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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q/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, 2000
OR
[ ] 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
Memry Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1084424
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
57 Commerce Drive, Brookfield, Connecticut 06804
(Address of Principal Executive Offices) (Zip Code)
NA
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Registrant's Telephone Number, Including Area Code (203) 740-7311
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
As of November 9, 2000, 21,159,513 shares of the registrant's common stock, par
value $.01 per share, were issued and outstanding.
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This amendment to the Quarterly Report on Form 10-Q of Memry Corporation
(the "Company") for the quarterly period ended September 30, 2000 (the "Original
Form 10-Q") amends and modifies the Original Form 10-Q by amending and restating
paragraph (b) of Item 2. The only change in such paragraph (b) is in the eighth
paragraph thereof.
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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
Three Months Ended September 30, 2000, compared to three months ended September
30, 1999.
Revenues. Revenues increased 32% to $6,465,000 for the first three months of
fiscal year 2001 from $4,891,000 during the same period in fiscal 2000, an
increase of $1,574,000. Sales of products and components to the medical device
industry increased from approximately $2,300,000 in the first three months of
fiscal year 2000 to approximately $4,300,000, an increase of $2,000,000. Revenue
from commercial and industrial products and assemblies totaled approximately
$650,000 in the first quarter of fiscal 2001, a decrease of approximately
$600,000 from the first quarter of fiscal 2000, due primarily to lower shipments
of antenna wire. Revenue from semi-finished material, primarily tube, increased
by approximately $470,000 in the first quarter of fiscal 2001 from the first
quarter of fiscal 2000. Sales by the Company's European subsidiary during this
period declined from approximately $350,000 in fiscal 2000 to approximately
$250,000 in fiscal 2001, due primarily to reduced research and development
revenue.
Costs and Expenses. Manufacturing costs (including costs associated with
research and development revenues) increased to $5,264,000 for the three months
ended September 30, 2000 from $3,226,000 during the same three-month period in
fiscal 2000. This increase of $2,038,000 or 63% was attributable to the 32%
increase in revenues and higher costs associated with maintaining and improving
Memry's west coast operation. In July, one of the Company's largest customers
for medical device components announced a temporary suspension of shipments of
their product. During the past year, the Company made a significant investment
in facilities, equipment, and personnel to support a high level of anticipated
orders from this customer. The high level of expenses associated with
maintaining this capability was the most significant factor contributing to the
increase in manufacturing costs. Correspondingly, the Company's gross margin
from sales decreased to 19% for the three months ended September 30, 2000, from
34% in the comparable period in fiscal 2000. In November, 2000, the Company
reduced its domestic workforce by approximately 15% to bring its operations into
better alignment with its near-term sales forecast.
General, selling and administrative expenses (including depreciation and
amortization) increased $744,000, or 35%, to $2,859,000 for the three months
ended September 30, 2000, as compared to $2,115,000 during the same period of
fiscal 2000. This increase is primarily attributable to increases in staffing
and increased expenditures in human resources, engineering, information
technology, and sales and marketing necessary to support the 32% increase in
sales. Other expenses increased from $22,000 in the three month period ending
September 30, 1999, to $129,000 during the three month period ending September
30, 2000, due primarily to an increase in interest expense attributable to a
higher level of borrowing. The Company recorded a provision for income taxes of
$10,000 for the first three months of fiscal 2001, unchanged from the provision
for the first three months of fiscal 2000.
Net Loss. Primarily due to the decrease in gross margin and the increase in
general, selling and administrative expenses, the Company's net loss increased
by $1,315,000, to $1,797,000 in the first three months of fiscal 2001 compared
to a net loss of $482,000 for the first three months of fiscal 2000. Due
primarily to a continuation of the Company's low gross margin that is projected
in the second quarter of fiscal 2001, the Company anticipates a net loss in the
quarter ending December 31, 2000.
(b) LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company's cash and cash equivalents balance was
$459,000, a decrease of $1,075,000 from $1,534,000 at the start of fiscal 2001.
Cash used by operations was $1,160,000 for the three months ended September 30,
2000. Cash used in investing activities was $226,000, representing funds
invested in property, plant and equipment. During the three months ended
September 30, 2000, cash provided by financing activities, consisting primarily
of increased bank borrowings, totaled $154,000. Working capital at September 30,
2000, was $(605,000), down from $1,068,000 at June 30, 2000.
In fiscal 2000, the primary capital requirements were to fund additions to
property, plant, and equipment. During the first quarter of fiscal 2001, ending
on September 30, 2000, the primary capital requirement was to fund losses from
operations. Since the Company projects a loss in the second fiscal quarter
ending December 31, 2000, it will be necessary for the Company to continue to
raise capital to fund operations.
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On November 9, 2000, the Company commenced a private equity placement. Under the
terms of the proposed transaction, a minimum of $1,900,000 and a maximum of
$3,400,000 will be raised, less applicable fees and expenses. Of the $1,900,000,
a minimum of $400,000 must be raised by the Company other than through the
placement agent described below, and of that $400,000, a minimum of $300,000
must be purchased by directors and officers of the Company and their affiliates.
In addition, of the $1,900,000, a minimum of $1,500,000 must be raised by an
outside placement agent that has been retained by the Company. Proceeds are
being raised through the sale of units, each of which consists of one share of
Common Stock and a warrant to purchase one share of Common Stock. Each unit is
priced at $1.00. The warrants are exercisable at $2.25 per share, valid for a
period of three years from the date of issuance. Notwithstanding the foregoing
term of the Warrant, if the fair market value of one share of Common Stock of
the Company is equal to or greater than $3.50 for twenty (20) consecutive days
during the term of the Warrant, the Company has the right to demand that the
holder exercise the Warrant within a 30-day period. Failure of the Holder to so
exercise the Warrant within thirty (30) days would cause the Warrant to become
void and the Holder would lose all rights that it has with respect to the
Warrant. The Company is required to file a registration statement for the
registration under the Securities Act of 1933 of the sale by the Investors of
their securities not later than March 31, 2001, and the Company is required to
use its best efforts to effect the registration of the resale of all such
securities as promptly thereafter as possible. Other terms and conditions apply.
As of November 14, 2000, a total of $400,000 had been deposited in escrow by
purchasers located other than through the purchase agreement and the minimum
requirement of $300,000 from officers, directors and their affiliates had been
met. A total of $1,465,000 has been deposited in escrow through the efforts of
the outside placement agent. The private placement will close with respect to
the $1,865,000 currently held in escrow as soon as an additional $35,000 is
raised.
Under the terms of the transaction whereby the Company purchased Memry Europe,
the Company was obligated to pay an additional $1,046,000 in cash to the
shareholders of Memry Europe on October 30, 1999. On September 16, 1999, the
Company signed an agreement to convert approximately $455,000 of the obligation
to a term loan that matured and was consequently paid on June 30, 2000. On
October 29, 1999, the Company paid approximately $258,000 to other former
shareholders of Memry Europe. On December 17, 1999, the Company signed an
agreement with the holder of approximately $333,000 of such obligation to
convert the obligation to a combination of common stock and warrants.
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
(prior to the amendment described below) included 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 provided 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 $1,000,000 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. On June 30, 2000, the
Company converted $1,250,000 from the equipment line of credit into a term loan.
The Company has the remaining option of converting amounts borrowed under the
equipment line of credit to term loans on July 1, 2001.
On November 30, 1999, the Company and Webster Bank reached agreement on an
amendment to the Webster Facility. Under the terms of the agreement, the
revolving loan now provides for borrowings up to the lesser of (a) $5,000,000 or
(b) an amount equal to the aggregate of (1) 80% of eligible accounts receivable
and (2) the lesser of $1,000,000 or 35% of eligible inventory. The equipment
loan is amended to provide for equipment financing up to the lesser of
$1,250,000 or 75% of the purchase price for eligible equipment each year through
June 30, 2001. A new term loan in the amount of $1,000,000 was provided with the
requirement that not less than $500,000 of the term loan will be used to finance
new machinery and equipment purchases. The Company has since satisfied said
requirement. The other major provisions of the agreement remain unchanged. At
September 30, 2000, an aggregate amount of approximately $5,500,000 was
outstanding under the Webster Facility. The Webster Facility is secured by
substantially all of the Company's domestic 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. As of September 30, 2000, the Company was in breach of certain of these
covenants related to financial conditions and ratios. However, the Company has
received a waiver from Webster Bank through the second fiscal quarter ending
December 31, 2000 for such financial covenants. The bank has also modified such
financial covenants for periods subsequent to December 31, 2000 such that the
Company believes they will be able to achieve them.
Memry Europe has a primary banking relationship with KBC Bank and Insurance
Group of Belgium. As of September 30, 2000, an aggregate of approximately
$245,000 was outstanding with KBC in short-term and long-term debt.
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The Company has in the past grown through acquisitions (including the
acquisition of Wire Solutions, Memry Europe 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 material
acquisitions for fiscal 2001.
The Company has implemented a plan that restricts capital spending to health and
safety items and essential investment pending the improvement of the Company's
financial condition. Upon the improvement of the Company's financial condition,
the Company has substantial requirements to fund plant and equipment projects to
support the expected increased sales volume of SMA and superelastic materials
during the balance of the fiscal year ending June, 30, 2001. The Company expects
that it will be able to pay for these expenditures through a combination of cash
flow generated through operations in the second half of the fiscal year,
increased borrowings, and sale of stock.
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 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). 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 $2.00
per share, which was above the market price for the Company's common stock on
November 9, 2000, 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
$4.33 million. To the extent that the current market value of the Company's
common stock exceeds $2.00 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.
In addition to funding normal operations, it is likely the Company will be
required to secure new facilities to house its east coast and west coast
operations during fiscal year 2001 and fiscal year 2002. The cost of these moves
and associated relocation expenses will be substantial, however the Company
believes that the combination of its borrowing facility, its ability to raise
equity capital, and what it believes will be a return to profitability from
operations during the fourth quarter of fiscal year 2001 and fiscal year 2002
will be sufficient to meet the Company's total capital requirements.
NEW ACCOUNTING PRONOUNCEMENTS AND INTERPRETATIONS
In December 1999 the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company will adopt SAB No. 101 when required in the fourth quarter of fiscal
year 2001. Management believes the adoption of SAB No. 101 will not have a
significant effect on its financial statements.
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EURO CONVERSION
The Company conducts business in multiple currencies, including the currencies
of various European countries in the European Union which began participating in
the single European currency by adopting the Euro as their common currency as of
January 1, 1999. During the period January 1, 1999 to January 1, 2002, the
existing currencies of the member countries will remain legal tender and
customers and vendors of the Company may continue to use these currencies when
conducting business. Currency rates during this period, however, will no longer
be computed from one legacy currency to another but instead will first be
converted into the Euro. The Company continues to evaluate the Euro conversion
and the impact on its business, both strategically and operationally. At this
time, the conversion to the Euro has not had, nor is expected to have, a
material adverse effect on the financial condition or results of operations of
the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Memry Corporation
Date: December 5, 2000 /s/ James G. Binch
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James G. Binch
CEO and Chairman
Date: December 5, 2000 /s/ Robert P. Belcher
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Robert P. Belcher
Chief Financial Officer, Treasurer, and Secretary
