THIS DOCUMENT IS A CONFIRMING COPY OF
THE FORM 10-QSB FILED ON MAY 9, 1995.
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from __________ to _________
Commission file number 0-14068
Memry Corporation
(Exact name of small business issuer as specified in its charter)
Delaware 06-1084424
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
57 Commerce Drive, Brookfield, Connecticut 06804
(Address of principal executive offices)
(203) 740-7311
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date. As of March 31, 1995, 5,583,301 shares
of the registrant's common stock, par value $.01 per share, were issued and
outstanding.
<PAGE>
INDEX
PART I -- FINANCIAL INFORMATION
Page
----
ITEM 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1995
and June 30, 1994 ............................................. 3
Consolidated Statement of Operations for the three months
and nine months ended March 31, 1995 and 1994 ................. 4
Consolidated Statement of Cash Flows for the nine months
ended March 31, 1995 and 1994 ................................. 5
Notes to the Consolidated Financial Statements .................. 6
ITEM 2. Management's Discussion and Analysis or Plan
of Operation .................................................. 13
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................... 17
ITEM 2. Changes in Securities ........................................... 17
ITEM 3. Defaults Upon Senior Securities ................................. 18
ITEM 4. Submission of Matters to a Vote of Security Holders ............. 19
ITEM 5. Other Information ............................................... 19
ITEM 6. Exhibits and Reports on Form 8-K ................................ 19
Signatures ...................................................... 21
2
<PAGE>
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MEMRY CORPORATION AND SUBSIDIARIES
March 31, June 30,
1995 1994
(Unaudited)
------------ ------------
Assets
Current assets
Cash and cash equivalents ............... $ 214,000 $ 201,000
Accounts receivable, less allowance
of $49,000 and $35,000 ................ 773,000 682,000
Inventories, net of reserve ............. 811,000 812,000
Prepaid expenses and other .............. 43,000 36,000
------------ ------------
Total current assets ................. 1,841,000 1,731,000
Property, plant and equipment, net ........ 1,248,000 1,360,000
Other assets:
Non current inventories ................. 169,000 169,000
Patents, at cost, net of accumulated
amortization of $56,000 and $53,000 ... 6,000 9,000
Deposits and sundry ..................... 38,000 37,000
------------ ------------
213,000 215,000
------------ ------------
Total assets ......................... $ 3,302,000 $ 3,306,000
============ ============
Liabilities and stockholders' deficit
Current Liabilities:
Accounts payable and accrued expenses ... $ 2,100,000 $ 2,047,000
Revolving loan .......................... 778,000 719,000
Notes payable ........................... 389,000 307,000
Convertible subordinated debentures ..... 763,000
Current portion of capital lease
obligations and long-term debt ........ 1,041,000 421,000
------------ ------------
Total current liabilities ............ 5,071,000 3,494,000
Capital lease obligations, less current
portion ................................. 11,000 11,000
Long term debt, less current portion ...... 83,000 805,000
Other non-current liabilities ............. 608,000 608,000
Contingencies-Note F
Stockholders' deficit
Preferred stock $100 par value:
Authorized shares - 100,000
Series A, issued and outstanding
shares - 124 ...................... 12,000 12,000
Series B, issued and outstanding
shares - 250 ...................... 25,000 25,000
Series F, issued and outstanding
shares - 480 ...................... 48,000
Common Stock, $.01 par value
Authorized shares - 10,000,000
Issued and outstanding shares
5,583,301 and 4,660,645 ............. 56,000 46,000
Additional paid-in capital .............. 27,520,000 26,869,000
Accumulated deficit ..................... (30,084,000) (28,612,000)
------------ ------------
Total stockholders' deficit ............. (2,471,000) (1,612,000)
------------ ------------
Total liabilties and stockholders'
deficit ............................... $ 3,302,000 $ 3,306,000
============ ============
See accompanying notes.
3
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
MEMRY CORPORATION AND SUBSIDIARIES
For Three Months Ended
March 31,
--------------------------
1995 1994
----------- -----------
Unaudited Unaudited
Revenues:
Product Sales .................................. $ 1,120,000 $ 976,000
Research and Development ....................... 91,000 90,000
Other .......................................... -- 0
----------- -----------
1,211,000 1,066,000
Costs and expenses:
Manufacturing costs .......................... 967,000 968,000
Research and development ..................... 101,000 35,000
General, selling and administrative .......... 598,000 586,000
Interest ..................................... 84,000 60,000
----------- -----------
1,750,000 1,649,000
----------- -----------
Net Loss ..................................... $ (539,000) $ (583,000)
=========== ===========
Net loss per common share .................... $ (0.10) $ (0.12)
=========== ===========
For Nine Months Ended
March 31,
--------------------------
1995 1994
----------- -----------
Unaudited Unaudited
Revenues:
Product Sales .................................. $ 3,308,000 $ 3,077,000
Research and Development ....................... 324,000 217,000
Other .......................................... -- 21,000
----------- -----------
3,632,000 3,315,000
Costs and expenses:
Manufacturing costs .......................... 2,873,000 2,963,000
Research and development ..................... 227,000 86,000
General, selling and administrative .......... 1,742,000 2,041,000
Interest ..................................... 262,000 218,000
----------- -----------
5,104,000 5,308,000
----------- -----------
Loss attributed to common shares ............... $(1,472,000) $(1,993,000)
=========== ===========
Net loss per common share ...................... $ (0.28) $ (0.50)
=========== ===========
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
MEMRY CORPORATION AND SUBSIDIARIES
For Nine Months Ended
March 31,
--------------------------
1995 1994
----------- -----------
Operating activities
Net loss ....................................... $(1,472,000) $(1,993,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization .............. 211,000 175,000
Change in operating assets and liabilities:
Increase in accounts receivables ......... (91,000) (102,000)
Decrease in inventories .................. 1,000 28,000
Increase in prepaid expenses and other ... (7,000) --
Increase (Decrease) in accounts payable
and accrued ............................ 53,000 (354,000)
Other .................................... 1,000 (61,000)
----------- -----------
Cash used in operating activities .............. (1,304,000) (2,307,000)
Investing activities
Purchases of property and equipment
and patents .................................. (96,000) (143,000)
----------- -----------
Cash used in investing activities .............. (96,000) (143,000)
Financing activities
Proceeds from sale of Common Stock ............. 637,000 3,938,000
Common Stock issue costs ....................... (24,000) --
Payments on capitalized lease obligations ...... (5,000) (28,000)
Net proceeds from (payment on) revolving line .. 59,000 (27,000)
Net proceeds from (payment on) short term debt . 845,000 (78,000)
Principal payments on long term debt ........... (99,000) (1,250,000)
----------- -----------
Cash provided by financing activities .......... 1,413,000 2,555,000
----------- -----------
Increase (decrease) in cash and
cash equivalents ............................. 13,000 105,000
Cash and cash equivalents at beginning of year . 201,000 23,000
----------- -----------
Cash and cash equivalents at end of year ....... $ 214,000 $ 128,000
=========== ===========
See accompanying notes.
5
<PAGE>
MEMRY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--GOING CONCERN CONSIDERATION
The Company's 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
$1,472,000 and $1,993,000 and negative cash flow from operations of $1,304,000
and $2,307,000 for the nine months ended March 31, 1995 and 1994, respectively.
As a result, the Company has a stockholders' deficit of $2,471,000 and its
current liabilities exceeded its current assets by $3,230,000 as of March 31,
1995. In addition, the Company's subsidiary, Wright Machine Corporation, has
defaulted on its loan agreements which totalled $1,121,000 on March 31, 1995 and
is subject to a forbearance agreement with its bank. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
NOTE B--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1995. All Common Stock related presentations and references have been adjusted
to reflect the one-for-ten reverse split which occurred on August 8, 1994. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company 's Annual Report on Form 10-KSB for
the year ended June 30, 1994.
NOTE C--NET LOSS PER COMMON SHARE
The net loss per common share is based on the net loss from operations. The
weighted average number of shares of Common Stock outstanding were 5,583,801 and
5,305,745 for the three and nine months ending March 31, 1995, respectively. The
weighted average number of shares was 4,694,524 and 3,988,985 for the three and
nine month period ending March 31, 1994, respectively. Common Stock equivalents
have been excluded from the computation of the net loss per common share based
on their anti-dilutive effect.
6
<PAGE>
NOTE D--INVENTORY
The components of inventories consist of the following:
March 31, June 30,
1995 1994
---------- --------
Raw Material .................................... $308,000 $226,000
Work-in-process ................................. 414,000 242,000
Finished goods .................................. 258,000 513,000
-------- --------
980,000 981,000
Less non-current inventory ...................... (169,000) (169,000)
-------- --------
$811,000 $812,000
======== ========
NOTE E--STOCKHOLDERS' EQUITY
On July 19, 1994, the shareholders 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. 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.
On December 22, 1994, the Company and Connecticut Innovations, Inc. ("CII")
entered into a Convertible Subordinated Debenture Purchase Agreement (the
"Purchase Agreement"). Pursuant to the Purchase Agreement CII acquired the
following (the "Registrable Securities") (i) a Convertible Subordinated
Debenture dated December 22, 1994, from the Company in the principal amount of
$763,208 (the "Debenture") convertible into Common Stock at an initial price of
$1.50 per share, (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"). 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 (iii)
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 among the Company, CII and the Escrow Agent.
Pursuant to the terms of the Purchase Agreement, the Company was required to
promptly amend its registration statement filed with the SEC on November 8, 1994
to cover, inter alia, the resale by CII of the Registrable Securities acquired
by it pursuant to the Purchase Agreement (the "Registration Agreement") and is
required to cause the Registration Statement to become effective no later than
February 28, 1995, maintain the effectiveness of the
7
<PAGE>
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 Registerable Securities pursuant to such
registration free from any stop orders for suspensions by the Company or advice
of counsel to the contrary. Also pursuant to the terms of the Purchase
Agreement, none of the Class I Warrants, the Class II Warrants, or the Class III
Warrants may be exercised, and the Debenture may not be converted at a per share
price other than $1.50, until the earlier of September 1, 1995 and 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 thereof. However,
although the Debenture cannot be converted to a price lower than $1.50 until
such date the effective exercise price as of January 1, 1995 was $1.39 due to an
automatic reset of the conversion price, pursuant to the terms of the Debenture
and is subject to further adjustment.
CII has been granted a "put" right if at any time before the earlier of December
22, 2004 and the date when CII ceases to hold both at least 35% of the
Registrable Securities and any portion of the Debenture (i) 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 adminstative and financial staff, all of its
marketing and customer service staff (excluding individuals 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 located in the State of Connecticut, excluding all banks
associated with Wright; or (ii) the Company fails (a) to effect Registration
Statement by February 28, 1995, (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 September 1, 1995, or (iii)
provisions of the Purchase Agreement regarding registration rights are amended
and/or revised without prior written consent. Upon CII's exercise of its put,
and its election to include the Class III Warrants within such 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 the
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 with the CII Securities and the Registrable
Securities. Although the Registration Statement was not effected by February 28,
1995, CII has has not rescinded its Purchase Agreement nor exercised its "put"
right. The Company is currently negotiating an extension to effect the
Registration Statement.
From July 1, 1994 through September 30, 1994, the Company made private
placements of its Common Stock in the amount of $232,500 at an average price of
$1.72 per share. In addition,
8
<PAGE>
from October 1, 1994 through March 31, 1995, the Company has made additional
private placements of its Common Stock in the amount of $637,000 at an average
price of $1.50 per share. A warrant to purchase an additional 116,667 shares at
a exercise price of $2.00 was issued, however, this warrant is not exercisable
until October 1, 1995. In addition, the CII Securities were issued and 10,001
shares of Common Stock were issued to a placement agent in lieu of a placement
fee.
The Company has retained BDS Securities Corporation of New York, New York as its
exclusive financial advisor for the placement of up to $3.0 million of debt
and/or equity on terms similar to the CII transaction (the "BDS transaction").
In the event that the BDS transaction occurs, the purchasers of all but $175,000
of the common stock that was sold during the second quarter of fiscal 1995 will
have the right to convert their securities to the same terms as those sold in
the BDS transaction. There can be no assurances that any part or all of the
funds sought by BDS will be obtained.
NOTE F--CONTINGENCIES
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 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. The parties are presently discussing the possibility of submitting the
issue of whether the lease was or was not renewed to a Special Master to be
appointed by the Connecticut Superior Court. Such a course would leave the issue
of damages under the lease, if the lease is found to have been renewed, and the
counterclaims to be resolved at a later trial date. It is expected that limited
discovery would precede the hearing before the Special Master, with a hearing
date to be secured sometime during the second or third quarter of fiscal 1995.
The Company believes it has valid defenses to the claim that the lease was
renewed as well as the counterclaims and 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.
9
<PAGE>
("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 and AST&T filed a Motion for Summary Judgment in September
1993. That motion remains pending. The Company believes that it has valid
defenses to the action, and intends to contest the case 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 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. The Company subsequently moved for summary judgment with
respect to all counts of Mr. Rogen's complaint, which motion remains pending.
The Company believes that it has valid defenses to the action, and intends to
contest the case vigorously. The case did not reach trial during calendar 1994.
SFC Valve Corporation v. Wright Machine Corporation, et al.
In early 1990 Wright Machine Corporation, a Delaware corporation and a wholly
owned subsidiary of the Company ("Wright"), acquired certain assets of Wright
Machine Corporation, a Massachusetts corporation ("Old Wright") located in
Worcester, Massachusetts. At the time of such acquisition, Old Wright was a
defendant in a lawsuit entitled SFC Valve Corporation v. Wright Machine
Corporation, et al., pending in the U.S. District Court for the Southern
District of Florida (the "Florida Suit"). In such suit, plaintiff SFC Valve
Corporation ("SFC") is claiming monetary damages based upon various causes of
action alleged to have arisen out of the sale of certain valve stems sold by a
predecessor of Old Wright to a corporation whose assets were
10
<PAGE>
subsequently purchased out of bankruptcy by SFC. SFC alleges that its damages
arose from the unauthorized modification by persons employed by Old Wright's
predecessor of certain certifications required for the sale of the valve stems
to government contractors, including the corporation to which these valve stems
were sold. In June of 1993, SFC joined the Company and Wright as parties to the
Florida Suit, asserting that the Company and Wright were liable to SFC for the
same monetary damages for which Old Wright was liable because both the Company
and Wright were successors to Old Wright's business.
In January of 1994, in a case entitled SFC Valve Corporation v. Wright Machine
Corporation et al, SFC sued Old Wright, Wright, the Company and certain other
parties in Massachusetts Superior Court in Worcester, Massachusetts (the
"Massachusetts Court"). In this case, SFC sought to compel various parties to
reconvey to Old Wright assets that they had acquired from Old Wright in order
that Old Wright would be able to satisfy any judgment that SFC was able to
obtain in the Florida Suit. With respect to Wright and the Company, SFC's
principal claim was that the acquisition by Wright of certain of the assets of
Old Wright constituted a fraudulent conveyance, and was therefore void as
against Old Wright's creditors. In addition, SFC sought, and obtained, an ex
parte injunction against Wright and the Company transferring any assets that
Wright acquired from Old Wright, and an ex parte attachment against the real
property that Wright acquired from Old Wright. By rulings of the Massachusetts
Court on March 10, 1994, March 28, 1994, October 12, 1994 and November 29, 1994,
the Massachusetts court (i) denied SFC's motion for a preliminary injunction,
(ii) vacated the ex parte attachment and injunction, (iii) granted the Company's
motion to dismiss the fraudulent conveyance claims against it, and (iv) granted
the Company and Wright summary judgement on all remaining counts against them.
On March 10, 1995, the Company, Wright and SFC entered into a Settlement
Agreement relating to both the Florida Suit and the Massachusetts Suit. The
Company agreed to pay SFC $70,000 (of which amount $40,000 has heretofore been
paid and the remainder is due on May 15, 1995). In return, SFC agreed not to
appeal the decisions in favor of the Company and Wright in the Massachusetts
Suit, not to present any evidence against the Company or Wright, or request a
judgement against the Company and Wright, in the Florida Suit, and not to bring
any new claims against the Company and Wright. While the company continues to
believe that it had valid defenses to both such actions, it also believes that
the costs of this settlement are within the range of what the costs of legal
fees would be to prosecute these cases to their conclusion.
NOTE G--REVOLVING LOAN, NOTES PAYABLE AND
LONG-TERM DEBT
In connection with the acquisition of Wright Machine Corporation, 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 was originally
limited to the lessor of (x) the sum of 80% of eligible accounts receivable and
40% of net inventories of Wright less $250,000 or (y) $2 million,
11
<PAGE>
and was secured by Wright's accounts receivable and inventories. The amended
forbearance agreement dated December 30, 1994 as further described below,
revised the revolver limit to the lesser of (x) the sum of 80% of eligible
accounts receivable and 40% of net inventories not to exceed $350,000 ($300,000
after February 28, 1995) less $60,000 ($100,000 on or subsequent to February 28,
1995) or (y) $1,150,000.
The term loan is collateralized by machinery and equipment having a net book
value of $155,000 and the mortgage loan is collateralized by land and building
with net book values of $166,000 and $796,000 respectively, at December 31,
1994.
The Loan Agreement requires payment 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, making advances to officers of Wright, and prohibits the Company from
applying intercompany charges against Wright.
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 pay-down an additional
$350,000 of its debt to the bank and the Company was required to place as
collateral $150,000 in the form 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%(11.75% at June 30, 1994). On March 11th, June 29th, October
7th and October 12th, December 30th, 1994, and March 2, 1995 the forbearance
agreement was further amended.
As of April 11, 1995, the Bank and Wright executed another amendment to the
above-referenced forbearance agreement in which the bank has agreed to forbear
from accelerating the loan payments and enforcing the existing defaults through
July 1, 1995, subject to the Company's and Wright's continued compliance with
certain covenants included in such agreement. Among other things, the
forbearance agreement requires the Company to make a $261,000 payment on its
mortgage loan payable to the bank on or before May 15, 1995, to make a $90,000
payment relating to a decrease in the borrowing base and an increase in reserves
with respect to the
12
<PAGE>
revolving line of credit on or before May 15, 1995 and to pay down $50,000 of
any over-advances on its revolving line of credit by April 15 (after April 15th
which over-advances are limited to $100,000) from the proceeds of any sales
aggregating $200,000 of the Company's Common Stock after January 1, 1995 and in
any event by May 15, 1995. A forbearance fee of $20,000 prior to May 15, 1995
will be payable from Wright to its bank and a payment of approximately $3,700 of
principle of Wright's mortgage note will be payable each month for two months
commencing June 1, 1995 (the payments for January, February, March, April and
May 1995 being $2,500 each), with the remaining principle of $657,612 due on
July 1, 1995. Interest on the mortgage note has been reset to the bank's base
rate plus 4%. The Company also reaffirmed its guaranty of all Wright's
obligations to its bank. Furthermore, pursuant to the terms of the various
documents with CII relating to the sale by the Company to CII of certain
securities, proceeds of such sale may not be used to repay Wright's obligations
to its bank and thus other funds must be used for this purpose. There can be no
assurance that the Company and Wright will not be in breach of the same or
different covenants in the future or that the bank will agree to a further
forbearance in such event. (See also "Management's Discussion and Analysis or
Plan of Operation")
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.
NOTE H--STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
On July 19, 1994, the shareholders approved the adoption of the Memry
Corporation Stock Option Plan. Six hundred thousand (600,000) shares of Common
Stock are authorized to be issued pursuant to this Plan, and as of December 31,
1994, options to purchase 436,500 shares of Common Stock have been granted at a
per share exercise price of $2.34 or $4.40, which represents the fair market
value of the underlying shares at the date of grant.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results.
(a) Liquidity and Capital Resources
The Company's 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
$1,472,000 and $1,993,000 and negative cash flow from operations of $1,304,000
and $2,307,000 for the nine months ended March 31, 1995 and 1994, respectively.
As a result, the Company has a stockholders' deficit of $2,471,000 and its
current liabilities exceeded its current assets by $3,230,000 as of March 31,
1995. In addition, the Company's subsidiary, Wright Machine Corporation, has
defaulted on its loan agreements
13
<PAGE>
which totalled $1,121,000 on March 31, 1995 and is subject to a forbearance
agreement with its bank. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
The amended loan forbearance agreement (as amended, the "Forbearance Agreement")
between Wright and its bank expires July 1, 1995 subject to the Company's and
Wright's continued compliance with certain covenants included in the Forbearance
Agreement. The Forbearance Agreement requires the Company to make a $261,000
payment on its mortgage loan payable to the bank on or before May 15, 1995, to
make a $90,000 payment relating to a decrease in the borrowing base and an
increase in reserves with respect to the revolving line of credit on or before
May 15, 1995 and to pay down $50,000 of any over-advances on its revolving line
of credit by April 15 (after April 15th which over-advances are limited to
$100,000) from the proceeds of any sales aggregating $200,000 of the Company's
Common Stock after January 1, 1995 and in any event by May 15, 1995. A
forbearance fee of $20,000 prior to May 15, 1995 will be payable from Wright to
its bank and a payment of approximately $3,700 of principle of Wright's mortgage
note will be payable each month for two months commencing June 1, 1995 (the
payments for January, February, March , April and May 1995 being $2,500 each),
with the remaining principle of $657,612 due on July 1, 1995. Interest on the
mortgage note has been reset to the bank's base rate plus 4%. The Company also
reaffirmed its guaranty of all Wright's obligations to its bank. Furthermore,
pursuant to the terms of the various documents with CII relating to the sale by
the Company to CII of certain securities, proceeds of such sale may not be used
to repay Wright's obligations to its bank and thus other funds must be used for
this purpose. There can be no assurance that the Company and Wright will not be
in breach of the same or different covenants in the future or that the bank will
agree to a further forbearance in such event. The Company intends to seek
refinancing of its debt with various parties. However, there can be no assurance
that it will complete such financing prior to the termination of the Forbearance
Agreement.
In fiscal year 1995, the Company has anticipated continuing losses from
operations until the first quarter of fiscal 1996, at which time the Company
expects to be cash flow positive (although there can be no assurances this will
occur). Management plans to reduce operating losses and negative cash flow from
operations through increased revenues and improved margins. Management raised
approximately $637,000 of additional capital and issued a $763,208 debenture in
a transaction which the Company received $615,000 in cash, in order to meet
immediate working capital needs during the first six months of fiscal 1995. In
addition, the Company has retained BDS Securities Corporation of New York, New
York as its exclusive financial advisor for the placement of up to $3.0 million
of debt and/or equity on terms similar to the CII transaction. This additional
capital will be used to meet additional working capital needs during fiscal year
1995 and to fund the payments of its bank debt described above. However, there
can be no assurance that the Company can improve operations or raise such
additional capital to meet estimated working capital needs and make the required
payments on its debt in which case the Company may be forced to curtail or cease
operations. (See Note E to the Financials for a detailed description of the
financings described above)
14
<PAGE>
(b) Results of Operations
Nine months ended March 31, 1995 compared to nine months ended March 31, 1994.
The Company lost $1,472,000 or $0.28 per share, during the first nine months of
fiscal 1995, as compared with $1,993,000 (or $0.50 per share) loss during the
first nine months of fiscal 1994, representing an improvement of $521,000 or
approximately 35%. Losses from operations were reduced to $1,254,000 while
non-recurring expenses decreased to $218,000 from $370,000, a decrease of
152,000, or 41%.
Total revenues for the first nine months of fiscal 1995, increased to $3,632,000
from $3,315,000 for the first nine months of fiscal 1994, an increase of
$317,000 or 10%. This represents primarily an increase of $107,000 in research
and development ("R&D") revenues, to $324,000 from $217,000, and an increase of
$231,000 in product sales, to $3,308,000 from $3,077,000. The increase in R&D
revenues was primarily due to revenues generated by a number of contracts which
were not in place during the comparable period of fiscal 1994, including a
$432,586 SBIR contract awarded in December of 1993 by the United States Air
Force for shape memory effect ("SME") reusable lock nuts. The increase in
product sales was due to an increase of $316,000 (to $533,000 from $217,000), or
approximately 146%, in sales of the Company's Products Division (the division
selling the Company's proprietary and SME products), partially offset by a
decrease of $85,000, or 3%, in sales by the Company's Wright Machine Corporation
subsidiary ("Wright"). The increase in sales by the Company's Products Division
was primarily due to sales of the Company's MEMRYSAFE(R) products to the
Australian market (which represented $200,000 of sales for such six month
period). The decrease in sales at Wright, to $2,775,000 from $2,860,000 all of
which decrease occurred during the second fiscal quarter, was due to reduced raw
material availability as a result of raw material shortages caused by Wright's
inability to pay its material vendors. The Company believes that this raw
material shortage will be alleviated if the financing through BDS Securities
Corporation is received as described in Note E to the Financial Statements.
Manufacturing costs were $2,873,000 for the first nine months of fiscal 1995,
compared with $2,963,000 for the first nine months of fiscal 1994. This
represents a decrease of $90,000, or approximately 3%, notwithstanding the fact
that product sales increased slightly. The decrease was primarily caused by a
shifting of product sales from Wright, which has a margin on product sales of
approximately 11%, to the Products Division, which has a margin on product sales
of approximately 23%. In addition, margins for the Products Division improved
77%, to a positive 23% margin from a negative 54% margin for the first nine
months of fiscal 1995, primarily due to the increase in sales. R&D costs
increased from $86,000 to $227,000 is due to the increase in contract R&D
revenues and in large part to the use of subcontractor services.
General, Selling and Administrative ("GS&A") expenses were $1,742,000 for the
first nine months of fiscal 1995, as compared to $2,041,000 for the first six
months of fiscal 1994. This decrease represents a decrease of $299,000, or
approximately 15%, as a result of a reduction in outside consulting fees and
other overhead costs. The Company continues to analyze and reduce expenditures
wherever possible. Interest expense increased $44,000 over interest expense of
the
15
<PAGE>
comparable fiscal period in 1994, essentially due to an increase of $200,000 in
the principle amount of the revolving loan at Wright. The Company also incurred
$218,000 of non-recurring expenses during the first six months of fiscal 1995,
$135,000 of which was paid to Connecticut Innovations, Inc. ("CII") as part of
CII's financing of the Company (see Note E to the Company's Consolidated
Financial Statements) to terminate certain royalty rights which the Company had
previously granted to CII and $70,000 to settle the SFC litigation (see Note F
to the Company's Consolidated Financial Statements).
Three Months ended March 31, 1995, compared to three months ended March 31,
1994.
The Company lost $539,000, or $0.10 per share, during the three month ended
March 31, 1995, as compared to a $583,000 loss (or $.12 per share) during the
three month period ended March 31, 1994. This represe nts a decrease of $44,000,
or approximately 8%, from the comparable period of fiscal 1994. Losses from
operations were reduced to $469,000 from $583,000, a decrease of 114,000, or
approximately 20%, while non-recurring expenses increased to $70,000 from $0.
Total revenues for the third quarter of fiscal 1995 were $1,211,000, a increase
of $145,000, or approximately 14%. Product sales accounted for $144,000 of the
overall increase. The products Division revenues at $533,000 for the current
quarter of fiscal 1995 increased $86,000 over the same period for fiscal 1994,
while Wright's product sales increased $58,000, $964,000 in the third quarter of
fiscal 1995 versus $906,000 during the comparable period of fiscal 1994. R&D
revenues had only a slight increase of $1,000. The Company expects sales by its
Products Division to increase significantly by the fourth quarter of fiscal
1995, due to the substitution of Edward Keller Australia Pty. Ltd. ("Keller") as
its Australian distributor and sales of its MEMRYSAFE(R) into the U.S. market
through a major distributor with which the Company is in the process of
negotiating a distribution agreement. There can be no assurances, however, that
sales by the Company's Products Division will increase.
Manufacturing costs of $967,000 for the third quarter of fiscal 1995 remained
virtually even when compared to the third quarter of fiscal 1994 ($968,000). The
primary reason for the improved margins is due to the 14% increase in product
sales and the shift to the higher margin sales of the Products Division. R&D
costs increased by $66,000 to $101,000 from $35,000, primarily due to the use of
outside subcontractors amounting to approximately $58,000.
GS&A expenses increased by $12,000, or 2%, to $598,000 from $586,000, primarily
as a result of a non-recurring $70,000 litigation settlement cost (see Note F to
the Financial Statements). Interest expense for the quarter was $84,000, as
compared to $60,000 during the third quarter of fiscal 1994, primarily due to an
increase in the size of Wright's borrowings on its revolver and related bank
fees.
As of December 31, 1994, the Company had $1,600,000 of backorders at Wright and
approximately $600,000 of outstanding orders in the Products Division. Due to
the Company's continuing working capital deficiencies, Wright will have trouble
filling its orders, due primarily
16
<PAGE>
to its inability to obtain the necessary brass from its supplies, until the
Company's working capital problems are alleviated.
The Company had approximately $981,000 of contract R&D backlog as of March 31,
1995 which includes the award of a $591,000 two-year Phase II contract by the
National Aeronautical Space Administration for jet turbine components. In
addition, the Company expects to receive another R&D contract during the fourth
quarter of fiscal 1995 with McDonnell Douglas for using SME technology in the
manufacture of advanced helicopter blades, which contract will generate
approximately $250,000 for the Company over eighteen months. There can be no
assurances, however, that either such contract will be granted.
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings
See Note F to the financial statements, for a description of legal proceedings
affecting the Company. A description of certain developments since December 31,
1994 follows:
In the case entitled SFC Valve Corporation v. Wright Machine Corporation, et
al., pending in the U.S. District Court for the Southern District of Florida, a
trial date has been set for the third quarter of fiscal 1995.
On October 12, 1994, in the case entitled SFC Valve Corporation v. Wright
Machine Corporation the Massachusetts Court (i) granted the Company's motion to
dismiss the fraudulent conveyance claims against it, (ii) granted the motion of
Old Wright and certain related parties for summary judgment on all counts, and
(iii) converted the Company's motion to dismiss all counts against Wright and
the remaining unfair trade practice count against the Company to a motion for
summary judgement on such count. On November 29, 1994, the Massachusetts Court
granted Wright's motion for summary judgment on the remaining counts. In
December of 1994, SFC appealed the granting of the Company's, Wright's and Old
Wright's motion for dismissal and summary judgment.
On March 10, 1995, the Company, Wright and SFC entered into a Settlement
Agreement relating to both the Florida Suit and the Massachusetts Suit. The
Company agreed to pay SFC $70,000 (of which amount $40,000 has heretofore been
paid and the remainder is due on May 15, 1995). In return, SFC agreed not to
appeal the decisions in favor of the Company and Wright in the Massachusetts
Suit, not to present any evidence against the Company or Wright, or request a
judgement against the Company and Wright, in the Florida Suit, and not to bring
any new claims against the Company and Wright. While the company continues to
believe that it had valid defenses to both such actions, it also believes that
the costs of this settlement are within the range of what the costs of legal
fees would be to prosecute these cases to their conclusion.
ITEM 2. Changes In Securities
N/A
17
<PAGE>
ITEM 3. Defaults Upon Senior Securities
In connection with the acquisition of Wright Machine Corporation, 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 was originally
limited to the lessor of (x) the sum of 80% of eligible accounts receivable and
40% of net inventories of Wright less $250,000 or (y) $2 million, and was
secured by Wright's accounts receivable and inventories. The amended forbearance
agreement dated December 30, 1994 as further described below, revised the
revolver limit to the lesser of (x) the sum of 80% of eligible accounts
receivable and 40% of net inventories not to exceed $350,000 ($300,000 after
February 28, 1995) less $60,000 ($100,000 on or subsequent to February 28, 1995)
or (y) $1,150,000.
The term loan is collateralized by machinery and equipment having a net book
value of $121,000 and the mortgage loan is collateralized by land and building
with net book values of $166,000 and $788,000 respectively, at December 31,
1994.
The Loan Agreement requires payment 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, making advances to officers of Wright, and prohibits the Company from
applying intercompany charges against Wright.
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 pay-down an additional
$350,000 of its debt to the bank and the Company was required to place as
collateral $150,000 in the form 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% (11.75% at June 30, 1994). On March 11th, June 29th, October
7th, October 12th,
18
<PAGE>
December 30, 1994, March 2nd and April 11th, 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 G to the
Financial Statements for discussion of these conditions)
ITEM 4. Submission of Matters to a Vote of Security Holders
N/A
ITEM 5. Other Information
N/A
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation as amended (1)
3.2 Corporate By-laws as amended (1)
10.1 Convertible Subordinated Debenture Purchase Agreement dated
as of December 22, 1994 between the Company and CII (1)
10.2 Convertible Subordinated Debenture in the principle amount
of $763,208 dated as of December 22, 1994 from the Company to CII (1)
10.3 Escrow Agreement dated as of December 22, 1994 among the Company,
CII, and Finn, Dixon and Herling as escrow agent (1)
10.4 Fifth Amendment to Forbearance Agreement Dated December 30, 1994
between Wright Machine Corporation and Shawmut Bank, and Counter
Signed by the Company (1)
10.5 Letter Agreement dated November 23, 1994 between the Company
and BDS Securities (1)
10.6 First Amendment to Forbearance Agreement Dated October 7, 1994
amending the Forbearance Agreement dated June 29, 1994 between
Wright Machine Corporation and Shawmut Bank, and Counter
Signed by the Company (2)
10.7 Fourth Amendment to Forbearance Agreement Dated October 12, 1994
between Wright Machine Corporation and Shawmut Bank, and Counter
Signed by the Company (2)
19
<PAGE>
10.8 Letter Agreement dated as of October 12, 1994 between the
Company and Harbour Holdings Limited Partnership regarding
Series A Preferred stock conversion calculation (2)
10.9 Employee Non-Disclosure Agreement, dated as of October 18,
1994, between the Company and James G. Binch (2)
10.10 Letter Agreement dated as of November 3, 1994 between the
Company and CII regarding the CII Securities Purchase Agreement (2)
10.11 Sixth Amendment to Forbearance Agreement Dated October 12, 1994
between Wright Machine Corporation and Shawmut Bank, and Counter
Signed by the Company
10.12 Seventh Amendment to Forbearance Agreement Dated October 12, 1994
between Wright Machine Corporation and Shawmut Bank, and Counter
Signed by the Company
10.13 SBIR Contract dated March 8, 1995 between the Company Aeronautics
and Space Administration
(1) Incorporated by reference from the Company's Amendment No. 1 to the
Registration Statement on Form SB-2 filed with the Securities and
Exchange Commission on January 17, 1995.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994.
(b) Reports on Form 8-K
N/A
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Memry Corporation
Date: May 8, 1995 /s/ JAMES G. BINCH
--------------------------------
James G. Binch
President, CEO and Director
(Principal Executive Officer)
Date: May 8, 1995 /s/ WENDY A. GAVAGHAN
---------------------------------
Wendy A. Gavaghan
Corporate Controller
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANICAL STATEMENTS TO THE QUARTERLY REPORT ON FORM 10-QSB FOR THE
QUARTER ENDED MARCH 31, 1995 OF MEMRY CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 214,000
<SECURITIES> 0
<RECEIVABLES> 822,000
<ALLOWANCES> 49,000
<INVENTORY> 980,000
<CURRENT-ASSETS> 1,841,000
<PP&E> 3,602,000
<DEPRECIATION> 2,354,000
<TOTAL-ASSETS> 3,302,000
<CURRENT-LIABILITIES> 5,071,000
<BONDS> 702,000
<COMMON> 56,000
0
37,000
<OTHER-SE> 27,520,000
<TOTAL-LIABILITY-AND-EQUITY> 3,302,000
<SALES> 1,120,000
<TOTAL-REVENUES> 1,211,000
<CGS> 967,000
<TOTAL-COSTS> 699,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (539,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (539,000)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
