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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, 1996
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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,
1996 were $3,674,000.
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $14,310,400 on June 28, 1996 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, 1996:
12,977,854. 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.
Documents Incorporated by Reference. Memry Corporation's 1996 Proxy Statement
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to be filed with the Commission within 120 days after June 30, 1996, is
incorporated by reference in Part III of this Form 10-KSB.
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 (referred to as "Memry" or the "Company"), a Delaware
corporation incorporated in 1981, is primarily engaged in the business of
developing, manufacturing and marketing materials, components and products
utilizing the properties exhibited by shape memory alloys (the "Memry Segment").
In addition, the Company is engaged in the manufacturing and marketing of 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 at such address is (203) 740-7311.
On June 28, 1996, the Company acquired from Raychem Corporation, a Delaware
corporation located in Menlo Park, California ("Raychem"), the assets comprising
Raychem's nickel-titanium product line. Said acquired business is described in
more detail below under the heading "-- Memry Segment -- Operating Divisions."
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
deformations from which conventional materials can recover. 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 are also able to produce forces
many times greater than forces caused by thermal reactions in items such as bi-
metallic elements. SMAs are capable of producing both force and motion at
predetermined temperatures in order both to control and to drive various types
of devices.
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, and of
performing this recovery on a repeated basis. This is more than 50 times the
recovery ability of ordinary metals. This "superelasticity" feature has
applications for surgical instruments and devices, the hitting surface on golf
clubs, orthodontic apparatus, cellular telephone antennae and other devices.
When an actuator (a device that causes action or motion) is required to perform
just 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. One-way memory applications include
fasteners, couplings and sealing devices. "Two-way" memory refers to the
processing of a material so that it has its 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
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temperature changes. SMA actuation temperatures can be set from approximately -
100 degrees C (-150 degrees F) to 200 degrees C (392 degrees F). Two-way memory
applications include products and devices which rely upon the SMA to actuate a
mechanism at a predetermined temperature and reverse the action at another
temperature on a repeated basis, such as various types of valves, circuit
breakers and electronic connectors.
OPERATING DIVISIONS
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Due to the Company's June 28, 1996 acquisition of Raychem's nickel-titanium
product line (referred to at times herein as the "Raychem Acquisition"), the
Company has restructured its Memry Segment. "Memry West," consisting of most of
the business acquired from Raychem, manufactures semi-finished materials
utilizing SMAs and, through Raychem, sells such materials into various
industrial electronic, automotive and medical markets. "Memry East," which
prior to the Raychem Acquisition constituted the entire Memry Segment, engages
in the manufacture and sale of finished assemblies and products utilizing SMAs
into the medical, industrial and consumer markets, as well as performing funded
research and product development activities.
A. MEMRY WEST
On June 28, 1996, the Company acquired Raychem's nickel-titanium product line.
This business utilized inventory, leasehold improvements, machinery and
equipment and patent and other intellectual property rights to manufacture and
sell SMAs primarily composed of nickel-titanium. Prior to the Raychem
Acquisition, Raychem was both a supplier of nickel-titanium SMAs to the Company
and a competitor in certain markets (particularly in the medical market for
finished components). The acquired business differed from that of the Company,
however, in that where the Company's Memry Segment had historically specialized
in the manufacture of finished products and components, Raychem specialized more
in the manufacture of semi-finished materials used by original equipment
manufacturers ("OEMs"). Not surprisingly, therefore, the point at which Memry
and Raychem most competed was at the level of components sales to OEMs,
particularly in the medical industry. The leased facility, inventory, machinery
and equipment, leasehold improvements and know-how purchased from Raychem now
constitute Memry West (except that, as discussed below under "-- Memry East,"
Raychem's operations relating to the finishing of materials into components for
sales to United States Surgical Corporation will be relocated to Memry East
prior to December 31, 1996, and is included within the discussion of Memry
East).
Memry West, located in Menlo Park, California, is engaged in the processing and
manufacture of SMAs, the vast majority of which result in the sale of custom
designed semi-finished materials used by OEMs. Memry West sells semi-finished
SMAs in three basic forms: wire, strip and tube. To a lesser degree, Memry
West also sells subcomponents to OEMs, including helical and strip actuators,
patented locking rings for electronic connectors, coated antenna materials, and
sealing components. In connection with the Raychem Acquisition, Memry and
Raychem entered into a Private Label/Distribution Agreement pursuant to which
Raychem
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was made Memry's exclusive distributor for the acquired product line in certain
specified fields of use for an initial term of five years. Sales by the Company
to certain customers, including United States Surgical Corporation (as described
below in "-- Memry East"), were excluded, as were any future sales for medical
implant applications. Therefore, at the present time, substantially all of
Memry West's sales are made to Raychem. Raychem's largest customers for the
products sold to it are cellular telephone antenna manufacturers who utilize the
superelasticity of SMAs for a more durable antenna. Raychem's other customers
of Memry West's products include orthodontic manufacturers, who use SMA strip
for braces, medical products and instrument companies, whose uses of the Memry
West's products include catheter guidewire and medical tubing, automotive
manufacturers, who use SMA actuators to control coolant systems and SMA plugs
for high-pressure fuel injector sealant devices, and industrial product
manufacturers who use SMAs for a variety of other uses including electronic
connectors. In addition, Raychem purchases some of Memry West's semi-finished
materials for its own use. The sales to Raychem under the agreement are
discounted from the ultimate resale price to OEMs in order to allow Raychem to
recover its sales and marketing expenses and to realize a profit upon resale of
such products to its customers (primarily OEMs). Because of this relationship,
Memry West does not have any internal sales force. In addition, Memry West
supplies Memry East with semi-finished materials for processing by Memry East
into finished products and components, much as Raychem sold these materials to
Memry East prior to the Raychem Acquisition.
B. MEMRY EAST
Memry East, located in the same facility as the Company's corporate headquarters
in Brookfield, Connecticut, is engaged in (i) the development and manufacture
(and, in the case of proprietary products, marketing) of finished components and
products utilizing SMA materials, and (ii) the conduct of both funded product
research and customer-sponsored development projects.
(i) Finished Assemblies and Components. Memry East manufactures and sells
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finished assemblies and components for OEMs and also manufactures, sells, and
markets proprietary finished products. While historically the Company has had
more revenues from the sale of its proprietary products than from the sale of
semi-finished materials, assemblies and components to OEMs, both the
consummation of the Raychem Acquisition and the growth in sales of SMA
assemblies to the medical industry have made the materials, assemblies and
components business the greatest part of both the Memry Segment and even Memry
East.
The single largest portion of Memry East's business is selling assemblies and
components to United States Surgical Corporation ("USSC") and other medical
industry OEMs. The primary item sold by Memry to USSC is an SMA subassembly
used by USSC for endoscopic instruments. The use of two-way memory SMAs allows
the instruments to be constrained outside the body, inserted into the body in
its constrained form through small passages, to then take a different shape
while inside the body, and then to return to its constrained shape for removal.
While USSC was working with Memry on a number of projects at the time of the
Raychem
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Acquisition, the bulk of this business represents selling finished medical sub-
assemblies that Raychem manufactured at a separate Menlo Park facility and sold
to USSC. Memry is currently subleasing a separate facility from Raychem in
which it is continuing to process semi-finished materials into sub-assemblies
for sale to USSC. This separate facility will be relocated into Memry East's
facility prior to December 31, 1996. Products and devices being sold to other
medical OEMs include stents, surgical clips, catheter guidance forms and others
using plastic with shape memory properties for orthoscopic procedures. All of
the Company's major SMA competitors compete with the Company in this market (see
"-- Competition").
In 1992 the United States Golf Association ("USGA"), professional golf's
regulating body in the U.S., modified its rules to allow SMAs to be used for the
hitting surface of golf clubs. Prior to that time, the Company had developed an
application of certain properties of SMAs for such purpose. The SMA alloy
allows the energy created when a club strikes a golf ball to be absorbed,
without deformation of the club's shape, to a far higher degree than other
materials used in the golf club industry. Through an exclusive distribution
arrangement that prevents the Company from selling these products to other golf
club manufacturers and the purchaser from sourcing these components elsewhere,
in fiscal 1996 the Company began selling SMA inserts utilizing a alloy trade
named ZeeMet/(R)/ to the Nicklaus Golf Equipment Company ("Nicklaus"). Nicklaus
inserts these ZeeMet/(R)/ inserts into a new line of wedges and a putter, where
they constitute the hitting surface of such clubs. The golfing equipment
industry is highly competitive and various manufacturers have in recent years
been developing more and more technical sophistication. While the Company
believes that the current SMA application, as utilized by Nicklaus, has several
advantages over current competing technology, there can be no assurances that it
will continue to hold such advantages.
In addition to its sales of finished assemblies to OEMs, Memry East currently
manufactures and markets a number of consumer and industrial products utilizing
SMAs. The Company's two principal proprietary products are the MEMRYSAFE/(R)/
line of temperature-actuated water flow reduction products and the
ULTRAVALVE/TM/ electronic combination shower/tub mixing valve. In addition, the
Company manufactures and markets the FIRECHECK/TM/ line of industrial fire
safety valves, but has not yet derived any material amount of revenues
therefrom.
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. The Company sells this
product to distributors for sales as retrofit products into the retail market,
to OEMs as components and, through sales agents, to governmental authorities for
installation in governmental housing. While the majority of sales of the
MEMRYSAFE/(R)/ products are being made in North America, distribution is also
underway in Canada, Australia and New Zealand. Retail prices in the U.S. range
from $7.89 to $24.99. The Company is aware of only one directly competitive
product in the U.S. and another in Australia. However, the primary competition
for the product comes from major U.S. plumbing manufacturers who market and sell
conventional thermostatic and pressure balanced mixing valves. Sales to
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date have fallen short of the Company's expectations, presumably due to lack of
consumer awareness of the product. Nonetheless, the Company believes that these
alternative products are more expensive to manufacture and install and less
effective in protecting the user from burns.
The Company has been selling the micro-processor controlled ULTRAVALVE/TM/
shower and bath valve since June of 1990. Because it combines the safety and
comfort of a thermostatic mixing valve with the ease and accuracy of a computer-
controlled temperature setting, the Company believes that its ULTRAVALVE/TM/
systems have clear performance advantages over the other premium competing
products on the market today. In addition, the ULTRAVALVE/TM/ system
incorporates the Company's patented anti-scald protection. The ULTRAVALVE/TM/
system is assembled at Memry East 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. The
Company has retained the right to market the products outside of the United
States. American Standard markets the products in the U.S. under both the
American Standard and the Ideal Standard brand names. Due to American Standards'
delay in launching the product, sales of ULTRAVALVE/TM/ products to American
Standard have fallen short of the contractual mandated minimum purchase
requirements for American Standard and product sales still have not achieved a
substantial volume. 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.
(ii) Customer Sponsored Development Projects and Funded Product Research. In
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addition to the manufacture and sale of commercialized components and products,
Memry East is also engaged in both sponsored development projects in which the
Company designs, manufactures and sells prototype components and products to
customers, and funded product research.
Memry East is currently working on a number of programs to develop SMA
components for OEM customer's products. The Company will accept customer-
sponsored 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.
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 largest such projects that Memry East is currently
working on include superelastic eyeglass frames under development with a major
U.S. eyewear manufacture and a specialized coolant valve for high performance
commercial aviation jet engines in conjunction with a major aerospace company.
In addition, the Company has only recently completed the development of a three-
way line valve
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for a Canadian utility company intended for use in an off-peak residential
electric water heater system. 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 any products
developed in this type of program will come to market. In fact, the Company has
worked on this type of development projects for a number of years and, with the
exception of the sales that are now being made by Memry West for components for
a proprietary sealing system for high pressure fuel injectors that were
developed by Memry East and the customer in such a program, the Company does not
yet have any material sales of commercialized products or assemblies that have
arisen from these programs.
Memry East is also involved in a number of customer and government sponsored
research programs in which the Company gets paid not for the sale of products
but for performing the research. The Company will continue to pursue funded
development programs which advance the Company's knowledge of shape memory
materials and/or demonstrate clear potential for commercialization. Projects
undertaken by the Company in the last few years include a National Institute of
Health program to study the use of super-elastic titanium-based alloys as
replacement for the current nickel-based alloys used in orthodontic procedures,
a United States Air Force program for the development of SMA-based reusable lock
nuts, and a program with the National Aeronautical and Space Administration for
the development of shroud rings in the compressor sections of small jet
turbines. The largest ongoing development program is with McDonnell Douglas for
the development of SMA actuated control surfaces on advanced helicopter blades.
Research contracts with the U.S. Government are subject to termination or
renegotiation by the U.S. Government pursuant to standard government procurement
contract terms.
SUPPLIERS
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The principal raw material used by the Memry Segment is SMA alloys. The Company
expects to be able to continue to acquire, from several sources, shape memory
alloys in sufficient quantities for its needs. While the Company relies heavily
on outside suppliers for its non-SMA components of finished products, the
Company also does not anticipate any difficulty in continuing to obtain non-SMA
raw materials and components necessary for the continuation of the Memry
Segment's business.
COMPETITION
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The Company has competition on two levels: technological competition by other
SMA processors, who compete with the Memry Segment mostly on the sale of semi-
finished materials (i.e., mostly with Memry West) and components (i.e., mostly
with Memry East), and end product competitors who compete with the Company in
the sale of the Memry Segment's finished products (i.e., who compete with Memry
East). Competition with respect to Memry East's two major finished product
lines and two major component lines are discussed above. See "-- Operating
Divisions -- Memry East." Technologically, there are several major U.S.,
Japanese and European companies engaged in the supply or use of SMAs, some of
which have substantially greater resources than the Company. Within the U.S.,
the
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two major SMA alloy suppliers to both the Company and the industry as a whole
are Teledyne and Special Metals Corporation. Each of these companies has
substantially greater resources than the Company and could determine that it
wishes to compete with the Company in the Company's markets. Special Metals has
in fact become a competitor of Memry West for semi-finished wire and strip
materials. Japanese competitors include Furakawa Electric Co., Sumitomo Co. and
Tokin Co., all of which produce SMAs and sell to users in Japan and
internationally. The principal European competitors are AMT, a unit of the
SwissMetal group of companies, and G. Rau, a German company. Within North
America, the Company believes that it is the largest single processor of SMAs,
accounting for approximately 35% of all SMA usage. The Company believes that
Beta Group, Inc., and its subsidiary Nitinol Devices Company, are the next
largest, followed by Flexmedics, Nitinol Medical Technology and SMA
Applications, Inc.
The Company intends to compete, and advance its position, based upon its
worldwide sales and distribution alliance with Raychem Corporation, its
proprietary alloy positions, and its knowledge of the processing parameters of
the alloys and unique design and assembly capabilities, particularly in the
medical instrument and valuing fields. While price and production capability
are obviously important, the Company believes that it competes mostly on
technological capabilities in the Memry Segment.
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 OEMs in the plumbing, electrical, electronic, fire
protection, valve, appliance and automotive markets through both direct sales
accounts and three manufacturers' representatives. 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.
CUSTOMERS AND SUPPLIERS
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Wright sells its products to OEM's in the plumbing, electrical, electronic, fire
protection, valve, appliance and automotive markets. The majority of Wrights's
customers are located within a 300 mile radius of Wright's factory in Worcester,
Massachusetts. However, Wright services customers throughout the United States.
In fiscal 1996, Wrights's ten largest customers accounted for 49% of its total
revenues. Obviously, the loss of one or more of these customers would have a
material adverse effect on Wright's operations.
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
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materials are all available from numerous sources and Wright does not anticipate
any difficulties in being able to acquire any of such materials.
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
most important. There has been a significant contraction in Wright's industry
over the past few years, resulting in fewer but more able competitors.
Wright has enacted major cost reduction measures in both the spring of 1994 and
again in the spring of 1996 in order to become more cost competitive with its
competitors. However, liquidity constraints over the last few years have
adversely affected Wright's ability to obtain timely deliveries of raw
materials, thus making Wright less competitive as to delivery and resulting in
diminished orders from customers and revenues. In addition, 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
As part of the Raychem Acquisition, the Company acquired five U.S. patents, as
well as a variety of foreign patents and domestic and foreign patent
applications, relating primarily to the production and utilization of nickel-
titanium alloys having shape memory effect. While these acquired patents in no
way dominate the entire field of shape memory metals, they do provide the
Company with some competitive advantages in the covered uses. In addition,
notwithstanding the Company's acquisition of these patents and patent
applications as part of the Raychem Acquisition, under certain circumstances the
Company will be required to license the acquired intellectual property back to
Raychem for specified uses. For example, (i) upon the termination of the
private/label distribution agreement between the Company and Raychem, Raychem
will have a non-exclusive perpetual license to utilize these patents to sell
products within specified fields of uses for a specified royalty, and (ii)
Raychem has a non-exclusive, transferable perpetual license to utilize these
patents in connection with certain intellectual property relating to the medical
market that was not acquired by the Company as part of the Raychem Acquisition.
With respect to specific products, the Company has a patent pending for the use
of SMA in the hitting surface of golf clubs. 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 also holds a variety of other patents
relating to both SMA technology generally and specific products.
The Company's patent rights do not dominate the field of SMA utilization,
although the patents acquired from Raychem do dominate the use of nickel-
titanium alloys having a two-way shape memory effect, although not in the
medical instrument and in-body applications fields. The Company does not,
however, have specific patent protection for many of its present or presently
proposed products or product components. The Company's patent rights obviously
do not dominate any specific fields in which the Company sells products (medical
instruments, plumbing products, etc.). The Company does believe, however, that
various patents provide it with advantages in the manufacture and sale
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of different products, and that its know-how relating to various SMA alloys
provides the Company with a competitive advantage.
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 any existing
patents.
The Company has trademark registrations for the MEMRYSAFE/(R)/, SHOWERGARD/(R)/
and FLOWGARD/(R)/ valves, as well as for the ZeeMet/(R)/ golf club inserts.
RESEARCH AND DEVELOPMENT
During fiscal 1996, the Company did not spend any material amounts on "pure"
research and development (i.e., research and development done by the Company at
its own cost for purposes of developing future products). However, the Company
spent approximately $422,000 on research and development contributing to the
development of SMA components pursuant to customer and government sponsored
development arrangements. These research and development costs are borne
directly by the federal government and customers of the Company, as applicable,
and, for purposes of the Company's financial statements, are part of "costs of
goods sold," rather than research and development. By comparison, the Company
spent approximately $300,000 on funded research and development in fiscal 1995,
which amount was also accounted for as "costs of goods sold." The aforesaid
numbers do not include amounts spent by Raychem for research and development in
said fiscal years (approximately $1.88 million in fiscal 1996 and $2.04 million
in fiscal 1995), as these amounts were expended primarily for the development of
intellectual property in the medical applications area that was not sold to
Memry as part of the Raychem acquisition.
EMPLOYEES
As of June 30, 1996 (and giving effect to the employees hired in connection with
the Raychem Acquisition which was consummated on June 28, 1996), the Company and
its subsidiary had seventy-six full-time and two part-time employees. Of the
full-time employees, thirteen were executive or management personnel and three
were science and research personnel. Thirty of the full-time employees and
none of the part-time employees were employed by Wright. In addition, pursuant
to a transitional services agreement entered into with Raychem as part of the
Raychem acquisition, Raychem was as of such date supplying Memry, on a temporary
basis at Memry's cost, with the use of two Raychem employees. The Company
anticipates replacing such temporary workers by January of 1997 through a
combination of temporary and permanent employees working out of both Memry West
and Memry East. None of the employees is represented by collective bargaining
units.
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Item 2. DESCRIPTION OF PROPERTY
The Company has a lease, which was renewed as of September 30, 1995, for a term
to expire on September 30, 2000, for office and manufacturing space located at
57 Commerce Drive, Brookfield, Connecticut 06804. 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 approximately $135,000.
The Company has a lease, for a term to expire on September 30, 1998, for office
and manufacturing space located at 4065 Campbell Avenue, Menlo Park, California
94025. These premises, formerly used by Raychem, are the headquarters of the
Company's west coast operations. These premises have a floor area of
approximately 28,032 square feet, which is used by the Company for
manufacturing, warehousing, general administrative and research and development
operations. The lease provides for monthly base rental of $20,743.68, subject
to adjustment in April of 1997 for increases in the consumer price index. The
Company also has a lease, through December 31, 1996, for 3,300 square feet of
laboratory and manufacturing space at 220 Jefferson, Menlo Park, California
94025. This space is leased to the Company by Raychem with base rent waived for
its term. The space is primarily used as an environmentally controlled area
("clean room"). The Company intends to relocate this clean room to its
Brookfield headquarters when this lease expires.
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 the
Company's and Wright's principal lender, which secures a loan to the Company and
Wright. See "Management Discussion and Analysis or Plan of Operations" and
the note to the Financial Statements entitled "Subsequent Events" 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.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, none of which are believed
to involve a claim for damages exceeding 10% of the current assets of the
Company. Although it is not feasible to predict the outcome of any such
proceedings, or any claims made against the Company, the Company does not
anticipate that the ultimate liability, if any, in any such proceeding will
materially affect the Company's financial position, results of operation or
liquidity/cash flows.
10
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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, 1996,
there were 1,505 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 1996 1995
- ------------------- ----- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $0.94 $0.53 $2.50 $1.00
2nd Quarter 0.91 0.44 1.88 0.75
3rd Quarter 1.13 0.50 1.69 0.50
4th Quarter 2.13 0.88 1.38 0.63
</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.
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.
Pursuant to the Company's August 9, 1996 loan agreement with its principal
lender, the Company is prohibited from declaring or paying any dividends, or
making a distribution to its stockholders, until the termination of such
agreement and the repayment of all amounts due to such lender.
11
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Results of Operations
REVENUES.
- --------
Sales Overview. Overall revenues decreased 22%, from $4,729,000 in fiscal 1995
- --------------
to $3,674,000 in fiscal 1996, or a $1,055,000 reduction in sales. Revenues
relating to the Wright Segment were responsible for all of the decrease, and
were partially offset by a slight increase in Memry Segment sales.
Memry Sales. Revenues relating to the Memry Segment increased to $1,136,000 in
fiscal 1996 from $1,013,000 in fiscal 1995, an increase of $123,000, or 12%.
Sales of the MEMRYSAFE(R) and ULTRAVALVE/TM/ product lines were $286,000 in
fiscal 1996 as compared with $462,000 in fiscal 1995. Sales of SMA, shape
memory effect wire and wire shapes, shape memory polymers and FIRECHECK/TM/ were
approximately $371,000 in fiscal 1996 as compared with $186,000 in fiscal 1995.
Research and development revenues in fiscal 1996 increased $114,000, or 31%, to
$479,000, as compared to revenues of $365,000 in fiscal 1995. The increase in
research and development revenues is due to the McDonnell Douglas contract work
which began in the third quarter of fiscal 1996. The backlog of government-
sponsored contracts is approximately $502,000, in addition to back-log of
approximately $205,000 from a contract with McDonnell Douglas.
Wright Sales. Wright Machine Segment sales decreased $1,178,000, or 31%, to
$2,538,000 in fiscal 1996 versus $3,716,000 in 1994, as a result of continued
liquidity constraints which interfered with the ability of Wright to make raw
material purchases. Wright's inability from time to time to obtain raw
materials impacted on its ability to both attract and perform orders. The
contract backlog decreased to approximately $650,000 at June 30, 1996 as
compared with $1,200,000 at June 30, 1995.
COSTS AND EXPENSES
- ------------------
Manufacturing Costs Overview. Manufacturing costs for fiscal 1996 decreased to
- ----------------------------
$2,915,000 in fiscal 1996 from $3,850,000 in fiscal 1995, a decrease of
$935,000, or 24%. The decrease was almost entirely due to the reduction in
gross revenues. The overall gross profit margin in fiscal 1996 was 9%, as
compared to 12% in 1995. The decrease in gross margin was primarily caused by
the decrease in the Wright Segment's profit margin described below.
Memry Manufacturing Costs. Memry Segment manufacturing costs were $569,000 in
fiscal 1996 and $612,000 in fiscal 1995, a decrease of $43,000, or 7%, with
margins of 16% and 13%, respectively. The increase in the Memry Segment's
margin is attributable to the increase in sales of the higher margin shape
memory effect wire.
Wright Manufacturing Costs. Wright Machine Segment's manufacturing costs for
fiscal 1996 were $2,346,000 as compared with $3,238,000 in fiscal 1995. The
reduction of $892,000 in costs, or 28%, is primarily
12
<PAGE>
due to the 31% reduction in sales. Wright's profit margin declined to 8% in
fiscal 1996 versus 14% in fiscal 1995 attributable to the increase in the ratio
of fixed costs to sales volume caused by the reduction in sales volume.
Research and Development Costs. Research and development costs were $422,000 in
fiscal 1996 and $297,000 in fiscal 1995. This increase of $125,000, or 42%, was
primarily due to the 31% increase in research and development revenues.
General, Selling, and Administrative Expense ("GS&A"). Overall GS&A was reduced
- -----------------------------------------------------
in fiscal 1996 by $272,000, or 11%, to $2,102,000 from $2,374,000 in fiscal
1995. The reduction is primarily due to a decrease in litigation expense and
professional fees.
Depreciation and Amortization Expense. Depreciation expense was $90,000 in
- -------------------------------------
fiscal 1996 as compared with $240,000 in fiscal 1995. The $150,000, or 63%,
decrease was caused by certain assets becoming fully depreciated during the last
quarter of fiscal 1995.
Interest Expense. Interest expense decreased to $250,000 in fiscal 1996 from
- ----------------
$360,000 in fiscal 1995, a decrease of 31%. The decrease is primarily due to
approximately $711,000 of payments on Wright's debt to Fleet Bank during fiscal
1996, which debt accrued interest at a rate of prime plus 4%.
NET LOSS
- --------
Overview. Net loss for fiscal 1996 was $2,105,000, as compared to a loss of
- --------
$2,392,000 in fiscal 1995, an improvement of $287,000, or 12%. The improvement
was caused by a $532,000 aggregate reduction in GS&A, interest and amortization
and depreciation expenses, offset by a reduction in gross profit of $245,000.
Memry Segment. Memry Segment's net loss for fiscal 1996 was $1,718,000 as
compared with fiscal 1995's loss of $1,981,000. The improvement of $263,000, or
13%, is the result of a reduction in GS&A, depreciation and amortization and
interest expenses of $220,000 and an improvement in gross profit of $45,000.
Wright Segment. Wright Machine Segment's net loss was relatively flat in fiscal
1996 at $387,000 as compared to $411,000 in fiscal 1995. Wright's $24,000
improvement is the result of a reduction in GS&A, depreciation and amortization
and interest expenses of $494,000 offset by a reduction of $472,000 in gross
profit.
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
did not have a material effect on the Company's financial position.
13
<PAGE>
(b) Liquidity and Capital Resources
The Company's primary capital requirements to date have been to fund losses from
operations. In addition, from time to time the Company has required capital to
effect acquisitions and to fund increases in inventory for certain products
necessary to allow the Company to increase sales for those products. The
Company has historically satisfied its capital requirements from sales of equity
securities and borrowings. During fiscal 1996, net cash used by operating
activities was approximately $2.4 million, net cash used for acquisitions
(primarily the Raychem Acqusition) was approximately $4.1 million and net cash
provided by financing activities (which included a reduction in borrowings of
approximately $700,000) was approximately $5.4 million. As a result of the
foregoing, the Company held cash and cash equivalents at June 30, 1996 of
approximately $57,000, down from approximately $1.1 million at the start of
fiscal 1996. As a result, at the close of fiscal 1996 the Company was in a cash
impaired position and had negative working capital (current liabilities less
current assets) of approximately $900,000(down from negative working capital of
approximately $2.3 million on June 30, 1995).
Subsequent to the close of the Company's 1996 fiscal year, on August 9, 1996,
the Company entered into a term and revolving loan agreement with Affiliated
Business Credit Corporation ("ABCC"), a commercial financing subsidiary of
Center Financial Corporation, allowing up to $2.635 million of aggregate
borrowings. The term loan is a five year $1.135 million loan, with principal
payable in monthly installments of approximately $19,000. An additional $135,000
of principal is due (i) on or prior to December 31, 1996 if, prior to December
31, 1996, the Company raises additional equity (excluding equity raised to
purchase intellectual property, medical patents and other assets related thereto
from Raychem), and (ii) on or before June 30, 1997 if the Company does not raise
such additional equity prior to December 31, 1996. The entire unpaid balance, if
not earlier demanded, is due and payable on July 31, 2001; provided, however,
that ABCC has the right to accelerate the loan and require full payment upon
demand. Interest on the term loan accrues at the rate of prime plus 2.25%. The
revolving credit facility provides for borrowings at the lesser of $1.5 million
or the sum of (a) 80% of eligible accounts receivable plus (b) the lesser of
$500,000 or 25% of eligible inventory. Borrowings pursuant to the revolving loan
agreement are due upon demand and bear interest, payable monthly, at prime plus
2%. The terms with ABCC generally are more favorable than the terms that the
Company's Wright subsidiary had with Fleet Bank, the Company's prior lender. The
loan documents contain standard covenants, including security interests in
substantially all of the Company's consolidated assets, commitment fees and
negative covenants (including restrictions on dividends and other payments),
which the Company does not expect to materially impact operations. At the August
9, 1996 closing, Wright's debt to Fleet Bank was repaid with a $140,000, or 16%,
discount.
The Company's only currently contemplated material capital expenditure for
fiscal 1997 is the move of the medical assemblies portion of the business
purchased from Raychem from Menlo Park, California to the Company's headquarters
in Brookfield, Connecticut, in the second quarter of fiscal 1997. The Company
anticipates that the cost of such move will be slightly greater than $100,000.
In addition, the Company anticipates making substantial improvements to certain
machinery and equipment located at Memry West and used to manufacture tinel-lock
product for
14
<PAGE>
Raychem. However, as a result of an agreement entered into at the time of the
Raychem Acquisition, it is anticipated that Raychem will bear substantially all
the costs of such improvements.
The Company has in the past grown through acquisitions (including both the
Raychem Acquisition and the Company's earlier acquisition of Wright) and, as
part of its continuing growth strategy, the Company expects to continue to
evaluate and pursue opportunities to acquire other companies, assets and product
lines that either complement or expand the Company's existing businesses. The
Company intends to use available cash from operations, when and if available,
and sales of equity to finance any such acquisitions that may be sought in the
future.
In connection with a December 1994 subordinated debt financing, the Company
granted Connecticut Innovations Incorporated ("CII"), currently the holder of
both common stock and warrants of the Company, a "put" right if: (i) at any
time before the earlier of June 28, 2006 and the date on which CII ceases to
hold at least 35% of the common stock underlying the convertible securities
originally issued to it, the Company ceases to (a) maintain its corporate
headquarters and all of its product business operations in the State of
Connecticut (including, after January 1, 1997, the assembly of all products to
be sold to U.S. Surgical Corporation, most of which are currently being
manufactured at Memry West), excluding business operations relating to Wright's
production of screw machine products and taper pins and the Company's components
and sub-assembly business acquired from Raychem, (b) base its president and
chief executive officer, a majority of its senior executives, and all of its
administrative, financial, research and development, marketing and customer
service staff relating to its product business (subject to the same inclusions
and exclusions as clause (a)) in the State of Connecticut, (c) conduct all of
its operations relating to its product business directly or through
subcontractors and through licensed operations in the State of Connecticut
(subject to the same inclusions and exclusions as clause (a)), 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
file by October 31, 1996 a registration statement under the Securities Act of
1933, as amended (the "Registration Statement"), covering, inter alia, the
----- ----
resale by CII of the shares of the Company's Common Stock owned by CII and
underlying warrants owned by CII (the "Registrable Securities") or to effect
such Registration Statement by January 31, 1997, or (b) to keep the Registration
Statement in effect for an aggregate of 120 days during any rolling twelve month
period during the three years which the Company is required to maintain the
effectiveness of the Registration Statement. Upon CII's exercise of its put,
the Company shall be obligated to purchase from CII all the Registrable
Securities then held by CII at a price equal to the greater of the then current
market price of the Company's common stock or $2.00 per share, less, in either
event, the aggregate amount of unpaid exercise prices of all warrants put to the
Company. Using $2.00 per share as the put price per share, the aggregate put
price that would have to be paid by the Company if the put were exercised would
be approximately $4,085,500. If CII were to have the right to put its
securities and were to choose to exercise that right, it would have a serious
adverse effect on the Company's liquidity
15
<PAGE>
and the Company would most likely have to seek equity financing to be able to
meet its obligations to CII. However, the Company believes that it has the
ability to insure that its operations do not move from Connecticut in a manner
that would trigger CII's put, and intends to cause the Registration Statement to
be filed and maintained in a manner that would prevent CII's put from being
operative.
The Company believes that the combination of its improved borrowing facility,
its ability to raise equity capital in the past and, as a result of the Raychem
Acquisition, revenues from Memry West will be sufficient to meet the Company's
capital requirements (assuming both that ABCC does not demand immediate
repayment of the term loan and that CII's put rights are not triggered and
exercised (and, as stated above, the Company intends not to cause said put
rights to become exercisable).
The Company does not expect that any of the matters discussed in Note 10 to the
Company's Consolidated Financial Statements will have a material impact on the
Company's financial condition, future operating results and/or liquidity.
16
<PAGE>
Item 7. FINANCIAL STATEMENTS
Index to Financial Statements
- -----------------------------
INDEPENDENT AUDITOR'S REPORT F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets - F-2
As of June 30, 1996
Consolidated Statements of Operations - F-3
For years ended June 30, 1996 and 1995
Consolidated Statements of Stockholders' Equity F-4
For years ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows - F-5
For years ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements F-6
17
<PAGE>
Item 7. FINANCIAL STATEMENTS
McGladrey & Pullen, LLP
-----------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Memry Corporation and Subsidiary
Brookfield, Connecticut
We have audited the accompanying consolidated balance sheets of Memry
Corporation and subsidiary as of June 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Memry Corporation
and subsidiary as of June 30, 1996 and 1995, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New Haven, Connecticut
September 24, 1996
F-1
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS (Note 8) 1996 1995
-----------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 5) $ 57,000 $ 1,145,000
Accounts receivable, less allowance for doubtful accounts 1996 $29,000;
1995 $53,000 568,000 691,000
Inventories (Note 3) 2,044,000 849,000
Prepaid expenses and other 63,000 24,000
-------------- -----------------
Total current assets 2,732,000 2,709,000
-------------- -----------------
Property, Plant and Equipment, at cost, net (Notes 4 and 9) 3,881,000 1,233,000
-------------- -----------------
Other Assets
Patents and patent rights, less accumulated amortization 1996 $60,000;
1995 $57,000 2,002,000 5,000
Goodwill 989,000 -
Deferred financing costs 36,000 -
Deposits 39,000 32,000
-------------- -----------------
3,066,000 37,000
-------------- -----------------
Total assets $ 9,679,000 $ 3,979,000
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses $ 1,733,000 $ 2,189,000
Notes payable (Note 8) 1,698,000 2,810,000
Unearned revenue (Note 2) 150,000 -
Current maturities of capital lease obligations (Note 9) 3,000 4,000
-------------- -----------------
Total current liabilities 3,584,000 5,003,000
-------------- -----------------
Capital Lease Obligations, less maturities (Note 9) 4,000 7,000
-------------- -----------------
Commitments and Contingencies (Notes 9 and 10)
Stockholders' Equity
Preferred stock (Note 6) 36,000 19,000
Common stock (Note 6) 130,000 80,000
Additional paid-in capital 39,034,000 29,874,000
Accumulated deficit (33,109,000) ( 31,004,000)
-------------- -----------------
Total stockholders' equity (deficit) 6,091,000 (1,031,000)
-------------- -----------------
Total liabilities and stockholders' equity $ 9,679,000 $ 3,979,000
============== =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues
Product sales $ 3,195,000 $ 4,364,000
Research and Development revenues 479,000 365,000
------------ ------------
3,674,000 4,729,000
------------ ------------
Cost of Revenues
Manufacturing 2,915,000 3,850,000
Research and development 422,000 297,000
------------ ------------
3,337,000 4,147,000
------------ ------------
Gross profit 337,000 582,000
------------ ------------
Operating Expenses
General, selling and administrative (Note 9) 2,102,000 2,374,000
Depreciation and amortization 90,000 240,000
------------ ------------
2,192,000 2,614,000
------------ ------------
Operating loss (1,855,000) (2,032,000)
Interest Expense (Note 8) 250,000 360,000
Net loss $ (2,105,000) $ (2,392,000)
============ ============
Weighted average number of common shares outstanding 8,357,118 5,353,222
============ ============
Net loss per common share $ (0.25) $ (0.45)
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- --------------------
Additional
Shares Par Shares Par Paid-in Accumulated
Issued Value Issued Value Capital Deficit
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 854 $ 85,000 46,606,450 $ 46,000 $ 26,869,000 $ (28,612,000)
Reverse stock split - - (41,945,805) - - -
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, June 30, 1995 193 $ 19,000 8,009,997 $ 80,000 $ 29,874,000 $ (31,004,000)
Issuance of common stock - - 3,363,329 33,000 4,570,000 -
Series G preferred stock converted (127) (13,000) 1,269,000 13,000 - -
Series G preferred stock issued 231 23,000 - - 1,478,000 -
Conversion of debenture 67 7,000 285,528 3,000 753,000 -
Conversion of debt - - 50,000 1,000 49,000 -
Issuance of warrants - - - - 2,310,000 -
Net loss - - - - - (2,105,000)
-------- --------- ----------- --------- ------------ --------------
Balance as of June 30, 1996 364 $ 36,000 12,977,854 $ 130,000 $ 39,034,000 $ (33,109,000)
======== ========= =========== ========= ============ ==============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
CASH FLOWS Years Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (2,105,000) $ (2,392,000)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 90,000 240,000
Change in operating assets and liabilities, net of assets acquired in
business combination:
Decrease (increase) in accounts receivable 123,000 (9,000)
Decrease in inventories 98,000 132,000
Increase in prepaid expenses and other 7,000 12,000
(Decrease) increase in accounts payable and accrued expenses (556,000) 142,000
(Increase) decrease in other asset (82,000) 6,000
------------- ------------
Net cash used in operating activities (2,425,000) (1,869,000)
------------- ------------
Cash Flows From Investing Activities
Purchase of shape memory metals operation (4,022,000) -
Purchases of property, plant and equipment (38,000) (109,000)
------------- ------------
Net cash used in investing activities (4,060,000) (109,000)
------------- ------------
Cash Flows From Financing Activities
Proceeds from sale of preferred stock, net 1,502,000 1,254,000
Proceeds from sale of common stock, net 4,603,000 1,119,000
Proceeds from short-term borrowings 104,000 856,000
Principal payments on notes payable (808,000) (291,000)
Payments on capital lease obligations (4,000) (7,000)
Payments on deferred lease - (9,000)
------------- ------------
Net cash provided by financing activities 5,397,000 2,922,000
------------- ------------
(Decrease) increase in cash and cash equivalents (1,088,000) 944,000
Cash and cash equivalents, beginning of year 1,145,000 201,000
------------- ------------
Cash and cash equivalents, end of year $ 57,000 $ 1,145,000
Supplemental Disclosure of Cash Flow Information
Cash payments for interest $ 314,000 $ 283,000
Supplemental Schedule of Noncash Investing and Financing Activities
Acquisition of shape memory metals division:
Cash purchase price $ 4,022,000 $ -
Fair value of assets acquired
Property and equipment $ 2,700,000 $ -
Patents 2,000,000 -
Inventory 1,293,000 -
Goodwill 989,000 -
------------- ------------
6,982,000 -
------------- ------------
Less
Warrants issued (2,310,000) -
Note payable issued (350,000) -
Liabilities assumed (300,000) -
------------- ------------
$ 4,022,000 $ -
============= ============
Issuance of common stock in settlement of debt $ 813,000 $ -
============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Note 1. 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. The Company's sales are primarily
to customers located throughout the United States. The Company extends credit to
its customers all on an unsecured basis on terms that it establishes for
individual customers.
Accounting estimates
- --------------------
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of consolidation
- ----------------------------
The financial statements include the accounts of Memry Corporation ("Memry") and
Wright Machine Corporation ("Wright"), its wholly-owned subsidiary
(collectively, the "Company"). All significant intercompany transactions have
been eliminated in consolidation.
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. The carrying amount of these financial
instruments approximates fair value because of the short maturity of these
instruments.
Inventories
- -----------
Inventories consist principally of various metal alloy rod, plumbing products
and shape memory alloys. Inventories are stated at the lower of cost, determined
on the first-in, first-out method, or market.
F-6
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Impairment of assets
- --------------------
The Company reviews its long-lived assets and certain identifiable intangible
assets for impairment whenever events or circumstances indicate that the
carrying amount of the assets may not be recoverable.
Revenue recognition
- -------------------
Revenues from product sales are recognized when the related products are
shipped. Certain revenues are earned in connection with research and development
contracts which are principally with the U.S. Government. Such revenues are
recognized when 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.
Depreciation and amortization
- -----------------------------
Depreciation of property, plant and equipment 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.
Costs of obtaining patents and patent rights are amortized using the straight-
line method over the patents' expected period of benefit which ranges from
thirteen to sixteen years.
Goodwill represents the cost of acquired assets in excess of values ascribed to
net tangible assets and is being amortized using the straight-line method over
15 years.
Costs incurred in obtaining financing are capitalized and are being amortized
over the term of the related debt.
Income taxes
- ------------
The Company files a consolidated federal income tax return. Taxes are calculated
on a separate company basis.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax
F-7
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
on the date of enactment.
Net loss per common share
- -------------------------
The net loss per common share is based on the net loss from operations 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.
Note 2. Business Combination
On June 28, 1996, the Company purchased certain assets used in conjunction with
the shape memory metals operation of Raychem Corporation ("Raychem"). Details of
the transaction, which was accounted for as a purchase, are as follows:
A summary of the purchase payments in connection with the acquisition follows:
Cash paid to seller at closing $ 3,700,000
Note payable to seller 350,000
1,130,000 warrants issued to seller, at $0.01 2,285,000
1,250,000 warrants issued to seller, at $2.00 25,000
Obligations assumed 300,000
Acquisition costs 322,000
-----------
$ 6,982,000
===========
A summary of the assets acquired in connection with the acquisition of the shape
memory metals division is as follows:
Patent rights $ 2,000,000
Goodwill 989,000
Machinery and equipment 2,700,000
Inventory 1,293,000
-----------
$ 6,982,000
===========
F-8
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Unaudited pro forma consolidated results of operations for the years ended June
30, 1996 and 1995, as though the division had been acquired as of July 1, 1994,
follows:
1996 1995
------------ -----------
Sales $ 12,056,000 $ 9,699,000
Net (loss) (70,000) (3,319,000)
Net (loss) per common
share $ (0.01) $ (0.45)
The above amounts reflect adjustments for amortization of goodwill, additional
depreciation on revalued purchased assets, and certain production and general
and administrative costs.
In addition, pursuant to a private label/distribution agreement entered into
between Raychem and the Company, concurrent with the acquisition, Raychem will
be the exclusive distributor for an initial term of five years for non-implant
applications of products in the product line to certain customers which
comprised approximately 70% of the Raychem division's fiscal 1996 revenues.
Sales to Raychem under the private label/distribution agreement will be
discounted to allow Raychem to recover its sales and marketing expenses and to
realize a profit upon resale of such products to its customers. The unaudited
pro forma consolidated results of operations set forth above give effect to such
discount.
Note 3. Inventories
Inventories at June 30, 1996 and 1995, are summarized as follows:
1996 1995
----------------------
Raw materials and supplies $ 665,000 $ 109,000
Work-in-process 1,372,000 217,000
Finished goods 7,000 523,000
----------- ---------
$ 2,044,000 $ 849,000
=========== =========
F-9
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Note 4. Property, Plant and Equipment
Property, plant and equipment at June 30, 1996 and 1995, is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 166,000 $ 166,000
Buildings and improvements 942,000 942,000
Tooling and equipment 4,750,000 2,013,000
Leasehold improvements 100,000 98,000
----------- -----------
5,958,000 3,219,000
Less accumulated depreciation and amortization 2,077,000 1,986,000
----------- -----------
$ 3,881,000 $ 1,233,000
=========== ===========
</TABLE>
Note 5. Concentrations
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of cash and cash equivalents.
The Company places its deposits with quality financial institutions. At times,
cash and cash equivalents exceed the amount insured by the Federal Deposit
Insurance Corporation.
Note 6. Capital Stock
Preferred stock
- ---------------
The Company has two series of preferred stock outstanding at June 30, 1996. Both
series carry voting rights. Information regarding the shares authorized, issued
and outstanding, and conversion rates follows:
Number of Shares
---------------------------
Preferred Issued and Par
Stock Authorized Outstanding value
-------------------------------------------------
Series G 800 297.10 $100
Series H 800 66.85 $100
F-10
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Each share of preferred stock may, at the option of the holder, be converted
into 10,000 shares of common stock (subject to adjustment pursuant to anti-
dilution provisions). On June 25, 1996, a holder of the Series G preferred stock
converted 126.9 shares to 1,269,000 shares of common stock.
In addition, each share of preferred stock was automatically convertible into
10,000 shares of common stock (which number was subject to adjustment pursuant
to anti-dilution provisions) upon the first to occur of (i) the closing bid
price per share of common stock exceeding $1.50 for 30 consecutive business
days, and (ii) the conversion of a specified number of shares of Series G and
Series H preferred stock into common stock. Accordingly, subsequent to June 30,
1996 all preferred stock was converted to common stock.
Common stock
- ------------
On December 19, 1995, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of its common stock, par value $0.01
per share, from 10,000,000 to 25,000,000 shares, of which there are 12,977,854
and 8,009,997 shares issued and outstanding at June 30, 1996 and 1995,
respectively.
Common stock reserved for issuance at June 30, 1996, is as follows:
Number of
Shares
---------
For exercise of outstanding warrants 5,709,368
For exercise of stock options 600,000
For conversion of Series G preferred stock 2,971,000
For conversion of Series H preferred stock 668,500
---------
9,948,868
=========
On June 28, 1996, a convertible, subordinated debenture held by an investor in
the principal amount of $763,208 was converted to 285,528 common shares and
66.85 Series H preferred shares. The investor also holds approximately 2,088,000
warrants to purchase common shares of the Company, exercisable at an average
price of $0.96 per share. These warrants were originally issued in connection
with the issuance of the convertible, subordinated debenture, referred to above.
The agreement with the investor provides, upon the occurrence of specified
events, primarily should the Company cease to maintain its principal offices
within the State of Connecticut or fail to file a registration statement
covering the resale of its securities by
F-11
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
October 31, 1996, or effect such registration statement by January 31, 1997, the
investor the right to put all securities of the Company held by the investor at
that time for a price equal to the greater of the then current market price per
share of such securities (on an as-converted basis) or $2 per share, less, in
either event, the aggregate amount of unpaid exercise prices of all warrants put
to the Company. Using $2.00 per share as the put price per share, the aggregate
put price that would have to be paid by the Company if the put were exercised
would be approximately $4,085,500. If the investor were to have the right to put
its securities and were to choose to exercise that right, such an event would
have a serious adverse effect on the Company's liquidity and the Company would
most likely have to seek equity financing to be able to meet its obligations to
the investor. However, the Company has the ability to insure that its operations
do not move from Connecticut. Also, the Company intends to cause the
registration statement to be filed by October 31, 1996 and maintained in a
manner that would prevent the put from being operative.
Stock Option Plans
- ------------------
Pursuant to the Company's stock option plan, incentive stock options are granted
at prices equal to or greater than the fair market value of the Company's stock
at the date of grant, and are exercisable at the date of grant unless otherwise
stated. In addition, non-qualified options are granted at a price determined by
the compensation committee, which may be less than market value in which case
expense is recognized. Other pertinent information related to the plan during
fiscal years 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
Average
Shares Options Price Per
Reserved Outstanding Share
-------- ----------- ---------
<S> <C> <C> <C>
Balance, June 30, 1994 - - $ -
Canceled - - -
Granted 600,000 436,500 3.47
Exercised - - -
-------- ----------- ---------
Balance, June 30, 1995 600,000 436,500 $ 3.47
Canceled - (69,000) (3.53)
Granted - 125,000 0.90
Exercised - - -
-------- ----------- ---------
Balance, June 30, 1996 600,000 492,500 $ 1.35
======== =========== =========
</TABLE>
At June 30, 1996, 223,500 of the outstanding options were exercisable.
F-12
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Warrants
- --------
The following table summarizes warrants outstanding at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Shares Number of Exercise
Reserved Shares Price
------------ ----------- ---------------
<S> <C> <C> <C>
Balance, June 30, 1994 19,991,257 19,991,257 $ .20 - $10.00
Adjustment for reverse stock split (17,992,131) (17,992,131) -
Canceled (212,948) (212,948) $ .20 - $10.00
Granted 4,302,713 4,302,713 $ 1.00 - $ 5.00
Exercised - - -
------------ ----------- ---------------
Balance, June 30, 1995 6,088,891 6,088,891 $1.00 - $ 7.40
Canceled (3,085,704) (3,085,704) $1.40
Granted 2,706,181 2,586,181 $0.01 - $ 2.75
Exercised - - -
------------ ----------- ---------------
Balance, June 30, 1996 5,709,368 5,589,368 $0.01 - $ 7.40
============ =========== ===============
</TABLE>
Note 7. Income Taxes
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 $13.5 million and $12.3 million has been recognized as
of June 30, 1996 and 1995, 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, 1996 and 1995,
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 12,000 $ 21,000
Inventory reserves 172,000 304,000
Capitalization of inventory costs 31,000 39,000
Vacation accruals 41,000 21,000
Depreciation and amortization (13,000) 46,000
Research and development credit carryforwards 160,000 160,000
Net operating loss carryforwards 13,100,000 11,679,000
-------------- --------------
Total deferred tax assets 13,503,000 12,270,000
Valuation allowance (13,503,000) ( 12,270,000)
-------------- --------------
Net deferred tax assets $ - $ -
============== ==============
</TABLE>
F-13
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
As of June 30, 1996, the Company has net operating loss carryforwards for income
tax purposes of approximately $33 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, 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 8. Notes Payable
Notes payable consist of the following at June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revolving loan payable to bank, interest payable
monthly at the bank's base rate plus 4% (12.25%
at June 30, 1996), due July 1, 1996. (A) $ 381,000 $ 570,000
Term note payable to bank, due in monthly installments
of $7,000, plus interest at the bank's base rate plus 4%
(12.25% at June 30, 1996), due July 1, 1996. (A) 83,000 167,000
Mortgage note payable to bank, due in monthly
installments of $3,700, plus interest at the bank's
base rate plus 4% (12.25% at June 30, 1996),
due July 1, 1996. (A) 471,000 910,000
Convertible, subordinated debenture note, payable to
investor, interest at 5% payable semiannually, due
December 1999. (B) - 763,000
Unsecured note payable to Raychem Corporation,
interest payable at 10%, due on demand. (C) 350,000 -
Unsecured notes payable to affiliated company, interest
payable at 6%, due on demand. 344,000 240,000
</TABLE>
F-14
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Unsecured note payable to officer/stockholder, interest
payable at 12%, due on demand. 60,000 60,000
Unsecured notes payable to affiliated company, interest
at prime plus 4%, payable on demand. 9,000 100,000
------------ ------------
$ 1,698,000 $ 2,810,000
============ ============
</TABLE>
(A) At June 30, 1996 and 1995, the Company was in default with respect to
its revolving loan, term note and mortgage note. Accordingly, at June
30, 1996 and 1995, the term and mortgage loans were classified as
current obligations in the accompanying consolidated balance sheet. At
June 30, 1996, the Company expected to refinance the above debt and on
August 9, 1996, the Company entered into a new credit facility with a
different lender.
The credit facility entered into on August 9, 1996, provides both a
revolving and term loan. The revolving loan provides for borrowings up
to the lesser of $1,500,000 or the sum of a) 80% of eligible accounts
receivable and b) the lesser of $500,000 or 25% of eligible inventory.
Borrowings pursuant to the revolving loan are due upon demand and bear
interest, payable monthly, at prime plus 2%. The term loan is in the
amount of $1,135,000 and is payable in monthly principal installments of
$18,917, plus interest at prime plus 2.25%, through July 2001. The term
loan is due upon demand. These loans are cross-collateralized by
substantially all the assets of the Company.
The term loan is subject to a mandatory prepayment in the amount of
$135,000 (i) on or prior to December 31, 1996 if, prior to December 31,
1996, the Company raises additional equity (excluding equity raised to
purchase intellectual property, medical patents and other assets related
thereto from Raychem), and (ii) on or before June 30, 1997 if the
Company does not raise such additional equity prior to December 31,
1996.
(B) This note was converted to common and preferred stock during the year
ended June 30, 1996 (see Note 6).
(C) The obligation was incurred in connection with the acquisition of the
shape memory metals operation of Raychem (see Note 2) and was repaid
subsequent to June 30, 1996, in connection with the new credit facility
described above.
F-15
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
Note 9. Leases
The Company leases telephone equipment and a copier under noncancelable leases.
These leases have been recorded as capital leases and are included in the
accompanying consolidated balance sheets under the caption "Property, Plant and
Equipment". The Company also leases its Connecticut and California warehouse and
office facilities under operating leases. The lease on the Connecticut facility
expires in September 2001 and the lease on the California facility expires in
September 1998.
Future minimum lease payments under capital leases and significant noncancelable
operating leases, with remaining terms of one year or more, are as follows at
June 30, 1996:
Capital Operating
Leases Leases
------- -----------
1997 $ 4,000 $ 386,000
1998 4,000 386,000
1999 - 197,000
2000 - 134,000
2001 - 33,000
------- -----------
8,000 $ 1,136,000
===========
Less amount representing interest 1,000
-------
Present value of future minimum lease 7,000
Less current maturities 4,000
-------
$ 3,000
=======
Rent expense under operating leases for the years ended June 30, 1996 and 1995
amounted to $130,000 and $114,000, respectively.
Note 10. Contingencies
401(K) Plan
- -----------
The Company maintains defined contribution plans (401K) which cover
substantially all of its employees. Contributions are based on specific
percentages of employee voluntary contributions. Employees vest immediately.
There were no expenses recognized for this plan in fiscal 1996 and 1995 as no
employees were participating.
F-16
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
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. The Company intends to defend this action vigorously and believes that
the possibility of a negative outcome would be remote.
Catizone v. Memry Corporation
- -----------------------------
The Company was a defendant in an action entitled Catizone v. Memry Corporation,
-----------------------------
et al. During 1996, this case was dismissed.
- -----
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. During 1996, this case
was settled for $30,200 which was paid during fiscal 1996.
Chrysler Canada Claim. By letter dated October 23, 1995, an attorney purporting
- ---------------------
to represent Chrysler Canada Limited and its pension funds made a demand for
payment of interest unpaid on a $1,500,000 10% note, originally due October 31,
1991, and demanded inspection of books and records of the Company. By letter
dated October 30, 1995, the Company, through its counsel, offered to pay
Chrysler Canada Limited and its pension funds $162,112 upon receipt of a duly
authorized release acknowledging that no further amounts were due and
acknowledging the termination of rights under certain warrants. Accordingly,
approximately $162,000 is included
F-17
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
in accounts payable and accrued expenses. Thereafter there has been a series of
communications between counsel for the parties regarding their interpretation of
the rights and responsibilities of the Company to pay additional interest and to
permit inspection of books and records. The Company has asserted that Chrysler
Canada Limited and its pension funds waived their rights to further interest and
that the Company is not obligated to permit the inspection of its books and
records absent disclosure of a valid corporate purpose which Chrysler Canada has
declined to provide as of this date. The last communication occurred in or about
April, 1996. Management does not anticipate that the Company will be liable for
any additional amounts which would be material to the Company.
The Company does not expect that any of the matters discussed above will have
a material impact on the Company's financial condition, future operating
results, and/or liquidity.
Note 11. 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 subassemblies, 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, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------------------
(in thousands)
---------------------
<S> <C> <C>
Revenues
Wright $ 2,538 $ 3,716
Memry 1,136 1,013
-------- --------
Total operating revenues $ 3,674 $ 4,729
======== ========
Operating loss
Wright $ (194) $ (136)
Memry (1,661) (1,896)
-------- --------
$ (1,855) $ (2,032)
======== ========
Interest (250) (360)
-------- --------
Net loss $ (2,105) $ (2,392)
======== ========
Assets
Wright $ 1,862 $ 1,752
Memry 7,817 2,227
-------- --------
Total assets $ 9,679 $ 3,979
======== ========
Depreciation and Amortization
Wright $ 52 $ 185
Memry 38 55
-------- --------
$ 90 $ 240
======== ========
Capital Expenditures
Wright $ 19 $ 15
Memry 2,722 94
-------- --------
$ 2,741 $ 109
======== ========
</TABLE>
Depreciation and amortization includes depreciation and amortization of capital
assets, including patents.
Note 12. Emerging Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of", which
becomes effective for the Company's year ending June 30, 1997. Statement No. 121
establishes accounting standards for the impairment of long-lived asset, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain
F-19
<PAGE>
MEMRY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
identifiable intangibles to be disposed of. The Company does not anticipate that
the adoption of this standard will have a significant impact on its financial
statements.
The FASB has also issued Statement No. 123, "Accounting for Stock-Based
Compensation." This statement establishes new standards, effective for the
Company's year ending June 30, 1997, for stock-based compensation plans under
which employees receive shares of stock or other equity instruments of the
employer. The Statement establishes a fair value-based method of accounting for
stock-based compensation plans and encourages, but does not require, entities to
adopt that method in place of existing generally accepted accounting principles.
Companies that elect to continue under existing generally accepted accounting
principles must disclose pro forma net income and earnings per share for all
years presented, as if Statement No. 123 had been adopted.
For its fiscal year ending June 30, 1997, management has elected to present pro
forma disclosure as if the expense recognition elements of the statement were
adopted. These pro forma adjustments will likely decrease pro forma net income
and earnings per share.
F-20
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None that have not been previously reported, as that term is defined in Rule
12b-2 promulgated under the Securities Exchange Act of 1934, as amended.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by this Item is incorporated herein by reference to the
sections entitled "Proposal No. 1 - Election of Directors," "-Executive Officers
of the Company" and "-Section 16(a) Beneficial Ownership Reporting Compliance"
of the Company's Definitive Proxy Statement to be filed with the Commission
within 120 days after June 30, 1996.
Item 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
sections entitled "Proposal No. 1-Election of Directors-Compensation of
Directors" and "-Executive Compensation" of the Company's Definitive Proxy
Statement to be filed with the Commission within 120 days after June 30, 1996.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Company's Definitive Proxy Statement to be filed with the
Commission within 120 days after June 30, 1996.
Item 12. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
section entitled "Proposal No.1 -Election of Directors-Certain Relationships and
Transactions" of the Company's Definitive Proxy Statement to be filed with the
Commission within 120 days after June 30, 1996.
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
No Form 8-K was filed during the last quarter of the fiscal year ended
June 30, 1996. However, a Form 8-K was filed on July 15, 1996 with
respect to disclosure regarding "Item 2. Acquisition or Disposition of
Assets" and "Item 7. Financial Statements and Exhibits," disclosing the
consummation of the Raychem Acquisition. On September 13, 1996, the
Company filed a Form 8-K/A containing the financial statements relating
to the Raychem Acquisition.
18
<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: September 30, 1996 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James G. Binch President, CEO, Treasurer September 30, 1996
- ----------------------
James G. Binch and Chairman of the Board
(Principal Executive Officer)
/s/ Wendy A. Gavaghan Corporate Controller September 30, 1996
- ---------------------
Wendy A. Gavaghan (Principal Financial
Officer)
/s/ Jack Halperin Director September 30, 1996
- ----------------------
Jack Halperin
/s/ John A. Morgan Director September 30, 1996
- ----------------------
John A. Morgan
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibit Sequential
Number Description of Exhibit Page
- ------ ---------------------- ----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as amended (9)
3.2 By-Laws of the Company, as amended (8)
10.1 Employment Agreement, dated January 1, 1990, (1)
between the Company and Ming H. Wu
10.2 Lease Agreement, dated January 24, 1991, (2)
between the Company and Brookfield Commerce,
relating to 57 Commerce Drive, Brookfield, CT
10.3 SBIR Contract, dated August 6, 1992, between the (4)
Company and the U.S. Air Force
10.4 Warrant Issued to Connecticut Innovations, (3)
Inc. ("CII") as of March 1, 1992
10.5 Employment Agreement, dated September 24, (5)
1993, between the Company and James G. Binch
10.6 Warrant issued to American Equities Overseas (5)
Inc., pursuant to Placement Agreement of
September 8, 1993
10.7 Warrant issued to American Equities Overseas (5)
Inc., pursuant to Placement Agreement of
November 22, 1993
10.8 Agreement, dated January 25, 1993, between (5)
the Company and Sciatec, Inc.
10.9 Memry Corporation Stock Option Plan adopted (6)
as of July 19, 1994
10.10 SBIR Contract dated December 9, 1993 between (6)
the Company and NASA
10.11 Letter Agreement dated as of October 12, 1994 (6)
between the Company and Harbour Holdings Limited
Partnership regarding Series A Preferred stock
conversion calculation
10.12 Employee Non-Disclosure Agreement, dated as of (6)
October 18, 1994, between the Company and
James G. Binch
10.13 Employee Non-Disclosure Agreement, dated as of (6)
January 24, 1994, between the Company and
Wendy A. Gavaghan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----------
<S> <C> <C>
10.14 Convertible Subordinated Debenture Purchase Agreement, (9)
dated as of December 22, 1994, between the Company and
CII
10.15 Escrow Agreement, dated as of December 22, 1994, among (9)
the Company, CII and Finn Dixon & Herling as escrow
agent
10.16 Letter Agreement, dated May 22, 1995, between (7)
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.
10.17 Form of Securities Purchase Agreement relating to (7)
sales of Series G Preferred Stock of Memry Corporation
10.18 First Amendment to Convertible Subordinated Debenture (7)
Purchase Agreement, dated October 11, 1995, between
the Company and CII
10.19 First Addendum to Convertible Subordinated Debenture, (7)
dated October 11, 1995, made by the Company and agreed
to by CII
10.20 First Addendum to Stock Subscription Warrant (re: (7)
Warrant No. 94-4), dated October 11, 1995, made by the
Company and agreed to by CII
10.21 First Addendum to Stock Subscription Warrant (re: (7)
Warrant No. 94-5), dated October 11, 1995, made by the
Company and agreed to by CII
10.22 First Addendum to Stock Subscription Warrant (re: (7)
Warrant No. 94-6), dated October 11, 1995, made by the
Company and agreed to by CII
10.23 Amendment to Escrow Agreement, dated October 11, 1995, (7)
among the Company, CII and Finn Dixon & Herling as escrow
agent
10.24 Second Amendment to Convertible Subordinated Debenture (9)
Purchase Agreement, dated as of June 28, 1996, between
Memry and CII
10.25 Second Amendment to Escrow Agreement, dated as of (9)
June 28, 1996, among Memry, CII and Finn Dixon & Herling
as escrow agent
10.26 Amended and Restated Class I Warrant Certificate (9)
(Warrant Certificate No. 94-4A) issued by the
Company to CII
10.27 Amended and Restated Class II Warrant Certificate (9)
(Warrant Certificate No. 94-5A) issued by the
Company to CII
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page
- ------- ---------------------- ----------
<S> <C> <C>
10.28 Second Addendum to Class III Warrants issued by the (9)
Company to CII
10.29 Sublease, dated as of June 28, 1996, between the Company (8)
and Raychem Corporation
10.30 Tinel-Lock Supply Agreement, dated as of June 28, 1996, (8)
between the Company and Raychem Corporation
10.31 Private Label/Distribution Agreement, dated as of (9)
June 28, 1996, between the Company and Raychem Corporation
10.32 Warrant Certificate exercisable for 1,130,000 shares of (8)
Common Stock, dated June 28, 1996, issued by the Company
to Raychem Corporation,
10.33 Warrant Certificate exercisable for 1,250,000 shares of (8)
Common Stock, dated June 28, 1996, issued by the Company
to Raychem Corporation,
10.34 Finders Fee Agreement, dated as of June 28, 1996, between (8)
the Company and Raychem Corporation,
10.35 Amended and Restated Asset Purchase Agreement (8)
between the Company and Raychem Corporation,
dated May 10, 1996.
10.36 Letter Agreement, dated June 20, 1996, between (8)
Memry Corporation and Raychem Corporation.
10.37 Amendment No. 1 to Amended and Restated Purchase (8)
Agreement between Memry Corporation and Raychem
Corporation, dated June 28, 1996.
10.38 Amendment No.2 to Amended and Restated Purchase Agreement (9)
between Memry Corporation and Raychem Corporation, dated
August 11, 1996.
10.39 Amendment to Lease Agreement between the Company and (9)
Brookfield Commerce relating to 57 Commerce Drive,
Brookfield, CT.
10.40 Securities Purchase Agreement, dated as of (9)
June 14, 1996, between Memry Corporation and
Wendy A. Gavaghan
10.41 Warrant Cert. No. 96-4, dated as of July 16, 1996, (9)
issued to Dominion Captial Partners
10.42 Warrant Cert. No. 96-5, dated as of July 15, 1996, (9)
issued to Dawn M. Morton
10.43 Form of Securities Purchase Agreement relating to (9)
sales of Common Stock at $2.00 per share on
June 28, 1996
10.44 Commercial Revolving Loan, Term Loan and Security (9)
Agreement, dated August 9, 1996, among the Company,
Wright Machine Corporation and Affiliated Business
Credit Corporation
10.45 Mortgage and Security Agreement dated as of August 9, 1996, (9)
from Wright Machine Corporation and Affiliated Business
Credit Corporation
10.46 Letter Agreement, dated June 26, 1996, between Memry (9)
Corporation and James Proft
10.47 Warrant Certificate No. 96-7, dated September 19, 1996, (9)
issued to James Proft
10.48 Letter Agreement, dated as of May 29, 1996, between Memry (9)
Corporation and Dominion Capital Partners re: stock issuance
10.49 Securities Purchase Agreement, dated as of December 9, (9)
1994, between Memry Corporation and Dominion Partners
10.50 Warrant Cert. No. 94-3, dated as of December 23, 1994, (9)
issued to Banque Pour L'Industrie Francaise (ref: GAN)
10.51 Securities Purchase Agreement, dated as of December 21, (9)
1994, between Memry Corporation and Banque Pour
L'Industrie Francaise (ref: GAN)
10.52 Securities Purchase Agreement, dated as of May 22, 1995, (9)
between Memry Corporation and Banque Pour L'Industrie
Francaise (ref: GAN)
10.53 Securities Purchase Agreement, dated as of June 22, (9)
1995, between Memry Corporation and Nicholas Grant
10.54 Employee Agreement on Inventions and Patents, between (9)
the Company and James G. Binch
11 Statement re: Computation of Per Share Earnings (7)
21.1 Information regarding Wright Machine Corporation (7)
27 Financial Data Report (9)
</TABLE>
- ---------------------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1990.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1991.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991.
(4) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1992.
(5) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1993.
(6) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1994.
(7) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1995.
(8) Incorporated by reference to the Company's Current Report on Form 8-K filed
July 15, 1996.
(9) Submitted separately, electronically.
