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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A-1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to____________________________
Commission file number 0-14068
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MEMRY CORPORATION
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(Exact name of small business issuer as specified 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, Connecticut 06804
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(Address of principal executive offices)
(203) 740-7311
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
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State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date. As of September 30, 1996, 16,657,354
shares of the registrant's common stock, par value $.01 per share, were issued
and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes ____ No X
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This amendment to the Quarterly Report on Form 10-QSB of Memry Corporation
(the "Company") for the fiscal quarter ended September 30, 1996 (the "Original
Form 10-QSB) amends and modifies the Original Form 10-QSB as follows:
Item 2 of Part I, Management's Discussion and Analysis or Plan of Operations,
is amended by the amendment of the final two paragraphs in the section
entitled "(A) LIQUIDITY AND CAPITAL RESOURCES" and by the correction of
typographical errors in such section as well as in the section entitled "(B)
RESULTS OF OPERATIONS."
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results.
(a) LIQUIDITY AND CAPITAL RESOURCES
During the first fiscal quarter ended September 30, 1996, the Company was able
to fund operations from cash flow generated through its revolving credit
facility, as described below. The improved ability of the Company to fund its
operations is the combined result of the acquisition of the nickel-titanium
product line and the attainment of the revolving credit facility. The Company
historically satisfied its cash requirements from sales of equity securities and
borrowings. Net cash used in operating activities was $563,000, net cash used
for purchases of property, plant and equipment was $7,000 and net cash provided
by financing activities was $597,000. As a result of the foregoing, at the end
of the first quarter, the Company held cash and cash equivalents of $84,000, up
$27,000 from the start of fiscal 1997. At September 30, 1996 the Company had
negative working capital (current assets less current liabilities) of $804,000
(down $96,000 from negative working capital of $900,000 at June 30, 1996).
On August 9, 1996, the Company entered into a term and revolving loan agreement
with 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 Corporation
("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 Machine Corporation subsidiary ("Wright") 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.
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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 (which is part of the Company's
Memry Segment and which manufactures semi-finished materials utilizing shape
memory alloys and, through Raychem, sells such materials into various industrial
electronic, automotive and medical markets) and used to manufacture tinel-lock
product for Raychem. However, as a result of an agreement entered into at the
time of the acquisition of Raychem's nickel-titanium product line (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
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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 of $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 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 the
Company filed the Registration Statement on October 31, 1996. The Company
intends to cause the Registration Statement to be 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
working 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 there are any contingencies, other than as set
forth above, which would have a material effect on the Company's financial
condition, future operating results and/or liquidity.
(b) RESULTS OF OPERATIONS
REVENUE
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Sales Overview. Overall revenues increased 133%, to $2,757,000 in the first
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three months of fiscal 1997 from $1,181,000 during the same period in fiscal
1996. Revenues relating to the Memry Segment were responsible for 100% of the
increase.
Memry Sales. Revenues at the Memry Segment increased 647% to $2,276,000 during
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the period ended September 30, 1996 as compared with $305,000 during the same
period in fiscal 1996. The significant increase in revenues is entirely due to
the increase in product sales resulting from the acquisition of the nickel-
titanium product line from Raychem. Medical material, parts and component sales
were responsible for 60% of the Memry Segment revenue increase. Research and
development revenues
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were $96,000 as compared to $165,000, in the periods ended September 30, 1996
and 1995, respectively, decreasing 42%, or $69,000. This decrease is due to
reduced labor hours working on government contracts as a result of efforts being
made to prepare for the medical assemblies unit move from California to the
Connecticut location.
Wright Sales. Wright Machine Segment revenues decreased 45% in the period ended
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September 30, 1996, from $876,000 to $481,000. The decrease in product sales is
the result of the reduction in order backlog due to Wright's inability to
perform on orders resulting from cash constraints in fiscal 1996. This decrease
was offset by $140,000 of other income resulting from a negotiated discount with
Wright's bank on its principle loan balance.
COSTS AND EXPENSES
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Manufacturing Costs Overview. Manufacturing costs increased $684,000 to
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$1,582,000 in the three months ended September 30, 1996, from $898,000 during
the same three month period in fiscal 1996. This 76% increase is due to the
increased sales volume related to the aforementioned acquisition. Gross margin
increased 25% during the period ended September 30, 1996 to 37%, from a 12%
margin in the same fiscal 1996 period, due to the higher margin sales as a
result of the acquisition of the nickel-titanium product line.
Memry Manufacturing Costs. Memry Segment manufacturing costs increased to
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$1,108,000 from $161,000, or 588%, in the first three months of fiscal years
1996 and 1997, respectively. The $947,000 increase is the result of the
increased sales volume. Gross margins for the three month period ending
September 30, 1996 were 49% from a negative margin of 15% in the same fiscal
1996 period ending September 30, 1995.
Wright Manufacturing Costs. The Wright Segment manufacturing costs decreased
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37% to $474,000 from $750,000 in the three month periods ending September 30,
1996 and 1995, respectively. The decrease is due to the decrease in sales.
Gross margin decreased from 14%, to negative 39% in the same three month fiscal
periods ended September 30, 1995 and 1996, respectively, due primarily to the
reduced sales volume.
Research and Development Costs. Research and development costs decreased 39% to
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$84,000 in the first quarter of fiscal 1996 as compared with $137,000 in the
same quarter of fiscal 1995. This is directly linked to the revenue decrease of
42%.
General, Selling and Administrative Expense ("GS&A"). Overall GS&A increased
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$398,000, or 90%, to $840,000 in the first quarter of fiscal 1996, as compared
to $442,000 during the same period of fiscal 1996. The increase is directly
related to the California facility which accounted for 64% of the increase. The
remaining 26% is related to the Connecticut facility which incurred an increase
of $26,000 in travel expense during the first quarter of fiscal 1996 and to the
absence in
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the first quarter of 1996 of $86,000 of negotiated supplier discounts taken in
the corresponding quarter of fiscal 1995.
Depreciation and Amortization Expense. Depreciation and amortization expense
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increased 633%, or $152,000, primarily as a result of the inventory, patents,
and goodwill purchased as part of the acquisition made of the nickel-titanium
product line. In addition, the Company is amortizing over a five year period
certain debt financing costs.
Interest Expense. Interest expense increased $15,000, or 27%, as a result of
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the $597,000 increase in notes payable.
NET PROFIT
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Overview. Net profit for the first quarter of fiscal 1996 was $5,000, as
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compared with a net loss of ($375,000) for the first quarter of fiscal 1995, an
improvement of $380,000. The improvement is a result of the increase in
revenues and margins resulting from the acquisition of the nickel-titanium
product line and the discount of $140,000 given by Wright's bank on its
principal debt.
Memry Segment. Memry Segment's profit for the first three months of fiscal 1996
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was $93,000, as compared with a net loss of $346,000 during the same fiscal 1995
period. The improvement of $439,000, or 127%, results from the significantly
increased revenues and margins.
Wright Segment. The Wright Segment net loss increased $66,000, or 228%, to a
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loss of $95,000 from a loss of $29,000 during the three month period ended
September 30, 1996 and 1995, respectively. The increase in net loss was caused
by the 61% decrease in product sales.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEMRY CORPORATION
Date: November 27, 1996 By: /s/ James G. Binch
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James G. Binch
President, CEO, Treasurer and Chairman
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