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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 21, 2000
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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)
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ITEM 1. CHANGE IN CONTROL OF REGISTRANT.
Effective as of November 21, 2000 (the "Effective Date"), and
pursuant to that certain Agreement and Plan of Merger (the "Agreement"),
dated as of September 22, 2000, by and between Nonvolatile Electronics,
Incorporated (NVE), a Minnesota corporation ("Merged NVE"), and PREMIS
Corporation ("Premis"), a Minnesota corporation, Merged NVE has successfully
merged with and into Premis (the "Merger"), with Premis surviving under the
new name NVE Corporation (the "Company"). In connection with the Merger, as
of November 20, 2000 (the "Record Date"), all outstanding shares of common
stock of Premis held as of the Record Date were converted in a reverse
stock-split to .2 shares of common stock of Premis. Similarly, as of the
Effective Date, all shares of common stock of Merged NVE outstanding
immediately prior to the Effective Date were converted into 3.5 shares of
stock of the Company. As this was a stock for stock transaction, no loans
were utilized in connection with the Merger. A copy of the Agreement is
incorporated as an exhibit to this Form 8-K by reference to the Definitive
Proxy Statement on Schedule 14 filed by Premis on November 16, 2000, and is
incorporated herein in its entirety. The foregoing description is modified by
such reference.
As of the Effective Date, and pursuant to the terms of the Agreement,
the directors of the Company are James Daughton, Terrance Glarner, Herbert
Goronkin and Robert Irish, the former directors of Merged NVE. Such directors
have elected the following officers: James Daughton, President and Chief
Executive Officer, and Richard George, Treasurer and Chief Financial Officer.
Both Dr. Daughton and Mr. George held similar offices for Merged NVE.
Prior to the Merger, F.T. Biermeier, the President and Chief
Executive Officer of Premis, controlled Premis by holding 36.6% of the
outstanding shares of common stock of Premis. As a result of the Merger,
however, the controlling shareholders of Merged NVE have obtained control of
the Company. Set forth below is certain information with respect to
approximate beneficial ownership of the Company as of November 21, 2000, by
each director, all directors and officers as a group and all persons owning
more than 5% or more of the common stock of the Company. Except as otherwise
noted below, each person and group identified below possesses all voting and
investment discretion with respect to the shares listed below.
<TABLE>
<CAPTION>
NAME ADDRESS SHARES OWNED PERCENT
---- ------- ------------ -------
<S> <C> <C> <C>
Norwest Equity Partners(1) 3600 IDS Center 7,577,434 44.8%
80 S. 8th St.
Minneapolis, MN 55402
James Daughton 18687 Melrose Chase 2,700,632(2) 16%
Eden Prairie, MN 55347
Motorola, Inc. c/o Don McLellan 1,750,000 10.3%
1303 East Allonquin Rd.
Schaumberg, IL 60196
Herbert Goronkin 8641 S. Willow Dr. 0 0%
Tempe, AZ 85284
Richard George 5145 Tifton Dr. 472,500(3) 2.8%
Edina, MN 55439
Robert Irish 17910-39th Place North 182,261(4) 1.1%
Plymouth, MN 55446-1318
Terrence Glarner 3600 IDS Center 3,200(5) .02%
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80 S. 8th St.
Minneapolis, MN 55402
All Company directors, officers and owners 12,686,027 75%
of more than 5% of the stock as a group
(7 persons)
</TABLE>
(1) Includes shares held by Norwest Equity Partners IV, LLP, and Norwest
Equity Partners V, LLP.
(2) Excludes options to purchase up to 175,000 shares of common stock of
the Company.
(3) Excluded options to purchase up to 35,000 shares of common stock of the
Company.
(4) Includes shares of common stock of the Company controlled by Mr. Irish
in various accounts. Excludes options to purchase up to 7,000 shares of
common stock of the Company.
(5) Excludes options to purchase up to 29,000 shares of common stock of 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 believes that it has
either acquired or will have the right to acquire a sublicense for 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. The Company's issued U.S. and foreign patents are listed in exhibits
99.1 and 99.2, which are attached to this current report in Form 8-K. By virtue
of a technology license agreement with Dr. James Daughton, the Company believes
that it either has acquired or may acquire rights to sublicense certain of
Honeywell's intellectual property in the MRAM technology.
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
The Company currently has 56 employees, 49 of which are full-time
employees: one executive, four administrative employees, six sales and marketing
employees, 20 technicians and 25 scientists. Nine current 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, President and Chief Executive 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
9
<PAGE>
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
sublicense that it has either acquired or will have the right to acquire 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:
<TABLE>
<CAPTION>
Name Age Position
------------------ --------- ------------------------------------------------
<S> <C> <C>
James Daughton 64 President, Chief Executive Officer and Director
Richard George 56 Treasurer and Chief Financial Officer
Terrance Glarner 57 Director
Herbert Goronkin 64 Director
Robert Irish 61 Director
</TABLE>
10
<PAGE>
James Daughton, President, Chief Executive Officer and Director, age
64, has been an officer and director of the Company since the Effective Date
of the Merger. 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, age 57, has been a director of the Company
since the Effective Date of the Merger. 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
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<PAGE>
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:
<TABLE>
<CAPTION>
ANNUAL OTHER
COMPENSATION COMPENSATION
-------------------------------------------------------------------------
NAME AND TITLE YEAR SALARY BONUS
-------------- ---- ------ ------
<S> <C> <C> <C> <C>
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)
</TABLE>
(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
<PAGE>
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.
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
13
<PAGE>
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
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 3.47% 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 an Advance Technology Program ("ATP") 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 an ATP 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.
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 such products are governed by market conditions. It is
possible that inflation in future years could impact both materials and labor in
the production of products. Rates paid by the US Government on research and
development contracts are adjustable with inflation.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
14
<PAGE>
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 periods after July 17, 1998,
represent high and low bids as reported on the OTC Bulletin Board. Such bid
information reflects inter-dealer prices, without retail mark-up, mark-down or
commissions and does not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK
------------
LOW HIGH
--- ----
<S> <C> <C>
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
</TABLE>
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, the Company 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 the Company's 1990 Stock Option
Plan.
15
<PAGE>
In 1998, the Company 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 the
Company's 1990 Stock Option Plan.
In February 1998 and March 1998, the Company 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, the Company 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, the Company 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 the Company's 1990 Stock Option Plan.
In December 1999, the Company 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, the Company 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, the Company 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 the
Company's 1990 Stock Option Plan.
In 2000, the Company 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, the Company 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.
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.
16
<PAGE>
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.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
17
<PAGE>
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.
10.1 NVE Corporation 2000 Stock Option Plan.
24.1 Consent of Accountants.(2)
24.2 Audited Financial Statements for December 1999.(2)
24.3 Unaudited Pro Forma Balance Sheet, as of September 30, 2000.(2)
99.1 List of NVE Corporation's Issued U.S. Patents.
99.2 List of NVE Corporation's Issued Foreign Patents.
-------------------------------------------------------------------------------
(1) Incorporated by reference to the Definitive Proxy Statement on
Schedule 14 filed by PREMIS Corporation on November 16, 2000.
(2) No financial statements are filed herewith. The Company is required to
file financial statements by amendment hereto not later than 60 days after the
date that this Current Report on Form 8-K must be filed.
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<PAGE>
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: December 6, 2000 By /s/ Dr. James Daughton
--------------------------------------
Dr. James Daughton
Chief Executive Officer
By /s/ Richard George
--------------------------------------
Richard George
Chief Financial Officer
19
