<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 December 31, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT OF 1934
For the transition period from to
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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 (IRS Employer Identification No.)
of 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
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date. As of February 11, 1999, 20,686,714
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 December 31, 1998 and June
30, 1998
Condensed Consolidated Statements of Operations for the three and six
months ended December 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the six months
ended December 31, 1998 and 1997
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 4. Submission of matters to a Vote of Security Holders
ITEM 6. Exhibits and Reports on Form 8-K
2
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Memry Corporation & Subsidiary
Consolidated Balance Sheets
(Unaudited)
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<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
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<S> <C> <C>
ASSES
Current Assets
Cash and cash equivalents $ 1,007,000 $ 1,189,000
Accounts receivable, less allowance for doubtful
accounts 3,984,000 3,534,000
Note receivable 325,000 325,000
Inventories 3,190,000 2,336,000
Prepaid expenses and other 99,000 62,000
Assets of discontinued segment, net - 210,000
----------------------- ---------------------
Total current assets 8,605,000 7,656,000
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Property, Plant and Equipment, at cost 7,458,000 4,593,000
Less accumulated depreciation (2,197,000) (1,876,000)
----------------------- ---------------------
5,261,000 2,717,000
----------------------- ---------------------
Other Assets
Patents and patent rights, less accumulated
Amortization 1,667,000 1,734,000
Goodwill, less accumulated
Amortization 4,589,000 906,000
Deferred financing costs, less accumulated
Amortization 36,000 43,000
Deposits 34,000 29,000
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6,326,000 2,712,000
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Total assets $ 20,192,000 $ 13,085,000
======================= =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 2,031,000 $ 2,230,000
Notes payable 2,878,000 100,000
Contingency liability 1,047,000
Unearned Revenue 99,000
Current maturities of capital lease obligations 16,000 31,000
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Total current liabilities 6,071,000 2,361,000
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Capital lease obligations, less current maturities 63,000 19,000
Note Payable, less current maturities 548,000 580,000
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Total Liabilities 6,682,000 2,960,000
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Stockholders' Equity
Common stock, $.01 par value; 30,000,000 authorized
shares; shares issued and outstanding: 207,000 199,000
December 31, 1998 - 20,676,000; June 30, 1998 - 19,950,000
Additional paid-in capital 43,551,000 41,121,000
Accumulated deficit (30,234,000) (31,195,000)
Translation Adjustment (14,000)
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Total stockholders' equity 13,510,000 10,125,000
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Total liabilities and stockholders' equity $ 20,192,000 $ 13,085,000
======================= =====================
</TABLE>
<PAGE>
Memry Corporation & Subsidiary
Consolidated Statements of Operations
For the Three Months Ended December 31, 1998 and 1997
(Unaudited)
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<TABLE>
<CAPTION>
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1998 1997
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<S> <C> <C>
Revenues
Product Sales $ 4,429,000 $ 4,414,000
Research and development 284,000 96,000
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4,713,000 4,510,000
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Cost of revenues
Manufacturing 3,021,000 1,822,000
Research and development 48,000 172,000
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3,069,000 1,994,000
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Gross profit 1,644,000 2,516,000
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Operating expenses
General, selling and administration 1,231,000 1,635,000
Depreciation and amortization 86,000 83,000
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1,317,000 1,718,000
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Operating income 327,000 798,000
Other income (expense)
Interest (expense) 2,000 (44,000)
Gain on disposition of assets 9,000 -
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11,000 (44,000)
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Income from continuing operations before income taxes 338,000 754,000
Provision for income taxes 82,000 115,000
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Income from continuing operations 256,000 639,000
Gain on discontinued operations 8,000
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Net income $ 264,000 $ 639,000
======================= =====================
Basic Earnings Per Share:
Income from continuing operations $ 0.01 $ 0.04
Gain (loss) on discontinued operations - -
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$ 0.01 $ 0.04
======================= =====================
Diluted Earnings Per Share:
Income (loss) from continuing operations $ 0.01 $ 0.03
Gain (loss) from discontinued operations - -
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$ 0.01 $ 0.03
======================= =====================
</TABLE>
<PAGE>
Memry Corporation & Subsidiary
Consolidated Statements of Operations
For the Six Months Ended December 31, 1998 and 1997
(Unaudited)
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<TABLE>
<CAPTION>
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1998 1997
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<S> <C> <C>
Revenues
Product Sales $ 9,254,000 $ 8,395,000
Research and development 312,000 109,000
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9,566,000 8,504,000
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Cost of revenues
Manufacturing 5,436,000 3,716,000
Research and development 86,000 285,000
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5,522,000 4,001,000
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Gross profit 4,044,000 4,503,000
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Operating expenses
General, selling and administration 2,751,000 2,955,000
Depreciation and amortization 157,000 166,000
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2,908,000 3,121,000
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Operating income 1,136,000 1,382,000
Other income (expense)
Interest (expense) 2,000 (99,000)
Gain on disposition of assets 9,000 25,000
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11,000 (74,000)
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Income from continuing operations before income taxes 1,147,000 1,308,000
Provision for income taxes 194,000 160,000
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Income from continuing operations 953,000 1,148,000
Gain on discontinued operations 8,000 -
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Net income $ 961,000 $ 1,148,000
======================= =====================
Basic Earnings Per Share:
Income (loss) from continuing operations $ 0.05 $ 0.07
Gain (loss) from discontinued operations
- -
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$ 0.05 $ 0.07
======================= =====================
Diluted Earnings Per Share:
Income (loss) from continuing operations $ $
0.04 0.06
Gain (loss) from discontinued operations - -
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$ 0.04 $ 0.06
======================= =====================
</TABLE>
<PAGE>
Memry Corporation & Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 1998 and 1997
(Unaudited)
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<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 961,000 $ 1,148,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 429,000 358,000
Gain (loss) on disposal of assets 210,000 -
Compensation paid by issuance of common stock - 82,000
Change in operating assets and liabilities, net of assets
acquired in business combination:
(Increase) decrease in accounts receivable 125,000 426,000
(Increase) decrease in notes receivable 525,000 -
(Increase) decrease in inventories (667,000) (265,000)
(Increase) decrease in prepaid expenses and other assets (23,000) 225,000
Increase (decrease) in accounts payable (654,000) (684,000)
Increase (decrease) in unearned revenue (1,000) -
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905,000 1,290,000
Cash Flows From Investing Activities
Purchase of Advanced Materials and Technologies, n.v.
property, plant and equipment (1,273,000) -
Purchases of property, plant and equipment (852,000) (198,000)
Deposits 1,000 -
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(2,124.000) (198,000)
Cash Flows From Financing Activities
Proceeds from issuance of common stock 76,000 477,000
Proceeds from (repayment of) current portion of notes payable 1,230,000 (1,273,000)
Proceeds from (repayment of) current portion of capital lease (15,000) -
Proceeds from (repayment of) notes payable (240,000) (129,000)
Proceeds from (repayment of) capital lease - (13,000)
Gain (loss) on foreign currency fluctuations (14,000) -
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1,037,000 (938,000)
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Increase (decrease) in cash and cash equivalents (182,000) 154,000
Cash and cash equivalents, beginning of year 1,189,000 25,000
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Cash and cash equivalents, end of year $ 1,007,000 $ 179,000
======================= ====================
Supplemental Schedule of Noncash Investing and Financing Activities
Acquisition of Advanced Materials and Technologies, n.v.
Purchase price $ 4,682,000 $ -
======================= ====================
Fair value of assets acquired
Property, plant and equipment 2,012,000 -
Accounts receivable 575,000 -
Notes receivable 525,000 -
Inventory 187,000 -
Other 22,000 -
Goodwill 3,718,000 -
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7,039,000 -
Less
Liabilities assumed (2,357,000) -
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$ 4,682,000 $ -
======================= =====================
Source of Funds
Cash $ 1,273,000 $ -
Contingent liability 1,046,000 -
Issuance of common stock 2,363,000 -
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$ 4,682,000 $ -
======================= =====================
</TABLE>
<PAGE>
MEMRY CORPORATION & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A. 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 and six month periods ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1999 ("fiscal 1999"). 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, 1998 ("fiscal 1998") of Memry
Corporation (the "Company"), as amended.
Note B. INVENTORIES
Inventories at December 31, 1998 and June 30, 1998, are summarized as follows:
<TABLE>
<CAPTION>
December June
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<S> <C> <C>
Raw Materials $ 309,000 $ 455,000
Work-in-process 2,075,000 1,783,000
Finished goods 1,407,000 836,000
Allowance for slow-moving
and obsolete inventory (601,000) (738,000)
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3,190,000 2,336,000
</TABLE>
Note C. EARNINGS PER SHARE
The FASB has issued Statement No. 128, "Earnings per Share," which supersedes
APB Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options and warrants, outstanding which trade in a public market. The Company
now presents basic earnings (loss) per share and diluted earnings (loss) per
share in its statement of operations. Basic earnings (loss) per share amounts
are computed by dividing income (loss) from continuing and discontinued
operations by the weighted-average number of common shares outstanding. Diluted
per-share amounts assume exercise of all potential common stock instruments
unless the effect is to reduce the loss or increase the income per common share
from continuing operations.
The Company has initially applied Statement No. 128 for the three month and six
month periods ended December 31, 1998 and, as required by Statement No. 128, has
restated all per share information for the prior periods to conform with the
December 31, 1998 presentation. The following is information about the
computation of weighted-average shares utilized in the computation of basic and
diluted earnings (loss) per share.
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Number of Basic Shares Outstanding 20,642,833 17,542,364 20,296,922 17,284,227
Effect of Dilutive Securities:
Warrants 896,563 2,951,760 979,198 2,849,162
Options 397,857 416,722 466,652 330,811
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Number of Fully Diluted Shares
Outstanding 21,937,254 20,910,846 21,742,772 20,464,200
========== ========== ========== ==========
</TABLE>
7
<PAGE>
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
Six Months Ended December 31, 1998 compared to six months ended December 31,
- ----------------------------------------------------------------------------
1997
- ----
Revenues. Revenues from continuing operations increased 12% to $9,566,000 for
the first six months of fiscal year 1999 from $8,504,000 during the same period
in fiscal 1998. The increase of $1,062,000 is primarily due to an increase in
products sold to medical device companies.
Costs and Expenses. Manufacturing costs (including costs associated with
research and development revenues) increased to $5,522,000 for the six months
ended December 31, 1998 from $4,001,000 during the same six month period in
fiscal 1998. This increase of $2,521,000 or 38% was attributable primarily to
the 12% increase in revenues, an increase in fixed costs in the Company's west
coast facilities and a reduction in high margin medical product sales to United
States Surgical Corporation from the Company's east coast facilities. In October
of 1998, Memry Corporation's largest customer, United States Surgical
Corporation was acquired by Tyco International, Ltd. US Surgical accounted for
approximately $7.3 million or 38% of Memry's fiscal 1998 revenues. Subsequent to
the acquisition, Memry was informed that Tyco International, Ltd. would
implement a plan to reduce United States Surgical Corporations inventory levels.
Although this plan to reduce inventory levels did not have an adverse effect on
Memry's first quarter fiscal 1999 financial statements, the implementation of
such an inventory adjustment caused an estimated $1.2 million reduction in
anticipated second quarter sales. Correspondingly, the Company's gross margin
from sales decreased to 42% for the six months ended December 31, 1998, from a
53% margin in the comparable period in fiscal 1998.
General, selling and administrative expenses (including amortization) decreased
$213,000, or 7%, to $2,908,000 for the six months ended December 31, 1998, as
compared to $3,121,000 during the same period of fiscal 1998. This decrease is
primarily attributable to the Company's effort to maintain a lean administrative
and management infrastructure and a decrease in information technology
consulting fees relative to the comparable period in fiscal 1998. The Company
recognized net interest income of $2,000 for the six month period ended December
31, 1998 versus interest expense of $99,000 for the six month period ended
December 31, 1997. This favorable net interest position was primarily due to the
Company's net positive cash position for the majority of the first six months of
fiscal 1999 versus the first six months of fiscal 1998. The Company recorded a
provision for income taxes of $194,000 for the first six months of fiscal 1999
relative to a provision for income tax of $160,000 for the first six months of
fiscal 1998. 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 a larger percentage increase in
manufacturing cost relative to the percentage increase in sales growth, the
Company's net income decreased by $187,000 or 16% to $961,000 in the first six
months of fiscal 1999 compared to $1,148,000 for the first six months of fiscal
1998.
8
<PAGE>
Three Months Ended December 31, 1998 compared to three months ended December
- ----------------------------------------------------------------------------
31, 1997
- ---------
Revenues. Revenues increased 5% to $4,713,000 for the second quarter of fiscal
year 1999 from $4,510,000 during the same period in fiscal 1998. The increase of
$203,000 is primarily due to an increase in sales to medical device companies.
Costs and Expenses. Manufacturing costs (including costs associated with
research and development revenues) increased to $3,069,000 for the three months
ended December 31, 1998 from $1,994,000 during the same three month period in
fiscal 1997. This increase of $1,075,000 or 54% was attributable to a
significant increase in fixed costs in the Company's west coast facility and the
reduction in sales of medical sub-assemblies to US Surgical
Corporation. Correspondingly, the Company's gross margin from sales decreased
to 35% for the three months ended December 31, 1998, from a 56% margin in the
comparable period in fiscal 1998.
General, selling and administrative expenses (including amortization) decreased
$401,000 or 23%, to $1,317,000 for the three months ended December 31, 1998, as
compared to $1,718,000 during the same period of fiscal 1998. This decrease is
primarily attributable to the Company's recent efforts to reduce administrative,
management and consulting expenses in anticipation of a short-term slow down in
medical sub-assembly sales. The Company recognized net interest income of
$2,000 in the second quarter of fiscal 1999 compared to interest expense of
$44,000 in the comparable quarter of fiscal 1998. This favorable net interest
position was due primarily to a reduced average balance in the Company's working
capital line of credit as compared to the same period in fiscal 1998 and a
positive cash balance throughout the quarter. The Company recorded a provision
for income taxes of $82,000 for the second quarter of fiscal 1999 compared to a
tax provision of $115,000 for the second quarter of fiscal 1998. 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 significant increase in
manufacturing cost relative to the Company's modest increase in sales, the
Company's net income decreased by $375,000 or 59% to $264,000 for the three
month period ended December 31, 1998 as compared to $639,000 for the same period
in fiscal 1998.
9
<PAGE>
(b) LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's cash and cash equivalents balance was
$1,007,000, a decrease of $182,000 from $1,189,000 at the start of fiscal 1999.
Cash provided by operations was $905,000 for the six months ended December 31,
1998. Cash used in investing activities was $2,124,000. This was primarily due
to funds needed to consummate the acquisition of Advanced Materials and
Technologies, n.v. On October 30, 1998, the Company consummated the
purchase of Advanced Materials and Technologies, N. V. of Herk-de-Stad, Belgium
("AMT"). The terms of the transaction included a cash payment of $1.04 million
and 675,000 shares of Memry Corporation common stock. In addition, Memry may be
obligated to pay up to an additional $1.05 million in cash if, twelve months
from the closing date, the value of the Memry shares is below $5.55 per share.
The Company believes that the revenue generated by AMT for consolidation on
Memry Corporation's financial statements will approximate $2 million in fiscal
1999. The impact on fiscal 1999 net income is expected to be negligible. During
the six months ended December 31, 1998 cash provided by financing activities
consisted of increased bank borrowings needed to finance the AMT acquisition of
$1,037,000. Working capital at December 31, 1998 was $4,668,000 down from
$5,295,000 at June 30, 1998.
On June 30, 1998, the Company and Webster Bank entered into a Commercial
Revolving Loan, Term Loan, Line of Credit and Security Agreement and related
financing documents and agreements (the "Webster Facility"). Upon entering into
the Webster Facility, the Company paid off all amounts outstanding under its
prior credit facility with First Union National Bank. The Webster Facility
includes a revolving loan, an equipment loan line of credit and a $500,000 term
loan. The term loan is to be repaid in equal monthly installments of principal
over its five year term. The revolving loan provides for borrowings up to the
lesser of (a) $3,000,000 or (b) an amount equal to the aggregate of (1) 80% of
eligible accounts receivable and (2) the lesser of $750,000 or 35% of eligible
inventory. The revolving loan requires the payment of a commitment fee equal to
.25% per annum of the daily unused portion of the revolving loan. The equipment
loan line of credit provides for equipment financing up to the lesser of
$750,000 or 75% of the purchase price for eligible equipment each year through
June 30, 2001. The Company has the option of converting amounts borrowed under
the equipment line of credit to term loans on July 1, 1999, 2000, and 2001. At
December 31, 1998 an aggregate of approximately $480,000 was outstanding under
the Webster Facility. The Webster Facility is secured by substantially all of
the Company's assets. Interest on the revolving loan and equipment line of
credit is variable based on either LIBOR or the Prime Rate as published in the
Wall Street Journal, as elected by the Company. Interest on the term loan and
converted equipment loans is either fixed, at a rate based on the U.S. Treasury
yield, or variable based on the Prime Rate, as elected by the Company. The
Company has the ability to convert between the different rates from time to time
subject to certain conditions. In addition, the credit facility contains various
restrictive covenants, including, among others, limitations on encumbrances and
additional debt, prohibition on the payment of dividends or redemption of stock
except in connection with certain existing put rights, restrictions on
management/ownership changes and required compliance with specified financial
ratios.
The Company has in the past grown through acquisitions (including the
acquisition of AMT and Raychem Corporation's nickel titanium product line). 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 and authorized but
unissued common stock to finance any such acquisitions. The Company does not
currently, however, contemplate any additional material acquisitions for fiscal
1999.
The Company intends to spend between $1.5 and $2.0 million on capital
expenditures during the fiscal year ending June 30, 1999, 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 sale of products 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
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 (provided, however, that assets, revenues, employees, operations and
bank accounts attributable to any entity acquired by the Company shall not be
considered when determining if the Company has satisfied such requirements so
long as such entity (1) was acquired in an arm's length transaction, (2) was not
an affiliate of the Company and was not controlled by an affiliate of the
Company prior to such acquisition, and (3) had been in existence and operating
as a business for at least one year at the time of the acquisition); 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 at such
time 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 $2.50 per share, which was the approximate market price at
February 10, 1999, 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 $5,700,000. To the extent that the current market value of
10
<PAGE>
the Company's common stock exceeds $2.50 per share at any time, the put price
would be greater. 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 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 working capital surplus, its
improved borrowing facility, its ability to raise equity capital in the past and
what it believes will be material net profits from operations during fiscal 1999
will be sufficient to meet the Company's capital requirements during fiscal
1999.
YEAR 2000 ISSUE
The "Year 2000 Issue" results from computer programs being written using two
digits, instead of four, to define a given year. Programs running time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in disruptions to various activities and operations,
miscalculations and even system failures.
The Company has recently upgraded all of its internal computer systems such that
the Company believes all of such internal systems are Year 2000 compliant. The
Company has recently begun (i) to formally test such new systems, (ii) to
commence an investigation regarding the Year 2000 readiness of its other
equipment, and (iii) to inquire of its suppliers and customers as to whether the
Year 2000 Issue will create substantial risks or disruption. The Company
believes that the cost of undertaking such an investigation and developing and
effecting such a plan will be less than $50,000. The Company has not reserved
funds for such costs and, therefore, such costs, if expended, will have a direct
negative impact on the Company's future income.
The Company plans to complete such investigation and effect its plans to correct
any deficiencies before the end of fiscal 1999. As part of the Company's Year
2000 investigation, the Company plans to seek third-party confirmations with
respect to such third-party's computers, software and systems. The Company also
plans to review all of its equipment (other than its recently upgraded computer
systems) to determine what, if any, Year 2000 concerns exist and then to address
any material concerns.
Based upon preliminary data, the Company does not believe that the Year 2000
Issue will have a material adverse impact on the Company's financial condition,
results of operation or future cash flows. If, however, the Company determines
through its investigation that its suppliers, customers and other third parties
with whom the Company maintains business relations will be unable to resolve any
arising Year 2000 problems in a timely manner, risk to the Company's financial
condition could result. In addition, in the event that the economy as a whole is
materially and adversely effected by widespread disruptions, or by failures of
key infrastructure providers (such as banks and utilities), it is likely that
the Company's financial condition and results of operations would be materially
adversely effected.
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 subsidiaries 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
On October 31, 1998, the Company sold 675,000 shares of its common stock to the
shareholders of AMT as part of the consideration (along with cash and a covenant
to make an additional cash payment in the future if the Company's stock price
did not achieve a certain level) paid to such shareholders in exchange for all
of the issued and outstanding stock of AMT. The Company believes that the offer
and sale of its stock to AMT's shareholders was exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
by virtue of Section 4(2) thereof and Regulation D thereunder.
On December 15, 1998 and December 29, 1998, the Company sold 10,000 shares of
its common stock to each of Messrs. James Profit and Ray Serna, respectively,
upon the exercise of warrants held by each such individual to purchase such
number of shares for a cash consideration of $0.01 per share. The warrants that
were exercised were issued to each such individual in connection with each such
individual accepting an offer of employment from the Company in 1996. The
Company believes that the offer and sale of these 20,000 shares to such
individuals was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof and Regulation D thereunder.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 23, 1998, the Company held its annual meeting of stockholders. At
such meeting, the Company's four nominees for director, James G. Binch,
Jack H. Halperin, Esq., W. Andrew Krusen, Jr. and John A. Morgan were re-elected
to the Company's Board of Directors by the vote specified below:
<TABLE>
<CAPTION>
No. of Votes Broker
Nominee For Against/Withheld Abstentions Non-Votes
- ------- --- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
James G. Binch 17,467,417 7,407 0 0
Jack H. Halperin, Esq.. 17,467,417 7,407 0 0
W. Andrew Krusen, Jr. 17,467,417 7,407 0 0
John A. Morgan 17,436,994 37,830 0 0
</TABLE>
Also at such annual meeting, the Company's shareholders approved an amendment to
the Company's 1997 Long-Term Incentive Plan (i) to increase from $2,500 per
quarter to $7,500 per quarter the value of shares of the Company's Common Stock
that will be granted to each non-employee director and (ii) to make such grants
"restricted" such that the stock granted to each such non-employee director will
vest in equal thirds on the first, second and third anniversaries of the date of
grant (subject to forfeiture upon the occurrence of certain events). The vote on
such amendment was 17,018,378 shares in favor, 376,825 shares against, 79,621
shares abstaining and 0 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Description of Exhibits
- ------ -----------------------
27 Financial Data Schedule
On November 12, 1998, the Company filed a Current Report on Form 8-K reporting
the acquisition of the capital stock of AMT described elsewhere herein. On
January 15, 1999, the Company filed an amendment to such Current Report on Form
8-K providing historical financial information regarding AMT's assets and
operations and pro forma financial information showing how the Company's actual
assets and operations would have been effected by the assets and operations of
AMT as at certain dates and for certain periods.
12
<PAGE>
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: February 12, 1998 /s/ James G.Binch
- ----------------------- -----------------
James G. Binch
President, CEO, Treasurer and Chairman
of the Board
Date: February 12, 1998 /s/ Thomas D. Carey
- ----------------------- -------------------
Thomas D. Carey
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOUND ON PAGES 3-5 OF THE COMPANY'S FORM 10QSB FOR THE YEAR-TO-DATE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,007,000
<SECURITIES> 0
<RECEIVABLES> 3,984,000
<ALLOWANCES> 0
<INVENTORY> 3,190,000
<CURRENT-ASSETS> 8,605,000
<PP&E> 7,458,000
<DEPRECIATION> 2,197,000
<TOTAL-ASSETS> 20,192,000
<CURRENT-LIABILITIES> 6,071,000
<BONDS> 0
0
0
<COMMON> 43,551,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,192,000
<SALES> 9,254,000
<TOTAL-REVENUES> 9,566,000
<CGS> 5,436,000
<TOTAL-COSTS> 5,522,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 1,147,000
<INCOME-TAX> 194,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 961,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
