December 1995 shareholders for $1.00 per share but not issued - -
December 1995 Issuance of Common Stock under stock purchase plan - -
Net income for the year ended December 31, 1995 - -
--------------------------
Balance at December 31, 1995 1,675,000 16,750
January through
December 1996 Issuance of warrants for leasing rights - -
January through
December 1996 Issuance of Common Stock for options exercised for $.125 per share - -
December 1996 Issuance of Common Stock under stock purchase plan - -
Net income for the year ended December 31, 1996 - -
--------------------------
Balance at December 31, 1996 1,675,000 16,750
January through
December 1997 Issuance of Common Stock for options exercised - -
January through
December 1997 Issuance of warrants for leasing rights - -
January through
December 1997 Issuance of Common Stock for warrants exercised - -
Net loss for the year ended December 31, 1997 - -
--------------------------
Balance at December 31, 1997 (carried forward) 1,675,000 16,750
SEE ACCOMPANYING NOTES.
7
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY
(continued)
DEFICIT
ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL DURING THE
- ------------------------------------- SUBSCRIBED BUT PAID-IN DEVELOPMENT SUBSCRIPTION
SHARES AMOUNT NOT ISSUED CAPITAL STAGE RECEIVABLE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
1,301,266 $13,013 $168,352 $2,811,566 $(2,797,865) $(19,058) $ 187,758
- - - 995,000 - - 1,000,000
- - - 4,926 - - 4,926
6,500 65 - 748 - - 813
452,020 4,520 - 221,490 - - 226,010
- - 51,239 - - (6,644) 44,595
224,462 2,245 (168,347) 166,102 - 19,058 19,058
- - - - 144,805 - 144,805
- ----------------------------------------------------------------------------------------------------------------------------
1,984,248 19,843 51,244 4,199,832 (2,653,060) (6,644) 1,627,965
- - - 9,730 - - 9,730
107,800 1,078 - 12,397 - - 13,475
51,239 512 (51,244) 50,732 - 6,644 6,644
- - - - 197,509 - 197,509
- ----------------------------------------------------------------------------------------------------------------------------
2,143,287 21,433 - 4,272,691 (2,455,551) - 1,855,323
72,225 722 - 8,306 - - 9,028
- - - 6,450 - - 6,450
299,500 2,995 - 45,255 - - 48,250
- - - - (187,223) - (187,223)
- ----------------------------------------------------------------------------------------------------------------------------
2,515,012 25,150 - 4,332,702 (2,642,774) - 1,731,828
SEE ACCOMPANYING NOTES.
8
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY
(continued)
CONVERTIBLE PREFERRED
STOCK--SERIES A
--------------------------
TRANSACTION DATE SHARES AMOUNT
- -------------------------- --------------------------
Balance at December 31, 1997 (brought forward) 1,675,000 $16,750
January through
December 1998 Issuance of Common Stock for options exercised - -
Net income for the year ended December 31, 1998 - -
--------------------------
Balance at December 31, 1998 1,675,000 16,750
January through
December 1999 Issuance of Common Stock for options exercised - -
January through
December 1999 Issuance of Common Stock from Employee Stock Purchase Plan - -
Net loss for the year ended December 31, 1999 - -
--------------------------
Balance at December 31, 1999 1,675,000 16,750
January through
March 2000 Issuance of Common Stock for options exercised - -
Net loss for the three months ended March 31, 2000 - -
--------------------------
Balance at March 31, 2000 1,675,000 $16,750
==========================
SEE ACCOMPANYING NOTES.
9
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY
(continued)
DEFICIT
ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL DURING THE
- ---------------------------------- SUBSCRIBED BUT PAID-IN DEVELOPMENT SUBSCRIPTION
SHARES AMOUNT NOT ISSUED CAPITAL STAGE RECEIVABLE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
2,515,012 $25,150 $ - $4,332,702 $(2,642,774) $ - $1,731,828
47,980 480 - 9,724 - - 10,204
- - - - 377,540 - 377,540
- ----------------------------------------------------------------------------------------------------------------------------
2,562,992 25,630 - 4,342,426 (2,265,234) - 2,119,572
8,500 85 - 2,640 - - 2,725
182,836 1,829 - 363,858 - - 365,687
- - - - (423,333) - (423,333)
- ----------------------------------------------------------------------------------------------------------------------------
2,754,328 27,544 - 4,708,924 (2,688,567) - 2,064,651
59,500 595 - 24,122 - - 24,717
- - - - (792,587) - (792,587)
- ----------------------------------------------------------------------------------------------------------------------------
2,813,828 $28,139 $ - $4,733,046 $(3,481,154) $ - $1,296,781
============================================================================================================================
SEE ACCOMPANYING NOTES.
10
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
PERIOD FROM
THREE MONTHS MARCH 8, 1989
ENDED (INCEPTION) TO
MARCH 31, YEAR ENDED DECEMBER 31 MARCH 31,
2000 1999 1998 2000
----------------------------------------------------------------
OPERATING ACTIVITIES
Net (loss) income $(792,587) $ (423,333) $ 377,540 $(3,481,154)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation 67,249 230,727 189,666 1,115,141
Amortization - 6,250 15,000 150,000
Cumulative effect of accounting change 611,110 - - 611,110
Warrants issued for leasing rights - - - 22,378
Disposal of capital assets - - - 16,172
Gain on forgiveness of debt - - - 55,488
Changes in operating assets and liabilities:
Grants and contracts receivable (2,844) (167,191) 491,426 (928,999)
Inventories 79,241 (168,784) 37,284 (583,975)
Prepaid expenses and other assets 1,049 (17,127) (19,420) (41,627)
Deferred revenue (83,333) - - (83,333)
Billings in excess of costs on research contracts (56,594) 95,055 (81,074) 53,720
Accounts payable and accrued expenses 11,802 (73,278) (51,252) 357,228
----------------------------------------------------------------
Net cash (used in) provided by operating activities (164,907) (517,681) 959,170 (2,737,851)
INVESTING ACTIVITIES
Capital expenditures (27,180) (292,409) (88,163) (1,753,010)
Sublicense agreement - - - (150,000)
Proceeds from sale of capital equipment - - - 32,906
----------------------------------------------------------------
Net cash used in investing activities (27,180) (292,409) (88,163) (1,870,104)
FINANCING ACTIVITIES
Proceeds from note payable - - 50,000 738,000
Proceeds from Employee Stock Purchase Plan - 258,356 107,331 365,687
Payments for note payable (13,985) (32,112) - (271,097)
Proceeds from stock issuance - - - 3,297,580
Proceeds from warrants issued - - 5,028 15,053
Proceeds from the exercise of stock options 24,717 2,725 5,176 108,766
Proceeds from Common Stock subscribed but not issued - - - 654,948
Proceeds from subscription receivable - - - 81,291
----------------------------------------------------------------
Net cash provided by financing activities 10,732 228,969 167,535 4,990,228
----------------------------------------------------------------
(Decrease) increase in cash (181,355) (581,121) 1,038,542 382,273
Cash at beginning of period 563,628 1,144,749 106,207 -
----------------------------------------------------------------
Cash at end of period $ 382,273 $ 563,628 $1,144,749 $ 382,273
================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
Notes payable and accrued interest converted into
Common Stock $ - $ 365,687 $ - $ 591,697
================================================================
SEE ACCOMPANYING NOTES.
11
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Nonvolatile Electronics, Incorporated (NVE) (a development stage company) (the
"Company") develops, produces and markets components made from advanced magnetic
materials combined with integrated circuits. The Company was formed in 1989 as
the result of research completed by Dr. James Daughton while employed with
Honeywell and has 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 giant
magnetoresistance ("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.
On November 20, 2000, the shareholders of the Company 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. The
merger is being accounted for as a business combination utilizing the reverse
merger acquisition method with the Company being the accounting acquiror under
generally accepted accounting principles. As such, the merger will be treated as
an acquisition using the purchase method of accounting with no change in the
recorded amount of the Company's assets and liabilities. The assets and
liabilities of Premis that are acquired as a result of the merger will be
recorded at their fair market values. Immediately prior to the merger, all
outstanding preferred stock was converted to common stock.
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 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 No. 101, "Revenue Recognition" ("SAB 101"), 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 has adopted SAB 101. As a result of the adoption, the Company reported a
cumulative effect of a change in accounting principle
12
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in the amount of $611,110, or $.22 per share, which represents the deferral of
recoupable up-front license fees for which the earnings process is not complete.
For the three months ended March 31, 2000, the Company recognized $83,333 in
revenue that was included in the cumulative effect adjustment as of January 1,
2000. The effect of that revenue in the three-month period ended March 31, 2000,
was to increase income by $83,333.
The pro forma amounts shown below have been adjusted assuming that the change in
revenue recognition method had occurred prior to January 1, 1998.
PERIOD FROM
THREE MONTHS MARCH 8, 1989
ENDED (INCEPTION) TO
MARCH 31, YEAR ENDED DECEMBER 31 MARCH 31,
2000 1999 1998 2000
---------------------------------------------------------------
Net income (loss) $(181,477) $(90,000) $(566,904) $(3,481,154)
Basic and diluted earnings per share $(.07) $(.04) $(.22)
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 Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," but
applies Accounting Principles Board Opinion No. 25 ("APB 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 Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share. Basic
earnings per share is computed based upon the weighted average number of common
shares issued and outstanding during each year. Diluted net income per share
amounts assume conversion, exercise or issuance of all potential common stock
instruments (stock options, warrants and convertible preferred stock).
Potentially dilutive securities including warrants and stock options are
excluded from diluted earnings per share during net loss years because these
securities would be anti-dilutive. The following table reflects the components
of common shares outstanding in accordance with SFAS 128.
13
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARCH 31, DECEMBER 31
2000 1999 1998
------------------------------------------------------
Weighted average common shares outstanding -
basic 2,757,231 2,568,882 2,537,631
Effect of dilutive securities:
Preferred stock conversion - - 1,175,000
Stock options - - 382,500
Stock warrants - - 100,549
------------------------------------------------------
Shares used in computing net income (loss) per
common share - diluted 2,757,231 2,568,882 4,195,680
======================================================
SEGMENT INFORMATION
The Company follows the provisions of Statement of Financial Accounting
Standards 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.
14
3. INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31
2000 1999 1998
------------------------------------------------------
Raw materials $ 21,929 $ 13,484 $ 46,585
Work-in-progress 409,511 448,353 248,938
Finished goods 199,433 249,379 234,909
------------------------------------------------------
630,873 711,216 530,432
Less obsolescence reserve (46,898) (48,000) (36,000)
------------------------------------------------------
$583,975 $663,216 $494,432
======================================================
4. INCOME TAXES
As of March 31, 2000, the Company has net operating loss carryforwards of
approximately $3,285,000 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, DECEMBER 31
2000 1999 1998
------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 1,186,000 $ 1,007,000 $ 857,000
Book over tax depreciation 52,000 45,000 16,000
Accrued vacation 40,000 45,000 38,000
Tax credit carryforward 128,000 128,000 134,000
------------------------------------------------------
1,406,000 1,225,000 1,045,000
Valuation allowance (1,406,000) (1,225,000) (1,045,000)
------------------------------------------------------
$ - $ - $ -
======================================================
5. NOTES PAYABLE
The Company has a note payable to a bank totaling $303,903 at March 31, 2000.
The note accrues interest at a rate equal to 1.5% above the bank's index rate
(9.0% at March 31, 2000). 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 $8,043 for the three months ended March 31, 2000 and $44,726
and $33,744 for the years ended December 31, 1999 and 1998, respectively.
15
6. STOCK OPTIONS AND WARRANTS
The Company has an Employee Incentive Stock Option Plan. The plan provides for
issuance to employees 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.
WEIGHTED AVERAGE
SHARES OPTIONS EXERCISE PRICE
RESERVED OUTSTANDING PER SHARE
------------------------------------------------------
Balance at December 31, 1997 784,825 334,000 $.35
Granted (155,000) 155,000 .60
Exercised - (39,600) .13
Terminated 18,400 (18,400) .34
---------------------------------
Balance at December 31, 1998 648,225 431,000 .46
Granted (23,500) 23,500 .60
Exercised - (8,500) .32
Terminated 2,500 (2,500) .54
---------------------------------
Balance at December 31, 1999 627,225 443,500 .47
Granted (48,500) 48,500 .60
Exercised - (59,500) .42
Terminated 13,500 (13,500) .51
---------------------------------
Balance at March 31, 2000 592,225 419,000 $.49
=================================
As of March 31, 2000, and December 31, 1999 and 1998, there were currently
exercisable options outstanding covering 214,717, 252,742 and 182,192 shares,
respectively, at a weighted average exercise price of $.39, $.39 and $.35 per
share, respectively. The fair value of options granted was $.17 for 2000 and
$.15 for 1999 and 1998, respectively. The remaining average exercisable life
is 4.1 years at March 31, 2000.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), 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 a minimum value
option pricing model with the following weighted average assumptions: risk-free
interest rate of 6.5% for 2000 and 1999 and 3.7% for 1998, respectively, and a
weighted average expected life of the option of five years.
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.
16
6. STOCK OPTIONS AND WARRANTS (CONTINUED)
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:
MARCH 31, DECEMBER 31
2000 1999 1998
------------------------------------------------------
Net (loss) income applicable to common shares:
As reported $(792,587) $(423,333) $377,540
Pro forma net (loss) income (794,076) (434,108) 368,527
The pro forma net earnings per share approximated reported net earnings per
share.
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 1997, 1996, 1995 and 1994, the Company issued five-year warrants in return
for leasing rights. The warrants issued are exercisable immediately to purchase
up to 18,429, 34,321 and 1,221 shares, respectively, of the Company's Common
Stock at an exercise price of $2.00 per share. The value assigned to these
warrants of $6,450, $9,730 and $4,926, for the years ended December 31, 1997,
1996 and 1995, respectively, has been charged to expense.
In March 1993, the Company sold for $25, five-year warrants, which are
exercisable immediately, to purchase up to 10,000 shares of the Company's Common
Stock at an exercise price of $.60 per share. During 1998, 8,380 of these
warrants were converted to Common Stock. The life of the remaining warrants was
extended to March 2001 and the exercise price was increased to $2.00.
In April 1992, the Company sold for $150, five-year warrants, which are
exercisable immediately, to purchase up to 60,000 shares of the Company's Common
Stock at an exercise price of $.50 per share. In 1997, 19,500 of these warrants
were converted to Common Stock and in November 2000, 35,100 of these warrants
converted to Common Stock. The remaining 5,400 warrants have expired.
7. COMMON STOCK
During 1998, the Company started the 1998 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion of
their after-tax compensation automatically deducted from their payroll check.
The notes ($365,687), including interest accrued at 8%, were converted into
182,836 shares of Common Stock at $2.00 per share on December 31, 1999.
During 1995, the Company issued a $25,000 convertible note to a venture capital
firm. The note, plus accrued interest at 8%, was converted into 28,621 shares of
Common Stock on December 31, 1996 at $1.00 per share.
During 1995, the Company started the 1995 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion of
their after-tax compensation automatically deducted from their payroll check.
The notes ($19,595), plus interest accrued at 8%, were converted to 22,618
shares of Common Stock at $1.00 per share on December 31, 1996.
During 1994, the Company started the 1994 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion of
their after-tax compensation automatically deducted from their payroll check.
The notes ($74,289), plus interest accrued at 8%, were converted into 111,254
shares of Common Stock at $.75 per share on December 31, 1995.
17
7. COMMON STOCK (CONTINUED)
During 1994, the Company issued a $75,000 convertible note to a venture capital
firm. The note, plus accrued interest at 8%, was converted into 113,208 shares
of Common Stock on December 31, 1995 at $.75 per share through the stock
purchase plan.
During 1993, the Company issued a $110,000 convertible note to a venture capital
firm. The note, plus interest accrued at 8%, was converted into 205,398 shares
of Common Stock on December 31, 1994 at $.60 per share through the stock
purchase plan.
During 1993, the Company started the 1993 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion of
their after-tax compensation automatically deducted from their payroll check.
The notes ($163,316), plus interest accrued at 8%, were converted into 304,006
shares of Common Stock at $.60 per share on December 31, 1994.
In 1992, the Company started the 1992 stock purchase plan. Under the plan,
employees purchased advancing convertible notes by electing to have a portion of
their after-tax compensation automatically deducted from their payroll check.
The notes ($135,613), plus interest accrued at 8%, were converted into 303,900
shares of Common Stock at $.50 per share on December 31, 1993.
In February of 1992, the Company issued a $50,000 convertible note to a venture
capital firm. The note, plus interest accrued at 8%, was converted into 113,220
shares of Common Stock on December 31, 1993 at $.50 per share through the stock
purchase plan.
During 1992, the Company issued a $2,130 convertible note to a Board member. The
note, plus interest accrued at 8%, was converted into 4,892 shares of Common
Stock on December 31, 1993 at $.50 per share through the stock purchase plan.
During 1991, the Company issued a $163,000 convertible note to a venture capital
firm. The note, plus accrued interest at 8%, was converted into 452,020 shares
of Common Stock on December 31, 1995 at $.50 per share.
8. CONVERTIBLE PREFERRED STOCK
In March 1995, the Company entered into an agreement with a commercial entity
("Entity") to provide consulting services related to the Company's MRAM
Technology. In connection with this agreement, the Entity purchased 500,000
shares of the Company's Series A Convertible Preferred Stock at $2.00 per share.
At March 31, 2000, the Company has one series of Convertible Preferred Stock
outstanding. There are 6,325,000 additional shares of $.01 par value Preferred
Stock authorized but undesignated as to series.
The holders of the Series A Convertible Preferred Stock are entitled to receive
dividends at the same rate as dividends are paid with respect to Common Stock.
Holders of the Series A Convertible Preferred Stock generally have the same
voting rights as holders of Common Stock. However, holders of Series A
Convertible Preferred Stock are entitled to elect two of the directors of the
Company.
Each share of Series A Preferred Stock is convertible into one share of Common
Stock, subject to adjustment for dilution. Series A Preferred Stock shall be
automatically converted into shares of Common Stock concurrently with the first
public offering by the Company in which the aggregate offering price of the
securities sold is at least $10,000,000; the offering is underwritten by an
underwriter who is a member or represented by a member of the New York Stock
Exchange; and the offering price is at least $10 per share of Common Stock.
Series A Preferred Stock may also be converted into shares of Common Stock upon
the affirmative vote or written consent of 66 2/3% of the shares of Series A
Preferred Stock. The Company has reserved 1,675,000 shares of Common Stock for
issuance upon conversion of the Series A Preferred Stock.
18
9. SUBLICENSE AGREEMENT
The Company's President, upon founding the Company, obtained a Technology
License Agreement with Honeywell Inc. (the "Agreement"). 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 Inc., the
developer of the technology.
In December 2000, the Company and Honeywell Inc. 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 office 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 2002, with payments
due the first of each month.
Total rent expense for operating leases was $156,610 for the three months ended
March 31, 2000 and $659,464 and $516,852 for the years ended December 31, 1999
and 1998, respectively.
Future minimum payments, including the Company's estimated share of operating
expenses, under non-cancelable operating leases, consist of the following at
March 31, 2000:
OPERATING LEASES
-------------------
2001 $ 367,422
2002 291,203
2003 174,568
2004 184,348
-------------------
Total minimum lease payments $1,017,541
===================
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 1/2% 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.
19
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. During 1998, the Company did not
make matching contributions to the Plan. 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 equal to $15,510 and $55,839 for the three months ended March 31,
2000 and the year ended December 31, 1999, respectively.
20
APPENDIX B
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
FINANCIAL STATEMENTS
Three- and Six-Months ended
September 30, 2000 and 1999
(Unaudited)
CONTENTS
Balance Sheet..................................................................1
Statement of Operations........................................................2
Statement of Cash Flows........................................................3
Notes to Financial Statements..................................................4
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
BALANCE SHEET
SEPTEMBER 30, 2000
ASSETS
Current assets:
Cash $ 670,115
Grants and contracts receivable 1,043,138
Inventories 936,021
Prepaid expenses and other assets 51,523
-------------------
Total current assets 2,700,797
Fixed assets:
Machinery and equipment 1,256,630
Furniture and fixtures 35,499
Leasehold improvements 353,640
Construction in progress 79,564
-------------------
1,725,333
Less accumulated depreciation 1,224,253
-------------------
Total fixed assets 501,080
-------------------
Total assets $3,201,877
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable $ 300,979
Accounts payable 279,317
Accrued expenses 155,656
Deferred revenue 1,340,227
Billings in excess of costs on research 69,424
-------------------
Total current liabilities 2,145,603
Shareholders' equity:
Preferred A 16,750
Common Stock 28,398
Accumulated paid-in capital 4,738,585
Deficit (3,727,459)
-------------------
Total shareholders' equity 1,056,274
-------------------
Total liabilities and shareholders' equity $3,201,877
===================
SEE ACCOMPANYING NOTES.
1
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENT OF OPERATIONS
THREE-MONTHS ENDED SIX-MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
-----------------------------------------------------------------------
Revenues:
Research and development $ 989,422 $1,336,674 $2,180,609 $2,625,218
Product sales 166,621 54,977 314,071 98,335
License fees 181,250 - 362,500 400,000
System sales - - - -
Maintenance fees and other
revenue - - - -
-----------------------------------------------------------------------
Total revenues 1,337,293 1,391,651 2,857,180 3,123,553
Expenses:
Research and development 863,281 1,319,255 2,072,568 2,374,118
Cost of sales 62,062 33,233 122,376 97,480
Selling, general and
administrative 589,665 332,386 910,121 751,233
-----------------------------------------------------------------------
Total expenses 1,515,008 1,684,874 3,105,065 3,222,831
-----------------------------------------------------------------------
Loss from operations (177,715) (293,223) (247,885) (99,278)
Interest income 4,372 2,182 11,267 6,509
Interest expense (8,263) (8,164) (16,404) (17,168)
Other income 6,218 795 6,717 797
-----------------------------------------------------------------------
Net loss $ (175,388) $ (298,410) $ (246,305) $ (109,140)
=======================================================================
Net loss per share, basic and
diluted $ (.05) $ (.12) $ (.09) $ (.04)
Weighted average shares
outstanding - basic and diluted 2,829,334 2,571,481 2,822,520 2,569,587
SEE ACCOMPANYING NOTES.
2
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
STATEMENT OF CASH FLOWS
SIX-MONTHS ENDED
SEPTEMBER 30
2000 1999
------------------------------------
OPERATING ACTIVITIES
Net loss $(246,305) $(109,140)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation 124,059 110,526
Changes in operating assets and liabilities:
Grants and contracts receivable (84,980) 35,624
Inventories (352,046) (60,954)
Prepaid expenses and other assets (9,896) (4,324)
Accounts payable and accrued expenses 85,266 12,325
Deferred revenue 812,450 -
Billings in excess of costs on research contracts (13,455) 16,507
------------------------------------
Net cash provided by operating activities 315,093 564
INVESTING ACTIVITIES
Purchases of fixed assets (30,125) (154,434)
------------------------------------
Net cash used in investing activities (30,125) (154,434)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 5,798 18,495
Net proceeds from (repayment of) note payable (2,924) (18,238)
------------------------------------
Net cash provided by financing activities 2,874 257
------------------------------------
Increase in cash 287,842 (153,613)
Cash at beginning of period 382,273 685,015
------------------------------------
Cash at end of period $ 670,115 $ 531,402
====================================
SEE ACCOMPANYING NOTES.
3
NONVOLATILE ELECTRONICS, INCORPORATED (NVE)
(A Development Stage Company)
NOTE TO FINANCIAL STATEMENTS
September 30, 2000
1. INTERIM FINANCIAL INFORMATION
The accompanying financial statements of Nonvolatile Electronics, Incorporated
(NVE) as of September 30, 2000 and for the three-month and six-month periods
ended September 30, 2000 and 1999 are unaudited. In the opinion of management of
the Company, these financial statements reflect all adjustments, consisting only
of normal and recurring adjustments necessary for a fair presentation of the
financial statements. The results of operations for the six-month period ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the full year ending March 31, 2001.
4
APPENDIX C
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth the unaudited pro forma financial
information of the Company, which consists of (i) the unaudited consolidated
pro forma balance sheet of the Company as of September 30, 2000, giving
effect to the Merger on such date, and (ii) the unaudited consolidated pro
forma statement of operations of the Company for the six-months ended
September 30, 2000 and the twelve-months ended March 31, 2000, giving effect
to the Merger as if such transaction had occurred on April 1, 1999.
The unaudited pro forma financial statements are provided for
illustrative purposes only and are not necessarily indicative of the balance
sheet and statement of operations that would have been reported had the
Merger occurred on the dates indicated, nor do they represent a forecast of
the financial position at any future period. The statements are based on
estimates and assumptions set forth below, which include pro forma
adjustments. The unaudited pro forma financial statements should be read in
conjunction with the historical financial statements and related notes of
Merged NVE, which are included herein.
1
NVE CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 2000
UNADJUSTED ADJUSTMENT PRO FORMA ADJUSTED
BALANCE FOR NONVOLATILE ADJUSTMENTS BALANCE
ELECTRONICS,
INCORPORATED (NVE)
---------------------------------------------------------------------
ASSET
Current assets
Cash 1,005,000 670,115 1,675,115
Grants and contracts receivable 31,000 1,043,138 1,074,138
Inventories - 936,021 - 936,021
Prepaid expenses and other assets 40,000 51,523 91,523
---------------------------------------------------------------------
1,076,000 2,700,797 - 3,776,797
Fixed assets
Machinery and equipment 1,256,630 1,256,630
Furniture and fixtures 35,499 35,499
Leasehold improvements 353,640 353,640
Construction in progress 79,564 79,564
----------------------------------------------------------------------
- 1,725,333 - 1,725,333
Less accumulated depreciation
1,224,253 1,224,253
----------------------------------------------------------------------
- 501,080 - 501,080
----------------------------------------------------------------------
Total assets 1,076,000 3,201,877 - 4,277,877
======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable 300,979 300,979
Accounts payable 3,000 279,317 282,317
Accrued expenses 10,000 155,656 165,656
Deferred revenue 1,340,227
Billings in excess of costs on research 69,424 69,424
----------------------------------------------------------------------
Total current liabilities 13,000 2,145,603 - 818,376
Shareholders' equity:
Preferred A 16,750 (16,750) (4) -
Common Stock 53,000 28,398 87,209 (5),(4) 168,607
Additional paid-in capital 3,876,000 4,738,585 (2,936,459)(5),(4) 5,678,126
Accumulated Deficit (2,866,000) (3,727,459) 2,866,000 (5) (3,727,460)
-----------------------------------------------------------------------
Total shareholders' equity 1,063,000 1,056,274 - 2,119,273
-----------------------------------------------------------------------
Total liabilties and shareholders' equity 1,076,000 3,201,877 - 2,937,649
======================================================================
2
NVE CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX-MONTHS ENDED SEPTEMBER 30, 2000
UNADJUSTED ADJUSTMENT PRO FORMA ADJUSTED
STATEMENT OF FOR NONVOLATILE ADJUSTMENTS STATEMENT OF
OPERATIONS ELECTRONICS OPERATIONS
CORPORATION
------------------------------------------------------------------------------------
Revenues -
Research and development 2,180,609 2,180,609
Product sales 314,071 314,071
License fees 362,500 362,500
Maintenance fees and other revenue 116,000 (116,000) (1) -
------------------------------------------------------------------------------------
116,000 2,857,180 (116,000) 2,857,180
Expenses - - - -
Research and development 2,072,568 2,072,568
Cost of sales 95,000 122,376 (95,000) (1) 122,376
Selling, general & administrative 61,000 910,121 (61,000) (1) 910,121
Maintenance fees and other - -
------------------------------------------------------------------------------------
Total expenses 156,000 3,105,065 (156,000) 3,105,065
------------------------------------------------------------------------------------
Loss from operations (40,000) (247,885) 40,000 (247,885)
Interest income 22,000 11,267 33,267
Interest expense (16,404) (16,404)
Other 6,000 6,717 12,717
-
------------------------------------------------------------------------------------
Net loss (12,000) (246,305) 40,000 (218,305)
====================================================================================
.01
Net loss per share basic and diluted .00
Weighted Average Number of shares outstanding 5,293,952 11,506,168 (3) 16,800,120
3
NVE CORPORATION
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE-MONTHS ENDED MARCH 31, 2000
UNADJUSTED ADJUSTMENT PRO FORMA ADJUSTED
STATEMENT OF FOR NONVOLATILE ADJUSTMENTS STATEMENT OF
OPERATIONS ELECTRONICS OPERATIONS
CORPORATION
-------------------------------------------------------------------------------------
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) -
-------------------------------------------------------------------------------------
3,857,293 5,974,867 (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 434,456 1,017,872 (434,456) (1) 1,017,872
Maintenance fees and other 176,521 (176,521) (1) -
-------------------------------------------------------------------------------------
Total expenses 610,977 6,446,334 (610,977) 6,446,334
-------------------------------------------------------------------------------------
(Loss) income from operations
3,246,316 (471,467) (2,996,316) (221,467)
Gain on sale of Premis Systems Canada 1,529,537 - (1,529,537) (1) -
Interest income 129,705 15,083 144,788
Interest expense 34,132 (44,019) (9,887)
Option to purchase technology - -
Other -
-------------------------------------------------------------------------------------
(Loss) income before extraordinary item 4,939,690 (499,903) (4,525,853) (86,066)
Cummative effect of accounting change (611,110) 611,110 (2) -
Taxes (244,328) 244,328 (1) -
-------------------------------------------------------------------------------------
Net (loss) income 4,695,362 (1,111,013) (3,670,415) (86,066)
=====================================================================================
Net loss per share - basic and diluted 0.92
Weighted Average Number of shares outstanding 5,099,412 11,506,168 (3) 16,800,120
4
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
BASIS OF PRESENTATION OF UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Merger has been accounted for using the reverse purchase method of
accounting. As the Company issued new shares of common stock in exchange for
outstanding shares of common stock of Merged NVE, the shareholders of the
Company pre-Merger retain approximately 6% of all of the outstanding shares of
common stock of the Company. In applying GAAP, the Merger was therefore
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 will be recorded, and the
assets of Merged NVE will continue to be recorded at their historic values.
The unaudited consolidated pro forma statement of operations data
included herein is based on the historical year ended December 31, 1999 audited
statement of operations of Merged NVE, adjusted to coincide with the March 31,
2000 year-end results of the Company. Merged NVE's statement of operations
results for the year ended March 31, 2000 were derived by adding results from
continuing operations for the three-month period ended March 31, 2000 to, and
deducting the results from continuing operations for the three-month period
ended March 31, 1999 from, Merged NVE's statement of operations results for the
year ended December 31, 1999.
All Company operating results prior to September 30, 2000 relate to
discontinued operations and have been excluded from the accompanying unaudited
consolidated pro forma statement of operations in accordance with SEC
guidelines.
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 during the
three month period ended March 31, 2000.
3. Represents the increase in the number of outstanding shares of
common stock to reflect the reverse stock-split of .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.
THE FOLLOWING IS A SUMMARY OF THE ADJUSTMENTS REFLECTED IN THE UNAUDITED PRO
FORMA CONSOLIDATED BALANCE SHEET:
4. Reflects the recapitalization of NVE Corporation and the
elimination of NVE Corporation's retained deficit in accordance
with GAAP guidelines regarding purchase adjustments associated
with accounting for a reverse acquisition.
5. Reflects the conversion of Nonvolatile Electronics, Incorporated
(NVE) preferred stock to common stock at date of acquisition.
5