UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________to______________
Commission file number 000-12196
NVE Corporation
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1424202
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11409 Valley View Road, Eden Prairie, Minnesota 55344
(Address of principal executive offices)
(952) 829-9217
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.01 Par Value - 4,501,345 shares outstanding
as of October 15, 2004
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
NVE CORPORATION
BALANCE SHEET
SEPTEMBER 30, 2004
(Unaudited)
Current assets:
Cash and cash equivalents $ 808,767
Investment securities 6,416,036
Accounts receivable, net of allowance for
uncollectible accounts of $15,000 2,548,143
Inventories 1,090,171
Deferred tax asset 250,000
Prepaid expenses and other assets 179,239
------------
Total current assets 11,292,356
Fixed assets:
Machinery and equipment 4,017,087
Leasehold improvements 379,588
------------
4,396,675
Less accumulated depreciation 2,524,543
------------
Net fixed assets 1,872,132
------------
Total assets $13,164,488
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 447,072
Accrued payroll and other 593,402
Deferred revenue 348,598
Capital lease obligations 73,432
------------
Total current liabilities 1,462,504
Capital lease obligations, less current portion 67,719
------------
Total liabilities 1,530,223
Shareholders' equity:
Common stock 45,013
Additional paid-in capital 13,376,776
Accumulated other comprehensive income 5,275
Accumulated deficit (1,792,799)
------------
Total shareholders' equity 11,634,265
------------
Total liabilities and shareholders' equity $13,164,488
============
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
Three Months Ended Sept. 30
2004 2003
------------ ------------
Revenue:
Contract research and development $ 1,645,662 $ 1,595,612
Product sales 1,450,052 1,268,573
------------ ------------
Total revenue 3,095,714 2,864,185
Cost of sales 1,960,797 1,738,702
------------ ------------
Gross profit 1,134,917 1,125,483
Expenses:
Research and development 306,593 302,573
Selling, general & administrative 481,648 475,691
------------ ------------
Total expenses 788,241 778,264
------------ ------------
Income from operations 346,676 347,219
Interest income 58,497 44,455
Interest expense (3,605) (6,907)
Other income 21,730 21,709
------------ ------------
Net income $ 423,298 $ 406,476
============ ============
Net income per share-basic $ 0.09 $ 0.10
============ ============
Net income per share-diluted $ 0.09 $ 0.09
============ ============
Weighted average shares outstanding:
Basic 4,499,180 4,232,666
Diluted 4,932,500 4,679,415
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENTS OF INCOME
SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
Six Months Ended Sept. 30
2004 2003
------------ ------------
Revenue:
Contract research and development $ 3,171,749 $ 3,316,518
Product sales 2,813,192 2,367,516
------------ ------------
Total revenue 5,984,941 5,684,034
Cost of sales 3,586,678 3,647,697
------------ ------------
Gross profit 2,398,263 2,036,337
Expenses:
Research and development 667,852 481,242
Selling, general & administrative 966,244 926,554
------------ ------------
Total expenses 1,634,096 1,407,796
------------ ------------
Income from operations 764,167 628,541
Interest income 113,366 93,468
Interest expense (8,062) (14,598)
Other income 37,498 33,483
------------ ------------
Net income $ 906,969 $ 740,894
============ ============
Net income per share-basic $ 0.20 $ 0.18
============ ============
Net income per share-diluted $ 0.18 $ 0.16
============ ============
Weighted average shares outstanding:
Basic 4,495,442 4,199,715
Diluted 4,928,762 4,646,464
SEE ACCOMPANYING NOTES.
NVE CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
Six Months Ended Sept. 30
2004 2003
------------ ------------
OPERATING ACTIVITIES
Net income $ 906,969 $ 740,894
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 254,531 244,459
Changes in operating assets and liabilities:
Accounts receivable (808,664) (71,138)
Inventories 59,683 (427,586)
Prepaid expenses and other 117,298 36,755
Accounts payable and accrued expenses 1,358 273,134
Deferred revenue (75,578) (262,812)
------------ ------------
Net cash provided by operating activities 455,597 533,706
INVESTING ACTIVITIES
Purchases of fixed assets (679,812) (650,911)
Purchases of investment securities (19,921) 455,929
------------ ------------
Net cash used in investing activities (699,733) (194,982)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 79,147 166,791
Repayment of capital lease obligations (82,040) (75,503)
------------ ------------
Net cash (used in) provided by
financing activities (2,893) 91,288
------------ ------------
(Decrease) increase in cash and cash equivalents (247,029) 430,012
Cash and cash equivalents at beginning of period 1,055,796 595,768
------------ ------------
Cash and cash equivalents at end of period $ 808,767 $ 1,025,780
============ ============
SEE ACCOMPANYING NOTES.
NVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements of NVE Corporation (the
"Company") are consistent with accounting principles generally accepted in the
United States and reporting with SEC regulations. In the opinion of
management, these financial statements reflect all adjustments, consisting
only of normal and recurring adjustments, necessary for a fair presentation of
the financial statements. Although we believe that the disclosures are adequate
to make the information presented not misleading, it is suggested that these
condensed financial statements be read in conjunction with the audited
financial statements and the notes included in our latest annual financial
statements included in our report on Form 10-KSB. The results of operations
for the three and six month periods ended September 30, 2004 are not
necessarily indicative of the results that may be expected for the full year
ending March 31, 2005.
2. NATURE OF BUSINESS
We develop, manufacture, and sell "spintronics" devices, a nanotechnology which
relies on electron spin rather than electron charge to acquire, store, and
transmit information.
3. REVENUE RECOGNITION
Revenue from product sales is recognized when title transfers, generally upon
shipment. Revenue from licensing and technology development programs, which is
nonrefundable and for which no significant future obligations exist, is
recognized when the license is signed. Revenue from licensing and technology
development programs, which is refundable, recoupable against future royalties,
or for which future obligations exist, is recognized when we complete our
obligations under the terms of the agreements. Revenue from royalties is
recognized upon the shipment of product from our 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.
Payments received from licensing and technology development programs relating
to future obligations as well as prepayments for future discounts on product
sales are recorded as deferred revenue.
4. EARNINGS PER SHARE
We calculate our net income per share pursuant to SFAS No. 128, Earnings per
Share. Basic earnings per share is computed based upon the weighted average
number of common shares issued and outstanding during each year. Diluted net
income per share amounts assume conversion, exercise or issuance of all
potential common stock instruments (stock options and warrants). Stock options
were not included in the computation of diluted earnings per share if the
exercise prices of the options were greater than the market price of the common
stock.
5. INVESTMENTS
We classify and account for debt and equity securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Our entire portfolio
consists of government-backed and corporate bonds and is classified as
available for sale; thus, securities are recorded at fair market value and any
associated unrealized gain or loss, net of tax, is included as a separate
component of shareholders' equity, "Accumulated other comprehensive income."
6. COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
Three months Six months
ended September 30 ended September 30
2004 2003 2004 2003
-------- -------- -------- --------
Net income $423,298 $406,476 $906,969 $740,894
Change in unrealized gains 73,150 (26,352) (85,095) 1,235
-------- -------- -------- --------
Comprehensive income $496,448 $380,124 $821,874 $742,129
======== ======== ======== ========
7. INVENTORIES
Inventories consist of the following:
Raw materials $ 447,839
Work-in-process 509,096
Finished goods 313,236
-----------
1,270,171
Less obsolescence reserve (180,000)
-----------
$1,090,171
===========
8. STOCK-BASED COMPENSATION
We have adopted the disclosure-only provisions of SFAS Nos. 123 and 148,
Accounting for Stock-Based Compensation, but apply Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for our plans. Under APB Opinion No. 25, when the
exercise price of employee stock options equals or exceeds 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 Nos. 123 and 148, and has been determined as if we had
accounted for our employee stock options under the fair value method. The fair
value for these options was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
risk-free interest rate of 3.1% and 2.7% for the three and six months ended
September 30, 2004 and 2003, expected volatility of 55% to 99% and 55% for the
three and six months ended September 30, 2004 and 2003, a weighted average
expected life of the options of one to five years, and no dividend yield.
Option valuation models were developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because our 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's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of our employee stock options.
The pro forma information is as follows:
Three Months Ended Sept. 30
2004 2003
------------ ------------
Net income applicable to common shares:
As reported $ 423,298 $ 406,476
Pro forma adjustment
for stock options (241,196) (81,325)
------------ ------------
Pro forma net income $ 182,102 $ 325,151
============ ============
Earnings per share:
Basic - as reported $ 0.09 $ 0.10
Basic - pro forma $ 0.04 $ 0.08
Diluted - as reported $ 0.09 $ 0.09
Diluted - pro forma $ 0.04 $ 0.07
Six Months Ended Sept. 30
2004 2003
------------ ------------
Net income applicable to common shares:
As reported $ 906,969 $ 740,894
Pro forma adjustment
for stock options (383,982) (162,650)
------------ ------------
Pro forma net income $ 522,987 $ 578,244
============ ============
Earnings per share:
Basic - as reported $ 0.20 $ 0.18
Basic - pro forma $ 0.12 $ 0.14
Diluted - as reported $ 0.18 $ 0.16
Diluted - pro forma $ 0.11 $ 0.12
Item 2. Management's Discussion and Analysis or Plan of Operation.
Forward-looking statements
Some of the statements made in this Quarterly Report on Form 10-QSB
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are subject to the
safe harbor provisions of the reform act. Forward-looking statements may be
identified by the use of the terminology such as may, will, expect, anticipate,
intend, believe, estimate, should, or continue or the negatives of these terms
or other variations on these words or comparable terminology. To the extent
that this Report contains forward-looking statements regarding the financial
condition, operating results, business prospects or any other aspect of NVE,
you should be aware that our actual financial condition, operating results and
business performance may differ materially from that projected or estimated by
us in the forward-looking statements. We have attempted to identify, in
context, some of the factors that we currently believe may cause actual future
experience and results to differ from their current expectations. These
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including entry of new
competitors, our ability to obtain sufficient financing to support our
operations, progress in research and development activities by us and others,
variations in costs that are beyond our control, adverse federal, state and
local government regulations, unexpected costs, lower sales and net income, or
higher net losses than forecasted, price increases for equipment, our
dependence on significant suppliers, including Taiwan Semiconductor
Manufacturing Corporation for foundry semiconductor wafers, our ability to meet
stringent customer technical requirements, our ability to consummate additional
license agreements, our ability to continue eligibility for SBIR awards, our
inability to raise prices, failure to obtain new customers, the possible
fluctuation and volatility of our operating results and financial condition,
inability to carry out marketing and sales plans, loss of key executives, and
other specific risks included in our most recent Annual Report on Form 10-KSB.
General
We develop and sell devices using "spintronics," a nanotechnology we
helped pioneer, which utilizes electron spin rather than electron charge to
acquire, store and transmit information. We are a licensor of spintronic
magnetic random access memory technology, commonly referred to as MRAM, which
we believe has the potential to revolutionize electronic memory. We also
manufacture high-performance spintronic products including sensors and couplers
to revolutionize data sensing and transmission.
Critical accounting policies
It is important to understand our significant accounting policies in order
to understand our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. These
accounting principles require us to make estimates and assumptions that affect
amounts reported in our financial statements and the accompanying notes. Actual
results are likely to differ from those estimates, but we do not believe such
differences will materially affect our financial position or results of
operations for the periods presented in this report.
Revenue Recognition
Revenue from product sales is recognized when title transfers, generally
upon shipment. Revenue from licensing and technology development programs,
which is nonrefundable and for which no significant future obligations exist,
is recognized when the license is signed. Revenue from licensing and technology
development programs, which is refundable, recoupable against future royalties,
or for which future obligations exist, is recognized when we complete our
obligations under the terms of the agreements. Revenue from royalties is
recognized upon the shipment of product from our 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.
Payments received from licensing and technology development programs relating
to future obligations as well as prepayments for future discounts on product
sales are recorded as deferred revenue.
Bad Debt
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Inventory
We reduce the stated value of our inventory for excess quantities or
obsolescence in an amount equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and
market conditions. Additional reductions in stated value may be required if
actual future demand or market conditions are less favorable than we projected.
Income Taxes
In determining the carrying value of our net deferred tax assets, we must
assess the likelihood of sufficient future taxable income in certain tax
jurisdictions, based on estimates and assumptions to realize the benefit of
these assets. We evaluate the realizability of the deferred assets quarterly
and assess the need for valuation allowances or reduction of existing
allowances quarterly.
Three months ended September 30, 2004 compared to three months ended
September 30, 2003
The table below summarizes the percentage of revenue for the various
items for the periods indicated:
Three Months Ended Sept. 30
2004 2003
------- -------
Revenue:
Research and development 53.2 % 55.7 %
Product sales 46.8 44.3
------- -------
Total revenue 100.0 100.0
Cost of sales 63.3 60.7
------- -------
Gross profit 36.7 39.3
Total expenses 23.0 25.1
------- -------
Net income 13.7 % 14.2 %
======= =======
Revenue for the three months ended September 30, 2004 (the second quarter
of fiscal 2005) was $3,095,714, an increase of 8% from revenue of $2,864,185,
for the three months ended September 30, 2003 (the second quarter of fiscal
2004). The revenue increase was due to a 14% increase in commercial product
sales to $1,450,052 from $1,268,573 and a 3% increase in research and
development revenue to $1,645,662 from $1,595,612.
Gross profit margins decreased to 37% for the three months ended September
30, 2004 as compared to 39% for the three months ended September 30, 2003. The
decrease was due to a shift in product mix partially offset by a more favorable
mix between product sales and contract research and development.
Research and development expenses increased by 1% to $306,593 for the
three months ended September 30, 2004 as compared to $302,573 for the three
months ended September 30, 2003.
Selling, general and administrative expenses for the three months ended
September 30, 2004 increased by 1% to $481,648 compared to $475,691 for the
three months ended September 30, 2003.
We recorded pre-tax income of $423,298 and $406,476 for the three months
ended September 30, 2004 and September 30, 2003, respectively. The income tax
provision for the three months ended September 30, 2004 is comprised of a U.S.
Federal income tax expense of $143,921, offset by a tax valuation allowance
adjustment of $143,921. The income tax provision for the three months ended
September 30, 2003 is comprised of a U.S. Federal income tax expense of
$138,202, offset by a tax valuation allowance adjustment of $138,202.
Net income totaled $423,298 for the three months ended September 30, 2004
compared to $406,476 for the three months ended September 30, 2003. The
increase in net income was due primarily to higher revenues and higher interest
income.
Six months ended September 30, 2004 compared to six months ended
September 30, 2003
The table below summarizes the percentage of revenue for the various
items for the periods indicated:
Six Months Ended Sept. 30
2004 2003
------- -------
Revenue:
Research and development 53.0 % 58.3 %
Product sales 47.0 41.7
------- -------
Total revenue 100.0 100.0
Cost of sales 59.9 64.2
------- -------
Gross profit 40.1 35.8
Total expenses 24.9 22.8
------- -------
Net income 15.2 % 13.0 %
======= =======
Revenue for the six months ended September 30, 2004 was $5,984,941, an
increase of 5% from revenue of $5,684,034, for the six months ended September
30, 2003. The revenue increase was due to increases in commercial product sales
partially offset by a decline in research and development revenue.
Research and development revenue decreased 4% for the six months ended
September 30, 2004 to $3,171,749 from $3,316,518 for the six months ended
September 30, 2003 due to a shift in resources from government-funded research
contracts to company-funded research. Commercial product sales increased 19% to
$2,813,192 from $2,367,516.
Gross profit margins increased to 40% for the six months ended September
30, 2004 as compared to 36% for the six months ended September 30, 2003. The
increase was due to manufacturing efficiencies on commercial products and a
more favorable mix between product sales and contract research and development,
partially offset by a shift in product mix.
Research and development expenses increased by 39% to $667,852 for the six
months ended September 30, 2004 as compared to $481,242 for the six months
ended September 30, 2003. The increase was due to shifting resources from
government-funded research contracts to company-funded research.
Selling, general and administrative expenses for the six months ended
September 30, 2004 increased by 4% to $966,244 compared to $926,554 for the six
months ended September 30, 2003. The increase was due primarily to higher
intellectual property legal expenses.
We recorded pre-tax income of $906,969 and $740,894 for the six months
ended September 30, 2004 and September 30, 2003, respectively. The income tax
provision for the six months ended September 30, 2004 is comprised of a U.S.
Federal income tax expense of $308,369, offset by a tax valuation allowance
adjustment of $308,369. The income tax provision for the six months ended
September 30, 2003 is comprised of a U.S. Federal income tax expense of
$251,904, offset by a tax valuation allowance adjustment of $251,904.
Net income totaled $906,969 for the six months ended September 30, 2004
compared to $740,894 for the six months ended September 30, 2003. The increase
in net income was due to higher gross profit margins partially offset by higher
expenses.
Liquidity and capital resources
At September 30, 2004 we had $7,224,803 in cash and available-for-sale
securities, consisting of marketable fixed-income investments. We believe our
working capital is adequate to meet our requirements for at least the next
twelve months.
Outlook
We have been shifting resources from government-funded research contracts
to company-funded research in order to develop new commercial products. Our
contract research and development revenue may decline in the remainder of
fiscal 2005.
Gross profit margins could decrease in the balance of fiscal 2005 compared
to the prior year as competitive pressures could force us to decrease our
selling prices and our mix may shift to industrial product sales from medical
product sales.
Increased MRAM development expenses could reduce research and development
revenue and increase research and development expenses going forward.
We expect selling, general and administrative expenses to increase in
fiscal 2005 if we rollout MRAM manufactured under our technology agreement with
Cypress Semiconductor Corporation. We may also increase expenditures relating
to MRAM license procurement. Legal expenses relating to enforcing our MRAM
intellectual property may also increase. We expect general and administrative
expenses to increase in the remainder of fiscal 2005 due to consulting and
auditing related to compliance with Sarbanes-Oxley.
While we expect to remain profitable in the rest of the fiscal year, there
is a risk that these additional expenses could lead to lower net income
compared to the prior year or operating losses.
We may purchase additional capital equipment needed to package and test
MRAM from wafers manufactured under our technology agreement with Cypress.
Item 3. Controls and Procedures.
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this report. Based on
such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.
Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act) during the quarter ended September 30, 2004 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of shareholders was held on August 17, 2004. There were
4,496,245 shares of common stock entitled to vote at the meeting with a
majority represented at the meeting. The shareholders elected six directors to
serve until the next Annual Meeting of Shareholders: Terrence Glarner, Daniel
A. Baker, James M. Daughton, Robert H. Irish, Jeffrey K. Kaszubinski, and
Patricia M. Hollister.
Item 5. Other Information.
IMPLICATIONS OF MOTOROLA'S SPIN OFF OF FREESCALE
On March 10, 1995, we executed a Patent License Option Agreement with Motorola,
Inc., which gave Motorola the right but not the obligation to take a license
under our MRAM intellectual property within a limited time.
On April 14, 2000 we executed a Patent License Option Agreement Amendment which
obligated Motorola to pay NVE $500,000 in consideration for extending the
Patent License Option Agreement, and gave Motorola the right to elect to
exercise its option to license our intellectual property for a further payment
of $800,000.
On September 18, 2000 Motorola notified us that it was electing to exercise its
option to acquire a non-exclusive, non-transferable, and non-assignable license
under the Patent License Option Agreement Amendment and made the corresponding
further payment.
Certain of our patents cover MRAM cells with transistor selection for data
retrieval, which we believe may be necessary for successful high-density, high-
performance MRAMs. We know of no practical alternative design being pursued by
potential MRAM suppliers that could be sold in commercial quantities in the
foreseeable future.
On July 16, 2004 Motorola spun off its Freescale Semiconductor Division as a
separate, publicly-traded entity affiliated with, and controlled by, Motorola
including Motorola's semiconductor manufacturing facilities.
In early October 2004 we received written notification that Motorola intends to
distribute its remaining ownership interest in Freescale to its common
stockholders. In its filings with the SEC, Freescale Semiconductor, Inc. has
said it has been advised by Motorola that Motorola anticipates that the
distribution will occur by the end of 2004. Completion of the distribution is
contingent upon a variety of conditions, and Freescale has stated that the
distribution may not occur by the contemplated time or may not occur at all.
In a letter received in early October 2004, Motorola and Freescale asked us to
consent to Motorola's assignment of the Patent License Option Agreement to
Freescale without additional consideration. We have declined to provide such
consent.
Our attorneys have reviewed our agreements with Motorola in light of the
Freescale spinoff.
Based on that review, we believe that as long as Motorola controls Freescale,
Motorola and Freescale both enjoy rights granted to our intellectual property
under our agreements with Motorola.
We believe that Motorola cannot, however, effectively assign its rights to our
MRAM intellectual property under our Patent License Option Agreement to
Freescale without our consent when, if ever, it no longer controls Freescale.
Furthermore, we believe that our Patent License Option Agreement with Motorola
will terminate December 31, 2005 or on the date Motorola ceases manufacturing
MRAM Products whichever is later. Such a termination appears likely should
Motorola eliminate its ability to manufacture MRAM Products through its spinoff
of, and any ending control of, Freescale.
If Freescale loses its license through Motorola from NVE through ceasing to be
controlled by Motorola, or if the Patent License Option Agreement is terminated
through a cessation of manufacturing of MRAM Products by Motorola, we would be
free to negotiate a new license agreement with Freescale.
We have had exploratory discussions with Freescale concerning the possible
structure of a new agreement or an assignment of the Patent License Option
Agreement with additional amendments. There can be no assurance, however, that
agreement will be reached with Freescale, or that any such agreement with
Freescale would be on more favorable terms to NVE than the present agreement
with Motorola, or that NVE would receive any value under the existing Patent
License Option Agreement or any value under any such further agreement with
Freescale.
Item 6. Exhibits.
31.1 Certification by Daniel A. Baker pursuant to
Rule 13a-14(a)/15d-14(a).
31.2 Certification by Richard L. George pursuant to
Rule 13a-14(a)/15d-14(a).
32 Certification by Daniel A. Baker and Richard L. George pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99 Cautionary statements for purposes of the "safe harbor" provisions of
The Private Securities Litigation Reform Act.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NVE CORPORATION
(Registrant)
Date October 20, 2004 /s/ Daniel A. Baker
---------------- -------------------------------------
Daniel A. Baker
President and Chief Executive Officer
Date October 20, 2004 /s/ Richard L. George
---------------- -------------------------------------
Richard L. George
Chief Financial Officer