<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(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, 1997
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-14068
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Memry Corporation
-----------------
(Exact name of small business issuer as specified in its charter)
Delaware 06-1084424
---------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation of organization
57 Commerce Drive, Brookfield, Connecticut 06804
------------------------------------------------
(Address of principal executive offices)
(203) 740-7311
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date. As of November 4, 1997, 17,206,589
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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<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 30, 1997 and June 30,
1997
Condensed Consolidated Statements of Operations for the three months ended
September 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows for the three months ended
September 30, 1997 and 1996
Notes to the Condensed Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II --- OTHER INFORMATION
ITEM 2. Changes in Securities
ITEM 6. Exhibits and Reports on Form 8-K
2
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
MEMRY CORPORATION & SUBSIDIARY
Condensed Consolidated Balance Sheets
(Unaudited)
- -----------------------------------------------------------------------------------------------------
SEPTEMBER 30, JUNE 30,
1997 1997
--------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 169,000 $ 25,000
Accounts receivable 2,702,000 2,419,000
Inventories 1,524,000 1,664,000
Prepaid expenses and other 120,000 369,000
Assets of discontinued segment,net 755,000 936,000
-------------------- --------------
Total current assets 5,270,000 5,413,000
-------------------- --------------
Property, Plant and Equipment, at cost 4,186,000 4,108,000
Less accumulated depreciation (1,467,000) (1,343,000)
-------------------- --------------
2,719,000 2,765,000
-------------------- --------------
Other Assets
Patents and patent rights, net 1,834,000 1,868,000
Costs in excess of business acquired, net 958,000 974,000
Deferred financing costs, net 97,000 103,000
Deposits 29,000 29,000
-------------------- --------------
2,918,000 2,974,000
-------------------- --------------
Total assets $ 10,907,000 $ 11,152,000
===================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 2,626,000 $ 3,144,000
Notes payable 1,821,000 2,255,000
Current maturities of capital lease obligations 23,000 29,000
-------------------- --------------
Total current liabilities 4,470,000 5,428,000
-------------------- --------------
Capital lease obligations, less current maturities 43,000 43,000
Stockholders' Equity
Common stock, $.01 par value; 30,000,000 authorized
shares; 17,129,570 shares issued and outstanding 171,000 170,000
Additional paid-in capital 39,835,000 39,631,000
Accumulated deficit (33,612,000) (34,120,000)
-------------------- --------------
Total stockholders' equity 6,394,000 5,681,000
-------------------- --------------
Total liabilities and stockholders' equity $ 10,907,000 $ 11,152,000
==================== ==============
</TABLE>
See notes to the condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MEMRY CORPORATION & SUBSIDIARY
Condensed Consolidated Statements of Operations
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
1997 1996
------------------------ ---------------------
<S> <C> <C>
Revenues $ 3,993,000 $ 2,266,000
Cost of revenues 2,007,000 1,281,000
------------------------ -------------------------
Gross profit 1,986,000 985,000
Operating expenses
General, selling and administration 1,320,000 767,000
Depreciation and amortization 83,000 76,000
------------------------ -------------------------
1,403,000 843,000
------------------------ -------------------------
Operating income 583,000 142,000
Other income (expense)
Interest (55,000) (59,000)
Gain on disposition of assets 25,000 10,000
------------------------ -------------------------
(30,000) (49,000)
------------------------ -------------------------
Income from continuing operations
before income taxes 553,000 93,000
Provision for income taxes 45,000 -
------------------------ -------------------------
Income from continuing operations 508,000 93,000
Discontinued operations
Loss from operations of discontinued segment - (228,000)
Extraordinary gain on early retirement of debt - 140,000
------------------------ --------------------------
- (88,000)
Net income $ 508,000 $ 5,000
======================== =========================
PRIMARY EARNINGS PER SHARE
Income from continuing operations $ .03 $ .00
Loss from discontinued operations - (.00)
-------------------------- --------------------------
Net income $ .03 $ .00
========================== ==========================
Weighted average number of shares outstanding 19,311,637 17,942,826
========================== ==========================
</TABLE>
See notes to the condensed consolidated financial statements.
4
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<TABLE>
<CAPTION>
MEMRY CORPORATION & SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 1997 and 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996
---------------------- ---------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 508,000 $ 5,000
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 180,000 176,000
Gain on early retirement of debt - (140,000)
Non-cash compensation 16,000 -
Changes in working capital components:
(Increase) in accounts receivable (141,000) (797,000)
(Increase) decrease in inventories 159,000 (15,000)
(Increase) decrease in prepaid expensesand other 266,000 (159,000)
(Decrease) increase in accounts payable and accrued expenses (524,000) 182,000
Decrease in other assets 48,000 -
---------------------- ---------------------------
Net cash provided by (used in) operating activities 512,000 (748,000)
---------------------- ---------------------------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (78,000) (7,000)
---------------------- ---------------------------
Net cash used in investing activities (78,000) (7,000)
---------------------- ---------------------------
Cash Flows From Financing Activities:
Proceeds from sale of stock, net 150,000 -
Proceeds from (repayments of) short-term borrowings,net (353,000) 737,000
Principal payments on notes payable (81,000) -
Payments on capital lease obligations (6,000) -
---------------------- ---------------------------
Net cash provided by (used in) financing activities (290,000) 737,000
---------------------- ---------------------------
Increase(decrease) in cash and cash equivalents 144,000 (18,000)
Cash and cash equivalents, beginning 25,000 57,000
---------------------- -------------------------
Cash and cash equivalents, ending $ 169,000 $ 39,000
====================== ==========================
</TABLE>
See notes to the condensed consolidated financial statements.
5
<PAGE>
MEMRY CORPORATION & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1998 ("fiscal 1998"). For further information, refer to the consolidated
financial statements and footnotes thereto included in the Annual Report on Form
10-KSB for the year ended June 30, 1997 ("fiscal 1997") of Memry Corporation
(the "Company"), as amended.
During the fourth quarter of fiscal 1997, the Company announced its decision to
cease operations at its wholly owned subsidiary, Wright Machine Corporation
("Wright"), and to commence the liquidation of Wright's assets. All of Wright's
manufacturing operations ceased on June 5, 1997, and the results of operations
of Wright have therefore been presented as a discontinued operation in the
financial statements.
Additionally, certain 1996 financial statement amounts have been reclassified to
conform with the 1997 financial statement presentation.
Note 2. INVENTORIES
Inventories at September 30, 1997 and June 30, 1997, are summarized as follows:
<TABLE>
<CAPTION>
September June
----------- -----------
<S> <C> <C>
Raw Materials $ 964,000 $ 398,000
Work-in-process 738,000 1,478,000
Finished goods 512,000 478,000
Allowance for slow-moving and obsolete inventory (690,000) (690,000)
---------- ----------
$1,524,000 $1,664,000
========== ==========
</TABLE>
Note 3. EARNINGS PER SHARE
Net income per common share was computed under the treasury stock method using
the weighted average number of common shares and dilutive common stock
equivalent shares outstanding during the period. In February 1997, the FASB
issued SFAS no. 128, "Earnings per Share," which is effective for periods ending
after December 15, 1997 and requires changes in the computation, presentation
and disclosure of earnings per share. Earnings per share for all prior periods
must be restated to conform with computation provisions of SFAS No. 128. The
adoption of SFAS No. 128 will not have a material impact on the Company's future
reported earnings per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results. Certain statements under this caption may constitute "forward-looking
statements". See Part II "Other Information".
(a) RESULTS OF OPERATIONS
Revenues. Revenues from continuing operations increased 76% to $3,993,000 for
- --------
the first three months of fiscal year 1998 from $2,266,00 during the same period
in fiscal 1997. The increase of $1,727,000 is primarily due to significantly
increased product sales to Raychem Corporation ("Raychem") pursuant to a
private label/distribution agreement with Raychem, to Raychem as an original
equipment manufacturer, to United States Surgical Corporation and of shape
memory alloy ("SMA") products for various medical applications to various other
customers.
Costs and Expenses. Manufacturing costs increased to $2,007,000 for the three
- ------------------
months ended September 30, 1997 from $1,281,000 during the same three month
period in fiscal 1997. This increase of $726,000 or 57% was entirely
attributable to the 76% increase in revenues. Due to both increased efficiencies
from greater sales volume and a change in the Company's product mix away from
plumbing and consumer finished products and assemblies and towards higher margin
medical industry products, the Company's gross margin from sales increased to
50% for the three months ended September 30, 1997, from a 43% margin in the
comparable period in fiscal 1997.
General, selling and administrative expenses increased $553,000, or 72%, to
$1,320,000 for the three months ended September 30, 1997, as compared to
$767,000 during the same period of fiscal 1997. This increase is primarily
attributable to the greater size of the Company and its operations. Interest
expense decreased to $55,000 in the first quarter of fiscal 1998 from $59,000 in
the comparable quarter of fiscal 1997. The decrease was primarily due to the
lower interest rates of the Company's credit facilities with its lender, when
compared to higher interest rates of its prior credit facility which was
refinanced in the first quarter of fiscal 1997. The Company recorded a provision
for income taxes of $45,000 for the first three months of fiscal 1998. No such
provision was recorded for the first quarter of fiscal 1997. Such provision
reflects an effective tax rate less than the statutory rate due principally to
the benefits arising from net operating loss carryforwards available to the
Company.
Net Income. Primarily as a result of the Company's 76% increase in revenues and
- ----------
a proportionately smaller increase in manufacturing costs, the Company was able
to realize income from continuing operations of $508,000 for the three month
period ended September 30, 1997 as compared with $93,000 for the same period in
fiscal 1997. For the same reasons, the Company realized net income of $508,000
for the first quarter of fiscal 1998, as opposed to net income of $5,000 for the
first quarter of fiscal 1997.
(b) LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's cash and cash equivalents balance was
$169,000, an increase of $144,000 from $25,000 at the start of fiscal 1998. Cash
provided by operations was $512,000 for the three months ended September 30,
1997. Offsetting in part the cash provided by operations was cash used in
investing activities of $78,000 for the purchase of property, plant and
equipment, and $290,000 used in financing activities, primarily to repay debt.
Cash provided by operations of $512,000 for the three months ended September 30,
1997 represents a
7
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significant improvement from the comparable period in fiscal 1997 when $748,000
was used for operations (including discontinued operations). This improvement is
primarily due to increased sales volume, with accompanying increased margins,
the shut down of Wright and an increase in receivables. Cash used in financing
activities for the three month period ended September 30, 1997 was $290,000 as
opposed to $737,000 of cash provided by financing activities for the comparable
period in fiscal 1997. The $290,000 of cash used in financing activities during
the three months ended September 30, 1997 was for debt reduction of $440,000
offset by proceeds from common stock sales of $150,000. During the three months
ended September 30, 1996 cash provided by financing activities consisted of
increased bank borrowings needed to finance increased sales volume which
generated much higher receivables. Working capital at September 30, 1997 was
$760,000, up significantly from a working capital deficit of $15,000 at June 30,
1997.
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 First Union Bank, allowing up to $2.635 million of aggregate
borrowings in the form of a term loan and a revolver. The term loan is a five
year $1.135 million loan, with principal payable in monthly installments of
approximately $19,000. Due to payments on the term loan, including a prepayment
upon the sale of Wright's machinery and equipment, the unpaid balance of the
term loan as of September 30, 1997 was $394,000. 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%. As of September 30, 1997 the Company had $1,000,000 outstanding on the
revolving line of credit and had unused availability under the line of credit of
$500,000. The loan documents contain standard covenants, including restrictions
on dividends and other payments, and provide for security interests in
substantially all of the Company's consolidated assets. At the August 9, 1996
closing, Wright's debt to Fleet Bank was repaid with a $140,000, or 16%,
discount.
The Company has in the past grown through acquisitions (including both the
acquisition of Raychem's nickel-titanium product line 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. The Company does not currently,
however, contemplate any material acquisitions for fiscal 1998.
The Company intends to spend between $400,000 and $675,000 on capital
expenditures prior to fiscal 1998 year end in order to handle its expected
continuing increased sales volume of SMA materials. The Company expects that it
will be able to pay for these expenditures out of cash flow generated from its
operations during the current fiscal year.
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
the assembly of all products to be sold to U.S. Surgical Corporation), excluding
business operations
8
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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 to keep the Registration Statement on Form S-2 that went effective on
January 31, 1997 (the "Registration Statement"), covering the offer and sale by
certain of the Company's shareholders (including CII) of up to 3,550,630 shares
(including up to 3,041,963 shares beneficially owned by CII) of the Company's
common stock, 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 Company's Common
Stock then owned by CII and underlying warrants then owned 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 $4.00 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 $11,209,000. If CII
were to have the right to put its securities and were to choose to exercise that
right, it would obviously 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 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 operating profits and
its historical ability to raise equity capital will be sufficient to meet the
Company's working capital requirements in the short-term (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.
9
<PAGE>
PART II - OTHER INFORMATION
The statements in this quarterly report on Form 10-QSB that are not historical
fact constitute "forward-looking statements". Said forward-looking statements
involve risks and uncertainties which may cause the actual results, performance
or achievements of the Company and its subsidiary to be materially different
from any future results, performance or achievements, express or implied by such
forward-looking statements. These forward-looking statements are identified by
their use of forms of such terms and phrases as "expects", "intends", "goals",
"estimates", "projects", "plans", "anticipates", "should", "future", "believes"
and "scheduled".
The variables which may cause differences include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgement of personnel;
availability of qualified personnel; labor and employee benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with, government regulations. Although the Company believes that the
assumptions underlying the forward looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this filing will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and expectations of the Company will be achieved.
ITEM 2. CHANGES IN SECURITIES
(c) On each of July 1, 1997, and July 8, 1997, the Company sold 50,000 shares of
its common stock in private placements to Alan W. Steinberg Limited Partnership
and B.G. Development Corp. Pension Fund, respectively, in consideration of
$75,000 of cash consideration paid by each such purchaser. No underwriting
discounts or commissions were paid in respect of such transactions. The offers
and sales to such purchasers were exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder. On July 14, 1997, the Company issued 6,024 shares of its common
stock to each of its four non-employee directors as compensation for services
rendered to the Company by such directors during the Company's fiscal year ended
June 30, 1997. The offers and sales to such non-employee directors were exempt
from the registration requirements of the Securities Act pursuant Section 4(2)
of the Securities Act and Regulation D promulgated thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description of Exhibit
- - -- ------------------
27 Financial Data Schedule *
* Submitted herewith electronically
(b) REPORTS ON FORM 8-K
On July 8, 1997, the Company filed a Current Report on Form 8-K reporting
the sale of 200,000 shares of Common Stock pursuant to Regulation S during
the fourth quarter of fiscal 1997.
10
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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 undersigned, thereunto duly
authorized.
Memry Corporation
-----------------
Date: Nov. 12, 1997 /s/ James G.Binch
------------------------
James G. Binch
President and CEO
Date: Nov. 12, 1997 /s/ Thomas D. Carey
-------------------------
Thomas D. Carey
Chief Financial Officer
11
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- - ------ ----------------------
27 Financial Data Schedule *
* Submitted herewith electronically
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM MEMRY CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 169
<SECURITIES> 0
<RECEIVABLES> 2,702
<ALLOWANCES> 0
<INVENTORY> 1,524
<CURRENT-ASSETS> 5,270
<PP&E> 4,186
<DEPRECIATION> 1,467
<TOTAL-ASSETS> 10,907
<CURRENT-LIABILITIES> 4,470
<BONDS> 0
0
0
<COMMON> 171
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,907
<SALES> 3,993
<TOTAL-REVENUES> 3,993
<CGS> 2,007
<TOTAL-COSTS> 2,007
<OTHER-EXPENSES> 1,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 553
<INCOME-TAX> 45
<INCOME-CONTINUING> 508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 508
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
