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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended June 30, 1995
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from __________ to _________
Commission file number 0-14068
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MEMRY CORPORATION
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(Name of small business issuer in its charter)
Delaware 06-1084424
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
57 Commerce Drive, Brookfield, CT 06804
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (203) 740-7311
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of class)
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
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Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Consolidated revenues of the issuer for the fiscal year ended June 30, 1995 were
$4,729,000.
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $5,669,000 on June 30, 1995 based upon
the average of the bid and asked prices on that date.
The number of shares of Common Stock outstanding as of June 30, 1995:
8,009,997. All references to numbers of shares of Common Stock contained
herein with respect to periods prior to August 8, 1994 give effect to the one-
for-ten reverse stock split of the Company's Common Stock (the "Reverse Split")
effected on August 8, 1994.
Transitional Small Business Disclosure Format
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Yes NO X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Memry Corporation (the "Company"), a Delaware corporation incorporated in 1981,
is engaged in the businesses of developing, manufacturing and marketing products
and components utilizing the properties exhibited by shape memory alloys (the
"Memry Segment"), and manufacturing and marketing metal parts and components
machined on screw machines and smaller metal working machines (the "Wright
Machine Segment"). The Company's principal executive offices are located at 57
Commerce Drive, Brookfield, Connecticut 06804 and its telephone number is (203)
740-7311.
MEMRY SEGMENT
SHAPE MEMORY EFFECT
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Shape memory alloys ("SMAs") possess the ability to change from one shape to
another in response to thermal changes, as well as the ability to return to
their original shape following deformations substantially greater than
deformation from which conventional alloys can recover. SMAs are capable of
producing force and motion at predetermined temperatures, to both control and
drive devices.
An actuator made from SMA can be designed to change its shape when either heated
or cooled, and return to its original position when the temperature condition is
reversed. This ability results from the transformation of the structure of the
SMA from one crystalline form to another in reaction to thermal changes. It is
not related to the normal thermal expansion and contraction properties of most
materials. Due to the crystalline structure change taking place, SMAs also
produce forces many times greater than thermal reactions in such items as bi-
metallic elements.
The major defining properties of SMAs with which the Company works are their
"super-elasticity" and their ability to demonstrate both a "one-way" memory and
a "two way" memory. Unlike an ordinary metal, certain SMAs are capable of fully
recovering their shape after being deformed as much as five percent. This is
more than 50 times the recovery ability of ordinary metals. This so-called
"super-elasticity" is becoming an important feature for a variety of medical
applications. When an actuator is required to perform a single actuation, it is
processed to return to and permanently retain its original shape when it reaches
its actuation temperature, a procedure referred to as imparting "one-way"
memory. The "two-way" actuation system requires that the materials be processed
such that they have their original shape at one temperature and other shapes at
different temperatures. The cycle of shape changes can (if the actuator is so
processed) be made to repeat almost indefinitely in response to temperature
changes. SMA actuation temperatures can be set from approximately -100 degrees
C (-150 degrees F) to 200 degrees C (392 degrees F). Actuators may be in the
form of helical coils, cantilevers (flat bending elements), a torsion member (a
rotating element) or a tubular connector.
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OPERATING DIVISIONS
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The Company's Memry Segment has established two operating divisions: Memry
Technologies, the research and engineering division, and Memry Products, the
marketing and sales division for all SMA-related products and materials. Memry
Technologies, the research and engineering division of Memry Segment, works with
customer-sponsored applied research, government research, grants and internal
funds to develop new products and materials. When these programs result in a
commercially viable activity, they will typically be transferred to the Memry
Products division for marketing, sales, distribution and customer support. The
Memry Products division was established to ensure a commercial focus to all
proprietary products and materials developed by the Company, inclusive of the
MEMRYSAFE(R) anti-scald products, the ULTRAVALVE (TM) shower and bath valve, the
FIRECHECK(R) line of fire safety valves and others. Fabrication and assembly of
all products sold by the Products division, except the ULTRAVALVE (TM), is
performed by the Technologies division. Wright Machine Corporation, a wholly
owned subsidiary of the Company ("Wright"), which owns and operates a
manufacturing facility specializing in screw machine and taper pin products,
assembles the ULTRAVALVE (TM) product and supplies it to the Memry Products
division. The Memry Segment had revenues of $1,013,000 and operating expenses of
$2,854,000 in fiscal 1995, compared to revenues of $558,000 and operating
expenses of $2,746,000 for fiscal 1994.
A. TECHNOLOGIES DIVISION
Memry Technologies ("Technologies"), the Company's research and engineering
division, is engaged in the research and development of both shape memory alloys
and the commercial product applications that flow from this knowledge.
Technologies is engaged in (i) the development of proprietary products,
incorporating SMAs, to be manufactured by the Company, (ii) the development of
SMA-based components pursuant to customer-sponsored development agreements for
incorporation in products manufactured by such customers, and (iii) customer and
government-sponsored research programs.
(I) PROPRIETARY PRODUCTS
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High Damping alloy. The Company has developed a proprietary composition of an
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existing SMA for application in the sporting goods industry. Although it is not
yet known whether the composition is patentable, the Company intends to file
both a trademark registration and a complete patent application in late 1995.
The property in question will allow the energy created when a hard object
strikes the material to be absorbed, without deformation, to a far higher degree
than currently available to manufacturers in the customer industry involved.
The resultant effect on the product involved is believed to be significant and
may therefore have commercial potential.
(II) ORIGINAL EQUIPMENT MANUFACTURER CUSTOMER-SPONSORED PROGRAMS:
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The Company is working on a number of programs to develop SMA components for
customers' products. The Company accepts customer-sponsored
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development contracts when management believes that the customer is likely to
order a successfully developed component or product in sufficient quantity to
justify the allocation of the engineering resources necessary. Whenever
possible, the contracts require the customer to purchase the commercialized
component from the Company, or to pay a royalty if the customer uses another
source. The exclusive supply or royalty arrangements are conditional upon
commercial practicability.
Generally under such programs, the identity of the customer is confidential; the
data, inventions, patents, and intellectual property rights which specifically
relate to the SMA component are either owned by the customer, or in several
instances shared between the Company and the customer; data, inventions,
patents, and intellectual property rights pertaining to the SMA technology that
do not specifically relate to the customer's product are to be owned in all
cases by the Company.
The Company has been working on some of the programs described below, most
specifically including the energy management valve systems, for a number of
years. Because the decision as to when a program is complete and ready for
commercialization belongs to the customer, and not to the Company, the Company
is not able to accurately predict if or when the products will ever come to
market. In any event, there can be no assurances that the development programs
described in the following four paragraphs will result in any manufacturing
order or royalty to the Company.
Valve products. The Company is working with a Canadian utility on valves for an
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energy management system. These valves, one of which has received U.S. patent
approval in joint ownership with the Company, would protect users from scalding
temperatures in the event of a malfunction of other components in the hot water
system. These valves are more complex than the valves utilized in the Company's
MEMRYSAFE(R) and ULTRAVALVE (TM) products described below, in that they would
allocate use of hot water to high-demand time periods.
Automotive. The Company has been working with a major manufacturer of engine
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components to develop a special sealing component made from SMA material.
Trials have been conducted and the Company and the customer are presently
engaged in filing joint patents on the invention. While results are encouraging
there can be no assurances that the customer will proceed to commercialize the
invention or that the Company will manufacture the product should it become
commercial.
Medical. The Company is developing several SMA products and devices, ranging
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from surgical clips, catheter guidance forms, stents and speech pathology tools,
and others using plastic with shape memory properties for orthoscopic
procedures.
Eyeglass Frames. The Company is working with one customer who has received
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patents on certain methods of using SMA in eyeglass frames, and has provided
numerous prototypes now under evaluation by the customer.
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(III) CUSTOMER AND GOVERNMENT-SPONSORED RESEARCH PROGRAMS
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The Company is currently involved in a number of research programs. In July
1993, a two year, Phase II contract was awarded to the Company under the Small
Business Innovation Research ("SBIR") program by the National Institute of
Health to study the use of super-elastic, titanium-based alloys as replacement
for the current nickel-based alloys used in orthodontic procedures. The value
of this contract is $412,625, of which approximately $125,000 was billed during
fiscal 1995. An extension to this contract was granted to the Company in May,
1995, allowing the Company to complete the contract by December 1995. A two
year, Phase II SBIR contract in the amount of $432,586 was awarded to the
Company in December 1993 by the United States Air Force for the development of
SMA-based reusable lock nuts. These lock nuts are intended to ease costly
inventory and logistics problems at United States Air Force maintenance
facilities by eliminating the need to use conventional lock nuts which are worn
out by vibration and have to be frequently changed. Approximately $153,000 was
billed on this contract in fiscal 1995, with the balance to be completed during
fiscal 1996. In March 1995 the Company received a Phase II SBIR contract from
the National Aeronautical and Space Administration ("NASA"), having a value of
$589,000 over a two year period, for the development of shroud rings in the
compressor sections of small jet turbines. Coincident with this program,
Connecticut Innovations, Incorporated (a for-profit quasi-public development
entity of the State of Connecticut), awarded the Company a $50,000 grant to
assist the Company in the commercialization of the results from the NASA
program. The Company was also involved in several smaller programs.
In addition, Technologies expects to receive a $308,000 eighteen-month contract
during fiscal 1996 from McDonnell Douglas for the development of SMA actuated
control surfaces on advanced helicopter blades. Originally scheduled to be
awarded in the fall of 1994, McDonnell Douglas has only recently commenced work
on this program.
Technologies has, over the past several years, completed several other internal
and customer-sponsored research programs which related to SMAs for space
applications, fasteners and coupling applications, experimental valve products,
electrical components, and advance engine components. As opportunities arise,
the Company will continue to pursue funded development programs which advance
the Company's knowledge of shape memory materials and demonstrate clear
potential for commercial products which the Company can manufacture. Several
program proposals are currently awaiting responses from the government or other
customers. Internally funded work will continue in support of the Company's
proprietary products and materials.
Contracts with the U.S. Government are subject to termination or renegotiation
by the U.S. Government pursuant to standard government procurement contract
terms. There can be no assurance that any further development will result from
these research activities or that they will result in the development of any
commercially feasible product or
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component, or, if developed,, that any manufacturing order or royalty will be
received.
The total revenue received from externally funded programs in fiscal 1995 was
approximately $349,000, compared to $239,000 in fiscal 1994. Internally funded
program costs amounted to $17,000 in fiscal 1995 and $168,000 in fiscal 1994.
The cause for this dramatic decrease was primarily lower developmental costs
relating to the MEMRYSAFE(R) products, which are now in production.
B. PRODUCTS DIVISION
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When products, components or alloy compositions developed by Technologies reach
a commercial stage, they are transferred from Technologies to the Products
division, the Company's marketing, sales, distribution and customer support
division. Although the Company has, in the past, acquired product from outside,
the division's primary focus is reaching commercial success on internally
developed product. The division currently markets two major product lines: the
MEMRYSAFE(R) temperature-actuated flow reduction products and the ULTRAVALVE
(TM) electronic combination shower/tub mixing valve. In addition, the division
markets the FIRECHECK(R) line of industrial fire safety valves, custom SMA
materials and Mitsubishi's proprietary shape memory polymer.
(I) MEMRYSAFE(R) PRODUCTS
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The MEMRYSAFE(R) products provide protection from accidental scalding in
showers, bathtubs and sinks by instantly restricting the flow at the point of
outlet prior to the onset of a scalding condition. Fiscal 1995 represented the
first year in which the entire line of auto-resettable valves was available to
the market, commencing with distribution in Australia, followed by Canada and
the U.S. The Company is aware of only one directly competitive product in the
U.S. and another in Australia. The principal alternative to the Company's
products are conventional thermostatic and pressure-balanced mixing valves
which, the Company believes, are both more expensive to manufacture and install,
and less effective in protecting the user from burns.
The MEMRYSAFE(R) products are designed to be sold both as retail retrofit
products as well as components for original equipment manufacturers. The
division sells to distributors with established market positions, original
equipment manufacturers and direct to governmental authorities. Rye Australia
Pty. Limited and the successor distributor in Australia, Edward Keller Pty.
Limited accounted for over 50 percent of the sales of this line in fiscal 1995.
With expanding distribution, primarily in North America, the Australian
proportion of total MEMRYSAFE(R) sales is expected to diminish to less than 15
percent in the current fiscal year. Retail prices in the U.S. range from $7.89
to $24.99.
(I) ULTRAVALVE (TM) PRODUCTS
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The micro-processor controlled ULTRAVALVE (TM) shower and bath valve was
introduced to the plumbing industry in April, 1989, and the first products were
sold in June, 1990. The Company believes that the ULTRAVALVE (TM) systems has
clear performance advantages over other products on the market because it
combines the safety and comfort features of
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thermostatic mixing valves with the ease and accuracy of computer-controlled
temperature setting. As an added safety feature, the ULTRAVALVE (TM) system also
incorporates the Company's patented anti-scald protection. The ULTRAVALVE (TM)
system is assembled at the Company's Wright facility, with certain components
purchased from outside vendors.
In May, 1995 the Company entered into a three year agreement, with American
Standard, Inc. whereby American Standard became the exclusive marketer and
distributor of the ULTRAVALVE (TM) product line in the United States. It is
marketed under both the American Standard and Ideal Standard brand names. The
Company retained rights to market and distribute the line outside the U.S.
The primary competition for this product line are the higher end pressure-
balanced valves manufactured and sold by most major U.S. plumbing companies and
thermostatic valves manufactured by selected European companies such as F.
Grohe. The Company holds three U.S. and two foreign patents on the ULTRAVALVE
(TM), and has patents pending in additional foreign jurisdictions.
(iii) OTHER PRODUCTS
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The Company, in partnership with Paradigm Corporation, entered into a three year
exclusive distribution agreement with Mitsubishi Heavy Industries America, Inc.
("Mitsubishi") in 1991 for the distribution of Mitsubishi's new shape memory
polymer in North America. Although the agreement expired at the end of 1994 and
the Company no longer has any rights of exclusivity, Memry continues to market
this material for potential applications in the medical, consumer goods,
sporting and packaging markets. The Company's sale of Mitsubishi polymers in
fiscal 1995 were $16,000, compared to $30,000 in fiscal 1994. The polymers'
properties are similar to SMA in that they exhibit the ability to transform
their shape due to temperature changes.
The Company's FIRECHECK(R) line of industrial fire safety valves utilizes an SMA
actuator/sensor to protect material supply lines using pneumatically operated
control valves and gas storage cylinders by exhausting pneumatic control
pressure into the atmosphere when an over-temperature condition is sensed,
allowing the open valve to close. The first version of this line was introduced
to the semi-conductor industry late in 1991, for which it received an R&D
Magazine 100 award as one of the nation's 100 best new products. In March 1995
FIRECHECK(R) received Factory Mutual approval, a third party certification as to
its performance and manufacture. The Company is in the process of setting up
distribution for this line with valve automation companies and major valve
distributors, including Conbraco and McMaster Carr. Competition for this
product includes burn-through plastic tubing, expensive infrared monitoring
systems, and sophisticated electronic valving.
A rapidly growing area of activity for the division is the provision of
customer-specific SMA material in both wire and flat rolled form, usually nickel
titanium in its "super-elastic" state. Nearly all such customers are involved
in the medical industry, requiring precise processing controls, extensive
certification and exacting specifications. One such customer, InStent Inc.,
utilizes material
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supplied by the Company for its recently FDA-approved shape memory stent for
bilary application. Competition for the applications being addressed by the
division includes Raychem, US Nitinol, SMA Applications Inc., and several
additional small processors. The Company possesses no patents or trademarks
upon which it is relying in addressing these markets.
C. SUPPLIERS
The Company expects to be able to acquire, from several sources, shape memory
alloys in sufficient quantities for its needs, and does not anticipate any
difficulty in continuing to obtain such supplies.
D. PRODUCTION CAPABILITY AND MANUFACTURING
The Company performs all of the final processing of its SMA requirements in its
facilities in Brookfield, Connecticut, based upon its receipt of the SMAs in the
form of rod or wire from its suppliers. The Company employs two spring winder
production lines and a rolling mill, capable of handling wire diameters from 2mm
to 8 mm, a CNC lathe and a CNC mill, and numerous fixtures and apparatus
specialized for either the processing of the materials or assembly of the
products. During fiscal 1995 the Company relocated its MEMRYSAFE(R) assembly
line from Wright to the Connecticut facility and internalized its capability to
produce the FIRECHECK(R) product line. The Company relies heavily on outside
suppliers for its non-SMA components and expects to continue to do so. Certain
of the programs under development would require the purchase of specialized
equipment if they become commercial. However, the Company anticipates no
difficulty in obtaining such equipment as, and when, needed.
E. COMPETITION
The Company considers its competition on two levels, technologically and for
resultant products. Competition with respect to commercialized products is
discussed supra with respect to the major product lines. See "Products
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Division." Technologically there are several U.S., Japanese and European
industrial concerns with substantially greater resources than the Company
engaged in the supply or use of SMAs. In the U.S., Raychem Corporation
pioneered in the development of SMAs and holds numerous patents in the field.
Although much of its business was divested in the early '90's, Raychem remains
both an important supplier to the Company and a competitor for medical
applications. Special Metals Inc. has become an important alloy provider and,
as of now, has limited participation in the utilization of the alloys. Japanese
participants include Furakawa Electric Co., Sumitomo Co., and Tokin Co., all of
which produce alloys and sell to users in Japan and abroad. European
participants include Krupp AG, Trefimetaux and AMT, a member of the SwissMetal
group of companies. Next to Raychem in the U.S., management believes that the
Beta Group, Inc. is likely the largest firm engaged in the use of SMAs with its
patented position in eyeglass frames.
The Company intends to compete, and advance its position, based on its knowledge
of the processing parameters of the alloys and unique design
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capabilities, particularly in the valving field. Through the conduct of funded
research the Company is able to maintain a depth of technological resource
unique among the non-alloy producing industry participants. The Company
believes that it competes mostly on technological capacity and quality in the
Memry Segment, although price and production capability are also important.
WRIGHT MACHINE SEGMENT
The Company's Wright Machine Segment consists of Wright Machine Corporation
("Wright"), a wholly owned subsidiary of the Company with a 120-year history as
a New England manufacturer of screw machine and taper pin products. Wright
provides these products to the plumbing, electrical, electronic, fire
protection, valve, appliance and automotive markets. Within the overall
activity of Wright, it has three basic business segments: (i) the manufacture of
threaded rings for the plumbing industry, (ii) the manufacture of predominantly
brass parts on screw machines ranging in size between 1.5 inches to 2.5 inches,
and (iii) the manufacture of custom and standard taper pins, most of which are
made of various grades of stainless and carbon steel. Wright also assembles the
ULTRAVALVE (TM) product line for the Memry Products division. Approximately 80%
of Wright's revenues result from sales of screw machined products.
Historically, Wright has had a reputation as a quality producer of brass and
steel parts with superior delivery and performance. However, liquidity
constraints during fiscal 1995 have adversely affected this reputation due to
Wright's difficulty in obtaining timely deliveries of raw materials. The
Company's successful private placement of equity securities in the summer of
1995 (see Note to the Company's financial statements) has enabled Wright to
again obtain raw materials on a timely basis. It is hoped that Wright has
already begun the process of restoring its reputation.
The majority of Wright's customers are within a 300 mile radius of Wright's
factory in Worcester, Massachusetts. However, Wright services customers
throughout the United States. Wright had revenues of $3,716,000 and operating
expenses of $3,667,000 in fiscal 1995, as compared to revenues of $3,707,000 and
operating expenses of $4,476,000 in fiscal 1994. In fiscal 1995, Wright's eight
largest customers accounted for 47% of its total revenues. Obviously, the loss
of one or more of these customers would have a material adverse effect on
Wright's operations.
SUPPLIERS
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Wright buys free cutting brass rod and hollow brass tube at market prices direct
from producers and other suppliers. Stainless and other steel supplies are
provided by a large number of suppliers. These materials are all available from
numerous sources and Wright does not anticipate any difficulties in being able
to acquire any of such materials.
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COMPETITION
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Wright's competition comes from other screw machining job shops, primarily on
the East Coast (in proximity to most of Wright's customers) and, frequently, the
customer's own internal machining capacity. The primary measures of
competitiveness are price, quality and delivery, with price frequently being the
defining measure. There has been a significant contraction in Wright's industry
over the past five years, resulting in fewer but more able competitors. Wright
enacted major cost reduction measures in the spring of 1994 and believes it is
fully competitive today. However, several of the machine shops and many
internal screw machine facilities with which Wright competes have greater
financial strength and similar production capabilities.
PATENTS AND TRADEMARKS
The Company owns two patents relating to the SMA scald-protection valves, the
last of which expires in the year 2010. The Company owns three commercially
material U.S. and one Canadian patent for the ULTRAVALVE (TM) SYSTEM. The
Company has filed for patent protection for the ULTRAVALVE (TM) system in other
countries, including the European Economic Community. U.S. patent protection for
the ULTRAVALVE (TM) product expires in 2007. The Company holds nine other
commercially-material U.S. patents. These include a FIRECHECK (TM) valve patent
which expires in 2003. The Company expects a second FIRECHECK (TM) patent for an
improved version to be issued during calendar year 1995. These patents are
important for protecting the intellectual property of the Company's products in
a competitive marketplace. The Company anticipates filing for additional patents
during fiscal 1996 for both alloys and certain applications.
The Company's patent rights do not dominate the field of SMA utilization, and
most of them do not cover presently proposed products or product components.
The Company's patent rights obviously do not dominate the field of plumbing
products. The Company does believe, however, that its patents provide it with a
leadership position in such technology.
While a U.S. patent is presumed valid, the presumption of validity is not
conclusive, and the scope of a patent's claim coverage, even if valid, may be
less than needed to secure a significant market advantage. Gaining effective
marketing advantage through patents can require the expense, uncertainty and
delay of litigation. Although the Company's technical staff is generally
familiar with the SMA patent environment and has reviewed patent searches when
considered relevant, the Company has not requested any legal opinion to
determine whether any of its contemplated products would infringe on any
existing patents.
The Company has material trademark registrations for the MEMRYSAFE (TM),
SHOWERGARD (TM) and FLOWGARD (TM) trademarks.
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RESEARCH AND DEVELOPMENT
During fiscal 1995, approximately $297,000 was spent on research and development
primarily in the areas of (i) the development of proprietary products
incorporating SMAs to be manufactured by the Company, (ii) the development of
SMA components pursuant to customer-sponsored development arrangements for
potential incorporation in products manufactured by such customers, and (iii)
customer and government-sponsored research programs, as compared to
approximately $147,000 in fiscal 1994. These research and development costs are
borne directly by customers of the Company.
EMPLOYEES
As of June 30, 1995, the Company and its subsidiary had fifty-eight full-time
and three part-time employees. Of the full-time employees, seven were executive
or management personnel and four were science and research personnel. Forty-two
of the full-time employees and all of the part-time employees were employed by
Wright. None of the employees is represented by collective bargaining units.
ITEM 2. DESCRIPTION OF PROPERTY
The Company has a lease, which expires on February 1, 1996, for office and
manufacturing space located at 57 Commerce Drive, Brookfield, Connecticut 06804.
The Company has been in contact with its landlord and expects to renew this
lease at the expiration of its term. The premises have a floor area of
approximately 21,350 square feet, of which approximately 5,500 square feet is
used by the Company for general administrative, executive, and sales purposes,
and approximately 11,350 square feet is used for manufacturing and research and
development operations. The lease provides for an average annual base rental of
$113,000.
In May 1993, the Company sublet approximately 4,500 square feet of its office
space at 57 Commerce Drive, providing rental income of $35,000 annually. In
August the subletor notified the Company that it would be vacating by October
31, 1995.
Wright owns approximately 2.9 acres of land, together with manufacturing and
office facilities, located at 69 Armory Street, Worcester, Massachusetts. Three
buildings have an aggregate floor area of approximately 85,000 square feet, of
which approximately 5,000 square feet is used for general administrative,
executive, and sales purposes, and the remainder for manufacturing screw machine
and taper pin products. The property is subject to a mortgage in favor of
Shawmut Bank, which secures a loan used by Wright to acquire the property. See
"Management Discussion and Analysis or Plan of Operations" and Note 10 to
the Financial Statements for a discussion of the status of the mortgage loan.
Management believes that the existing facilities of the Company and Wright are
suitable and adequate for their present needs and that additional facilities
will be readily available if needed. Management also believes that the
properties are adequately covered by insurance.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, as set forth below.
Although it is not feasible to predict the outcome of such proceedings or any
claims made against the Company, the Company does not anticipate that the
ultimate liability, if any, will materially affect the Company's financial
position.
Data Switch Corporation v. Memry Corporation, et al. Verdon Corporation owns
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property located at 83 Keeler Avenue, Norwalk, Connecticut (the "Property")
which it leased to New Dimensions in Education, Inc. ("New Dimensions"). New
Dimensions sub-leased the Property to Data Switch Corporation ("Data Switch"),
which in turn sub-leased the Property to the Company. On December 18, 1990,
Data Switch commenced an action in the Connecticut Superior Court against
Verdon, New Dimensions and the Company seeking a declaratory judgment that the
lease was not renewed on June 12, 1990, for an additional five-year term. The
Company supports this request; however, Verdon and New Dimensions have taken the
position that the lease was renewed by the Company. On October 28, 1992, David
O'Toole, successor to Verdon Corporation, filed a cross-complaint against the
Company alleging that the Company intentionally and/or negligently damaged the
Property during the period of its tenancy. Similar allegations were also made
against New Dimensions and Data Switch. O'Toole's allegations fail to include
any specific itemization of the nature or scope of the injuries alleged. No
formal discovery has taken place to date. Trial has been scheduled to commence
in February 1996.
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The Company intends to defend this action vigorously.
Catizone v. Memry Corporation. The Company is a defendant in an action entitled
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Catizone v. Memry Corporation, et al., No 91 Civ. 8023 (United States District
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Court, Southern District of New York). In November 1991, Mr. Pat Catizone
commenced an action against the Company, American Stock Transfer & Trust Co.
("AST&T"), and Mr. Neil E. Rogen, relating to Mr. Catizone's claim of ownership
to 10,000 shares of the Company's Common Stock. In June, 1991, Mr. Catizone
delivered to AST&T a certificate representing 10,000 shares of the Company's
Common Stock in the name of Mr. Rogen and bearing a restrictive transfer legend
and requested that the Company issue a certificate without a restrictive legend
in the name of Mr. Catizone. Mr. Catizone claimed to have acquired the
certificate from Mr. Perry Constantinou as collateral for a loan made some years
earlier, who had in turn acquired the certificate from Mr. Rogen in 1984 or
1985. The Company refused Mr. Catizone's request on the grounds that Mr.
Rogen's transfer to Mr. Constantinou was in violation of the federal securities
laws. Mr. Catizone commenced his action in the Supreme Court of the State of
New York, but the action was removed by the defendants to the United States
District Court for the Southern District of New York. Mr. Catizone is seeking an
order directing the Company to issue an unrestricted certificate representing
10,000 shares of the Company's Common Stock in his name, together with damages
equal to the difference between the market value of the stock from the time that
he first made demand on AST&T through the date of trial, as well as attorneys'
fees and costs. On July 25, 1995, the Court issued an opinion by which it
granted the Company's Motion for Summary Judgment, and judgment was shortly
thereafter entered in the Company's favor. Mr. Catizone has appealed from the
entry of judgment in the Company's favor, which appeal is entitled Catizone v.
-----------
Memry Corp., et al., No. 95-7874, pending before the United States Court of
- ---------- -----
Appeals for the Second Circuit. The Company filed a Motion for Summary Judgment
in September 1993. The Company intends to contest the appeal vigorously.
Neil E. Rogen v. Memry Corporation. In September 1992, Neil E. Rogen, formerly
- ----------------------------------
an officer and director of the Company, brought an action against the Company
for the alleged breach of an employment agreement between Mr. Rogen and the
Company and for indemnification for legal expenses incurred by Mr. Rogen in
connection with an investigation of and subsequent lawsuit against Mr. Rogen by
the Securities and Exchange Commission and certain related and unrelated
lawsuits. Mr. Rogen commenced his action in the United States District Court for
the Southern District of New York. Mr. Rogen sought at least $215,000 plus
interest, costs and attorney's fees as damages for the alleged breach of his
employment agreement, and in excess of $312,000 plus attorney's fees as
indemnification for expenses incurred in connection with the investigation and
the lawsuits. On December 22, 1992, the Company filed an answer and a
counterclaim against Mr. Rogen, alleging breaches of fiduciary duty and
unauthorized acts by Mr. Rogen and seeking monetary damages for the same. In
April 1994, the Company moved for summary judgment with respect to all counts of
Mr. Rogen's complaint. On May 23, 1995, the Court issued an opinion by which it
granted the Company's Motion for Summary Judgment on grounds of improper venue.
Judgment was subsequently entered in the Company's favor on May 31, 1995. No
appeal has been taken from the judgment entered in the Company's favor. Counsel
for Mr. Rogen has indicated that he intends to refile the action in a different
venue. The Company intends to contest the case vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board (through which
various market dealers make the market of the Company's Common Stock and trades
are reported through what is commonly known as the "pink sheets") under the
symbol MRMY. Prior to August 8, 1994, the Company's Common Stock was traded
under the symbol MRMT. On August 8, 1994, the Company effected a one-for-ten
reverse stock split (the "Reverse Split") of its Common Stock. It should be
noted that all references to Common Stock (both number of shares and per share
prices) have been adjusted to reflect the Reverse Split. On June 30, 1995,
there were 1,521 holders of record of the Company's Common Stock.
The following table sets forth, for the periods indicated, the quarterly high
and low representative bid quotations for the Company's Common Stock as reported
by the National Quotations Bureau. Quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs, or commissions, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Fiscal year ended
June 30 1995 1994
- ----------------- ------------- -------------
High Low High Low
------ ----- ------ -----
<S> <C> <C> <C> <C>
1st Quarter $2.50 $1.00 $4.69 $1.25
2nd Quarter 1.88 0.75 6.56 2.19
3rd Quarter 1.69 0.50 5.00 1.25
4th Quarter 1.38 0.63 2.70 1.25
</TABLE>
The Company has never paid a cash dividend on its Common Stock and the Company
does not contemplate paying any cash dividends on its Common Stock in the near
future. As long as any shares of Series G Preferred Stock are outstanding, the
Company may not declare or pay a dividend on any shares of Common Stock unless
the Company, prior to such declaration or payment, pays or distributes to each
holder of Series G Preferred Stock an amount of cash or other property equal to
the sum of (I) any accrued and unpaid dividends on such share of Series G
Preferred Stock, plus (II) the product of (x) the amount of cash or other
property paid to a holder of one share of Common Stock, multiplied by (y) the
number of shares of Common Stock which each holder of Series G Preferred Stock
would then be able to acquire upon the immediate conversion of all of such
holder's shares of Series G Preferred Stock. In addition, in the event that the
Company has not effected a registration statement to cover the resale of the
common stock underlying outstanding shares of Series G Preferred Stock on or
prior to March 15, 1996, the holders of the Series G Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors of the
Company, until such time until such registration has been effected, a quarterly
dividend of $130.00 per share, accruing commencing on March 16, 1996, and shall
be paid pro rata to the holders of the Series G Preferred Stock entitled thereto
in proportion to the number of shares of Series G Preferred Stock owned by each
such holder.
13
<PAGE>
By letter agreement dated May 22, 1995 between Harbour Holdings Limited
Partnership ("Harbour") and the Company, Harbour agreed to accept the issuance
to it by the Company of 747,500 shares of Common Stock as payment in full of
declared, accrued and unpaid dividends in the amount of $598,000 that accrued
prior to June 30, 1993 with respect to shares of Series A Preferred Stock and
Series B Preferred stock held at such time by Harbour. (See "Management's
Discussion and Analysis or Plan of Operation")
The loan agreement between Wright Machine Corporation, a wholly owned subsidiary
of the Company, and Shawmut Bank (described in Note 10 to the financial
statements) restricts Wright from paying dividends to the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated financial statements have been presented on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred net
losses of $2,392,000 and $3,358,000, and negative cash flows from operations of
$1,869,000 and $2,250,000, for the years ended June 30, 1995 and 1994,
respectively. As a result, the Company has a stockholders' deficit of $1,031,000
and its current liabilities exceed its current assets by $2,294,000 as of June
30, 1995. In addition, the Company's subsidiary, Wright Machine Corporation
("Wright"), as of June 30, 1995, had defaulted on its loan agreements which
total $1,078,000 and was subject to a forbearance agreement with its bank (see
Notes 10 and 14). These conditions raise substantial doubt about the Company's
ability to continue as a going concern.
During fiscal 1995, the Company continued to experience the significant
liquidity constraints present in fiscal 1994. The negative cash flow from
operations of $1,869,000 caused the Company to experience raw material shortages
and therefore lower product sales revenues at both segment levels. In addition,
the Company required a $109,000 investment in equipment purchases for
MEMRYSAFE(R) production and shape memory wire processing. Although the Company
did raise additional capital through private placements, $1,622,000 closed in
the last month of the fiscal year and therefore the Company could not experience
any substantial benefits in fiscal 1995 as such benefits relate to increased
revenues for fiscal 1995.
In fiscal 1996, the Company anticipates that it will continue to incur losses
from operations until the fourth quarter, at which time the Company expects to
be cash flow positive. The Company plans to continue to maintain stringent
control on expenses while increasing its revenues and improving gross profit
margins. The Company believes the $2,492,000 of capital raised through private
placement agreements during fiscal 1995 (most of which occurred during the
fourth quarter), and $1,561,000 in the first quarter of fiscal 1996 is
sufficient to cover the Company's working capital requirements for fiscal 1996.
In addition, the Company renegotiated its debt with Wright's bank through July
1, 1996 as described below. However, it is the Company's intent to seek re-
financing with more favorable terms during fiscal 1996 (although there can be no
assurances that the Company will be successful). On October 12, 1995 the Company
amended its Convertible Subordinated Debenture Purchase Agreement with
Connecticut Innovations, Incorporated, described below, and is no longer in
default of covenants thereunder.
The Memry segment's product sales efforts were severely impacted by limited raw
material purchases and customer concerns about production capabilities due to
the liquidity constraints of the past two fiscal years. The capital raised
during the last quarter of fiscal 1995 and the first quarter of fiscal 1996
should alleviate these obstacles. The Company believes that liability and safety
issues for the major original equipment manufacturers ("OEMs") in fiscal 1996
and the public housing sectors, as it related to anti-scalding, will be the
market drivers for increased sales for the MEMRYSAFE(R) product line and to a
lessor extent ULTRAVALVE(TM) products. The Company intends to reduce its
manufacturing costs substantially as it relates to MEMRYSAFE(R) through the
purchase of hard-tooling, although as of October 12, 1995 there are no
commitments to purchase the same. On April 1, 1995 the Company and American
Standard, Inc., a major plumbing OEM, entered into an agreement in which the
Company appointed American Standard as its exclusive sales and marketing
distributor in the United States. In addition, in May 1995 the Company received
a one year blanket purchase order with American Standard, Inc. for 1,000 units
of ULTRAVALVE(TM) product. The shape memory effect wire and wire shapes have the
ability to generate larger sales volumes than in the past due to the numerous
potential medical applications of the NiTi wire. During fiscal 1995, however,
due to the Company's capital expenditure constraints, the Company could not
pursue these potential revenue producing sales. Research and Development has a
Government contract backlog of $949,000 of which $598,000 is expected to be
billed in fiscal 1996. The Wright segment has also suffered liquidity
constraints over the past two fiscal years which has caused it to be adversely
affected in relationship to its timely delivery performance. The Company's
successful private placement of equity in the last quarter of fiscal 1995 and
first quarter of fiscal 1996 has enabled Wright to again obtain the raw
materials necessary to deliver on a timely basis. Wright will be aggressively
approaching current and former customers which it believes have sourced product
elsewhere. Wright also expects to increase its margins through the re-evaluation
of its costing methods and the analyzation of its production efficiency.
On October 12, 1995, the Company amended a Convertible Subordinated Debenture
Purchase Agreement (as so amended, the "Purchase Agreement"), dated as of
December 22, 1994, with Connecticut Innovations, Incorporated ("CII"). Pursuant
to the Purchase Agreement, CII acquired from the Company the following (the "CII
Securities"): (i) a Convertible Subordinated Debenture, dated December 22,
1994, in the principal amount of $763,208, as amended by a First Addendum to
Convertible Subordinated Debenture dated as of October 12, 1995 (as so amended,
the "Debenture") currently convertible into Common Stock, subject to the
limitation set forth below, at a conversion price of $0.80 per share, (ii) a
warrant, dated December 22, 1994, as amended by a First Addendum to Stock
Subscription Warrant (as so amended, the "Class I Warrants"), initially
exercisable to purchase 508,805 shares of Common Stock at a price of $2.15 per
share and currently exercisable, subject to the limitation set forth below, to
purchase 1,176,269 shares of Common Stock at a price of $0.93 per share, (iii) a
warrant, dated December 22, 1994, as amended by a First Addendum to Stock
Subscription Warrant (as so amended, the "Class II Warrants"), initially
exercisable to purchase 305,283 shares of Common Stock at a price of $2.75 per
share and currently exercisable, subject to the limitation set forth below, to
purchase 705,485 shares of Common Stock at a price of $1.19 per share, and (iv)
a warrant, dated December 22, 1994, as amended by a First Addendum to Stock
Subscription Warrant (as so amended, the "Class III Warrants"), initially
exercisable to purchase 100,000 shares of Common Stock at an exercise price of
$1.00 and currently exercisable, subject to the limitation set forth below, to
purchase 100,000 shares at an exercise price of $0.65, such warrant being an
amendment and restatement of a warrant previously held by CII to purchase 10,000
shares of Common Stock at an exercise price of $10.00 per share.
Pursuant to the Purchase Agreement, CII purchased the Debenture, the Class I
Warrants and the Class II Warrants for an aggregate purchase price of $763,208,
comprised of (i) $370,153 in cash, (ii) delivery to the Company by CII of a 10%
Convertible Demand Note of the Company in the principal amount of $334,847 (the
"Note") marked paid in full, and (ii) delivery to the law firm of Finn Dixon &
Herling as escrow agent (the "Escrow Agent") of a check in the amount of $45,000
pursuant to an
14
<PAGE>
Escrow Agreement dated as of December 22, 1994, as amended October 12, 1995,
among the Company, CII and the Escrow Agent. Pursuant to the terms of the
Purchase Agreement, the Company is required to file a registration statement
(the "Registration Statement") to cover, inter alia, the resale by CII of the
----- ----
shares of Common Stock underlying the CII Securities (the "Registrable
Securities") and is required to cause the Registration Statement to become
effective no later than March 15, 1996, maintain the effectiveness of the
Registration Statement for a period of three years from its effective date,
subject to the provisions of the Purchase Agreement, and use its best efforts to
allow CII to continually sell Registrable Securities pursuant to such
Registration Statement free from any stop orders or suspensions by the Company
or advice of counsel to the contrary. The exercise or conversion, as
applicable, of the CII Securities is subject to the limitation that prior to the
earlier to occur of December 20, 1995 or the date on which the Company has
authorized and reserved for issuance a sufficient number of shares to allow for
the full exercise and conversion of the Registrable Securities, (i) none of the
Class I Warrants, the Class II Warrants or the Class III Warrants may be
exercised, and (ii) the Debenture may not be converted at a per share price
other than $1.50.
CII has been granted a "put" right if (i) at any time before the earlier of
October 12, 2005 and the date on which CII ceases to hold at least 35% of the
Registrable Securities the Company ceases to (a) maintain its corporate
headquarters and a majority of its shape memory business operations in the State
of Connecticut, (b) base its president and chief executive officer, all of its
administrative and financial staff, all of its marketing and customer service
staff (excluding individuals specific to Wright only), and all of its research
and development staff in the State of Connecticut, (c) conduct a majority of its
operations in the aggregate (including manufacturing and production), directly
or through subcontractors and through licensed operations, in the State of
Connecticut (excluding Wright's business related to the production of screw
machine products and taper pins), and (d) maintain its principal bank accounts
with banks located in the State of Connecticut, excluding all banks associated
with Wright; or (ii) the Company fails (a) to cause the effectiveness of the
Registration Statement by March 15, 1996, (b) to keep the Registration Statement
effective for an aggregate of 120 days during any rolling twelve month period,
or (c) to have authorized and unissued shares of Common Stock reserved for the
full exercise and conversion of the CII Securities by December 20, 1995. Upon
CII's exercise of its put, the Company shall be obligated to purchase from CII
all CII Securities and Registrable Securities held at that time by CII for a
price equal to the greater of (i) the amount of CII's investment plus an amount
calculated to yield to CII a compounded rate of return of 25% per annum plus, in
the case of Common Stock issued upon the exercise of the Class I Warrants, the
Class II Warrants or Class III Warrants, any exercise price paid to acquire
Common Stock, or (ii) the difference between (x) the product of the current
market price per share of the Common Stock included within or acquirable upon
the exercise or conversion of the CII Securities, minus (y) any exercise prices
that would have to be paid upon the full exercise of the remaining Class I
Warrants, Class II Warrants and Class III Warrants included within the CII
Securities and the Registrable Securities.
15
<PAGE>
As of July 20, 1995, Shawmut Bank, N.A. (the "Bank") and Wright Machine
Corporation ("Wright") executed a Third Amendatory Agreement to Revolving Loan,
Term Loan and Security Agreement by which the Bank has agreed to extend the
termination date of its revolving loan to Wright to July 1, 1996, if not sooner
demanded, subject to Wright's continued compliance with certain covenants
included in the Revolving Loan, Term Loan and Security Agreement dated February
7, 1990 as amended to date (as so amended, the "Loan Agreement"). The Bank also
agreed that the final installment on the mortgage note and term note evidencing
indebtedness owed by Wright to the Bank would be set at July 1, 1996. Among
other things, the Loan Agreement requires Wright to pay transaction fees of
$1,500 per month for the period from July 1, 1995 through September 30, 1995,
$3,000 per month for the period from October 1, 1995 through December 31, 1995,
$4,500 per month for the period from January 1, 1996 through March 31, 1996, and
$6,000 per month for the period from April 1, 1996 through June 30, 1996.
However, if Wright meets or exceed certain projected net income levels for the
six months ended December 31, 1995 and continues to meet or exceed projected
monthly net income levels thereafter, then the monthly fee will remain at
$3,000. If at any time after December 31, 1995, however, Wright fails to meet
or exceed net income projections, the fee will increase to $4,500 per month for
the next three months and to $6,000 per month for any months thereafter in which
there are outstanding obligations of Wright owed to the Bank. Interest on the
revolving loan, mortgage loan and term loan has been reset to the Bank's base
rate plus 4%. The Company also reaffirmed its guaranty of all Wright's
obligations to the Bank and reaffirmed its subordination of certain obligations
owed by Wright to the Company to the obligations owed by Wright to the Bank.
There can be no assurance that the Company and Wright will not be in breach of
the Loan Agreement in the future, or that the Bank will agree to a further
extension or a forbearance in such event.
(b) Results of Operations
REVENUES
- --------
Sales: Overall revenues increased to $4,729,000 in fiscal 1995 from $4,265,000
- -----
in fiscal 1994, an increase of $464,000, or 11%. Revenues relating to the Memry
Segment were responsible for 98% of the increase.
Memry Sales. Revenues relating to the Memry Segment increased to $1,013,000 in
fiscal 1995 from $558,000 in fiscal 1994, an increase of $456,000. Sales of the
MEMRYSAFE(R) and ULTRAVALVE (TM) product lines were $462,000 in fiscal 1995 as
compared with $174,000 in fiscal 1994. Sales of SMA, shape memory effect wire
and wire shapes, shape memory polymers and FIRECHECK(R) were approximately
$186,000 as compared with $130,000 in fiscal 1994. Research and development
revenues in fiscal 1995 increased $111,000, or 44%, to $365,000, compared to
fiscal 1994 revenues of $254,000. The increase in research and development
revenues is the result of a full fiscal year's worth of revenues from two
government contracts which were awarded during 1993. The backlog of government-
sponsored contracts is $949,000 which includes $551,000 on the three-year NASA
contract awarded in March 1995.
16
<PAGE>
Wright Sales. Wright Machine Segment sales remained relatively flat at
$3,716,000 in fiscal 1995 versus $3,707,000 in 1994, as a result of continued
liquidity constraints which interfered with the ability of Wright to make raw
material purchases. The contract backlog decreased to approximately $1,200,000
at June 30, 1995 as compared with $1,927,000 at June 30, 1994.
COST AND EXPENSES
- -----------------
Manufacturing Costs. Manufacturing costs decreased to $3,850,000 in fiscal
- -------------------
1995 from $4,003,000 in fiscal 1994, a decrease of $153,000, or 4%. The overall
gross profit margin in fiscal 1995 was 12%, as compared to 6% in fiscal 1994.
Memry Manufacturing Costs. Memry Segment's manufacturing costs were $612,000 in
fiscal 1995 and $476,000 in fiscal 1994, an increase of $136,000, or 29%, with
margins of 6% and (57)%, respectively. The increase in margin is attributable
to the increase in sales and a decrease in the re-engineering costs of the
MEMRYSAFE(R) products.
Wright Manufacturing Costs. Wright Machine Segment's manufacturing costs for
fiscal 1995 were $3,238,000 as compared with $3,527,000 in fiscal 1994. The
reduction of $289,000 in costs, or 15%, is primarily due to the impact for a
full fiscal year of the one-third reduction of total staff which took place in
April 1994. Wright's profit margin improved to 14% in fiscal 1995 versus (3)%
in fiscal 1994.
Research and Development Costs. Research and development costs were $297,000 in
fiscal 1995 compared to $147,000 in fiscal 1994. This increase of $150,000, or
102%, was due to the increase in the research and development contract revenue
and related subcontractor expenses of $71,000.
General, Selling and Administrative Expenses ("GS&A"). Overall GS&A was reduced
- -----------------------------------------------------
in fiscal 1995 $221,000, or 9%, to $2,374,000 in fiscal 1995 from $2,595,000 in
fiscal 1994. The reduction is due to the absence in fiscal 1995 of non-recurring
expenses of a $210,000 officer's bonus and a severance payment in fiscal 1994 of
$79,000, offset by $88,000 in litigation settlements.
Depreciation and Amortization Expense. Depreciation expense was $240,000 in
- -------------------------------------
fiscal 1995 as compared with $274,000 in fiscal 1994. The $34,000, or 12%,
increase is primarily a result of assets becoming fully depreciated, offset by
the purchase of a $60,000 rolling mill in November 1994 and the $49,000 purchase
of other assets.
Interest Expense. Interest expense increased in fiscal 1995 to $360,000 from
- ----------------
$295,000 in fiscal 1994, an increase of $65,000, or 22%. This increase is
primarily due to additional fees charged by Wright's bank for extending the
terms of its forbearance agreement.
17
<PAGE>
Net Loss.
- --------
Overall. Net loss for fiscal 1995 was ($2,392,000) as compared to ($3,358,000)
- -------
for fiscal 1994, an improvement of $966,000, or 29%. This improvement is the
result of the absence of a $300,000 write-off of ULTRAVALVE (TM) inventory, a
full year's benefit of reduced staffing at Wright, stringent cost containment
and improved margins.
Memry Segment. Memry Segment's net loss for fiscal 1995 was ($1,981,000) as
compared with fiscal 1994's net loss of ($2,329,000). The improvement of
$348,000, or 15%, is the result of improved margins and stringent costs
containment.
Wright Segment. Wright Machine Segment's net loss in fiscal 1995 was ($411,000)
as compared to ($1,028,000) in fiscal 1994. Wright's $617,000 improvement, or
60%, is primarily the result of the impact for a full fiscal year of the one-
third reduction in staffing which occurred in April of 1994 and the absence of
the $300,000 write-off of ULTRAVALVE (TM) inventory made in fiscal 1994.
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 112 "Accounting for Postemployment Benefits,"
which was required to be implemented by the Company in fiscal 1995. Because the
Company generally does not provide such benefits, the adoption of this statement
was not material to the Company's fiscal 1995 financial results.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
-----------------------------
Independent Auditor's Report-- F-1
Report of Independent Auditors-- F-2
Financial Statements
Consolidated Balance Sheet-- F-3
As of June 30, 1995
Consolidated Statement of Operations-- F-4
For Years ended June 30, 1995 and 1994
Consolidated Statement of Stockholders' Deficit-- F-5
For Years ended June 30, 1995 and 1994
Consolidated Statement of Cash Flows-- F-6
For Years ended June 30, 1995 and 1994
Notes to Consolidated Financial Statements-- F-7
18
<PAGE>
PART III
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 19, 1995, Ernst & Young LLP ("E&Y") resigned as independent auditors of
the Company. A Form 8-K was filed on June 26, 1995 by the Company with the
Securities and Exchange Commission (the "Commission") to report this event. On
September 20, 1995, the Company engaged McGladrey & Pullen, LLP ("M&P") as its
independent auditors, and filed a Form 8-K on September 27, 1995 with the
Commission to report this event. Because E&Y resigned, rather than having been
dismissed by the Company, neither the Company's Board of Directors nor the
Company made a decision to change accounting firms. The Company does not have a
separate audit committee of the Board of Directors. In connection with E&Y's
audits of the Company's financial statements for each of the two fiscal years
ended June 30, 1993 and June 30, 1994, respectively, and through the date of the
subsequent interim periods ending June 19, 1995 (the date of E&Y's resignation
as the Company's independent auditors), E&Y and the Company have not had any
disagreements on any matters of accounting principles or practices, financial
statement disclosure or auditing scope and procedures which disagreements, if
not resolved to E&Y's satisfaction, would have caused E&Y to make a reference to
the subject matter of the disagreements in E&Y's report. E&Y has not performed
any procedures with respect to interim periods after fiscal 1994 year end.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors
- ---------
The following table lists the names and ages of the five members of the Board of
Directors, their positions with the Company and the year in which each director
was first elected or appointed as a director of the Company.
<TABLE>
<CAPTION>
Positions with Director
Name Age the Company Since
- -------------------------- --- ------------------------- --------
<S> <C> <C> <C>
James G. Binch 48 President, CEO, Treasurer 1989
& Chairman of the Board
Nicholas J. Grant 80 Director 1986
John A. Morgan 49 Director 1989
W. Andrew Krusen, Jr. 47 Director 1994
Jack Halperin 49 Director 1994
</TABLE>
Certain information regarding the Directors is set forth below. Directors are
elected until the next annual meeting of stockholders and until their successors
are duly elected and qualified.
JAMES G. BINCH has been President and Chief Executive Officer of the Company
since December 11, 1991, Chairman of the Board since September 24, 1993 and
Treasurer since July 19, 1994. He was the President and a director of Trinity
Capital Corporation, a merchant banking firm, from its inception in June of 1987
to August 1994. He has been the President, Chief Executive Officer and the sole
shareholder of Harbour Investment Corporation, the general partner of Harbour
Holdings Limited Partnership, an investment management company, since its
inception in June 1992. He is also a limited partner of Harbour Holdings
Limited Partnership. From 1985 to 1987 he served as President and Chief
Operating Officer of Lummus Crest, Inc., the principal engineering subsidiary of
Combustion Engineering, Inc., with annual revenues of $300,000,000 and
approximately 4,000 employees. From 1980 to 1985, Mr. Binch served as Vice
President, Corporate Strategic Planning for
19
<PAGE>
Combustion Engineering, Inc., a manufacturing and engineering firm. Mr. Binch
also serves as a director of Perkins Paper, Ltd., a public company based in
Montreal, and Gulfstar Energy, Inc., an oil and gas company based in Houston,
Texas. Mr. Binch is a graduate engineer from Princeton University. He also
holds an M.B.A. from the Wharton School of the University of Pennsylvania.
NICHOLAS J. GRANT was a Director of the Massachusetts Institute of Technology's
Center for Materials Science and Engineering from 1968 to 1976, and has been its
Abex Professor in Advanced Materials since 1976. Dr. Grant is a Fellow of the
American Society for Metals, a Fellow of the American Institute of Mining and
Metallurgy, a Fellow of the American Academy of Arts, a Member of the National
Academy of Arts and Sciences, and a member of the National Academy of
Engineering. He has published over 380 technical and scientific articles,
including several books. He is a director of Instron Corp., a producer of
instruments and systems for worldwide materials testing; CGM Corp. and Capital
Development Funds, both mutual funds; and National Forge Co., a producer of high
alloy steel and related components. He is also a director of Engineered
Precision Casting Corp., Kimball Physics Corp. and Capital Growth Management.
JACK H. HALPERIN, ESQ., has practiced corporate and securities law in New York
for more than 20 years. Since 1987 he has been in private practice,
concentrating on international financing transactions. Mr. Halperin holds a
B.A. degree (summa cum laude) from Columbia College and a J.D. from New York
University School of Law, where he was Note-and-Comment Editor of the Law
Review. Mr. Halperin is a director of Alamar Biosciences, Inc., I-Flow
Corporation and Xytronyx, Inc.
W. ANDREW KRUSEN, JR., is a graduate of Princeton University with a Bachelor's
Degree in Geology. Since 1989 he has been President of General Group Holdings,
Inc., a family controlled corporation in real estate development, construction,
leasing and manufacturing. In addition, he is Chairman of the Board of
Directors and a principal shareholder of Dominion Energy and Minerals
Corporation, an oil and gas concern, and a principal shareholder and President
of Dominion Financial Group, Inc., which is a merchant banking operation, and
the Managing General Partner of Dominion Partners. In addition Mr. Krusen is
the President of 169855 Canada Inc. and a General Partner of Krusen-Vogt & Co.
He is a director of Jemison, Inc., Raymond James Trust Company, Morrison
Petroleums, Florida Education Fund, Gulfstar Energy, Inc. and First National
Bank of Tampa.
JOHN A. MORGAN has been a Vice President of Smith Barney, an investment banking
firm, since 1992. Prior to that, Mr. Morgan was a Vice President of Kidder
Peabody & Co. since 1982.
Executive Officers
- ------------------
In addition to Mr. Binch, the Company employs two other executive officers:
Wendy A. Gavaghan and Richard L. Martin. Executive officers are elected until
the next annual meeting of the Board of Directors and until their respective
successors are elected and qualified.
20
<PAGE>
WENDY A. GAVAGHAN, age 41, has been Corporate Controller and Secretary of the
Company since September 24, 1993. From 1989 until 1993 Ms. Gavaghan served as
Controller of Trinity Capital Corporation, and Ms. Gavaghan has served as
Controller of Harbour Investment Corporation since its inception in June 1992.
From 1978 to 1985, Ms. Gavaghan served in a number of positions of increasing
responsibility with Champion International Corporation in Stamford, Connecticut.
From 1983 to 1985 she served as Western Regional Administrative Manager for the
Building Products Division in Denver, Colorado. Following the leveraged buyout
of the plywood operations of this division in 1985, Ms. Gavaghan moved to
Cincinnati, Ohio, where she served as Manager of M.I.S. Application Support for
the new U.S. Plywood Corporation until 1988. Ms. Gavaghan holds a B.S. degree
in accounting from Sacred Heart University.
RICHARD L. MARTIN, age 57, has been Vice President-Memry Technologies Division
of the Company since September 24, 1993. Mr. Martin joined the Company in March
1991 as Director of Engineering. Mr. Martin has nearly 30 years of experience
in product engineering with high precision valves and regulators used in the
semiconductor industry, self-contained breathing equipment and aerospace
systems. Prior to joining the Company, Mr. Martin had served as President of
Martin Technology of Hesperia, California and Technical Director, Product
Management and Development, of the Martin/Carten Division of Harsco Corporation,
which acquired Mr. Martin's company in 1987. He has also worked for Aerojet
General Corporation and Pyronetic Devices, all in California. Mr. Martin has a
B.Sc.M.E. from U.C.L.A.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Jack H. Halperin, W. Andrew Krusen, Jr. and John A. Morgan were elected
Directors of the Company on July 19, 1994. None of Messrs. Halperin, Krusen or
Morgan filed a Form 3 with respect to this event. Such Forms 3 should have been
filed with the Commission by July 29, 1994. However, each of Messrs Halperin,
Krusen and Morgan subsequently timely filed, on August 14, 1995, a Form 5 to
report such event. In addition, 10,000 shares were issued to each of Dr. Grant
and Messrs. Halperin, Krusen and Morgan as of June 30, 1995 in consideration of
the services provided by each such individual as a Director. This issuance
should have been reported on a Form 4 for each such person filed with the
Commission by July 10, 1995. However, this issuance was subsequently reported
on a Form 5 for each such person timely filed on August 14, 1995.
With respect to Dr. Grant, in addition to the above-described failure to file a
Form 4, the purchase of 5,000 shares of Common Stock on April 28, 1994 and
15,384 shares of Common Stock on June 22, 1995 should have been reported on
Forms 4 filed with the Commission by May 10, 1994 and July 10, 1995,
respectively. While a Form 5 was not filed by August 14, 1994 to report the
April 28, 1994 transaction, both of these transactions were subsequently
reported on the Form 5 for Dr. Grant timely filed, with respect to the June 22,
1995 purchase, with the Commission on August 14, 1995.
With respect to Mr. Krusen, in addition to the above-described failures to file
a Form 3 and a Form 4, the purchase of 14,286 shares of Common
21
<PAGE>
Stock by Dominion Partners, an entity of which Mr. Krusen is a general partner,
on December 9, 1994 should have been reported on a Form 4 filed with the
Commission by January 10, 1995. However, this transaction was subsequently
reported on the Form 5 for Mr. Krusen timely filed with the Commission on August
14, 1995.
With respect to Mr. Morgan, in addition to the above-described failure to file a
Form 4, (i) the cancellation of options exercisable to purchase 4,000 shares of
Common Stock should have been reported on a Form 5 filed with the Commission on
August 14, 1994, (ii) the purchase on October 2, 1993 of 17,500 shares of Common
Stock should have been reported on a Form 4 filed with the Commission by
November 10, 1993, and (iii) the purchase by a trust as to which Mr. Morgan is a
trustee should have been reported on a Form 4 filed with the Commission by
December 10, 1993. However, all of these transactions were subsequently
reported on the Form 5 for Mr. Morgan filed on August 14, 1995.
James G. Binch, Harbour Investment Corporation and Harbour Holdings Limited
Partnership each timely filed a Form 5 on August 14, 1995 reporting the
following transactions by Harbour Holdings Limited Partnership: conversion on
August 8, 1994 of 480 shares of Series F Preferred Stock into 480,000 shares of
Common Stock, the conversion on May 22, 1995 of 124 shares of Series A Preferred
Stock into 424,426 shares of Common Stock, the conversion on May 22, 1995 of 250
shares of Series B Preferred Stock into 312,500 shares of Common Stock and the
issuance on May 22, 1995 of 747,500 shares of Common Stock as payment in full of
accrued dividends with respect to the Series A and Series B Preferred Stock.
The conversion of the Series F Preferred Stock should have been reported on a
Form 4 filed with the Commission by September 10, 1994, and the other
transactions should have been reported on a Form 4 filed with the Commission by
June 10, 1995. However, Mr. Binch failed to file a Form 5 by August 14, 1994
with respect to the issuance to him on September 23, 1993, subject to subsequent
stockholder approval which was obtained on July 19, 1994, of options exercisable
to purchase 240,000 shares of Common Stock at an exercise price of $4.40 per
share. Mr. Binch is the President, Chief Executive Officer and sole shareholder
of Harbour Investment Corporation, the general partner of Harbour Holdings
Limited Partnership.
22
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended June 30, 1995, 1994
and 1993, certain information regarding the total remuneration paid to the
company's chief executive officer and its next most highly compensated executive
officer. No other executive officer or significant other employee of the Company
received total annual salary and bonus in excess of $100,000 during fiscal 1995.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation Awards
----------------------------------- -------------------------------
(a) (b) (c) (g)
Shares of Common
Name & Principal Fiscal Stock Underlying
Position Year Salary $ Bonus ($) Options/SARs(#)
- ---------------- --------- ---------- ------------ -------------------------------
<S> <C> <C> <C> <C>
James G. Binch, President, 1995 $150,000(1) $ -0- 240,000/0 (2)
Chief Executive Officer 1994 $150,000(1) $210,000(3) - 0 -
& Director 1993 $ 95,000(1) $ -0- - 0 -
Edward J. Murphy, V.P. 1995 $120,000 $ 7,500 10,000/1,000 (4)
of the Company and President 1994 $ 25,000 $ -0- - 0 -
Wright 1993 $ - 0 - $ -0- - 0 -
</TABLE>
- --------------
(1) Does not include any amounts which may be deemed to be paid to Mr. Binch
by Harbour Investment Corporation for serving as President of the Company.
See discussion following.
(2) These options are exercisable in five equal annual installments, commencing
on September 24, 1994.
(3) Mr. Binch's bonus consisted of $50,000 in cash and 80,000 shares of the
Company's Common Stock valued at $2.00 a share.
(4) These options vest in two equal annual installments beginning on January 1,
1995.
23
<PAGE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
-----------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Shares % of Total
of Common Stock Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year(1) Price($/Share) Date
- ------------------ ------------ --------------- ----------------- -----------
<S> <C> <C> <C> <C>
James G. Binch 240,000/0 (2) 55/0% $4.40 9/24/2003
Edward J. Murphy 10,000/1,000 (3) 2.3/11.3% $2.34 7/19/2004
</TABLE>
- ---------------------------
(1) Assumes full vesting of options.
(2) These options are exercisable in five equal annual installments, commencing
on September 24, 1994.
(3) These options vest in two equal annual installments beginning on January 1,
1995.
Aggregated Option/SAR Exercises in Last
Fiscal Year and FY-End Option/SAR Values
----------------------------------------
<TABLE>
<CAPTION>
(a) (d) (e)
Number of Shares
of Common Stock
Underlying Value of Unexercised
Unexercised Options/ In-the-Money Options/
SARs at FY-end (#) SARs at FY-End (#)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------- --------------------------- -------------------------
<S> <C> <C>
James G. Binch 240,000 Options Exercisable N/A
Edward J. Murphy 5,000 Options Exercisable N/A
5,000 Options Unexercisable
1,000 SARs Exercisable
----------------------
</TABLE>
Effective September 24, 1993, the Company and James G. Binch entered into a 2-
year employment agreement, which automatically renews for successive 1-year
periods unless or until Mr. Binch or the Company gives notice of its intention
not to renew. Pursuant to said renewal provision, this agreement automatically
renewed for a one-year period effective September 24, 1995. The agreement
entitles Mr. Binch to (i) $20,000 as compensation for services rendered from
24
<PAGE>
October 1, 1992, to December 31, 1992, (ii) an annual salary of $150,000 from
January 1, 1993, (iii) a bonus of $50,000 and 80,000 shares of the Company's
Common Stock as inducement to enter into the contract, and (iv) an option to
purchase up to 240,000 shares of the Company's Common Stock at an exercise price
of $4.40 per share under and pursuant to the Memry Corporation Stock Option
Plan, subject to the approval of such Plan by the Company's stockholders (which
approval was obtained in the first quarter of fiscal 1995). The option is
exercisable in five equal installments, commencing on September 24, 1993, and
will expire on September 24, 2003. The Agreement also provides that if Mr.
Binch's employment is terminated due to either the failure by the Company to
observe or comply with any of the provisions of such agreement (if such failure
has not been cured within 10 days after written notice of same to the Company),
or, at the election of Mr. Binch, upon a change in control of the Company (and
within 6 months of such change in control), Mr. Binch will be entitled to a
lump-sum payment equal to two times his annual salary at the rate in effect
immediately prior to the date of termination.
Mr. Binch is President, the sole director and the sole stockholder of Harbour
Investment Corporation, a Delaware corporation ("HIC"). HIC is managing general
partner of Harbour Holdings Limited Partnership, a Connecticut limited
partnership ("Harbour") and a significant shareholder of the Company. (See Item
11, "Security Ownership of Certain Beneficial Owners and Management"). Pursuant
to Harbour's amended and restated Agreement of Limited Partnership, Harbour
retained HIC to act as its managing general partner, and to perform investment
manager, custodial and administrative services, in consideration of custodial
fees of (i) $465,000 for the period commencing on February 24, 1993, and
continuing through December 31, 1993, and (ii) $350,000 for each of calendar
years 1994 and 1995. One of a number of services performed by HIC for Harbour
is providing the services of Mr. Binch in the capacity of the Company's
President. Because (i) there is no allocation of the annual fee paid by Harbour
to HIC as between providing the services of Mr. Binch as the Company's President
and other services, (ii) HIC does not pay Mr. Binch a salary, and (iii) HIC
incurs numerous expenses in fulfilling its duties to Harbour that must be paid
before it pays either salary or dividends to Mr. Binch, it is impossible to
quantify the amount, if any, that Harbour or HIC could be deemed to be paying
Mr. Binch for serving as President of the Company. Therefore, Mr. Binch's
compensation as set forth in the foregoing compensation table does not include
any such amounts.
Edward J. Murphy's employment with the Company and Wright terminated on
September 22, 1995. Prior to such time, commencing on April 13, 1994, Mr.
Murphy had been Vice President of the Company and President of Wright. The
Company plans to issue to Mr. Murphy 13,000 shares of Common Stock, at an
issuance price of $1.00 per share, pursuant to an agreement reached between the
Company and Mr. Murphy with respect to the termination of his employment.
25
<PAGE>
Compensation of Directors
- -------------------------
Effective November 14, 1994, directors are entitled to receive compensation
comprised of $500 per Board or committee meeting attended in person and 10,000
shares of Common Stock per annum, such fee to be paid in arrears on the last day
of each fiscal year of the Company for such completed fiscal year. The Board
has agreed to waive the cash portion of this compensation until the Company is
in a strengthened cash-flow position and better able to pay this fee. Directors
are reimbursed for expenses reasonably incurred in connection with the
performance of their duties.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, as of October 12, 1995 and giving effect to the
one-for-ten reverse stock split effected on August 8, 1994, information
regarding beneficial ownership of the Company's Common Stock and Series G
Preferred Stock by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock, or Series G Preferred
Stock (based on information furnished to the Company on behalf of such persons
or otherwise known to the Company), (ii) each of the directors of the Company,
(iii) each of the executive officers named in the Annual Compensation table set
forth under "executive Compensation" below, and (iii) all directors and
executive officers as a group.
26
<PAGE>
COMMON STOCK
<TABLE>
<CAPTION>
Percentage of
Name and Address Amount and Nature of Common Stock
of Beneficial Owner Beneficial Ownership Outstanding (1)
- ------------------- -------------------- ----------------
<S> <C> <C>
Harbour Holdings 2,328,401 (2)(3) 27.5%
Limited Partnership
1281 Main Street
Stamford, Connecticut
06902
Harbour Investment 2,328,401 (2)(3) 27.5%
Corporation
1281 Main Street
Stamford, Connecticut
06902
National Trust Company 3,798,328 (4) 32.4%
Trustee for
Chrysler Canada Ltd.
Pension Fund
21 King Street East
Toronto, Ontario,
Canada
Group Des Assurances 994,307 (5) 12.0%
Nationales ("GAN")
2 Rue Pillet-Will
75009 Paris, France
Connecticut 508,805 (6) 5.9%
Innovations,
Incorporated
40 Cold Spring Road
Rocky Hill, CT 06067
David A. Gardner 500,000 6.2%
Gardner Capital
Corporation
445 Park Avenue
New York, New York
10022
James G. Binch 2,648,401 (2)(3) 30.4%
362 Canoe Hill Road (7)
New Canaan, Connecticut
06840
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Name and Address Amount and Nature of Common Stock
of Beneficial Owner Beneficial Ownership Outstanding (1)
- ------------------- -------------------- ----------------
<S> <C> <C>
Nicholas J. Grant 31,684 3.9
Materials Sciences and
Engineering
Department
Massachusetts Institute
of Technology
Cambridge,
Massachusetts 02139
Jack H. Halperin, Esq. 12,500 *
361 Silver Court
Woodmere, New York
11598
W. Andrew Krusen, Jr. 85,152 (8) 1.1%
Dominion Financial
Group Incorporated
2909 Bay-to-Bay Blvd.,
Suite 600
Tampa, Florida 33629
John A. Morgan 41,184 (9) *
121 Elderwood Avenue
Pelham, New York 10803
All directors and 2,885,921 (10) 33.0%
executive officers as
a group (8 persons)
</TABLE>
SERIES G PREFERRED STOCK
<TABLE>
<CAPTION>
Percentage of
Name and Address Amount and Nature of Common Stock
of Beneficial Owner Beneficial Ownership Outstanding (1)
- ------------------- -------------------- ----------------
<S> <C> <C>
FirstInvest Holding 423 (11) 100%
Ltd. Inc.
Ch. des Primeveres 45
1701 Fribourg, Switzerland
</TABLE>
___________________________________
* Less than one percent.
(1) In each case where shares subject to options or conversion rights are
included as beneficially owned by an individual or group, the percentage
28
<PAGE>
of all shares owned by such individual or group is calculated as if all
such options or conversion rights had been exercised prior to such
calculation.
(2) Mr. Binch is the President, Chief executive Officer and sole shareholder of
Harbour Investment Corporation, the sole general partner of Harbour
Holdings Limited Partnership. He is also individually a limited partner of
Harbour Holdings Limited Partnership, with a limited partnership interest
of less than one percent.
(3) Includes 363,636 shares of Common Stock for which the warrants owned by
Harbour Holdings Limited Partnership may be exercised at an exercise price
of $7.40 per share.
(4) Includes 3,610,828 shares of Common Stock for which the warrants owned by
National Trust Company, Trustee for Chrysler Canada Ltd. Pension Fund may
be exercised at a per share price equal to the lesser of (x) $1.40 or (y)
75% of the fair market value (determined by appraisal) of such a share at
the time of exercise, subject to adjustment upon the occurrence of certain
events, which warrants expire on December 31, 1995. The warrants issued to
National enjoy "most favored nation status," meaning that if a more
favorable price and/or terms are offered by the Company to third parties,
such more favorable terms will automatically attach to the warrants held by
National. The warrants also have dilution protection throughout their
term, meaning that the stock and warrants held by National will, throughout
the term of the warrants, represent approximately the same percentage of
ownership as they did as of October 29, 1992.
(5) Includes 101,250 shares of Common Stock for which warrants beneficially
owned by GAN may be exercised at $5.00 per share, which warrants expire on
December 15, 1997, as well as 116,667 shares of Common Stock for which
warrants beneficially owned by GAN may be exercised at $2.00 per share at
any time from and after October 1, 1995 to and including December 15, 1999.
(6) Includes 508,805 shares of Common Stock into which a Convertible
Subordinated Debenture issued by the Company to CII is currently permitted
to be converted. This table does not include any other CII Security, as
CII does not have the right to exercise such securities within 60 days of
the date hereof. See Note 14 to the Company's financial statements.
However, assuming that at such time as CII has the right to fully exercise
and/or convert the CII Securities, (i) the conversion price with respect to
the Debenture is $0.80, (ii) the exercise price with respect to the Class I
Warrants is $0.93, (iii) the exercise price with respect to the Class II
Warrants is $1.19, (iv) an exercise price with respect to the Class III
Warrants is $0.65, and (v) the number of shares of Common Stock outstanding
is the same as the number outstanding on October 11, 1995, at such time CII
would beneficially own 2,935,764 shares of Common Stock, or 26.6% of the
Common Stock outstanding.
(7) Includes options to purchase 240,000 shares of the Company's Common Stock
at $4.40 per share.
29
<PAGE>
(8) Includes 47,152 shares of Common Stock owned by Dominion Partners, 20,000
shares of Common Stock owned by 169855 Canada Inc., and 8,000 shares of
Common Stock owned by Krusen-Vogt & Co. Mr. Krusen is the President and a
principal shareholder of Dominion Financial Group, Inc. which is the
managing General Partner of Dominion Partners, President of 169855 Canada
Inc., a General Partner of Krusen-Vogt & Co.
(9) 1,307 of such shares of Common Stock are owned jointly by Mr. Morgan and
his wife, Deborah Morgan. Another 120 of such shares of Common Stock are
owned solely by Mrs. Morgan, and Mr. Morgan disclaims beneficial ownership
of such 120 shares. Another 10,000 of such shares are owned by a trust for
Annette Morgan for which Mr. Morgan is the trustee.
(10) See preceding footnotes.
(11) FirstInvest Holding Ltd. Inc. ("FirstInvest") is not currently permitted to
convert any shares of Series G Preferred Stock into shares of Common Stock.
However, pursuant to the terms of Securities Purchase Agreements executed
between the Company and FirstInvest, the Company is obligated to (i)
convene a meeting of the Company's stockholders as soon as possible, but in
any event prior to the end of 1995, for the purpose of amending the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 10,000,000 to 25,000,000, and (ii) at such
meeting, cause such proposed amendment (the "Capitalization Amendment") to
be adopted. From and after the date of the filing of the Capitalization
Amendment with the Delaware Secretary of State, FirstInvest will be
permitted to convert each of its shares of G Preferred into 10,000 shares
of Common Stock (which conversion ratio is subject to adjustment.)
30
<PAGE>
ITEM 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The original holder of the Company's Series A Preferred Stock and Series B
Preferred Stock (collectively the "Preferred Stock"), Harbour Holdings Limited
Partnership ("Harbour"), which as of October 11, 1995 was the beneficial owner
of more than five percent of the Common Stock, agreed to permit the Company to
defer dividends due on the Preferred Stock it held beginning with the first
quarter of fiscal 1992, except to the extent that the Company has positive cash
flow. The Company was to accrue any such deferred dividends until such time as
they are paid. Harbour waived all dividends accruing after June 30, 1993 on the
Preferred Stock. By letter agreement dated May 22, 1995, Harbour agreed to
accept the issuance of 747,500 shares of Common Stock, valued at $0.80 per
share, as payment in full of accrued dividends in the amount of $598,000. By
same letter agreement, Harbour agreed to convert, and simultaneously did
convert, 124 shares of Series A Preferred Stock of the Company and 250 shares of
Series B Preferred Stock of the Company into 424,426 shares, of Common Stock and
312,500 shares of Common Stock, respectively.
In April 1994 the Company and Harbour entered into a Securities Exchange
Agreement providing for the exchange by Harbour of 480,000 shares of Common
Stock of the Company owned by Harbour for 480 shares of the Company's Series F
Preferred Stock, which exchange was effected simultaneously with the execution
of such Securities Exchange Agreement. This exchange was necessary in order to
allow the Company to cancel the Common Stock so exchanged in order to be able to
provide a sufficient number of authorized but unissued shares of Common Stock to
complete certain private placements of the Company's Common Stock. Upon
consummation of the Reverse Split on August 8, 1994, the Series F Preferred
Stock was converted back into 480,000 shares of Common Stock. Mr. Binch is the
President, Chief Executive Officer and sole shareholder of Harbour Investment
Corporation, the sole general partner of Harbour. He is also individually a
limited partner of Harbour, with a limited partnership interest of less than one
percent.
Pursuant to a Convertible Subordinated Debenture Purchase Agreement, dated as of
December 22, 1994 and amended as of October 12, 1995, the Company issued to CII
the following securities: (i) a Convertible Subordinated Debenture dated
December 22, 1994 from the Company to CII in the principal amount of $763,208
(the "Debenture"), (ii) a warrant dated December 22, 1994 to purchase 508,805
shares of Common Stock at an initial price of $2.15 per share (the "Class I
Warrants"), (iii) a warrant dated December 22, 1994 to purchase 305,283 shares
of Common Stock at an initial price of $2.75 per share (the "Class II
Warrants"), and (iv) a warrant dated December 22, 1994 to purchase 100,000
shares of Common Stock at an exercise price of $1.00, such warrant being an
amendment and restatement of a warrant previously held by CII to purchase 10,000
shares of Common Stock at an exercise price of $10.00 per share (the "Class III
Warrants," and collectively with the Debenture, the Class I Warrants and the
Class II Warrants, the "CII Securities"). See Note 14 to the Company's
Financial Statements. As of October 12, 1995, CII beneficially owned more than
five percent of the Common Stock.
On December 23, 1994, the Company sold to Banque pour L'Industrie Francaise
(ref. GAN) ("GAN") 116,667 shares of Common Stock at a per share purchase
31
<PAGE>
price of $1.50, for an aggregate purchase price of $175,000. GAN was also
issued a warrant to purchase 116,667 additional shares of Common Stock at an
exercise price of $2.00 per share, but this warrant may not be exercised until
October 1, 1995. Furthermore, on June 5, 1995, the Company sold to GAN 307,690
shares of Common Stock at a per share purchase price of $0.65, for an aggregate
purchase price of $199,998.50. As of October 12, 1995, GAN beneficially owned
more than five percent of the Common Stock.
On June 25, 1995 and July 17, 1995, FirstInvest Holding Ltd. Inc.
("FirstInvest") purchased 193 shares and 230 shares, respectively, of Series G
Preferred Stock of the Company at a per share price of $6,500, for an aggregate
purchase price of $2,749,500. At the time of this transaction, FirstInvest
was not a holder of any securities of the Company, and such transaction was
negotiated on an arm's length basis. FirstInvest is not currently permitted to
convert any shares of Series G Preferred Stock into shares of Common Stock.
However, pursuant to the terms of Securities Purchase Agreements executed
between the Company and FirstInvest, the Company is obligated to (i) convene a
meeting of the Company's stockholders as soon as possible, but in any event
prior to the end of 1995, for the purpose of amending the Company's Certificate
of Incorporation to increase the number of authorized shares of Common Stock
from 10,000,000 to 25,000,000, and (ii) at such meeting, cause such proposed
amendment (the "Capitalization Amendment") to be adopted. From and after the
date of the filing of the Capitalization Amendment with the Delaware Secretary
of State, FirstInvest will be permitted to convert each of its shares of G
Preferred into 10,000 shares of Common Stock (which conversion ratio is subject
to adjustment). As of October 12, 1995, FirstInvest beneficially owned more than
five percent of the Series G Preferred Stock.
32
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Memry Corporation and Subsidiary
Brookfield, Connecticut
We have audited the accompanying consolidated balance sheet of Memry
Corporation and subsidiary as of June 30, 1995, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Memry Corporation and subsidiary as of June 30, 1995, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Memry Corporation will continue as a going concern. As more fully
described in Notes 1 and 10, the Company has incurred net losses and negative
cash flow from operations and has working capital and stockholders' deficits.
In addition, the Company's subsidiary, Wright Machine Corporation, was in
default on its loan agreements and was subject to a forbearance agreement
with its bank as of June 30, 1995. There are also pending claims against the
Company as more fully described in Note 12, the ultimate outcome of which cannot
be determined at this time and, accordingly, no provision for any liability that
may result has been made in the accompanying consolidated financial statements.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are described
in Note 1. These consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of these uncertainties.
McGLADREY & PULLEN, LLP
New Haven, Connecticut
October 6, 1995, except for Note 14 as to
which the date is October 12, 1995
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Memry Corporation and Subsidiaries
We have audited the consolidated statement of operations, stockholders'
deficit and cash flows of Memry Corporation and subsidiaries for the year
ended June 30, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows
of Memry Corporation and subsidiaries for the year ended June 30, 1994 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Memry Corporation will continue as a going concern. As more fully
described in Notes 1 and 10, the Company has incurred net losses and negative
cash flow from operations and has working capital and stockholders' deficits.
In addition, the Company's subsidiary, Wright Machine Corporation, has
defaulted on its loan agreements and is subject to a forbearance agreement
with its bank. There are also pending claims against the Company as more
fully described in Note 12, the ultimate outcome of which cannot be determined
at this time and, accordingly, no provision for any liability that may result
has been made in the accompanying financial statements. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are described in Note
1. These financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the
outcome of this uncertainty.
Ernst & Young, LLP
Boston, Massachusetts
September 2, 1994, except for
Notes 1, 6, 7 and 10, as to which
the date is November 3, 1994
F-2
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS (Note 10)
<S> <C>
Current Assets
Cash and cash equivalents $ 1,145,000
Accounts receivable, less allowance of $53,000 691,000
Inventories, net (Note 3) 849,000
Prepaid expenses and other 24,000
------------
TOTAL CURRENT ASSETS 2,709,000
------------
Property, Plant and Equipment, net (Notes 4 and 10) 1,233,000
------------
Other Assets
Patents, at cost, net of accumulated amortization of $57,000 5,000
Deposits 32,000
------------
37,000
------------
$ 3,979,000
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses (Note 5) $ 2,189,000
Notes payable (Note 10) 1,163,000
Mortgage loan payable (Note 10) 910,000
Revolving loan (Note 10) 570,000
Term note payable (Note 10) 167,000
Current portion of capital lease obligations (Note 11) 4,000
------------
TOTAL CURRENT LIABILITIES 5,003,000
------------
Capital Lease Obligations, less current portion 7,000
------------
Commitments and Contingencies (Notes 11 and 12)
Stockholders' Deficit (Note 6)
Preferred stock, $100 par value, authorized 100,000 shares of
Series G, issued and outstanding shares - 193 19,000
Common stock, $.01 par value; authorized shares - 10,000,000; issued
and outstanding shares - 8,009,997 80,000
Additional paid-in capital 29,874,000
Accumulated deficit (31,004,000)
------------
TOTAL STOCKHOLDERS' DEFICIT (1,031,000)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,979,000
============
</TABLE>
See Notes to Consolidated Financial Statements.
-F3-
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Product sales $ 4,729,000 $ 4,265,000
Cost of Sales
Manufacturing 3,850,000 4,003,000
Research and development 297,000 147,000
----------- -----------
GROSS PROFIT 582,000 115,000
----------- -----------
Operating Expenses
General, selling and administrative 2,374,000 2,604,000
Depreciation and amortization 240,000 274,000
Writedown of inventory - 300,000
----------- -----------
2,614,000 3,178,000
----------- -----------
OPERATING LOSS (2,032,000) (3,063,000)
Interest Expense (Note 10) 360,000 295,000
----------- -----------
NET LOSS $(2,392,000) $(3,358,000)
=========== ===========
Weighted average number of common shares outstanding 5,353,222 4,228,718
----------- -----------
Net loss per common share $(0.45) $(0.79)
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-F4-
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------- -----------------------------
Shares Par Shares Par Additional Paid-in Accumulated
Issued Value Issued Value Capital Deficit
--------- ---------- ----------- ------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1993 374 $ 37,000 2,823,812 $28,000 $22,913,000 $(25,254,000)
Issuance of common stock - - 2,316,833 23,000 3,999,000 -
Conversion of common stock - - (480,000) (5,000) (43,000) -
Series F preferred stock
issued 480 48,000 - - - -
Net loss - - - - - (3,358,000)
------ --------- ----------- ---------- ----------- ------------
Balance as of June 30, 1994 854 85,000 4,660,645 46,000 26,869,000 (28,612,000)
Issuance of common stock - - 1,384,926 15,000 1,106,000 -
Series A preferred stock
converted (124) (12,000) 424,426 4,000 8,000 -
Series B preferred stock
converted (250) (25,000) 312,500 3,000 22,000 -
Series F preferred stock
converted (480) (48,000) 480,000 5,000 43,000 -
Conversion of Dividend on
Series A & B - - 747,500 7,000 591,000 -
Series G preferred stock
issued 193 19,000 - - 1,235,000 -
Net loss - - - - - (2,392,000)
------ --------- ----------- ---------- ----------- ------------
BALANCE AS OF JUNE 30, 1995 193 $ 19,000 8,009,997 $80,000 $29,874,000 $(31,004,000)
====== ========= =========== ========== =========== ------------
</TABLE>
See Notes to Consolidated Financial Statements.
-F5-
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED ENDED JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net loss $(2,392,000) $(3,358,000)
Cash Flows From Operating Activities
Adjustments to reconcile net loss to net cash used in operating activities
Noncash compensation - 160,000
Write-off of inventory (Ultravalve) - 300,000
Depreciation and amortization 240,000 274,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (9,000) 47,000
Decrease in inventories 132,000 218,000
Increase (decrease) in prepaid expenses and other 12,000 (16,000)
Increase in accounts payable and accrued expenses 142,000 76,000
Other 6,000 49,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,869,000) (2,250,000)
----------- -----------
Cash Flows From Investing Activities
Purchases of property, plant and equipment (109,000) (189,000)
----------- -----------
Cash Flows From Financing Activities
Proceeds from sale of common stock 2,492,000 4,096,000
Common stock issuance costs (119,000) (234,000)
Payments on capitalized lease obligations (7,000) (28,000)
Payments on deferred lease (9,000) -
Net payments on revolving credit line (149,000) (64,000)
Proceeds from short-term borrowings 856,000 130,000
Principal payments on long-term debt (142,000) (1,283,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,922,000 2,617,000
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 944,000 178,000
Cash and cash equivalents, beginning of year 201,000 23,000
----------- -----------
Cash and cash equivalents, end of year $ 1,145,000 $ 201,000
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash payments for interest $ 283,000 $ 305,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
-F6-
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
Note 1. Going Concern
The Company's consolidated financial statements have been presented on a going
concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred net losses of $2,392,000 and $3,358,000, and negative cash flows from
operations of $1,869,000 and $2,250,000, for the years ended June 30, 1995 and
1994, respectively. As a result, the Company has a stockholders' deficit of
$1,031,000 and its current liabilities exceed its current assets by $2,294,000
as of June 30, 1995. In addition, the Company's subsidiary, Wright Machine
Corporation ("Wright"), as of June 30, 1995, had defaulted on its loan
agreements which total $1,078,000 and was subject to a forbearance agreement
with its bank (see Notes 10 and 14). These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
In fiscal year 1996, the Company anticipates that it will continue to incur
losses from operations until the fourth quarter, at which time the Company
expects to be cash flow positive. The Company plans to continue to maintain
stringent control on expenses while increasing its revenues and improving
gross profit margins. The Company believes the capital raised of $2,492,000,
through private placement agreements during fiscal 1995 (most of which
occurred during the fourth quarter), and $1,561,000 in the first quarter of
fiscal 1996 is sufficient to satisfy the Company's working capital
requirements for fiscal 1996. In addition, the Company renegotiated Wright's
debt with its bank through July 1, 1996 (see Note 14). However, it is the
Company's intent to seek refinancing with more favorable terms during fiscal
1996, although there can be no assurances that the Company will be successful.
On October 12, 1995, the Company amended its Convertible Subordinated
Debenture Purchase Agreement with Connecticut Innovations, Incorporated (see
Note 14).
Note 2. Summary of Significant Accounting Policies
Nature of Business
- ------------------
Memry Corporation, a Delaware corporation incorporated in 1981, is engaged in
the businesses of developing, manufacturing and marketing products and
components utilizing the properties exhibited by shape memory alloys, and
manufacturing and marketing metal parts and components machined on screw
machines and smaller metal working machines.
Principles of Consolidation
- ---------------------------
The financial statements include the accounts of Memry Corporation and Wright,
its wholly-owned subsidiary. All significant intercompany transactions have
been eliminated in consolidation.
F-7
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
Concentrations of Credit Risk
- -----------------------------
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash and cash equivalents.
The Company places its cash and cash equivalents with high quality financial
institutions. At June 30, 1995, the total amount by which cash on deposit in
these institutions exceeds the federally insured limit is approximately
$1,000,000.
Cash and Cash Equivalents
- -------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months or
less, when purchased, to be cash equivalents.
Inventories
- -----------
Inventories consist principally of screw machine, taper pin, plumbing products
and shape memory alloys. Inventories are stated at the lower of cost
(determined on the first-in, first-out method) or market.
Prepaid Expenses and Other
- --------------------------
Included in prepaid expenses and other as of June 30, 1995, is a note
receivable from a former director in the amount of $9,000.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
respective assets, ranging from three to thirty years. Leasehold improvements
are amortized over the life of the lease, or the improvements' estimated
useful life, if shorter.
Patent Costs
- ------------
Patent costs are amortized using the straight-line method over periods ranging
from thirteen to sixteen years.
Product Sales
- -------------
Revenues from product sales are recognized when the related products are
shipped.
F-8
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
Research and Development Costs
- ------------------------------
Research and development costs are expensed as incurred. The revenues received
(principally from the U.S. Government) in connection with these projects, which
approximate the costs incurred, are recognized as services are rendered. Some of
the Company's research and development projects are customer sponsored and
typically provide the Company with the production rights or pay a royalty to the
Company if a commercially viable product results.
Income Taxes
- ------------
The Company files a consolidated federal income tax return and its individual
subsidiary files its own state tax return. Taxes are calculated on a separate
company basis.
Net Loss Per Common Share
- -------------------------
The net loss per common share is based on the net loss from operations plus
Preferred Stock dividends and the weighted average number of shares of Common
Stock outstanding during each year. Common stock equivalents have been excluded
from the computation of the net loss per common share because inclusion of such
equivalents is antidilutive.
Reclassifications
- -----------------
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
Note 3. Inventories
Inventories as of June 30, 1995 are summarized as follows:
Raw materials and supplies $ 109,000.00
Work-in-process 217,000.00
Finished goods 523,000.00
------------
$ 849,000.00
============
During the year ended June 30, 1994, as a result of historically slow sales,
the Company wrote down ULTRAVALVE(TM) inventory by $300,000 to a net carrying
value of $280,000, which represented an estimated two years supply of
inventory. No additional write down was necessary as of June 30, 1995.
F-9
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
Note 4. Property, Plant and Equipment
Property, plant and equipment as of June 30, 1995 is summarized as follows:
Land $ 166,000.00
Buildings and improvements 942,000.00
Tooling and equipment 2,013,000.00
Leasehold improvements 98,000.00
-------------
3,219,000.00
Less accumulated depreciation 1,986,000.00
-------------
$1,233,000.00
=============
Note 5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of June 30, 1995 include $50,000 of
compensation payable to an officer and $62,000 in interest payable to related
parties.
Note 6. Stockholders' Deficit
On July 19, 1994, the stockholders approved a decrease in the authorized shares
of Common Stock from 50,000,000 to 10,000,000 and approved a one-for-ten reverse
split of Common Stock effective August 8, 1994, which reduced the number of
shares outstanding from approximately 45,356,446 to 4,535,645. The stated par
value was not changed from $.01. Due to the reverse stock split, a total of
$420,000 was reclassified from the Company's Common Stock account to the
Company's additional paid-in capital account. All share amounts and per share
prices have been restated to retroactively reflect the reverse stock split.
Series A Preferred Stockholders were entitled to receive dividends in preference
to any declaration or payment of any dividend on Common Stock or other equity
securities of the Company. Dividend provisions of the Series B Preferred Stock
were equivalent to those of the Series A Preferred Stock except dividends
declared must be paid first to the holders of the Series A Preferred Stock. On
September 30, 1993, the holder of the Series A and Series B Preferred Stock
(Harbour Holdings) agreed to waive all dividends accruing on its Preferred Stock
after June 30, 1993. During the year ended June 30, 1995, all outstanding shares
of Series A and B Preferred Stock were converted into Common Stock of the
Company. Additionally, the amount of the Series A and B Preferred Stock
dividends deferred but accrued of $598,000 was converted into Common Stock of
the Company. Mr. Binch, the President and CEO of the Company, is also the
President, Chief Executive Officer and sole stockholder of Harbour Investment
Corporation, the sole general partner of Harbour Holdings. He is also a limited
partner in Harbour Holdings Limited Partnership. No shares of Series A and B
Preferred Stock are currently outstanding.
On March 29, 1994, the Company entered into a Securities Exchange Agreement with
Harbour Holdings Limited Partnership ("Harbour"), whereby Harbour received 480
shares of Series F Preferred Stock in exchange for 480,000 shares of the
Company's Common Stock. The holders of the Series F Preferred
F-10
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
Stock would be paid dividends only if the Company should declare dividends on
the Common Stock. The amount of the dividends would be based on the number of
shares exchanged. This transaction was necessary in order to allow the Company
to cancel the Common Stock so exchanged in order to be able to provide a
sufficient number of authorized but unissued shares of Common Stock to complete
certain private placements of the Common Stock. Upon consummation of the one-
for-ten reverse stock split on August 8, 1994, the Series F Preferred Stock was
converted into 480,000 shares of Common Stock. Since after such conversion no
shares of Series F Preferred Stock were outstanding, on November 9, 1994, the
Company filed with the Delaware Secretary of State a certificate eliminating
reference to the Series F Preferred Stock from the Company's Certificate of
Incorporation.
On June 26, 1995 and July 17, 1995, FirstInvest Holding Ltd. Inc.
("FirstInvest") purchased 193 shares and 230 shares, respectively, of Series G
Preferred Stock of the Company at a per share price of $6,500, for an aggregate
purchase price of $2,749,500. FirstInvest is not currently permitted to convert
any shares of Series G Preferred Stock into shares of Common Stock. However,
pursuant to the terms of Securities Purchase Agreements executed between the
Company and FirstInvest, the Company is obligated to (i) convene a meeting of
the Company's stockholders as soon as possible, but in any event prior to the
end of 1995, for the purpose of amending the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
10,000,000 to 25,000,000, and (ii) at such meeting, cause such proposed
amendment (the "Capitalization Amendment") to be adopted. From and after the
date of the filing of the Capitalization Amendment with the Delaware Secretary
of State, FirstInvest will be permitted to convert each of its shares of Series
G Preferred Stock into 10,000 shares of Common Stock (which conversion ratio is
subject to adjustment). As of October 12, 1995, FirstInvest beneficially owned
more than five percent of the Series G Preferred Stock.
At a Board of Directors meeting held on September 24, 1993, 80,000 shares of
Common Stock were granted to an officer as inducement for signing an employment
contract. These shares were issued in the second quarter of fiscal 1994 at a
price of $2.00 per share and an expense of $160,000 was recognized by the
Company.
During the year ended June 30, 1995, 40,000 shares of the Company's Common Stock
were issued to its Directors as renumeration for services provided and an
expense of $26,000 was recognized by the Company.
On January 31, 1991, the Company obtained a $1.5 million loan from National
Trust Company, trustee for Chrysler Canada ltd. Pension Fund ("National"), due
on October 31, 1991. National subsequently modified the terms of the loan which
resulted in the conversion of $700,000 of the loan into 87,500 shares of Common
Stock in fiscal years 1991 and 1992, repayment of the remaining principal
balance of $800,000 on November 2, 1993 (although $162,000 of interest remains
accrued and unpaid), and issuance of warrants to purchase, at such time, 115,000
shares of the Company's Common Stock at a per share price equal to the lesser of
(x) $1.40 or (y) 75% of the fair market value (determined by appraisal) of such
a share at the time of exercise, subject to adjustment upon the occurrence of
certain events, exercisable through December 1995.
F-11
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
The warrants issued to National enjoy "most favored nation" status, meaning that
if a more favorable price and/or terms are offered by the Company to third
parties, such more favorable terms will automatically attach to the warrants
held by National. The warrants have dilution protection throughout their term,
meaning that the shares of Common Stock into which the warrants held by National
are exercisable throughout the term of the warrants will represent approximately
the same percentage of ownership as they did as of October 29, 1992. These
warrants may currently be exercised to purchase 3,610,828 shares of the
Company's Common Stock.
Note 7. Stock Option Plans
Pursuant to the Company's incentive stock option plan approved by the
stockholders, options are granted at prices equal to the fair market value of
the Company's stock on the dates of grant, and are exercisable in cumulative
installments over a 10 year period. Other pertinent information related to the
plan during fiscal 1995 is as follows:
Under option, beginning of year -
Granted 436,500.00
Terminated and cancelled -
Exercised -
------------
Under option, end of year 436,500.00
============
Options exercisable, end of year 287,500.00
============
Available for grant, end of year 163,500.00
============
Average Price
-------------
Granted during the year $ 3.28
Exercised during the year $ N/A
Under option, end of year $ 3.28
Until September 23, 1993, the Company also maintained an Employees Stock Option
Plan (the "Employees Plan") and a Directors Stock Option Plan (the "Directors
Plan"). The Employees Plan provided for the granting of non-qualified stock
options to key employees to purchase not more than 100,000 shares of Common
Stock. The Directors Plan provided for the granting of non-qualified stock
options to directors to purchase not more than 50,000 shares of Common Stock.
Options granted under the Plans were exercisable at prices determined by the
Executive Committee of the Company's Board of Directors on the date each option
was granted. Options granted under the Employees Plan were exercisable in
various installments and expired on the third through sixth anniversaries from
the date of grant. Options granted under the Directors Plan were exercisable in
various installments and expired on the fourth through sixth anniversaries of
the date the director was first elected. In addition, options exercisable under
the Directors Plan were forfeited if, during the year preceding the period the
options become exercisable, the Director attended fewer than 75% of the total
meetings of the Board and Committees on which the Director served.
F-12
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
The Employees Plan provided for a three-month exercise period after termination
of employment without cause. The Directors Plan provided that any Director who
was not reelected to the Board of Directors was entitled to exercise options
during the period beginning on the date his term as a Director expired and
ending on the earlier of the date occurring three months after such expiration
date or the expiration date of the option. The Directors Plan specified that
each non-employee director was eligible to be granted options to purchase up to
6,000 shares of Common Stock upon such Director's election to the Board of
Directors. At a Board of Directors meeting held on September 24, 1993, the
Directors Stock Option Plan and the Employees Stock Option Plan were terminated
and the directors agreed to the cancellation of their outstanding options under
the Directors Stock Option Plan. The maximum aggregate amount that could have
been received by the Company from the exercise of all options outstanding on
September 23, 1993 under both plans was $15,625.
Summarized below are the shares of Common Stock issuable pursuant to warrants,
stock options and conversion of the Preferred Stock as of June 30, 1995 and
1994. The following table does not include 480 shares of Series F Preferred
Stock which were outstanding as of June 30, 1994 but were subsequently converted
into 480,000 shares of Common Stock on August 8, 1994.
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Warrants 6,088,891 1,999,126
Stock options outstanding 436,500 -
Options available 163,500 -
--------- ---------
6,688,891 1,999,126
Issuable upon conversion of
Preferred Stock 1,930,000 604,757
--------- ---------
8,618,891 2,603,883
========= =========
</TABLE>
Note 8. Income Taxes
Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method as required by
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes".
There was no cumulative effect upon adoption of SFAS No. 109 as of July 1,
1993, and the new Statement had no effect on the tax provision or net loss for
fiscal 1995 or 1994.
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial
reporting purposes, a valuation allowance of $12.3 and $11.6 million has been
recognized as of June 30, 1995 and 1994, respectively, to reflect the
estimated amount of operating loss carryforwards and temporary differences
which may not be realized. The approximate effect of carryforwards and
temporary differences that give rise to deferred tax assets and liabilities as
of June 30, 1995 and 1994, are as follows:
F-13
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves $ 21,500 $ 14,000
Inventory reserves 304,200 378,000
Capitalization of inventory costs 38,600 80,000
Vacation accruals 21,000 37,000
Depreciation and amortization 45.500 74,000
Research and development credit
carryforwards 160,000 160,000
Net operating loss carryforwards 11,678,800 10,884,000
------------ ------------
Total deferred tax assets 12,269,600 11,627,000
Valuation allowance (12,269,600) (11,627,000)
------------ ------------
Net deferred tax assets $ - $ -
============ ============
</TABLE>
As of June 30, 1995, the Company has net operating loss carryforwards for
income tax purposes of approximately $30 million, which expire beginning in
1998. In addition, the Company has tax credit carryforwards available to
offset future taxable income aggregating approximately $160,000 which expire
in various amounts from 1998 through 2008. As a result of numerous equity
transactions as discussed in Note 6, the net operating loss carryforwards and
the unused tax credits are significantly limited as to ultimate amounts of
these tax attributes which may be utilized and the periods for which they will
apply.
Note 9. Fourth Quarter Adjustments
The 1994 fourth quarter results include year-end adjustments increasing the
loss by $437,000 ($0.09 per share), principally attributable to the write-down
of the ULTRAVALVETM product inventory and a book-to physical adjustment of
$124,000.
Note 10. Revolving Loan, Notes Payable, Mortgage Payable and Term Loan Payable
The revolving loan, notes payable, mortgage payable and term note payable as
of June 30, 1995 are summarized below:
<TABLE>
<S> <C>
Revolving loan $ 570,000
=============
Notes payable $ 1,163,000
=============
Mortgage loan, due in monthly
installments of $3,700 $ 910,000
=============
Term loan, due in monthly
installments of $8,333,
including interest $ 167,000
=============
</TABLE>
In connection with the acquisition of Wright, Wright entered into a revolving
loan, term loan and security agreement (collectively, the "Loan Agreement")
which is guaranteed by the Company. The Loan Agreement includes a revolving
loan, a mortgage and a term loan. The revolving loan, as amended by a
Forbearance Agreement dated April 11, 1995 provides a revolver limit equal to
the lesser of the sum of
F-14
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
80% of eligible accounts receivable plus 40% of net inventories not to exceed
$350,000 (and on and after May 15, 1995 not to exceed $300,000) less a reserve
of $60,000 (to be increased to $100,000 on or prior to May 15, 1995), or
$1,150,000.
The term loan is collateralized by machinery and equipment having a net book
value of $51,520 and the mortgage loan is collateralized by land and building
with net book values of $166,000 and $771,000, respectively, all as of June
30, 1995.
The Loan Agreement requires payments received on accounts receivable by Wright
to be applied against the outstanding balances on the revolving and term
loans. In addition, the Loan Agreement prohibits Wright from paying dividends
to the Company and making advances to officers of Wright and prohibits the
Company from applying intercompany charges against Wright.
The term loan and mortgage loan have been classified as current as the Company
was in default under the terms of the Forbearance Agreement as of June 30,
1995 (as further described below and in Note 14).
As of July 1, 1992, Wright was in violation of certain covenants of the Loan
Agreement and the Company was in violation of its minimum cash balance
requirement. On October 8, 1992, Wright received permanent waivers of these
loan covenant violations. In connection therewith, the terms of the Agreement
were amended for the year ending June 30, 1993 to include revised covenants,
collateralization of the Company's $250,000 minimum cash balance commitment,
and a commitment by the Company to contribute $600,000 of working capital to
Wright.
As of June 30, 1993 Wright failed to comply with the financial covenants
contained in the revised loan agreement dated October 8, 1992, including, but
not limited to, the Company's failure to invest additional equity in Wright
and to collateralize its guaranty of the obligations of Wright. As of
November 1993, Wright had not cured these existing defaults or repaid any of
the loans and requested the bank to forbear from accelerating the loan
payments and enforcing the existing defaults through December 31, 1993.
The bank agreed to a Forbearance Agreement, which agreement was executed as of
November 15, 1993; however, Wright was required to paydown an additional
$350,000 of its debt to the bank and the Company was required to place as
collateral $150,000 in the form of a Certificate of Deposit. Wright and its
bank also agreed that the interest rate on the term loan, the mortgage loan
and the revolving loan be increased from the lender's base rate plus 1%, to
the lender's base rate plus 4% (13.00% as of June 30, 1995). On March 11th,
June 29th, October 7th, October 12th, 1994, and April 11, 1995 the Forbearance
Agreement was further amended. Pursuant to the terms of the April 11, 1995
agreement the bank agreed to forbear from accelerating the loan payments and
enforcing the existing defaults through July 1, 1995 upon certain conditions.
(See Note 14)
Notes payable consists of a 12% note payable to an officer of the Company, a
4% note payable to a significant shareholder of the Company's stock, and a 12%
and 6% note payable to companies in which an officer of the Company exerts
significant influence. It also consists of a $763,000 debt to Connecticut
Innovations, Incorporated. The debt was to be convertible into common stock
had the Company filed, with the Securities and Exchange Commission, a
registration statement on or before February 28, 1995. That
F-15
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
event did not occur, therefore, the Company was in default of this agreement as
of June 30, 1995. The Company has since executed a First Amendment to the
Convertible Subordinated Debenture Purchase Agreement (see Note 14). This debt
has been classified as current because it became due on demand following the
default of the agreement.
Interest expense to related parties approximated $31,000 and $18,000 for the
years ended June 30, 1995 and 1994, respectively.
Note 11. Leases
The Company leases telephone equipment and a copier under noncancellable leases.
These leases have been recorded as capital leases and are included in the
accompanying consolidated balance sheet under the caption "Property, Plant and
Equipment".
Future minimum lease payments by years and in the aggregate under these capital
leases consist of the following as of June 30, 1995:
Capital
Leases
-------------
1996 $ 5,000.00
1997 4,000.00
1998 4,000.00
-------------
13,000.00
Less amount representing interest 2,000.00
-------------
Present value of future minimum
lease 11,000.00
Less current maturities 4,000.00
-------------
$ 7,000.00
=============
Rent expense under operating leases for the years ended June 30, 1995 and 1994
amounted to $114,000 and $113,000, respectively.
Note 12. Contingencies
Wright maintains a defined contribution plan (401K) which covers substantially
all of its employees. There was no expense recognized for this plan in 1995
as no employees were participating. The expense incurred during 1994 was
$9,360. Contributions are based on specific percentages of employee voluntary
contributions. Employees vest immediately.
The Company has an employment agreement with one executive officer and one
other employee. The executive officer's agreement provides that severance
payments, of two years' salary, to be made to such officer upon a change of
control of the Company. The employee's agreement provides that such employee
may be entitled to receive a bonus based upon his performance, such bonus to
be declared at the sole discretion of the President of the Company.
F-16
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
Data Switch Corporation v. Memry Corporation, et al.
- ----------------------------------------------------
Verdon Corporation owns property located at 83 Keeler Avenue, Norwalk,
Connecticut (the "Property") which it leased to New Dimensions in Education,
Inc. ("New Dimensions"). New Dimensions subleased the Property to Data Switch
Corporation, which in turn subleased the Property to the Company. On December
18, 1990, Data Switch commenced an action against Verdon, New Dimensions and the
Company seeking a declaratory judgment that the lease was not renewed on June
12, 1990, for an additional five-year term. The Company supports this request;
however, Verdon and New Dimensions have taken the position that the lease was
renewed by the Company. On October 28, 1992, David O'Toole, successor to Verdon
Corporation, filed a cross-complaint against the Company alleging that the
Company intentionally and/or negligently damaged the Property during the period
of its tenancy. Similar allegations were also made against New Dimensions and
Data Switch. O'Toole's allegations fail to include any specific itemization of
the nature or scope of the injuries alleged. No formal discovery has taken place
to date. Trial has been scheduled to commence in February 1996. The Company
intends to defend this action vigorously.
Catizone v. Memry Corporation
- -----------------------------
The Company is a defendant in an action entitled Catizone v. Memry Corporation,
------------------------------
et al, No 91 Civ. 8023 (United States District Court, Southern District of New
- -----
York). In November 1991, Mr. Pat Catizone commenced an action against the
Company, American Stock Transfer & Trust Co. ("AST&T"), and Mr. Neil E. Rogen,
relating to Mr. Catizone's claim of ownership to 10,000 shares of the Company's
Common Stock. In June 1991, Mr. Catizone delivered to AST&T a certificate
representing 10,000 shares of the Company's Common Stock in the name of Mr.
Rogen and bearing a restrictive transfer legend and requested that the Company
issue a certificate without a restrictive legend in the name of Mr. Catizone.
Mr. Catizone claimed to have acquired the certificate from Mr. Perry
Constantinou as collateral for a loan made some years earlier, who had in turn
acquired the certificate from Mr. Rogen in 1984 or 1985. The Company refused Mr.
Catizone's request on the grounds that Mr. Rogen's transfer to Mr. Constantinou
was in violation of the federal securities laws. Mr. Catizone commenced his
action in the Supreme Court of the State of New York, but the action was removed
by the defendants to the United States District Court for the Southern District
of New York. Mr. Catizone is seeking an order directing the Company to issue an
unrestricted certificate representing 10,000 shares of the Company's Common
Stock in his name, together with damages equal to the difference between the
market value of the stock from the time that he first made demand on AST&T
through the date of trial, as well as attorneys' fees and costs. The Company
filed a Motion for Summary Judgment in September 1993. On July 25, 1995, the
Court issued an opinion by which it granted the Company's Motion for Summary
Judgment, and judgment was shortly thereafter entered in the Company's favor.
Mr. Catizone has appealed from the entry of judgment in the Company's favor,
which appeal is entitled Catizone v. Memry Corp., et al., No. 95-7874, pending
-------------------------------
before the United States Court of Appeals for the Second Circuit. The Company
intends to contest the appeal vigorously.
F-17
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
Neil E. Rogen v. Memry Corporation
- ----------------------------------
In September 1992, Neil E. Rogen, formerly an officer and director of the
Company, brought an action against the Company for the alleged breach of an
employment agreement between Mr. Rogen and the Company and for indemnification
for legal expenses incurred by Mr. Rogen in connection with an investigation
of and subsequent lawsuit against Mr. Rogen by the Securities and Exchange
Commission and certain related and unrelated lawsuits. Mr. Rogen commenced
his action in the United States District Court for the Southern District of
New York. Mr. Rogen is seeking at least $215,000 plus interest, costs and
attorney's fees as damages for the alleged breach of his employment agreement,
and in excess of $312,000 plus attorney's fees as indemnification for expenses
incurred in connection with the investigation and the lawsuits. On December
22, 1992, the Company filed an answer and a counterclaim against Mr. Rogen,
alleging breaches of fiduciary duty and unauthorized acts by Mr. Rogen and
seeking monetary damages for the same. In April 1994, the Company moved for
summary judgment with respect to all counts for Mr. Rogen's Complaint. On May
23, 1995, the Court issued an Opinion by which it granted the Company's Motion
for Summary Judgment on grounds of improper venue. Judgment was subsequently
entered in the Company's favor. Counsel for Mr. Rogen has indicated that he
intends to refile the action in a different venue. The Company intends to
contest the case vigorously.
SFC Valve Corporation vs. Wright Machine Corporation
- ----------------------------------------------------
The Company had been named in a suit SFC Valve Corporation vs. Wright Machine
Corporation. This suit was settled by the Company during fiscal year ended
June 30, 1995 for $70,000.
Note 13. Segment Information
The Company is principally engaged in two business segments: Memry Segment
("Memry") and Wright Machine Segment ("Wright"). All businesses are located
domestically. Wright includes the manufacturing and marketing of metal parts and
components machined on screw machines and smaller metal working machines. Memry
is engaged in developing, manufacturing and marketing products and components
utilizing the properties exhibited by shape memory alloys. Memry's revenues
include product development contracts for outside customers. Memry expenses
include internally funded research as well as all costs associated with outside
clients. There were no significant intersegment sales or transfers.
Operating loss is total revenue less operating expenses, excluding interest.
Identifiable assets of each segment are the assets used by that segment in its
operations, excluding general corporate assets. General corporate assets are
principally cash, deposits and other receivables.
F-18
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
----------------------
(in thousands)
<S> <C> <C>
Revenues
Wright $ 3,716 $ 3,707
Memry 1,013 558
------- -------
Total operating revenues $ 4,729 $ 4,265
======= =======
Operating loss
Wright $ (136) $ (844)
Memry (1,896) (2,219)
------- -------
Total operating loss $(2,032) $(3,063)
======= =======
Interest (360) (295)
------- -------
Net loss $(2,392) $(3,358)
======= =======
Assets
Wright $ 1,752 $ 2,898
Memry 2,227 408
------- -------
Total assets $ 3,979 $ 3,306
======= =======
Depreciation and Amortization
Wright $ 185 $ 230
Memry 55 44
------- -------
$ 240 $ 274
======= =======
Capital Expenditures
Wright $ 15 $ 18
Memry 94 171
------- -------
$ 109 $ 189
======= =======
</TABLE>
Depreciation and amortization includes depreciation and amortization of
capital assets, including patents.
Note 14. Subsequent Events
On October 12, 1995, the Company amended a Convertible Subordinated Debenture
Purchase Agreement (as so amended, the "Purchase Agreement"), dated as of
December 22, 1994, with Connecticut Innovations, Incorporated ("CII").
Pursuant to the Purchase Agreement, CII acquired from the Company the
following (the "CII Securities"): (i) a Convertible Subordinated Debenture,
dated December 22, 1994, in the principal amount of $763,208, as amended by a
First Addendum to Convertible Subordinated Debenture dated as of October 12,
1995 (as so amended, the "Debenture") currently convertible into Common Stock,
subject to the limitation set forth below, at a conversion price of $0.80 per
share, (ii) a warrant, dated December 22, 1994, as amended by a First Addendum
to Stock Subscription Warrant (as so amended, the "Class I Warrants"),
initially exercisable to purchase 508,805 shares of Common Stock at a price of
$2.15 per
F-19
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
share and currently exercisable, subject to the limitation set forth
below, to purchase 1,176,269 shares of Common Stock at a price of $0.93 per
share, (iii) a warrant, dated December 22, 1994, as amended by a First
Addendum to Stock Subscription Warrant (as so amended the "Class II
Warrants"), initially exercisable to purchase 305,283 shares of Common Stock
at a price of $2.75 per share and currently exercisable, subject to the
limitation set forth below, to purchase 705,485 shares of Common Stock at a
price of $1.19 per share, and (iv) a warrant, dated December 22, 1994, as
amended by a First Addendum to Stock Subscription Warrant (as so amended, the
"Class III Warrants"), initially exercisable to purchase 100,000 shares of
Common Stock at an exercise price of $1.00 and currently exercisable, subject
to the limitation set forth below, to purchase 100,000 shares at an exercise
price of $0.65, such warrant being an amendment and restatement of a warrant
previously held by CII to purchase 10,000 shares of Common Stock at an
exercise price of $10.00 per share.
Pursuant to the Purchase Agreement, CII purchased the Debenture, the Class I
Warrants and the Class II Warrants for an aggregate purchase price of
$763,208, comprised of (i) $370,153 in cash, (ii) delivery to the Company by
CII of a 10% Convertible Demand Note of the Company in the principal amount of
$334,847 (the "Note") marked paid in full, and (ii) delivery to the law firm
of Finn Dixon & Herling as escrow agent (the "Escrow Agent") of a check in the
amount of $45,000 pursuant to an Escrow Agreement dated as of December 22,
1994, as amended October 12, 1995, among the Company, CII and the Escrow
Agent. Pursuant to the terms of the Purchase Agreement, the Company is
required to file a registration statement (the "Registration Statement") to
cover, inter alia, the resale by CII of the Shares of Common Stock underlying
the CII Securities (the "Registrable Securities") and is required to cause the
Registration Statement to become effective no later than March 15, 1996,
maintain the effectiveness of the Registration Statement for a period of three
years from its effective date, subject to the provisions of the Purchase
Agreement, and use its best efforts to allow CII to continually sell
Registrable Securities pursuant to such Registration Statement free from any
stop orders or suspensions by the Company or advice of counsel to the
contrary. The exercise or conversion, as applicable, of the CII Securities is
subject to the limitation that prior to the earlier to occur of December 20,
1995 or the date on which the Company has authorized and reserved for issuance
a sufficient number of shares to allow for the full exercise and conversion of
the Registrable Securities, (i) none of the Class I Warrants, the Class II
Warrants nor the Class III Warrants may be exercised and (ii) the Debenture may
not be converted at a per share price other than $1.50.
CII has been granted a "put" right if (i) at any time before the earlier of
October 12, 2005 and the date on which CII ceases to hold at least 35% of the
Registrable Securities the Company ceases to (a) maintain its corporate
headquarters and a majority of its shape memory business operations in the
State of Connecticut, (b) base its president and chief executive officer, all
of its administrative and financial staff, all of its marketing and customer
service staff (excluding individuals specific to Wright only), and all of its
research and development staff in the State of Connecticut, (c) conduct a
majority of its operations in the aggregate (including manufacturing and
production), directly or through subcontractors and through licensed
operations, in the State of Connecticut (excluding Wright's business related
to the production of screw machine products and taper pins), and (d) maintain
its principal bank accounts with banks located in the State of Connecticut,
excluding all banks associated with Wright; or (ii) the Company fails (a) to
cause the effectiveness of the Registration Statement by March 15, 1996, (b)
to keep the Registration Statement
F-20
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
- --------------------------------------------------------------------------------
effective for an aggregate of 120 days during any rolling twelve month period,
or (c) to have authorized and unissued shares of Common Stock reserved for the
full exercise and conversion of the CII Securities by December 20, 1995. Upon
CII's exercise of its put, the Company shall be obligated to purchase from CII
all CII Securities and Registrable Securities held at that time by CII for price
equal to the greater of (i) the amount of CII's investment plus an amount
calculated to yield to CII a compounded rate of return of 25% per annum plus, in
the case of Common Stock issued upon the exercise of the Class I price paid to
acquire Common Stock, or (ii) the difference between the product of the current
market price per share of the Common Stock included within or acquirable upon
the exercise prices that would have to be paid upon the full exercise of the
remaining Class I Warrants, Class II Warrants and Class III Warrants included
within the CII Securities and the Registrable Securities.
As of July 20, 1995, Shawmut Bank, N.A. (the "Bank") and Wright executed a
Third Amendatory Agreement to Revolving Loan, Term Loan and Security Agreement
by which the Bank has agreed to extend the termination date of its revolving
loan to Wright to July 1, 1996, if not sooner demanded, subject to Wright's
continued compliance with certain convenants included in the Revolving Loan,
Term Loan and Security Agreement dated February 7, 1990 as amended to date (as
so amended, the "Loan Agreement"). The Bank also agreed that the final
installment on the mortgage note and term note evidencing indebtedness owed by
Wright to the Bank would be set at July 1, 1996. Among other things, the Loan
Agreement requires Wright to pay transaction fees of $1,500 per month for the
period from July 1, 1995 through September 30, 1995, $3,000 per month for the
period from October 1, 1995 through December 31, 1995, and $4,500 per month
for the period from January 1, 1996 through March 31, 1996, and $6,000 per
month for the period from April 1, 1996 through June 30, 1996. However, if
Wright meets or exceeds certain projected net income levels for the six months
ended December 31, 1995 and continues to meet or exceed projected monthly net
income levels thereafter, then the monthly fee will remain at $3,000. If at
any time after December 31, 1995, however, Wright fails to meet or exceed net
income projections the fee will increase to $4,500 per month for the next
three months and to $6,000 per month thereafter in which there are outstanding
obligations of Wright owed to the Bank. Interest on the revolving loan,
mortgage loan and term loan has been reset to the Bank's base rate plus 4%.
The Company also reaffirmed its guaranty of all Wright's obligations to the
Bank and reaffirmed its subordination of certain obligations owed by Wright.
There can be no assurance that the Company and Wright will not be in breach of
the Loan Agreement in the future, or that the Bank will agree to a further
extension or a forbearance in such event.
F-21
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed in the Index to Exhibits following the Signature Page
herein are filed as part of this Annual Report on Form 10-KSB.
(b) Reports on Form 8-K
Forms 8-K were filed on June 26, 1995 and September 27, 1995 with respect
to disclosure regarding Item 4. - Changes in Registrant's Certifying
Accountants.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEMRY CORPORATION
Date: October 13, 1995 By: /s/ James G. Binch
------------------- ----------------------
James G. Binch
President, CEO,
Treasurer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ James G. Binch President, CEO, Treasurer October 13, 1995
- ---------------------- and Chairman of the Board
James G. Binch (Principal Executive Officer)
/s/ Wendy A. Gavaghan Controller October 13, 1995
- --------------------- (Principal Financial
Wendy A. Gavaghan Officer)
/s/ Nicholas J. Grant Director October 13, 1995
- ---------------------
Nicholas J. Grant
/s/ Jack Halperin Director October 13, 1995
- ----------------------
Jack Halperin
/s/ W. Andrew Krusen Director October 13, 1995
- ----------------------
W. Andrew Krusen
/s/ John A. Morgan Director October 13, 1995
- ----------------------
John A. Morgan
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company,
as amended
3.2 By-Laws of the Company, as amended
10.1 Sub-lease on Keeler Avenue Facility (11)
dated February 21, 1988, including main
lease and interim lease.
10.2 Agreement of sale between Memrysafe, Inc. (1)
and Speakman Company
10.3 Distribution Agreement dated June 21, 1990, (3)
between Memry Plumbing Products, a wholly
owned subsidiary of the Company, and
Ferguson Enterprises, Inc.
10.4 Revolving Loan, Term Loan, and Security (3)
Agreement dated February 6, 1990, between
Wright Machine Corporation and Shawmut Bank
(formerly known as Connecticut National Bank)
10.5 Guaranty Agreement dated February 7, 1990, (3)
between the Company and the Connecticut
National Bank
10.6 Commission Sales Agreement, dated October 5, (3)
1987, between Apogee Technology Corporation
and the Company
10.7 Employment Agreement, dated January 1, 1990, (3)
between the Company and Ming H. Wu
10.8 Employment Agreement, dated February 6, 1990, (3)
between Wright Machine Corporation and
Thomas Mack
10.9 Amendment to Sublease Agreement for (3)
Keeler Avenue Facility
10.10 Compensation Agreement, dated December (4)
18, 1990, between the Company and Richard
L. Martin
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----------
<S> <C> <C>
10.11 Distribution Agreement dated as of (4)
November 19, 1990, between Mitsubishi
Heavy Industries America, Inc. and
Memry-Paradigm
10.12 First Amendatory Agreement, dated October 11, (4)
1991, to Revolving Loan, Term Loan, and
Security Agreement, dated February 6, 1990,
between Wright Machine Corporation and Shawmut
Bank (formerly known as The Connecticut National
Bank)
10.13 Reaffirmation of Guaranty, dated October 11, (4)
1991, of the Guaranty of the Company to Shawmut
Bank (formerly known as The Connecticut National
Bank)
10.14 Lease Agreement, dated January 24, 1991, (4)
between the Company and Brookfield Commerce,
relating to 57 Commerce Drive, Brookfield, CT
10.15 SBIR Contract, dated August 6, 1992, between the (8)
Company and the U.S. Air Force
10.16 Form of Securities Purchase Agreement used in (5)
connection with the November 6, 1991, private
placement
10.17 Warrant Issued to Connecticut Innovations, (5)
Inc. ("CII") as of March 1, 1992
10.18 Second Amendatory Agreement, dated October 8, (8)
1992, to Revolving Loan, Term Loan, and Security
Agreement, dated February 6, 1990, between Wright
Machine Corporation and Shawmut Bank (formerly
known as Connecticut National Bank)
10.19 Reaffirmation and Amendment of Guaranty, dated (8)
October 8, 1992, of the Guaranty of the Company
to Shawmut Bank (formerly known as Connecticut
National Bank) dated February 7, 1991
10.20 Waiver by Shawmut Bank (formerly known as (8)
Connecticut National Bank) of certain provisions
of the Revolving Loan, Term Loan, and Security
Agreement, dated February 6, 1990, between the
Bank and Wright Machine Corporation
10.21 Letter Agreement between the Company and Chrysler (9)
Financial extending the term of a loan due to
Chrysler Canada Ltd. Pension Fund
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----------
<S> <C> <C>
10.22 Securities Purchase Agreement between the (10)
Company and David A. Gardner, dated
January 4, 1993
10.23 Securities Purchase Agreement between the (10)
Company and Michael J. Hayes and Christina
Hayes, dated January 4, 1993
10.24 Securities Purchase Agreement between the (11)
Company and Donald J. Resnick, dated
January 4, 1993
10.25 Securities Purchase Agreement between the (11)
Company and Montreal Trust Company of Canada,
dated March 5, 1993
10.26 Securities Purchase Agreement between the (11)
Company and Dominion Partners, dated
March 12, 1993
10.27 Securities Purchase Agreement between the (11)
Company and Moore & Company, dated
April 14, 1993
10.28 Employment Agreement, dated September 24, (12)
1993, between the Company and James G. Binch
10.29 Placement Agreement, dated May 21, 1993, (12)
between the Company and American Equities
Overseas, Inc.
10.30 Form of Securities Purchase Agreement used (12)
in connection with the May 21, 1993, foreign
private placement
10.31 Placement Agreement, dated September 8, (12)
1993, between the Company and American
Equities Overseas, Inc.
10.32 Warrant issued to American Equities Overseas (12)
Inc., pursuant to Placement Agreement of
September 8, 1993
10.34 Placement Agreement, Dated November 22, (12)
1993, between the Company and American
Equities Overseas, Inc.
10.34 Warrant issued to American Equities Overseas (12)
Inc., pursuant to Placement Agreement of
November 22, 1993
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----------
<S> <C> <C>
10.35 Form of Securities Purchase Agreements used (12)
in connection with the September 29, 1993 and
December 3, 1993, foreign private placements
10.36 Form of Securities Purchase Agreement used (12)
in connection with the 1993 U.S. private
placement
10.37 Amendment, dated as of October 31, 1992, (12)
to Note Agreement between the Company and
National Trust Company, trustee for
Chrysler Canada, Ltd. Pension Fund
10.38 Warrant issued to National Trust Company, (12)
trustee for Chrysler Canada, Ltd. Pension
Fund, pursuant to the Amendment to Note
Agreement dated as of October 31, 1992
10.39 Agreement, dated January 25, 1993, between (12)
the Company and Sciatec, Inc.
10.40 Agreement, dated September 30, 1993, (12)
between the Company and Harbour Holdings
Limited Partnership and relating to the
Company's Preferred Stock
10.41 Memry Corporation Stock Option Plan adopted (13)
as of July 19, 1994
10.42 SBIR Contract dated July 1, 1993, between the (13)
Company and the National Institute of Health
10.43 SBIR Contract dated December 3, 1993, between (13)
the Company and the U.S. Air Force
10.44 SBIR Contract dated December 9, 1993 between (13)
the Company and NASA
10.45 Letter Agreement dated as of October 12, 1994 (13)
between the Company and Harbour Holdings Limited
Partnership regarding Series A Preferred stock
conversion calculation
10.46 Employee Non-Disclosure Agreement, dated as of (13)
October 18, 1994, between the Company and
James G. Binch
10.47 Employee Non-Disclosure Agreement, dated as of (13)
January 24, 1994, between the Company and
Wendy A. Gavaghan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----------
<S> <C> <C>
10.48 Employee Agreement on Inventions and Patents, (13)
dated as of February 17, 1994, between the
Company and Richard L. Martin
10.49 Employee Non-Disclosure Agreement, dated as of (13)
February 17, 1994, between the Company and
Richard L. Martin
10.50 Convertible Subordinated Debenture Purchase (14)
Agreement, dated as of December 22, 1994,
between the Company and CII
10.51 Convertible Subordinated Debenture in the (14)
principal amount of $763,208.00, dated
December 22, 1994, from the Company to CII
10.52 Escrow Agreement, dated as of December 22, 1994, (14)
among the Company, CII and Finn Dixon &
Herling as escrow agent
10.53 Letter Agreement, dated May 22, 1995, between
Harbour Holdings Limited Partnership and the
Company regarding conversion of Series A and
Series B Preferred Stock and issuance of shares
of Common Stock as payment in full of accrued
dividends.
10.54 Third Amendatory Agreement, dated July 20, 1995,
to Revolving Loan, Term Loan, and Security
Agreement, dated February 6, 1990, between Wright
Machine Corporation and Shawmut Bank Connecticut,
N.A. (formerly known as Connecticut National Bank)
10.55 Notes and Mortgage Modification Agreement, dated
as of July 20, 1995, between Wright Machine
Corporation and Shawmut Bank Connecticut, N.A.
10.56 Reaffirmation and Amendment of Subordination
Agreement, dated July 20, 1995, from the Company
to Shawmut Bank Connecticut, N.A.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----------
<S> <C> <C>
10.57 Reaffirmation of Guaranty, dated July 20, 1995,
from the Company to Shawmut Bank Connecticut, N.A.
10.58 Form of Securities Purchase Agreement relating
to sales of shares of Series G Preferred Stock of
the Company
10.59 First Amendment to Convertible Subordinated Debenture
Purchase Agreement, dated October 11, 1995, between
the Company and CII
10.60 First Addendum to Convertible Subordinated Debenture,
dated October 11, 1995, made by the Company and agreed
to by CII
10.61 First Addendum to Stock Subscription Warrant (re:
Warrant No. 94-4), dated October 11, 1995, made by the
Company and agreed to by CII
10.62 First Addendum to Stock Subscription Warrant (re:
Warrant No. 94-5), dated October 11, 1995, made by the
Company and agreed to by CII
10.63 First Addendum to Stock Subscription Warrant (re:
Warrant No. 94-6), dated October 11, 1995, made by the
Company and agreed to by CII
10.64 Amendment to Escrow Agreement, dated October 11, 1995,
among the Company, CII and Finn Dixon & Herling as
escrow agent
11.1 Statement regarding computation of per share
earnings on both a primary and fully diluted basis
21.1 Information regarding Wright Machine Corporation (12)
</TABLE>
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(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1989.
(2) Incorporated by reference to the Company's Current Report on Form 8-K filed
January 2, 1990.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1990.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1991.
<PAGE>
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 30, 1992.
(7) Incorporated by reference to the Company's Current Report on Form 8-K filed
on April 9, 1992.
(8) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1992.
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the Fiscal Quarter ended September 30, 1992.
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the Quarter ended December 31, 1992.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the Quarter ended March 31, 1993.
(12) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1993.
(13) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1994.
(14) Incorporated by reference to the Company's Registration Statement on Form
SB-2, filed with the Commission on November 8, 1994, as amended by
Amendment No. 1 filed with the Commission on January 17, 1995.
