**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-K**









**(Mark
      One)**




**x**
            **ANNUAL REPORT
              PURSUANT TO
              SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
              1934****For the fiscal year ended:
              June 30, 2007****OR****o**
            **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 001-15971**







**Memry
      Corporation**


**(Exact
      name of registrant as specified in its charter)**









**Delaware**
            **06-1084424**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                No.)




**3
                Berkshire Blvd., Bethel, Connecticut**
            **06801**(Address
                of principal executive offices)
            (Zip
                Code)




**Registrant’s
      telephone number, including area code (203) 739-1100**




**Securities
      registered pursuant to Section 12(b) of the Act:**




**Title
                of each class**
            **Name
                of each exchange on which registered****Common
                Stock, par value $.01 per share**
            **American
                Stock Exchange**




**Securities
      registered pursuant to Section 12(g) of the Act: None**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities
      Act.    Yes o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the
      Act.    Yes o No x




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  ̈




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      Accelerated Filer  ̈ Accelerated
      Filer  ̈ Non-Accelerated
      Filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).    Yes  ̈ No x




The
      aggregate market value of common stock held by non-affiliates of the registrant
      was $58,540,000 on December 29, 2006 based upon the closing trade price of
      $2.47 on that date and based on the assumption, for purposes of this computation
      only, that all of the registrant’s directors and officers are affiliates.




The
      number of shares outstanding of the registrant’s Common Stock as of
      September 13, 2007 was 29,862,910.




**DOCUMENTS
      INCORPORATED BY REFERENCE:**




Portions
      of the registrant’s Proxy Statement for its Annual Meeting of Stockholders to be
      held in November 2007 are incorporated by reference into Part III of this Annual
      Report on Form 10-K.












**Memry
      Corporation**


**Index
      to Annual Report on Form 10-K**


**For
      The Year Ended June 30, 2007**




**Index**




**Page****Part
                I.**Item
                1.
            Business
            2Item
                1A.
            Risk
                Factors
            12Item
                1B.
            Unresolved
                Staff Comments
            14Item
                2.
            Properties
            14Item
                3.
            Legal
                Proceedings
            14Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            16**Part
                II.**Item
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            16Item
                6.
            Selected
                Financial Data
            18Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            19Item 7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            32Item
                8.
            Financial
                Statements and Supplementary Data
            32Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            32Item 9A.
            Controls
                and Procedures
            32Item 9B.
            Other
                Information
            32**Part
                III.**Item 10.
            Directors,
                Executive Officers and Corporate Governance
            33Item 11.
            Executive
                Compensation
            33Item 12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            33Item 13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            33Item 14.
            Principal
                Accountant Fees and Services
            33**Part
                IV.**Item 15.
            Exhibits
                and Financial Statement Schedules
            33**Signatures**
            39





1


**PART
      I.**




**ITEM 1.
      BUSINESS**




**INTRODUCTION**




Memry
      Corporation (referred to herein as “Memry” or the “Company”) was incorporated in
      1981. Memry’s product lines consist of shape memory alloys (“SMAs”) and
      specialty polymer-extrusion products. The Company provides products primarily
      to
      the medical device industry using the Company’s proprietary shape memory alloy
      and polymer-extrusion technologies. Medical device products utilizing these
      technologies include stent components, catheter components, guidewires,
      laparoscopic surgical sub-assemblies, orthopedic instruments, urological devices
      and similar products. The Company also produces a limited number of products
      for
      the commercial and industrial market. In addition, the Company provides
      engineering services to assist customers in the development of products based
      on
      the properties of shape memory alloys and extruded polymers. During the quarter
      ended December 31, 2005, the Company began managing its business as two
      business segments: (i) Nitinol Products Segment, and (ii) Polymer
      Products Segment. Prior to that time, the Company had operated as one business
      segment. All years reflect the results based on these two business segments.
      See
      Note 17 to the accompanying consolidated financial statements for revenues,
      gross profit and total assets for each business segment.




The
      Nitinol Products Segment provides design support, manufactures and markets
      advanced materials which possess the ability to change their shape in response
      to thermal and mechanical changes, and the ability to return to their original
      shape following deformations from which conventional materials cannot recover.
      The Nitinol Products Segment’s products are used in applications for stent
      components, filters, embolic protection devices, guidewires, catheters, surgical
      instruments and devices, orthopedic devices, orthodontic apparatus, high
      pressure sealing devices, fasteners, and other devices.




The
      Polymer Products Segment designs, manufactures and markets specialty
      polymer-extrusion products to companies serving the medical device, laser,
      fiber-optic, automotive and industrial markets. Its primary products are
      complex, multi-lumen, multi-layer extrusions used for guidewires, catheter
      shafts, delivery systems and various other interventional medical procedures.
      The Polymer Products Segment’s products are known for their complex
      configurations, multiple material construction and innovative designs, all
      while
      maintaining tight tolerances.




On
      November 9, 2004, the Company, through its wholly-owned subsidiary, Putnam
      Plastics Company LLC (“Putnam Plastics Company”), completed its acquisition of
      substantially all of the assets and assumed selected liabilities of Putnam
      Plastics Corporation (the “Putnam Acquisition”) and incorporated its operations
      into its wholly-owned subsidiary, Putnam Plastics Company (the term “Putnam” is
      used herein to refer to the business operated by Putnam Plastics Corporation
      prior to the Putnam Acquisition and Putnam Plastics Company thereafter). Putnam
      is one of the nation’s leading, specialty polymer-extrusion companies serving
      the medical device, laser, fiber-optic, automotive and industrial markets.
      Its
      primary products are complex, multi-lumen, multi-layer extrusions used for
      guidewires, catheter shafts, delivery systems and various other interventional
      medical procedures. Putnam’s products are known for their complex
      configurations, multiple material construction and innovative designs. Putnam
      also is well known for its ability to manufacture to tight tolerances. Putnam
      also provides secondary operations such as tipping/welding, hole drilling,
      precision cutting, custom grinding, skiving/punching, flaring, molding,
      printing, and product assembly.




The
      Company conducts its operations from its three operating facilities located
      in
      Bethel, Connecticut, Menlo Park, California and Dayville, Connecticut. The
      Company’s principal executive offices are located at 3 Berkshire Blvd., Bethel,
      Connecticut 06801, and its telephone number at such address is
      (203) 739-1100.




**TECHNOLOGY**




**Nitinol
      Products Segment** .
      SMAs
      are advanced materials which possess the ability to change their shape in
      response to thermal and mechanical changes, and the ability to return to their
      original shape following deformations from which conventional materials cannot
      recover. These abilities result from the transformation of the crystalline
      structure of the SMA in reaction to thermal and mechanical changes. As a result
      of the crystalline structure changes, SMAs are also able to produce forces
      many
      times greater than those produced by conventional materials.




The
      major
      defining properties of the SMAs with which the Company works are
“superelasticity” and “thermal shape memory.” Currently the predominant SMA
      utilized by the Company is a nickel-titanium alloy commonly referred to as
      nitinol. The mechanical properties that can be engineered into nitinol-based
      devices permit innovative product designs that presently would be difficult
      or
      impossible to replicate with other materials. Unlike ordinary alloys, certain
      SMAs are capable of fully recovering their shape after being deformed as much
      as
      six to eight percent, and of performing this recovery on a repeated basis.
      This
      is more than ten times the recovery ability of ordinary metals. This
“superelasticity” feature has applications for stent components, filters,
      embolic protection devices, guidewires, catheters, surgical instruments and
      devices, orthopedic
      devices, orthodontic apparatus, and other devices. Thermal recovery applications
      typically involve instances where a device is controlled or actuated in response
      to a pre-determined thermal change. Examples of such uses include heat activated
      fasteners, high pressure sealing devices, valve actuation systems, and thermally
      actuated mechanical systems. The majority of today’s commercial applications
      involve the use of the materials’ “superelastic” properties.




2




**Polymer
      Products Segment.** Extrusion
      is the technology of forcing molten plastic through a metal die to form a
      predetermined shape. The extrusion process is a continuous process as opposed
      to
      injection molding which is commonly a batch process. Standard polymer extrusions
      are most commonly single lumen, single material constructs that require very
      basic, very common technology to produce and are often produced in very large
      quantities at commodity pricing. Specialty polymer extrusions can be categorized
      by their complex configurations, multiple material construction and their unique
      design.




Putnam’s
      unique set of capabilities allow the fabrication of multi-layered tubes
      (co-extrusions in which at least two materials are extruded simultaneously),
      Total Intermittent Extrusions (“T.I.E.TM”) in which one tube can be extruded in
      such a fashion as to allow rigid-to-soft handling characteristics in one
      extrusion, thermoset polyimide tubing which offers superior mechanical,
      electrical and thermal properties, braided tubing where metal or polyester
      wires
      can be extruded into a tubing wall to provide unique handling properties, and
      multi-lumen tubing in which multiple lumens may be created within one outer
      wall
      to allow for multiple fluids or guidewires to flow through one tubing construct.




In
      2007,
      Putnam introduced a new product line exclusively dedicated to secondary
      operations capabilities for medical polymer tubing. PPC Plus was established
      to
      provide customers a streamlined manufacturing process for value added
      applications. The efficiency, traceability, and consolidated resources provided
      by this dedicated process enhance Putnam’s ability to support and expedite
      application development for its customers by reducing multiple outsourcing.
      Secondary operation solutions offered within PPC Plus include tipping/welding,
      hole drilling, precision cutting, custom grinding, skiving/punching, flaring,
      molding, printing, and product assembly.




**MARKETS**




The
      vast
      majority of the Company’s product lines, for both the Nitinol Products Segment
      and the Polymer Products Segment, are sold to the medical device industry.
      A
      small amount of product is sold into non-medical markets.




**Medical
      Device Industry.** Although
      the Company has expertise in a variety of SMAs, the Company utilizes primarily
      the superelastic characteristic of nitinol for medical device applications.
      The
      value of nitinol’s superelastic characteristics in the medical device sector is
      in its ability to provide ease of access and delivery of sophisticated medical
      devices. In addition, nitinol is kink resistant, exerts a constancy of force,
      is
      biocompatible (non-toxic) and is non-ferromagnetic, thereby allowing the use
      of
      magnetic resonance imaging (MRI) on patients with nitinol-based implants.
      Because of these unique characteristics, nitinol has become integral to the
      design of a variety of new medical products, notably for peripheral vascular
      and
      non-vascular stents, guidewires and catheters, urological products and
      orthopedic devices.




Vascular
      endoprostheses, so-called stents, are small tubular scaffolding keeping vessels
      open or, for covered stents or stent grafts, preventing aneurysmatic vessels
      from enlarging and potentially rupturing. Stents are placed using minimally
      invasive techniques within the vessel using catheter-based delivery systems.
      Once deployed, stents exert a radial force against the walls of the vessel
      to
      enable these lumens to remain open and functional. A number of different stent
      designs, materials and delivery systems, with varying characteristics, are
      currently available, in clinical studies or under development. The most
      prevalent stent designs are either lattice tubes made via laser cutting or
      wire-based stents.




Stents
      have, until recently, been one of the fastest growing segments of the medical
      device market and have led to significant advances in interventional cardiology,
      radiology and endovascular surgery, a surgical technique involving the
      introduction of a catheter or device through the vessel. Stents are used
      increasingly as adjuncts or alternatives to a variety of minimally invasive
      procedures because it is believed they are beneficial to overall patient outcome
      and may, over time, reduce total treatment costs. From its infancy in 1990,
      the
      U.S. stent market peaked at $3.1 billion in 2005, when the global market hit
      $5.2 billion. Piper Jaffray projects the overall U.S. stent market to shrink
      from about $2.9 billion in 2006 to approximately $2 billion in 2007, with the
      projected decrease driven by the current drug-eluting stent controversies.
      The
      vast majority of stents are currently utilized in the treatment of coronary
      artery disease. Additionally, there are stents with peripheral vascular
      applications. Coronary stents are made primarily of stainless steel or cobalt
      chrome alloys and are normally deployed through the expansion of a balloon
      on a
      catheter-based delivery system with a second balloon frequently used to further
      expand the stent. The Company does not currently process or market stainless
      steel or cobalt chrome stents and does not believe it will be materially
      affected by the controversies and overall market impact referenced
      above. ****




Because
      of their unequaled large expansion ratio, crush resistance, and ease of
      deployment, self expanding nitinol stents are expected to capture a large
      portion of the peripheral vasculature stent market. This market includes the
      endovascular treatment of abdominal and thoracic aneurysms. Self-expanding
      nitinol stents are typically deployed via balloonless catheter-based delivery
      systems constraining the stent
      under a sheath that is subsequently withdrawn to allow the stent elastic
      expansion against the vessel walls. The Company is an active participant in
      the
      processing and marketing of nitinol peripheral stent components.




3




Guidewires
      and/or catheters, in this context, refer to tubes or wires inserted into a
      vessel for diagnostic or therapeutic purposes. The guidewires and/or catheters
      can be used in the delivery of medical devices, drugs or stents. Because of
      the
      superelastic characteristic, together with other attributes of nitinol described
      above, nitinol is replacing stainless steel as the material of choice in many
      of
      these instruments.




The
      use
      of nitinol in the orthopedic marketplace utilizes both the superelastic and
      shape memory characteristics of the material, depending upon the application.
      This market can be segregated into two product classifications—implantables and
      tools/instrumentation. Implantable devices which benefit from the properties
      of
      nitinol range from bone staples, which utilize the shape memory properties
      of
      the material in total joints or trauma surgeries to reduce and ultimately enable
      repair of fractures, to fixation devices which utilize the superelastic
      characteristics of nitinol. The superelastic characteristics of nitinol enhance
      the capabilities of arthroscopic surgery by providing additional flexibility
      in
      the tools and instrumentation. This additional flexibility is also valuable
      in
      spinal fusion devices and replacement products.




A
      wide
      range of retrieval devices, stents, and catheters for use in the urological
      marketplace are further enhanced by the superelastic characteristics of nitinol.
      Flexibility and placement options, heretofore extremely difficult or impossible
      to obtain utilizing current materials, are now much more readily accessible
      through the design inclusion of nitinol. Multifaceted assemblies, made from
      either nitinol wire or laser cut nitinol tubing in the form of baskets,
      graspers, or coils, are less invasive and less traumatic to the system due
      to
      the increased flexibility and pre-set response temperatures made possible by
      the
      properties of this alloy.




Memry
      currently produces the wire, strip and tubing that are used to fabricate
      guidewires, catheters, stents, and urological and orthopedic components and
      increasingly provides completed sub assemblies to medical device companies,
      as
      well as other surgical and diagnostic instrument components.




In
      addition, Putnam is one of the nation’s leading specialty polymer extrusion
      companies serving the medical device industry. Although still considered a
      niche
      market, the field of specialty polymers continues to expand rapidly as more
      refined technologies from companies such as Putnam emerge as realistic
      alternatives to in-house technologies at the large medical device companies.
      Putnam is able to make catheter tubing that needs multiple, co-extruded
      materials and requires precise control of all dimensions. Co-extruded polyimide
      is also used in applications that require precise tolerances and high mechanical
      requirements.




In
      fiscal
      2007, sales to medical device companies accounted for approximately 96% of
      consolidated revenues and sales to non-medical device companies accounted for
      the additional 4%.




In
      July
      2007, the Company received ISO 13485:2003 registration for its facilities.
      This
      advanced International Organization for Standardization registration is a
      comprehensive set of standards covering the quality of design, development,
      manufacture, shipping, installation and servicing of medical devices. In order
      to meet the criteria for registration, the Company demonstrated compliance
      with
      the regulatory standards associated with quality medical device manufacturing
      management systems and provided evidence of application and adherence. In
      addition, the Company was also re-certified to ISO 9001:2000 in July 2007 by
      Lloyds (LRQA).




**Non-Medical
      Markets.** The
      non-medical industry sectors served by the Nitinol Products Segment include
      primarily the aerospace/defense and automotive industries. While the success
      of
      nitinol products in the medical device industry is typically derived from the
      superelastic characteristics of nitinol, applications in these industrial
      sectors employ both the superelastic and the shape memory characteristics of
      nitinol. Although the development cycles in these industries, particularly
      aerospace/defense and automotive, are longer than those of the medical device
      sector, once the product is adopted it typically provides for larger volume
      demand and does not suffer from strict regulatory requirements.




Examples
      of such products the Nitinol Products Segment currently provides to these
      markets include high pressure sealing devices, actuators and fasteners. Memry
      currently sells heat actuated sealing devices used in diesel engine fuel
      injection systems to maintain air pressure. Fasteners are products that also
      employ the characteristics of shape memory to hold or couple two pieces of
      wire
      and/or metal together.




Putnam
      has also leveraged its brand name into non-medical sectors including the
      fiber-optic and automotive industries. Putnam supplies a coated wire that is
      used as a hinge box for automobile parts such as a center console in the
      automotive industry.




4




**OPERATIONS**




The
      Company conducts its Nitinol Products Segment business through its manufacturing
      facilities in Menlo Park, California and Bethel, Connecticut. The Menlo Park,
      California facility produces semi-finished SMAs in two basic forms: wire and
      tube. This facility also provides added value to its tubular product through
      laser processing, shape setting and polishing procedures resulting in the
      delivery of finished stent components, as well as certain other value-added
      activities. Memry’s east coast manufacturing operations, located in the same
      facility as the Company’s corporate headquarters in Bethel, Connecticut,
      processes wire into semi-finished strip, and produces formed components and
      value-added sub-assemblies, predominantly based on wire and strip-based SMAs.
      The microcoil and guidewire components utilized in various medical procedures
      are fabricated and supplied from the Company’s eastern operations in Bethel,
      Connecticut.




The
      Polymer Products Segment’s Putnam facility is located in Dayville, Connecticut.
      Processes in the facility include polymer-extrusion, co-extrusion, braiding,
      and
      sheathing. The facility also includes a secondary operations department, which
      offers a wide variety of services including, tube grinding, printing,
      hole-punching, tipping, and insert molding.




**PRODUCTS
      AND SERVICES**




**Nitinol
      Products Segment**




**Semi-Finished
      Materials.** Raw
      nitinol material from specialty alloy suppliers is processed into various shapes
      and sizes and referred to as “semi-finished” materials. These materials,
      characterized generally as wire, strip or tubing, are sold to customers in
      standard configurations, processed further to meet specific customer
      specifications, or serve as the starting material for the formed components
      produced by the Company.




**Wire.** Memry’s
      nitinol wire products are sold as standard products, available in a variety
      of
      sizes, produced in non-standard sizes, to meet specific customer requirements,
      and used as the precursor to a formed component. Memry produces wire with a
      diameter ranging from .004 to .250 inches. In addition, the Company may apply
      a
      variety of finishing techniques, depending on customer specifications, including
      such steps as polishing or coating. Applications for the Company’s wire products
      include wireform stents, guidewires, endodontic files and needles.




**Strip.** The
      Company’s nitinol strip is sold in standard dimensions, as well as custom sizes
      as specified by the customer. Memry produces strip with a thickness ranging
      from
      .001 to .01 inches and a width ranging from five to twenty times the thickness.
      The majority of the strip product, however, serves as the starting material
      for
      formed components made by Memry. Example applications include the strip sold
      to
      original equipment manufacturers (“OEMs”) for wrapping around catheters for
      reinforcement of drainage catheters and biopsy forceps.




**Tube.** Nitinol
      tubing, or micro-tubing as it is sometimes called, is likewise sold in standard
      or customized sizes. Memry produces tubes with an outside diameter ranging
      from
      .012 to .300 inches and an outside diameter to internal diameter ratio from
      1.15
      to 1.70. Tubes are typically used in applications requiring flexible shafts,
      while maintaining a good column strength and the ability to transfer torque.
      Examples of such applications include stents, catheters, delivery guides,
      needles, MRI instruments and surgical instruments.





**Formed
      Components.** Formed
      components are typically non-standard products. Formed components are made
      by
      taking the semi-finished materials and further processing them by bending,
      kinking, stamping, crimping, laser cutting or electropolishing into specific
      forms as specified by customers. Examples of applications for formed components
      include the bending or arching of wire for use as orthodontic braces, helical
      and strip actuators, micro coils, patented locking rings for electronic
      connectors, enabling components of medical instruments (particularly stent
      structures), and sealing components. Memry recently expanded its secondary
      operations capability with the addition of equipment that provides grinding,
      tipping and coating services. The Company currently uses these capabilities
      in
      the production of guidewires and components
      to assist in the treatment of occlusions.
      Also recently added was wire EDM which is being utilized in the production
      of
      female incontinence components, stylet
      tips, and
      anchors for bypass and other procedures .




**Sub-Assemblies.** Memry
      manufactures and sells value-added sub-assemblies to OEMs, principally in the
      medical device field. This is done by taking the semi-finished materials and/or
      formed components produced by Memry and combining or assembling them with other
      products that have been outsourced by Memry to form a larger component or
“sub-assembly” of the OEMs’ finished product. Memry combines its SMA expertise
      with additional manufacturing and process knowledge and third-party supply
      chain
      management to cost-effectively produce a sub-assembled product for OEMs. The
      single largest portion of Memry’s eastern business is selling assemblies and
      components to United States Surgical Corporation (“USSC”), a division of
      Covidien Ltd. (formerly Tyco Healthcare Group, LP), and other medical industry
      OEMs. The primary item sold by Memry to USSC is a SMA sub-assembly used by
      USSC
      for endoscopic instruments. The use of superelastic SMAs allows the instruments
      to be constrained outside the body, inserted into the body in its constrained
      form through small passages, to then take a different shape while inside the
      body, and then to return to their constrained shape for removal. The primary
      value-added product produced by the Company’s Menlo Park operations is finished
      stent rings utilized by Medtronic, Inc. (“Medtronic”) in their AneuRx AAA stent
      graft product.




5




**Engineering
      Services.** Memry is
      engaged in reimbursable development projects in which the Company provides
      design assistance, manufactures and sells prototype components and products
      to
      customers. Memry is currently working on a number of programs to develop SMA
      components for OEM customers’ products. The Company will accept
      customer-sponsored development contracts when management believes that the
      customer is likely to order a successfully developed component or product in
      sufficient quantity to justify the allocation of the engineering resources
      necessary. Generally under such programs, the identity of the customer is
      confidential; the data, inventions, patents and intellectual property rights
      which specifically
      relate to the SMA component are either owned by the customer, or, in several
      instances, shared between the Company and the customer; and data, inventions,
      patents, and intellectual property rights pertaining to the SMA technology
      that
      do not specifically relate to the customer’s product are owned by the Company.




**Polymer
      Products Segment**




**Co-extrusion.** Putnam
      manufactures a variety of co-extruded tubing for a variety of medical tubing
      applications. Co-extrusion is the simultaneous extrusion of two materials that
      form two distinct layers in one tube. The layers can be different materials
      where each material brings a set of distinct properties to the tube. Some of
      the
      applications require a stiff inside material to increase burst strength and
      a
      flexible exterior material to maintain flexibility.




**T.I.E.TM.** T.I.E. **TM** tubing
      is manufactured with a unique patented process which enables engineers to design
      a product with continuously extruded rigid-to-soft tubing. Also available in
      multi-lumen, this can reduce the cost of manufacturing compared to standard
      bonding technology. The soft tip can be made in a different color than the
      shaft
      for recognition purposes. This tubing is available in many thermoplastic
      materials, including polyurethane and Pebax ® .
      Most
      conventional tubes are either rigid or soft throughout and do not offer this
      important property.




**Thermoset
      Polyimide Tubing.** Putnam
      offers thin walled thermoset polyimide tubing and wire coatings. Polyimide
      tubing is manufactured to extremely close dimensions while insuring exceptional
      performance. It has standard interior diameter range from .006 to
      .080 inches and standard wall thickness from .0005 to .006 inches.
      Polyimide may also be co-extruded with other polymers such as Peek,
      Polyurethane, Nylon 11-12, Pebax ® and
      various other materials. Polyimide has superior mechanical, electrical and
      thermal properties. It is strong, flexible, non-corrosive and chemically inert.




**Single
      Lumen.** A
      single
      lumen tube is a tube having a specified inner diameter, from .005 to .7 inches,
      outer diameter, from .01 to .85 inches or wall thickness, down to .0015 inches.




**Multi-Lumen.** A
      multi-lumen tube is an extrusion that contains two or more lumens within a
      single outer wall. Each of the lumens can be a different size or shape.
      Multi-lumen tubing can have up to 15 lumens and a variety of materials and
      compounds can been extruded and a specific lumen can be lined with a different
      material.




**Taper/Bump.** Tapered
      tubing is a continuous extruded tube consisting of several inside and outside
      diameters. Typically, the tubing can have a large straight bore diameter
      tapering to a smaller diameter. Transitions can be controlled to a specific
      taper length going from small to large diameter and vice versa. Additionally,
      transitions can be small (1.25 inches) or occur over a very long length, such
      as
      60 inches.




**Braided
      Reinforced Tubing.** Putnam
      offers braiding capability in many polymers and is available in 16- or 24-
      wire
      configurations. Braiding wires vary from .0005 by .002 to .003 by .012 inches
      flat stainless steel and is also available in round wires. The braid can be
      wound with various spacings of the wire. By changing several factors during
      the
      braiding process, the characteristics of the tube can be altered to fit
      performance requirements. Braided catheter tubing is available in 2-10 French
      (0.6 to 3.0 mm) range in nylon, polyurethane and a variety of other polymers,
      radiopaque (visible under x-ray) and natural. Braid reinforced tubing is used
      in
      angioplasty, diagnostic and guiding catheters. Its advantages over
      non-reinforced tubing include: increased burst strength for higher injection
      pressures; increased column strength, for the ability to pass more tortuous
      lesions; and increased ability to transfer torque, for better hub to tip
      response.




**Wire
      Coating.** Putnam
      can coat many types of wire with a variety of polymers. Wires as small as .002
      and as big as .2 inches are coated on a regular basis. Polyimide coatings are
      available for electrical properties. Fluoropolymer coatings are used for
      electrical and low friction applications. Wires can also be extruded into the
      wall of multi-lumen tubing. Putnam has the capability to apply a polymer coating
      to a nitinol wire for coated guidewire applications.




**Secondary
      Operations.** PPC
      Plus
      is a new product line exclusively dedicated to secondary operations capabilities
      for medical polymer tubing. Secondary operation solutions offered within PPC
      Plus include tipping/welding, hole drilling, precision cutting, custom grinding,
      skiving/punching, flaring, molding, printing, and product assembly.




6




**STRATEGY**




The
      Company’s strategy has several components which support each other. The overall
      objective of the Company is to become a leading supplier of components and
      sub-assemblies to the medical device industry. Memry is focused specifically
      on
      providing high value-added solutions to assist in the diagnosis and treatment
      of
      diseases utilizing less-invasive technologies and procedures. A key component
      of
      this strategy is to maintain the Company’s leadership position in the provision
      and processing of SMAs and specialty polymer-extrusion by strengthening our
      position in SMA and leveraging, strengthening and growing the specialty
      polymer-extrusion business. This will require Memry to continue developing
      the
      relevant technology and also to become a very efficient and cost effective
      manufacturer. A second element of the strategy is to diversify and expand the
      Company’s revenue base by providing additional products and services. This will
      enable Memry to attract new customers and to expand the Company’s business with
      the Company’s existing customer base. Finally, Memry is continuing to explore
      the possibility of expanding the Company’s product and service offerings through
      acquisitions, such as Putnam, joint ventures, and/or investments. Each of these
      strategic elements will be further described below.




**Maintain
      leadership position in Shape Memory Alloys and Specialty Polymer-Extrusion**




**Strengthen
      position in Shape Memory Alloys.** Memry’s
      core business remains focused on its expertise in shape memory alloys,
      particularly nitinol, with the objective of sustaining growth in both the
      medical and non-medical markets. Because of the innovative nature of the medical
      device industry, however, the Company has found the return on invested
      development resources to be most attractive in the medical device sector. The
      Company therefore focuses the majority of its engineering and manufacturing
      expertise on the development of products for the medical device markets, where
      the properties provided by SMAs provide significant performance advantages
      or,
      in many cases, represent the enabling component of the medical device.




In
      cases
      where non-medical customers support the engineering and process development
      expense and there is strategic interest on the part of Memry, however, the
      Company will also undertake the development of non-medical applications. In
      addition, the Company has in the past applied, and anticipates it will in the
      future apply, advancements made in the development of medical devices to
      applications in the lower margin, higher volume non-medical sectors where
      customers are not supporting development activities.




In
      order
      to continue to advance the Company’s leadership position in SMAs, the Company
      continues to implement the following initiatives:




**Advancing
      Processing Expertise and Quality Assurance.** Nitinol
      is a non-linear material, which makes it a very difficult material to process.
      Memry believes that one of its competitive advantages is its ability to
      effectively process this material. One of these processes is the production
      of
      tubes used primarily in the production of stents. The Company believes that
      this
      process, proprietary to the Company, will provide Memry with an advantage over
      competitors with regard to product quality and cost for selected products when
      it is fully implemented. Memry has underway a number of process enhancement
      initiatives designed to enhance both the current manufacturing processes and
      Memry’s competitive position. Many of the materials produced by Memry are used
      in medical devices; therefore the product quality requirements placed on Memry
      by its customers are high. Each of Memry’s manufacturing facilities is ISO
      13485:2003 and ISO 9001:2000 registered.




**Modernizing
      Manufacturing Capabilities.** To meet
      growing demand, particularly in the medical device market for the production
      of
      nitinol stents and other components, the Company has committed to optimizing
      the
      manufacturing efficiency of its current facilities and expects to invest between
      $1.5 million and $2.0 million in capital equipment and facility improvements
      in
      the SMA product line in fiscal 2008.




**Modifying
      Manufacturing Operations.** To
      accommodate the growing capacity requirements of the Company’s core medical OEM
      customer business, and in an effort to increase the efficiency of operation,
      the
      Company will continue to analyze the optimum manufacturing strategy for the
      Company, including which Memry facility should house each operation and what
      role outsourcing will play in overall operations.




**Leverage,
      strengthen and grow the Specialty Polymer-Extrusion product
      line.** The
      Putnam Acquisition was an important step in achieving the Company’s primary
      strategic objective of becoming a leading supplier of components and
      sub-assemblies to the medical device industry. To continue to grow the specialty
      polymer-extrusion product line, the Company has set the following objectives:




**Expand
      secondary operations.** The
      Company will continue to grow the specialty polymer-extrusion product line
      by
      focusing on plastic related secondary operations such as insert molding,
      tipping, hole punching, grinding and printing. The Company believes expanding
      secondary operations will allow Putnam to provide a broader scope of services
      and deliver more complete components and sub-assemblies. Expanding product
      and
      engineering capabilities is very important to medical device companies which
      are
      trying to increase their own efficiencies by reducing the number of their
      suppliers.




7




**Process
      Improvement.** The
      Company is committed to investing in Putnam’s manufacturing operations in an
      effort to improve efficiency, shorten lead times on new products, and improve
      overall quality. Success in these efforts should increase customer satisfaction
      and generate cost savings for the Company.




**Synergy
      with nitinol products.** Currently, the Company is developing a nitinol wire reinforced tubing that
      will
      utilize Putnam’s polymer technology. Success in these and other on-going joint
      development efforts should
      allow our customers to consolidate vendors, simplify their supply chain, and
      reduce costs. In addition, with the capability to manufacture both plastic
      and
      SMA components, the Company can be considered a secondary source for a broader
      range of customers who might want to minimize their supply risk.




**Provide
      new products and services**




**Diversify
      and expand the Company’s revenue base.** The
      medical device industry has been undergoing significant change over the last
      few
      years. As part of that change, many of the larger participants have recognized
      that their competitive differentiation comes from two key elements: device
      design and product marketing. These are the core competencies in which
      successful medical device companies excel and on which many medical device
      companies are focusing their resources. As a result, industry participants
      are
      looking to outsource to other companies with specialized expertise, some of
      the
      other essential parts of the business, especially engineering incorporating
      advanced material technologies and manufacturing processes. These factors have
      resulted in a growing trend towards outsourcing in the medical device industry,
      impacting the full breadth of the manufacturing cycle from material engineering
      to final product assembly.




The
      market drivers for the outsourcing trend include increased competitive
      pressures, a need to shorten the device development cycle, and efficient use
      of
      resources.




Memry
      believes that it can address the market opportunity created by these changes
      in
      the medical device industry. By combining a strong advanced materials
      technological capability to assist medical device companies with engineering
      skills that address issues involving the characteristics of SMAs and specialty
      polymer-extrusion as well as developing cost effective, high quality
      manufacturing processes and supply chain relationships, Memry believes that
      it
      can alleviate these issues for its OEM customers.




In
      order
      to expand on this “fully-integrated” service concept, the Company has
      implemented the following:




**Increasing
      Engineering Service Capabilities.** Memry
      possesses significant expertise in the characterization and performance
      variables of various SMAs and specialty polymer-extrusion products. This
      expertise is often critical in the design of medical devices. Although Memry
      has
      in the past actively participated in the design of OEM customer products, the
      Company has a program to clearly characterize and communicate to customers
      both
      the Company’s capabilities and the terms and conditions under which the Company
      will contract to assist existing and potential customers through these services.
      In addition, it has increased the scope of service to the medical device market
      by adding sophisticated surface chemistry treatments.




**Processing
      Additional Formed Components.** Over the
      past several years, the Company has taken advantage of additional opportunities
      in the market to increase its business of processing semi-finished material
      into
      formed components. The Company anticipates that it will continue to focus its
      resources on seeking additional customers for existing component concepts and
      new opportunities for its semi-finished material.




**Expand
      Memry’s product and service offerings through acquisitions or joint ventures**




While
      there remain growth opportunities in the core product/service areas described
      above, Memry will continue to investigate broadening its capabilities through
      acquisitions, joint ventures, and/or investment. As was the case in the Putnam
      Acquisition, Memry is screening strategic partners along several variables,
      including: growth opportunity, diversification of product lines and customers,
      profit potential, and access to new technology. The Company anticipates that
      any
      acquisition, joint venture, or investment would be in a business segment that
      is
      strategically related to its current business.




In
      addition to the Putnam Acquisition, the Company continues its joint development
      program with and has made a $400,000 initial investment in Biomer Technology
      Limited (“Biomer”), a privately owned company specializing in the development
      and manufacture of state-of-the-art polymers and biocompatible coatings for
      stents and other medical devices. Based in Runcorn, England, Biomer is a
      biomaterials company that has developed a range of high-performance
      polyurethanes, process technology, components and products for medical device
      manufacturing. On
      November 6, 2006, the Company entered into a licensing agreement with Biomer
      for
      the exclusive worldwide license to a biocompatible coating technology with
      potential drug-eluting capabilities for use on Nitinol stents. The agreement
      also requires the Company to sponsor a pre-clinical evaluation using
      Biomer’s  passive
      coatings  on
      a
      self-expanding Nitinol stent platform.




8




**SALES
      AND MARKETING**




**Sales
      to Memry Europe.** In
      connection with the sale of Memry Europe, N.V. to Wilfried Van Moorleghem in
      February 2001, Memry entered into a License and Supply Agreement with Memry
      Europe (which has been renamed Advanced Medical Technologies (“AMT”)). Pursuant
      to the License and Supply Agreement, Memry agreed to supply to AMT certain
      alloys and tubing products. In addition, conditional upon Memry being granted
      certain patents, Memry agreed to grant to AMT a right and royalty-bearing
      license to such patents and a right and royalty-bearing license to certain
      electropolishing technology and tubing technology.




**Personnel.** The
      Company currently has fifteen sales and marketing personnel, of which six
      operate primarily from headquarters. Additionally, the Company has one sales
      agent based in Israel and one sales agent based in Hong Kong.




**Major
      Customers.** The
      Company’s two largest customers are Medtronic and USSC. During the years ended
      June 30, 2007, 2006 and 2005, Medtronic accounted for approximately 28%,
      28% and 32%; and USSC accounted for approximately 14%, 15% and 15% of the
      Company’s consolidated revenues, respectively. Revenue totals for each customer
      include sales to all divisions of each customer. No other customer accounted
      for
      more than 10% of consolidated revenues in the years ended June 30, 2007,
      2006 or 2005.




**Customer
      Agreements.** The
      Company executed supply agreements with some of its customers.




**Medtronic
      supply agreement** .
      The
      Company executed this agreement on August 1, 2006 for a term of three
      years; however, Medtronic has the right to terminate this agreement after the
      second anniversary date for any reason or no reason. In addition, the agreement
      provides for renewal terms of two years each at Medtronic’s option, subject to
      the Company’s right to reject any renewal term, all on the terms set forth in
      the agreement. The agreement covers all current commercially available products
      sold to three Medtronic facilities, as well as a master agreement with Medtronic
      corporate. This agreement provides for a forecast of product to be supplied
      by
      the customer to the Company, with a commitment of purchase at varying levels
      on
      a quarterly basis.




**USSC
      supply agreement** .
      The
      Company and USSC executed this exclusive agreement during fiscal 2006 for a
      term
      of three years wherein the Company is the exclusive supplier for all nitinol
      based organ retrieval bags. The Company is also named as a preferred supplier
      for all successor products.




**Foreign
      Sales.** During
      the year ended June 30, 2007, approximately 79% of consolidated sales were
      to customers in the United States, 11% were to customers in the Dominican
      Republic, and 10% were to customers in all other countries. The Company
      attributes sales to unaffiliated customers in different countries on the basis
      of the ship-to location of the customer. Substantially all of the revenues
      in
      the Dominican Republic represent sales to an off-shore manufacturing facility
      of
      USSC.




**SOURCES
      OF SUPPLY**




**The
      principal raw material used by the Company in nitinol products is
      SMAs.** The
      Company obtains its SMAs from one principal source, Precision Castparts Corp.’s
      subsidiary Special Metals Corporation of New Hartford, New York. The Company
      anticipates it will be able to continue to acquire SMAs in sufficient quantities
      for its needs from this supplier. In addition, if the Company were, for whatever
      reason, not able to secure an adequate supply of SMAs from this supplier, the
      Company has identified other suppliers that, after a period of time, would
      be
      able to supply the Company with sufficient quantities of SMAs. It is probable
      the Company would suffer meaningful transitional difficulties if it had to
      switch to and validate alternate suppliers.




**The
      principal raw material used by the Company in polymer extrusion products is
      polymers.** The
      Company obtains its polymers from four principal sources: Foster Corporation
      of
      Putnam, Connecticut, which is 50% owned by the sole shareholder of Putnam
      Plastics Corporation who is an executive officer of the Company and member
      of
      the Board of Directors of the Company, Noveon, Inc. of Woburn, Massachusetts,
      New England Urethanes of North Haven, Connecticut and Dow Chemical Corporation
      of La Porte, Texas. The Company expects to be able to continue to acquire
      polymers in sufficient quantities for its needs from these suppliers. In
      addition, if the Company were, for whatever reason, not able to secure an
      adequate supply of polymers from these suppliers, the Company believes that
      there is an active worldwide polymer market and would not anticipate any long
      term problem procuring necessary quantities of polymers.




While
      the
      Company also relies on outside suppliers for its non-SMA and non-polymer
      components of sub-assembled products, the Company does not anticipate any
      difficulty in continuing to obtain non-SMA and non-polymer raw materials and
      components necessary for the continuation of the Company’s business.




9




**COMPETITION**




The
      Company faces competition from other SMA processors, who compete with the
      Company in the sale of semi-finished materials (primarily with the Company’s
      California operation) and formed components (with Memry’s Connecticut and
      California operations). There are several major U.S., European and Japanese
      companies engaged in the supply or use of SMAs, some of which have substantially
      greater resources than the Company. Within the U.S., the two major SMA
      suppliers  to
      both
      the Company and the industry as a whole are Alleghany Technologies’ Wah Chang
      Division and Precision Castparts Corp.’s subsidiary Special Metals Corporation.
      Each of these companies has substantially greater resources than the Company
      and
      could determine that it wishes to compete with the Company in the Company’s
      markets. Special Metals Corporation has become a competitor of the Company
      for
      semi-finished wire and strip materials. Japanese competitors include Furakawa
      Electric Co. and Daido-Special Metals Ltd., both of which produce SMAs and
      sell
      to users in Japan and internationally. The principal European competitors are
      Minitubes SA, a private French nitinol tube supplier, and G. Rau/EuroFlex,
      a
      German company that has a business relationship with NDC (See below). In
      addition, AMT (formerly Memry Europe) is a European competitor. However,
      pursuant to the License and Supply Agreement between Memry and AMT, the parties
      agreed that AMT has the rights to use certain of our technology only in Europe
      and Asia, while we have retained such rights elsewhere. The Company believes
      that Johnson and Johnson, through its subsidiary Nitinol Devices and Components
      Company (NDC), is our largest competitor, followed by Fort Wayne Metals Inc.,
      Accellent Corp. and Shape Memory Alloy Applications, Inc., a subsidiary of
      Johnson Matthey Inc., all of which are based in the United States.




In
      the
      specialty polymer-extrusion sector, the Company believes Putnam has created
      certain barriers to entry due to its ability to manufacture specialized products
      that can hold tight tolerances with quick turnaround times from order to
      delivery. Putnam’s competitors, however, also make similar claims in terms of
      tolerances and turnaround times. Among its competitors in the specialty
      polymer-extrusion market, Accellent Corp. (formerly MedSource Technologies,
      Inc.), Extrumed, Inc. and Medical Extrusion Technologies compete with Putnam
      in
      a broad range of products. A fourth competitor, MicroLumen Inc., competes with
      the Company primarily in the Polyimide product line.




The
      Company intends to compete, and advance its position based primarily on its
      manufacturing capabilities, its proprietary intellectual property positions,
      its
      knowledge of the processing parameters of the alloys and polymers, and its
      unique design and assembly capabilities, particularly in the medical device
      field. However, Memry has experienced increased competitive pressure in the
      SMA
      market over the past two fiscal years, and anticipates that this pressure will
      continue in the future. It is likely that this competitive activity will result
      in downward pressure on prices and have a negative impact on gross margins.




**PATENTS,
      TRADEMARKS AND PROPRIETARY TECHNOLOGY**




The
      Company owns eighteen U.S. patents, as well as a variety of foreign patents, in
      the
      fields of medical devices, automotive components, valving mechanisms, sporting
      goods, and consumer products using SMAs and related effects alloy
      compositions, the production of these alloy compositions, the production of
      semi-finished materials such as tubing, and the utilization of nickel-titanium
      alloys having superelasticity and shape memory effects. Some of these patents
      are directed at the articles as well as the method of manufacture of such
      articles. There are a number of patent applications that are either pending
      or
      have provisional status covering primarily medical devices and methods of
      manufacture. The Company has foreign patents in force in various foreign
      countries where the Company does business or where the Company is otherwise
      desirous of having foreign patent coverage. The Company has also applied for
      patent protection in several foreign countries.




Further,
      in connection with the 1996 acquisition by Memry of its West coast facility
      from
      Raychem Corporation (the “Raychem Acquisition”), the Company was assigned a
      non-exclusive license to use NiTiNb alloys and related processing technologies
      for couplings, connectors, and sealing devices in fields other than fluid
      fitting products for uses in marine, aerospace or nuclear markets.




Under
      the
      terms of the Raychem Acquisition, the Company is, under certain circumstances,
      required to license the acquired intellectual property back to Raychem for
      specified uses. For example, (i) upon the termination of the Company’s
      Sales Agency Agreement with Raychem, Raychem received a non-exclusive perpetual
      license to utilize these patents to sell products within specified fields of
      use
      for a specified royalty, and (ii) Raychem has a non-exclusive, transferable
      perpetual license to utilize these patents in connection with certain
      intellectual property relating to the medical products market that was not
      acquired by the Company as part of the Raychem Acquisition. The Company believes
      that this latter license has now been transferred to Medtronic, Inc., a medical
      products manufacturer (and a customer of the Company), when Medtronic purchased
      certain intellectual property (excluded from the Raychem Acquisition) from
      Raychem during fiscal 1997. The Company also has various other patents and
      trademarks which, while useful, are presently not individually material to
      the
      Company’s operations.




10




The
      Company’s patent rights do not dominate the field of SMA utilization and the
      Company does not have specific patent protection for its most important products
      or product components. The Company’s patent rights do not dominate any specific
      fields in which the Company sells products. The Company does believe, however,
      that various patents provide it with advantages in the manufacture and sale
      of
      different products, and that its know-how relating to various SMAs provides
      the
      Company with a competitive advantage.




In
      the
      specialty polymer-extrusion market, prior to the acquisition, Putnam Plastics
      Corporation had strategically elected not to patent many of its tooling design
      and proprietary manufacturing processes. Based on its industry experience,
      Putnam Plastics Corporation developed proprietary technologies that, in
      management’s estimation, afforded them more protection then the patent process.
      Putnam Plastics Corporation did seek and was granted a patent for the T.I.E.TM
product in 1989 that is still in force. Going forward, the Company will
      determine the need to patent technologies based on the most cost effective
      method of protecting the Company’s proprietary technologies.




While
      a
      United States of America patent is presumed valid, the presumption of validity
      is not conclusive, and the scope of a patent’s claim coverage, even if valid,
      may be less than needed to secure a significant market advantage. Gaining
      effective market advantage through patents can sometimes necessitate an
      expenditure on litigation, though this route is often fraught with uncertainties
      and delay. Although the Company’s technical staff is generally familiar with the
      patent environment relevant to the Company’s product lines and has reviewed
      patent searches when considered relevant, the Company cannot be certain whether
      any of its current or contemplated products would infringe any existing patents.




The
      Company cannot guarantee that any patent will be issued as a result of its
      pending applications in either the U.S. or any foreign country or any future
      applications in either the United States of America or any foreign country
      or
      that, if issued, these patents will be sufficient to protect the Company’s
      technology. The patent laws and laws concerning proprietary rights of some
      foreign countries may not protect the Company’s patent or proprietary rights to
      the same extent as do the laws of the United States of America. This may make
      the possibility of piracy of the Company’s technology and products more likely.




The
      Company cannot guarantee that the steps it has taken to protect its patents
      will
      be adequate to prevent misappropriation of its technology. In addition, the
      Company cannot guarantee that any existing or future United States of America
      or
      foreign patents will not be challenged, invalidated or circumvented, or that
      any
      patent granted will provide us with adequate protection or any competitive
      advantages.




**RESEARCH
      AND DEVELOPMENT**




During
      fiscal 2007, the Company spent $1,645,000 on “pure” research and development
      (i.e., research and development performed by the Company at its own cost for
      purposes of developing future products). In comparison, the Company spent
      $2,016,000 and $1,923,000 during fiscal 2006 and 2005, respectively, on similar
      research and development. The decrease in “pure” research and development was
      the result of an effort by the Company to increase the number of research and
      development hours that are reimbursed by our customers. These types of costs
      are
      associated with the development of SMA and prototype polymer components pursuant
      to customer arrangements and are considered “funded” research, and, for purposes
      of the Company’s financial statements, are part of “cost of revenues,” rather
      than research and development. The Company anticipates the trend of having
      research and development costs reimbursed by our customers to continue.




Due
      to
      the shift of engineering focus and the Putnam Acquisition, the Company spent
      $4,941,000 during fiscal 2007 on “funded” research and development. These costs
      are borne directly by the customers of the Company. By comparison, the Company
      spent $4,753,000 and $3,415,000 on “funded” research and development in fiscal
      2006 and 2005, respectively. The amount of “funded” research and development
      that the Company will undertake in the future will depend upon its customers’
needs.




**EMPLOYEES**




As
      of
      June 30, 2007, the Company had 363 full-time employees and two part-time
      employees. Of the full-time employees, 39 were executive or management personnel
      and 28 were science, engineering and research personnel.




None
      of
      our employees are represented by collective bargaining units. The Company
      believes that its relationship with its employees is generally good.




In
      addition, as of June 30, 2007, the Company had 35 “temporary” employees
      (i.e., employees of temporary staffing companies) working for the Company.




11




**AVAILABLE
      INFORMATION**




The
      Company maintains a website at www.memry.com. The Company makes available on
      its
      website under “Investors”—“SEC Filings,” free of charge, its annual reports on
      Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
      amendments to those reports as soon as reasonably practicable after it
      electronically files or furnishes such material
      with the Securities and Exchange Commission. In addition, the Company makes
      available on its website under “About Us”- “Corporate Governance” free of
      charge, its Amended and Restated Audit Committee Charter, Nominating and
      Corporate Governance Committee Charter and Code of Conduct and Ethics. In
      addition, the foregoing information is available in print, without charge,
      to
      any stockholder who requests these materials from the Company. The information
      posted at www.memry.com is not incorporated herein by reference and is not
      a
      part of this Annual Report on Form 10-K.




**ITEM 1A.
      RISK FACTORS**




The
      following risk factors should be considered carefully in connection with any
      evaluation of our business, financial condition, results of operations,
      prospects and an investment in our common stock. Additionally, the following
      risk factors could cause our actual results to materially differ from those
      reflected in any forward-looking statements.




**Our
      revenues may be adversely affected if our largest customers reduce orders.**




The
      Company’s four largest customers accounted for over 50% of the Company’s
      consolidated revenues in fiscal 2007. Significant reductions in sales to any
      of
      these customers due to industry consolidation, loss in market share, selection
      of an additional supply source, the in-house production of components, change
      in
      medical procedures, customer quality problems or excess customer supply could
      dramatically reduce the Company’s revenues, profitability and cash flow needed
      to fund operations.




**Our
      production may be reduced by an inability to obtain the necessary raw materials.**




The
      Company obtains its SMAs from one principal source. The Company anticipates
      it
      will be able to continue to acquire SMAs in sufficient quantities for its needs
      from this supplier. In addition, if the Company were, for whatever reason,
      not
      able to secure an adequate supply of SMAs from this supplier, the Company has
      identified other suppliers that, after a period of time, would be able to supply
      the Company with sufficient quantities of SMAs. It is probable the Company
      would
      suffer meaningful transitional difficulties if it had to switch to and validate
      alternate suppliers. Additionally, the Company obtains its polymers from four
      principal sources. The Company expects to be able to continue to acquire
      polymers in sufficient quantities for its needs from these suppliers. A
      reduction in production due to an inability to obtain the necessary raw
      materials could dramatically reduce the Company’s revenues, profitability and
      cash flow needed to fund operations until production is restored.




**Our
      revenues and operating results may be negatively affected and we may not achieve
      future growth projections if we fail to compete successfully against our
      competitors.**




The
      Company faces competition from other SMA processors, who compete with the
      Company in the sale of semi-finished materials and formed components. There
      are
      several major U.S., European and Japanese companies engaged in the supply or
      use
      of SMAs, some of which have substantially greater resources than the Company.
      Within the U.S., the two major SMA suppliers to both the Company and the
      industry as a whole have substantially greater resources than the Company.
      Each
      of these companies could determine that it wishes to compete with the Company
      in
      the Company’s markets. One of them has become a competitor of the Company for
      semi-finished wire and strip materials. The Company also faces competition
      in
      the specialty polymer-extrusion sector. There are three companies that compete
      with the Company in a broad range of specialty polymer extrusion products and
      one additional company that competes with us primarily in the Polyimide product
      line.




The
      Company intends to compete and advance its position based primarily on its
      manufacturing capabilities, its proprietary intellectual property positions,
      its
      knowledge of the processing parameters of the alloys and polymers, and its
      unique design and assembly capabilities, particularly in the medical device
      field. However, our competitors may also continue to improve their products,
      implement manufacturing efficiencies and develop new competing products. We
      may
      be unable to compete effectively with our competitors if we cannot keep up
      with
      existing or new alternative products, techniques, and technology in the markets
      we serve. These new technologies and products may beat our products to the
      market, be more effective than our products, be less costly than our products
      or
      render our products obsolete by substantially reducing the applications for
      our
      products. It is likely that this competitive activity will result in downward
      pressure on our sales prices and have a negative impact on gross margins.




12




**We
      may experience an interruption in sales of a product and incur costs if the
      customers’ products are recalled.**




The
      majority of the Company’s products are used in the medical device industry. In
      the event that any of our customers’ products present a health hazard to the
      patient or physician or fail to meet product performance criteria or
      specifications, this could result in a recall of the products, thereby resulting
      in a loss of our revenue and an adverse impact on our profitability.




**In
      the event of a claim that we infringe upon another company’s intellectual
      property rights, we could incur significant costs and/or be required to stop
      the
      sale of the related product.**




The
      U.S.
      business environment is highly litigious with respect to patents and other
      intellectual property rights. Although the Company’s technical staff is
      generally familiar with the patent environment relevant to the Company’s product
      lines and has reviewed patent searches when considered relevant, the Company
      cannot be certain whether any of its current or contemplated products would
      infringe any existing patents. Companies have used intellectual property
      litigation to seek to gain a competitive advantage. In the future, we may become
      a party to lawsuits involving patents or other intellectual property. A legal
      proceeding, regardless of the outcome, would draw upon our financial resources
      and divert the time and efforts of our management. If we are unsuccessful in
      one
      of these proceedings, a court, or a similar foreign governing body, could
      require us to pay significant damages to third parties, require us to seek
      licenses from third parties and pay ongoing royalties, require us to redesign
      our products, or prevent us from manufacturing, using or selling our products.
      In addition to being costly, protracted litigation to defend or enforce our
      intellectual property rights could result in our customers or potential
      customers deferring or limiting their purchase or use of the affected products
      until the litigation is resolved.




**Quality
      problems with our processes, goods and services could harm our reputation for
      producing high quality products and erode our competitive advantage.**




Quality
      is extremely important to us and our customers due to the serious and costly
      consequences of product failure. Our quality certifications are critical to
      the
      marketing success of our goods and services. If we fail to meet these standards,
      our reputation could be damaged, we could lose customers and our revenue would
      decline. Aside from specific customer standards, our success depends generally
      on our ability to manufacture to exact tolerances precision engineered
      components, subassemblies and finished devices from multiple materials. If
      our
      components fail to meet these standards or fail to adapt to evolving standards,
      our reputation as a manufacturer of high quality components will be harmed,
      our
      competitive advantage would be damaged, and we would lose customers and market
      share.




**Consolidation
      in the medical device industry could have an adverse effect on our revenues
      and
      results of operations.**




Many
      medical device companies are consolidating to create new companies with greater
      market power. As the medical device industry consolidates, competition to
      provide goods and services to industry participants will become more intense.
      These industry participants may be able to produce components currently provided
      by us or they may be able to use their market power to negotiate price
      concessions or reductions for components produced by us. If we lose market
      share
      due to in-house production by customers or replacement by a competitor, or
      if we
      are forced to reduce our prices because of consolidation in the medical device
      industry, our revenues would decrease and our earnings, financial condition
      and/or cash flows would suffer.




**Loss
      of any of our manufacturing facilities would adversely affect our financial
      position.**




We
      are
      currently operating at three production facilities, two for SMAs and one for
      specialty polymers. Although we believe we have adequate physical capacity
      to
      serve our business operations for the foreseeable future, we do not have a
      back
      up facility for any of the locations. The loss of any facility would have a
      material adverse effect on our revenues, earnings, financial condition and/or
      cash flows.




**A
      loss of key personnel could have an adverse affect on our revenues and results
      of operations.**




The
      Company’s future success depends on the continued service and availability of
      skilled personnel, including research, technical, marketing and management
      positions. There can be no assurance that the Company will be able to
      successfully retain and attract the key personnel it needs. Further, many of
      the
      Company’s key personnel receive a total compensation package that includes
      equity awards. New regulations, volatility in the stock market and other factors
      could diminish the Company’s use, and the value, of the Company’s equity awards,
      putting the Company at a competitive disadvantage or forcing the Company to
      use
      more cash compensation. The loss of key personnel could have a material effect
      on our revenues, earnings, financial condition and/or cash flows.




**An
      inability to meet the requirements of Section 404 of the Sarbanes-Oxley Act
      of 2002 could adversely affect investor confidence and, as a result, our stock
      price.**




The
      Company will be required to comply with the requirements of Section 404 of
      the Sarbanes-Oxley Act of 2002 (“Section 404”) as of June 30, 2008.
      Although the Company has begun to implement the procedures to comply with the requirements
      of Section 404, there is no assurance that we will have a successful
      initial implementation. Failure to meet the initial implementation requirements
      of Section 404, our inability to comply with Section 404’s
      requirements, and the costs of ongoing compliance could have a material adverse
      effect on investor confidence and our stock price.




13




**The
      Company has debt outstanding and must comply with restrictive covenants in
      its
      debt agreements.**




The
      Company’s existing debt agreements contain a number of significant restrictive
      covenants, which limit our ability to, among other things, borrow additional
      money; pay dividends; redeem stock; and enter into mergers, acquisitions and
      joint ventures. The covenants also require the Company to maintain compliance
      with fixed charge coverage and leverage ratios, as defined. While the Company
      is
      currently in compliance with all the foregoing covenants, increases in our
      debt
      or decreases in our earnings could cause the Company to be in default of these
      financial covenants. If the Company is unable to comply with theses covenants,
      there would be a default under these debt agreements. In addition, changes
      in
      economic or business conditions, results of operations or other factors could
      cause the Company to default under its debt agreements. A default, if not
      amended or waived by our lenders, could result in acceleration of the Company’s
      debt and place a severe strain on our liquidity.




**ITEM 1B.
      UNRESOLVED STAFF COMMENTS**




Not
      applicable.




**ITEM 2.
      PROPERTIES**




The
      Company’s headquarters and the Nitinol Products Segment’s east coast
      manufacturing operations are located in a leased facility at 3 Berkshire Blvd.,
      Bethel, Connecticut 06801. The building is a single story, brick and block
      construction facility located in Berkshire Corporate Park, a suburban office
      center. The premises has a floor area of approximately 37,500 square feet,
      of
      which approximately 8,200 square feet is used by the Company for general
      administrative, executive, and sales purposes, and approximately 29,300 square
      feet is used for engineering, manufacturing, research and development operations
      and an environmentally controlled area (“clean room”).




A
      leased
      facility located at 4065 Campbell Avenue, Menlo Park, California 94025 is the
      principal site of the Nitinol Products Segment’s west coast manufacturing
      operations. These premises have a floor area of approximately 28,000 square
      feet, which is used by the Company for manufacturing, warehousing, general
      administrative and research and development operations. The Nitinol Products
      Segment leases an additional facility with approximately 22,000 square feet
      of
      light manufacturing and office space at 4020 Campbell Avenue, Menlo Park,
      California.




Upon
      the
      completion of the Putnam Acquisition in November 2004, the Company signed a
      lease for the Polymer Products Segment’s Putnam manufacturing facility located
      at 130 Louisa Viens Drive, Dayville, Connecticut 06241. These premises have
      a
      floor area of approximately 35,950 square feet, which is used by Putnam for
      manufacturing, warehousing, general administrative and research and development
      operations. The lessor is Mr. James V. Dandeneau, the sole shareholder
      of Putnam Plastics Corporation, and currently a director and executive officer
      of the Company. The Polymer Products Segment’s Putnam operations also lease
      approximately 2,000 square feet of storage space at 40 Louisa Viens Drive,
      Dayville, Connecticut from Mr. Dandeneau on a month-to-month basis.




Management
      believes that the existing facilities of the Company are suitable and adequate
      for the Company’s present needs and that the properties are adequately covered
      by insurance. If the Company is successful in achieving substantial growth,
      it
      is possible that the Company will require additional manufacturing and office
      space over the next several years.




**ITEM 3.
      LEGAL PROCEEDINGS**




The
      Company is a co-defendant in a series of counterclaims filed by Kentucky Oil,
      NV
      (“Kentucky Oil”) vs. the Company and a third-party, Schlumberger Technologies
      Corporation (“Schlumberger”). The referenced action was initiated by a filing
      made by the Company in the U.S. District Court for the Southern District of
      Texas on May 14, 2004. The Company filed the action in response to written
      statements made by Kentucky Oil to Schlumberger alleging that the Company had
      misappropriated proprietary technology from Kentucky Oil and improperly
      transferred it to Schlumberger. In its complaint, the Company alleged that
      Kentucky Oil committed libel, business disparagement, and engaged in unfair
      business practices against the Company as a result of the statements. In
      addition, the Company requested a declaratory judgment that no misappropriation
      of technology occurred.




Pursuant
      to a stipulation between the parties, the civil action was transferred to the
      Northern District of California, San Jose Division, on September 13, 2004.
      Further, as a result of the stipulation, Kentucky Oil waived its objections
      to
      personal jurisdiction and the Company withdrew its claims for libel,
      disparagement, and unfair business practices, leaving the Company’s claim for a
      declaratory judgment as the sole remaining count.




14




Kentucky
      Oil filed an Answer and Counterclaims on November 2, 2004, which included
      counterclaims against the Company for breach of a Collaboration Agreement,
      on
      behalf of Kentucky Oil (“First and Second Counterclaims”), against the Company
      and Schlumberger for misappropriation of trade secrets (“Third Counterclaim”),
      conversion of intellectual property (“Fourth Counterclaim”), joinder of
      Defendant Peter Besselink as co-inventor of several patent applications filed
      by
      Schlumberger based on the alleged misappropriated intellectual property (“Fifth
      Counterclaim”), and, alternatively, for a declaration that the Schlumberger
      patent applications are invalid and unenforceable (“Sixth Counterclaim”). In
      February 2005, the Company and Schlumberger filed motions to dismiss Kentucky
      Oil’s Third, Fourth, Fifth and Sixth Counterclaims. The motions were heard on
      April 1, 2005 and, on April 8, 2005, the Court issued an Order
      granting the motions to dismiss as to the Fourth, Fifth and Sixth Counterclaims,
      and denying the motions as to the Third Counterclaim.




On
      May 6, 2005, Kentucky Oil filed its second amended counterclaims, adding
      claims against the Company and Schlumberger for unfair competition and unjust
      enrichment. Schlumberger filed a motion to dismiss the two new counterclaims
      in
      June 2005, and a hearing on the motions was held on July 8, 2005. On
      June 30, 2005, the parties held a mediation session before a court
      appointed mediator in which the parties did not reach a settlement. On
      July 14, 2005, the Court issued an order denying the motion to dismiss the
      newly added counterclaims.





On
      May 12, 2006, the Company and Schlumberger filed a motion for summary
      judgment that Kentucky Oil lacks standing to assert causes of action for trade
      secrets misappropriation and or correction of inventorship. A hearing on the
      motion was held on July 21, 2006 and, on December 18, 2006, the Court
      issued an Order acknowledging that Kentucky Oil had failed to establish
      ownership of the alleged trade secrets due to a faulty chain of title between
      previous alleged owners. However, the Court declined to enter summary judgment,
      but rather granted Kentucky Oil until January 10, 2007 to cure the evidentiary
      deficiency. Kentucky Oil filed a supplemental affidavit prior to the deadline.
      Pursuant to the Court’s Order, the Company and Schlumberger filed objections to
      the supplemental evidence within five days. The Court has not yet ruled on
      the
      sufficiency of Kentucky Oil’s supplemental evidence or the Company and
      Schlumberger’s objections.





On
      January 26, 2007, the Company and Schlumberger filed multiple motions for
      summary judgment against Kentucky Oil’s several counterclaims, including motions
      for summary judgment that: (1) Kentucky Oil is estopped from asserting loss
      of
      trade secrets, (2) Kentucky Oil’s claim for misappropriation of trade secrets
      and related claim for breach of contract is barred by the statute of
      limitations, (3) no trade secrets were misappropriated, (4) Peter Besselink
      made
      no inventive contribution to Schlumberger’s patents; (5) Kentucky Oil has not
      suffered any compensable injury; and for (6) partial summary judgment on
      Kentucky Oil’s claims for unfair competition and unjust enrichment. On May 24,
      2007, the Court issued “tentative” rulings on the above motion and heard oral
      argument on the following day. In its tentative rulings, the Court granted
      Memry
      and Schlumberger’s motions that Kentucky Oil’s claim for misappropriation of
      trade secrets and related claims for unfair competition and unjust enrichment
      are barred by the statute of limitations. The remaining motions were denied.
      The
      Court has not yet issued final rulings. It is possible that the final rulings
      may differ substantively from the tentative rulings, so it is unclear at this
      time what issues remain for trial. It is expected that the Court will issue
      final rulings on the motions for summary judgment in advance of trial, which
      is
      currently set to begin on November 19, 2007.




On
      June
      13, 2007, Memry filed a motion to dismiss Kentucky Oil’s counterclaims for lack
      of subject matter jurisdiction. In the motion to dismiss, Memry argued that
      Kentucky Oil lacks standing to assert its counterclaims in California because
      Kentucky Oil’s alleged predecessor in interest, United Stenting, Inc., was never
      qualified under California regulations to conduct business in California. Memry
      also reaffirmed its argument that Kentucky Oil lacks standing to sue for damages
      because Kentucky Oil never acquired rights to non-medical applications of the
      Biflex technology. The Court did not schedule oral argument for the motion
      to
      dismiss and has indicated that it will issue a ruling based solely on the
      papers.





On
      August
      3, 2007, Kentucky Oil filed a motion to amend its counterclaims to include
      several patents that have been issued to Schlumberger based on the disputed
      technology over the past several months. Memry and Schlumberger filed
      oppositions on the grounds that Kentucky Oil’s motion is untimely, prejudicial
      and futile.





Pursuant
      to the Court’s January 4, 2007 Order in response to a motion to compel, Kentucky
      Oil served a supplemental initial disclosure on January 11, 2007, delineating
      the bases for its alleged damages. In the disclosure, Kentucky Oil contends
      that
      its current calculation for unmultiplied damages is approximately $30 million.
      Kentucky Oil also served two expert reports in support of its alleged damages
      on
      January 19, 2007. Notwithstanding the fact that Kentucky Oil bears the burden
      of
      proof on damages, the Company served an initial expert report on damages on
      January 19, 2007 concluding, *inter
      alia* ,
      that
      Kentucky Oil’s alleged damages are speculative and contrary to the evidence. The
      Company served a full rebuttal to Kentucky Oil’s expert reports on February 9,
      2007. The Company and Kentucky Oil also exchanged expert reports on certain
      technological issues on January 19, 2007 and served rebuttal reports on February
      9, 2007.




15





On
      December 29, 2006, Kentucky Oil forwarded a settlement proposal to the Company
      and Schlumberger calling for, *inter
      alia* ,
      a lump
      sum payment of $5 million jointly from the Company and Schlumberger and an
      assignment of all of the Company’s rights under the Company- Schlumberger
      Development Agreement to Kentucky Oil. The proposal also includes a
      multi-faceted licensing arrangement between Kentucky Oil and Schlumberger over
      the disputed Schlumberger patents. Both the Company and Schlumberger rejected
      the settlement proposal and declined to make a counterproposal at that time.
      On
      March 14, 2007, the parties met for a settlement conference before the
      magistrate judge (the Court previously ordered the parties to engage in a
      settlement conference prior to trial). During the settlement conference, a
      number of settlement offers and counter offers were made. The settlement
      conference did not result in a resolution of this matter. The Company believes
      the counterclaims are without merit and is vigorously defending its position.
      However, the Company has recorded a liability as of June 30, 2007 and charged
      the amount to operations during the year ended June 30, 2007 for its share
      of
      the last combined settlement offer made by the Company and Schlumberger to
      Kentucky Oil. Although the Company cannot predict with certainty the ultimate
      resolution of this litigation, the Company does not believe that it is likely
      to
      have a material adverse effect on its consolidated financial statements.




**ITEM 4.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




Not
      applicable.




**PART
      II.**




**ITEM 5.
      MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES**




The
      Company’s Common Stock trades on the American Stock Exchange under the symbol
      MRY. On September 10, 2007, there were approximately 4,620 holders of the
      Company’s Common Stock.




The
      following table sets forth the quarterly high and low closing prices for the
      common stock over the past two years.




**Fiscal
                year ended June 30****2007**
            
            **2006****High**
            
            **Low**
            
            **High**
            
            **Low**1stQuarter
            
            $
            3.26
            
            $
            1.72
            
            $
            2.70
            
            $
            2.032ndQuarter
            
            $
            2.60
            
            $
            1.80
            
            $
            2.25
            
            $
            1.583rdQuarter
            
            $
            2.40
            
            $
            1.90
            
            $
            2.20
            
            $
            1.824thQuarter
            
            $
            2.15
            
            $
            1.60
            
            $
            3.22
            
            $
            2.05




The
      Company has never paid a cash dividend on its Common Stock and the Company
      does
      not contemplate paying any cash dividends on its Common Stock in the near
      future. Pursuant to the Company’s November 9, 2004 amended and restated
      loan agreement with its principal lender, the Company is not permitted to
      declare or pay cash dividends.




On
      November 9, 2004, in connection with the Putnam Acquisition, the Company
      issued 2,857,143 shares of Memry common stock (with a fair value of $4.6
      million) to the sole shareholder of Putnam Plastics Corporation,
      Mr. James V. Dandeneau. The shares are subject to various
      restrictions, including a holding period which prohibited the sale of the shares
      for a period of eighteen months after November 9, 2004. Additionally, after
      the expiration of the holding period, subject to certain exceptions, the sale
      of
      shares in the public market is limited to 250,000 per calendar quarter.
      Mr. Dandeneau is currently an executive officer of the Company and member
      of the Board of Directors.




Such
      issuance was exempt from the registration requirements of the Securities Act
      of
      1933, as amended, pursuant to Section 4(2) of the Securities Act.




16




**STOCK
      PERFORMANCE GRAPH**




The
      following stock performance graph shows the change in market value of $100
      invested in the Company’s Common Stock, the Amex Composite Index and the Russell
      2000 Index for the period commencing July 1, 2002 through June 30, 2007. The
      stockholder return shown on the graph below is not indicative of future
      performance.









17




**ITEM
      6. SELECTED FINANCIAL DATA**




The
      following table sets forth selected consolidated financial data with respect
      to
      the Company for each of the five fiscal years in the period ended on
      June 30, 2007, which were derived from the audited consolidated financial
      statements of the Company and should be read in conjunction therewith. Please
      see Item 7 - Management’s Discussion and Analysis of Financial Condition
      and Results of Operations for further information concerning the comparability
      of the selected financial data of the Company.




**Years
                Ended June 30,****2007****(1)**
            
            
            **2006****(1)**
            
            
            **2005****(1)**
            
            
            **2004**
            
            
            **2003****(2)****In
                thousands, except per share data**Revenues
            
            $
            51,677
            
            $
            52,588
            
            $
            45,008
            
            $
            34,492
            
            $
            34,007Net
                income
            
            $
            317
            
            $
            2,673
            
            $
            2,725
            
            $
            2,378
            
            $
            8,828Earnings
                per share:Basic
            
            $
            0.01
            
            $
            0.09
            
            $
            0.10
            
            $
            0.09
            
            $
            0.35Diluted
            
            $
            0.01
            
            $
            0.09
            
            $
            0.10
            
            $
            0.09
            
            $
            0.34Total
                assets
            
            $
            48,746
            
            $
            55,300
            
            $
            52,800
            
            $
            32,988
            
            $
            30,127Long-term
                debt including current maturities
            
            $
            1,615
            
            $
            9,991
            
            $
            11,374
            
            $
            1,479
            
            $
            1,892Stockholders’
                equity
            
            $
            41,350
            
            $
            39,500
            
            $
            35,769
            
            $
            28,224
            
            $
            25,648





(1)
            The
                selected financial data of the Company includes the results of operations
                of Putnam since the November 9, 2004 date of acquisition.




(2)
            During
                the year ended June 30, 2003, the deferred income tax valuation
                allowance of $7,569,000 was eliminated based on management’s assessment of
                the Company’s operating performance and realizability of operating loss
                carryforwards and other temporary differences.




The
      following table sets forth selected quarterly consolidated financial data for
      the years ended June 30, 2007 and June 30, 2006.




**SELECTED
      QUARTERLY FINANCIAL DATA (UNAUDITED)**




**In
      thousands, except per share data**




**FIRST**
              **QUARTER**
            
            **SECOND**
              **QUARTER**
            
            **THIRD**
              **QUARTER**
            
            **FOURTH**
              **QUARTER**
            
            **FISCAL**
              **YEAR**RevenuesFY2007
            
            $
            13,830
            
            $
            12,506
            
            $
            12,212
            
            $
            13,129
            
            $
            51,677FY2006
            
            $
            12,667
            
            $
            12,649
            
            $
            13,993
            
            $
            13,279
            
            $
            52,588Gross
                ProfitFY2007
            
            $
            5,723
            
            $
            3,428
            
            $
            3,547
            
            $
            3,892
            
            $
            16,590FY2006
            
            $
            4,749
            
            $
            4,955
            
            $
            5,877
            
            $
            4,792
            
            $
            20,373Net
                Income (Loss)FY2007
            
            $
            1,015
            
            $
            (280
            )
            $
            (460
            )
            $
            42
            
            $
            317FY2006
            
            $
            501
            
            $
            (236
            )(1)
            $
            1,521
            
            $
            887
            
            $
            2,673Basic
                Earnings (Loss) Per ShareFY2007
            
            $
            0.03
            
            $
            (0.01
            )
            $
            (0.02
            )
            $
            0.00
            
            $
            0.01FY2006
            
            $
            0.02
            
            $
            (0.01
            )
            $
            0.05
            
            $
            0.03
            
            $
            0.09Diluted
                Earnings (Loss) Per ShareFY2007
            
            $
            0.03
            
            $
            (0.01
            )
            $
            (0.02
            )
            $
            0.00
            
            $
            0.01FY2006
            
            $
            0.02
            
            $
            (0.01
            )
            $
            0.05
            
            $
            0.03
            
            $
            0.09





(1)
            During
                the second quarter of fiscal 2006, the Company recorded a pre-tax
                provision for separation charges of $1,130,000 for the retirement
                of the
                Company’s former President and Chief Executive
                Officer.




18




**ITEM 7.
      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




**OVERVIEW**




Memry
      provides design, engineering, development and manufacturing services to the
      medical device and other industries using the Company’s proprietary shape memory
      alloy and specialty polymer-extrusion technologies. Shape memory alloys are
      advanced materials which possess the ability to change their shape in response
      to thermal and mechanical changes, and the ability to return to their original
      shape following deformations from which conventional materials cannot recover.
      Specialty polymer-extrusion products are complex, multi-lumen, multi-layer
      extrusions used for guidewires, catheter shafts, delivery systems and various
      other interventional medical procedures.




The
      Company provides shape memory alloy products and services from facilities
      located in Bethel, Connecticut and Menlo Park, California and specialty
      polymer-extrusion products and services from its facility in Dayville,
      Connecticut. Memry processes raw material (usually nitinol, an alloy of nickel
      and titanium, and plastic polymers) into semi-finished products such as wire,
      strip or nitinol and co-extruded tube. Products in these forms are referred
      to
      as “semi-finished” materials and are marketed directly, primarily to medical
      device companies, for use in products such as guidewires, endodontic files,
      stents, delivery systems, catheters and catheter shafts. The Company also
      further processes its semi-finished materials into formed components and
      sub-assemblies. Formed components are made by taking the semi-finished material
      and further processing them by bending, kinking, coating, stamping, crimping,
      grinding, tipping and laser cutting into specific forms specified by customers.
      Sub-assemblies involve taking the semi-finished materials or formed components
      produced by the Company and combining or assembling them with other products
      that have been outsourced by Memry to form a larger component or “sub-assembly”
required by an OEM, usually in the medical device field. Examples are
      sub-assemblies sold for use in endoscopic instruments and finished stent rings
      utilized in stent graft products. The Company believes that the medical device
      market for shape memory alloys and specialty polymer- extrusion is growing.
      Early applications were for general surgical instruments and for various
      vascular procedures. Recently, new opportunities have appeared in orthopedic,
      urological, electrophysiology, and embolic protection devices.




Approximately
      96% of the Company’s products and services are sold to medical device companies,
      with the balance being utilized in a variety of industrial and commercial
      applications. The Company sells primarily through a direct sales force, with
      sales representatives located in the U.S. and Europe. The medical device
      industry has very strict quality requirements, and the ability to meet these
      requirements and the requested shipment schedules is a key determinant of
      success. Price competition has historically been a key competitive variable
      in
      products that are not technically difficult to manufacture. Recently, as
      awareness of potential applications has increased and the industry has grown,
      the Company has noted increased competition for tube products and
      sub-assemblies, with commensurate pressure on prices and margins.




Two
      key
      areas where management focuses its attention are to reduce the Company’s
      dependence on a small number of products/procedures and to improve manufacturing
      efficiency. Through product development and acquisition, the Company has
      expanded the number of products and customers over the past several years and
      reduced its dependence on a few key products, notably AAA stent graft
      components. Product and customer diversification continues to be a major
      strategic initiative for the Company. In addition to providing additional
      products and services through its core business operations, the Company is
      continuing to explore diversification through acquisitions, such as Putnam,
      joint ventures, and investments. Much of the variability in the Company’s
      margins over the past several years can be explained by variations in
      manufacturing efficiency due to product mix and volume. In addition, the Company
      has gained efficiencies through a constant process improvement process which
      has
      made manufacturing processes more efficient and improved product yields, thereby
      reducing material losses and improving margins.




**ACCOUNTING
      POLICIES AND CRITICAL ACCOUNTING ESTIMATES**




We
      have
      adopted various accounting policies to prepare the consolidated financial
      statements in accordance with accounting principles generally accepted in the
      United States of America. Our significant policies are disclosed in the notes
      to
      the consolidated financial statements.




The
      preparation of the consolidated financial statements, in conformity with
      accounting principles generally accepted in the United States of America
      requires us to make estimates and assumptions that affect the amounts reported
      in the consolidated financial statements and accompanying notes. Our estimates
      and assumptions, including those related to accounts receivable, inventories,
      goodwill, intangible assets, income taxes, and contingencies and litigation,
      are
      updated as appropriate, which in most cases is at least quarterly. We base
      our
      estimates on historical experience or various assumptions that are believed
      to
      be reasonable under the circumstances, and the results form the basis for making
      judgments about the reported values of assets, liabilities, revenues and
      expenses. Actual results may materially differ from these estimates.




19




Estimates
      are considered to be critical if they meet both of the following criteria:
      (1) the estimate requires assumptions about material matters that are
      uncertain at the time the accounting estimates are made, and (2) other
      materially different estimates could have been reasonably made or material
      changes in the estimates are reasonably likely to occur from period to period.
      Our critical accounting estimates include the following:




**Accounts
      Receivable.** We
      provide allowances for doubtful accounts on our accounts receivable for
      estimated losses resulting from the inability of our customers to make required
      payments. If the financial condition of our customers were to deteriorate,
      which
      may result in the impairment of their ability to make payments, additional
      allowances may be required. On a regular basis, we review and evaluate the
      customers’ financial condition, which generally includes a review of the
      customers’ financial statements, trade references and past payment history with
      us. We specifically evaluate identified customer risks that may be present
      and
      collateral requirements, if any, from the customer, which may include, among
      other things, deposits, prepayments or letters of credit.




**Inventories.** We state
      our inventories at the lower of cost or market. We maintain inventory levels
      based on our projections of future demand and market conditions. Any sudden
      decline in demand or technological change can cause us to have excess or
      obsolete inventories. On an ongoing basis, we review for estimated obsolete
      or
      unmarketable inventories and write-down our inventories to their estimated
      net
      realizable value based upon our forecasts of future demand and market
      conditions. These write-downs are reflected in cost of goods sold. If actual
      market conditions are less favorable than our forecasts, additional inventory
      write-downs may be required. Our estimates are primarily influenced by a sudden
      decline in demand due to economic downturn and technological changes.




**Goodwill
      and Intangible Assets.** Goodwill
      represents the excess of the aggregate purchase price over the fair value of
      net
      assets of acquired businesses. Goodwill is tested for impairment annually,
      or
      more frequently if changes in circumstance or the occurrence of events suggest
      an impairment exists. The test for impairment requires us to make several
      estimates about fair value. Goodwill was $14,146,000 at June 30, 2007 and
      2006.




Intangible
      assets consist primarily of management’s estimates of developed technology,
      customer relationships, trade name, and other intangible assets that have been
      identified as a result of the appraisal process regarding the Putnam
      Acquisition. These assets are being amortized over their useful life, determined
      to be 4.5 to 20 years, depending on asset class. In addition, the acquired
      patents existing prior to the Putnam Acquisition are being amortized using
      the
      straight-line method over their estimated useful life of 15 years. We review
      intangible assets for impairment annually or as changes in circumstance or
      the
      occurrence of events suggest the remaining value is not recoverable. Intangible
      assets, net of accumulated amortization, were $6,500,000 and $7,171,000 as
      of
      June 30, 2007 and 2006, respectively. All of the decrease is attributable
      to the amortization expense of $671,000 for the year ended June 30, 2007.




**Stock-Based
      Compensation.** We
      record
      compensation expense pursuant to the adoption of SFAS No. 123(R) on
      July 1, 2005. Certain of our stock option grants are performance based. On
      an ongoing basis, we review the actual and forecast results of the performance
      criteria to estimate the number of options that will become vested. If actual
      results are different from our estimates, the number of options to be vested
      and
      the related expense recognized will require adjustment.




**Income
      Taxes.** Deferred
      taxes are provided on a liability method whereby deferred tax assets are
      recognized for deductible temporary differences and operating loss and tax
      credit carryforwards and deferred tax liabilities are recognized for taxable
      temporary differences. Temporary differences are the differences between the
      reported amounts of assets and liabilities and their tax bases. Deferred tax
      assets are reduced by a valuation allowance when, in the opinion of management,
      it is more likely than not that some portion or all of the deferred tax assets
      will not be realized. The recognition of a valuation allowance for deferred
      taxes requires management to make estimates about the Company’s future
      profitability. The estimates associated with the valuation of deferred taxes
      are
      considered critical due to the amount of deferred taxes recorded on the
      consolidated balance sheet and the judgment required in determining the
      Company’s future profitability. Deferred tax assets were $3,306,000 and
      $3,484,000 at June 30, 2007 and 2006, respectively.




**Contingencies
      and Litigation.** We are
      currently involved in certain legal proceedings and, as required, have accrued
      estimates of probable costs for the resolution of these claims. These estimates
      have been developed in consultation with outside counsel and are based upon
      an
      analysis of potential results, assuming a combination of litigation and
      settlement strategies. It is possible, however, that future results of
      operations for any particular quarterly or annual period could be materially
      affected by changes in our assumptions or the effectiveness of our strategies
      related to these proceedings. See Note 19 to the consolidated financial
      statements for more detailed information on our litigation exposure.




20




**RESULTS
      OF OPERATIONS**




**Introduction**




In
      the
      past several years, the Company has focused on increasing the amount of
      value-added products it provides to the marketplace, i.e., products where
      additional processing is performed on basic nitinol wire, strip, or tube before
      it is shipped to the customer. Currently, medical device applications represent
      some of the best opportunities for increasing the amount of value-added
      business. The kink-resistant and self-expanding properties of nitinol have
      made
      peripheral stenting an area of special interest, and stent components
      manufactured for Abdominal Aortic Aneurysms (“AAA”) in particular have become a
      significant driver of the Company’s revenues. However, because the market for
      stent components is very dynamic and rapidly changing, the Company has found
      it
      difficult to accurately forecast demand for its stent components. Delays in
      product launches, uncertain timing on regulatory approvals, inventory
      adjustments by our customers, market share shifts between competing stent
      platforms, issues in raw material supply and quality and the introduction of
      next-generation products have all contributed to the variability in revenue
      generated by shipments of medical stent components.




On
      November 9, 2004, the Company completed the Putnam Acquisition. Putnam
      utilizes polymer extrusion technology to produce polymer-based products sold
      primarily to the medical device industry. The largest current application for
      Putnam’s technology is for catheters. Putnam also utilizes its extrusion
      capabilities for guidewires, delivery systems, and various other interventional
      medical devices. As in the nitinol product line of the Company, Putnam is
      focusing on growing the value-added portion of its business by performing
      additional processing on its semi-finished polymer tube. The large majority
      of
      Putnam’s products are sold directly to the medical device industry through the
      Company’s direct sales organization. The results of operations of Putnam have
      been included in the consolidated results of operations from the date of
      acquisition.





For
      years
      prior to July 1, 2006, the Company classified legal costs incurred for
      litigating, registering and maintaining patents as research and development
      expense. Commencing July 1, 2006, the Company began classifying such costs
      as
      general, selling and administration expense. For the years ended June 30, 2006
      and 2005, the Company has restated its consolidated financial statements to
      correct this error by $270,000 and $478,000, respectively, of such costs from
      research and development expense to general, selling and administration expense.
      There was no effect on operating income as a result of this restatement.





For
      years
      prior to July 1, 2006, the Company classified certain customer reimbursements
      and other items as other income. Commencing July 1, 2006, the Company began
      classifying such amounts as other operating expenses. For the years ended June
      30, 2006 and 2005, the Company has restated its consolidated financial
      statements to correct this error by $141,000 and $60,000, respectively, of
      such
      amounts from other income to other operating expenses. There was no effect
      on
      net income as a result of this restatement.




**Business
      segments**




The
      Company’s product lines consist of shape memory alloys (“SMAs”) and specialty
      polymer-extrusion products. Currently, the predominant SMA utilized by the
      Company is a nickel-titanium alloy commonly referred to as nitinol. Prior to
      the
      Company’s November 9, 2004 Putnam Acquisition, the Company only produced
      SMAs. Both product lines provide design, engineering, development and
      manufacturing services to the medical device and other industries using the
      Company’s proprietary shape memory alloy and polymer-extrusion technologies.
      Medical device products include stent components, catheter components,
      guidewires, laparoscopic surgical sub-assemblies and orthopedic instruments.
      During the quarter ended December 31, 2005, the Company began managing its
      business as two business segments: (i) Nitinol Products Segment, and
      (ii) Polymer Products Segment. Prior to that time, the Company had operated
      as one business segment. All years reflect the results based on these two
      business segments.




The
      Nitinol Products Segment provides design support, manufactures and markets
      advanced materials which possess the ability to change their shape in response
      to thermal and mechanical changes, and the ability to return to their original
      shape following deformations from which conventional materials cannot recover.
      The Nitinol Products Segment’s products are used in applications for stent
      components, filters, embolic protection devices, guidewires, catheters, surgical
      instruments and devices, orthopedic devices, orthodontic apparatus, high
      pressure sealing devices, fasteners, and other devices.




The
      Polymer Products Segment designs, manufactures and markets specialty
      polymer-extrusion products to companies serving the medical device, laser,
      fiber-optic, automotive and industrial markets. Its primary products are
      complex, multi-lumen, multi-layer extrusions used for guidewires, catheter
      shafts, delivery systems and various other interventional medical procedures.
      The Polymer Products Segment’s products are known for their complex
      configurations, multiple material construction and innovative designs, all
      while
      maintaining tight tolerances.




Included
      in the line item “Eliminations” below are the eliminations between the two
      segments.




21




***Year
      Ended June 30, 2007, compared to Year Ended June 30, 2006.***




The
      following table compares revenues and gross margin by business segment for
      the
      years ended June 30, 2007 and 2006.




**Year
                Ended June 30,****2007**
            
            **2006**
            
            **Increase/(decrease)**$
            
            **%
                of**
              **Revenues**
            
            $
            
            **%
                of**
              **Revenues**
            
            $
            
            %RevenuesNitinol
                Products Segment
            
            $
            36,036,000
            
            
            69.7
            %
            $
            37,015,000
            
            
            70.4
            %
            $
            (979,000
            )
            
            (2.6
            )%Polymer
                Products Segment
            
            
            15,821,000
            
            
            30.6
            
            
            15,811,000
            
            
            30.1
            
            
            10,000
            
            
            0.1
            %Eliminations
            
            
            (180,000
            )
            
            (0.3
            )
            
            (238,000
            )
            
            (0.5
            )
            
            58,000
            
            
            (24.4
            )%Total
            
            $
            51,677,000
            
            
            100.0
            %
            $
            52,588,000
            
            
            100.0
            %
            $
            (911,000
            )
            
            (1.7
            )%Gross
                ProfitNitinol
                Products Segment
            
            $
            10,880,000
            
            
            30.2
            %
            $
            13,351,000
            
            
            36.1
            %
            $
            (2,471,000
            )
            
            (18.5
            )%Polymer
                Products Segment
            
            
            5,710,000
            
            
            36.1
            %
            
            7,022,000
            
            
            44.4
            %
            
            (1,312,000
            )
            
            (18.7
            )%Total
            
            $
            16,590,000
            
            
            32.1
            %
            $
            20,373,000
            
            
            38.7
            %
            $
            (3,783,000
            )
            
            (18.6
            )%




The
      following table sets forth the consolidated statements of income for the years
      ended June 30, 2007 and 2006.




**Year
                ended June 30,****2007**
            
            **2006**
            
            **Increase/(decrease)**$
            
            %
                of
              **Revenues**
            
            $
            
            %
                of
              **Revenues**
            
            $
            
            %Revenues
            
            $
            51,677,000
            
            
            100.0
            %
            $
            52,588,000
            
            
            100.0
            %
            $
            (911,000
            )
            
            (1.7
            )%Cost
                of revenues
            
            
            35,087,000
            
            
            67.9
            
            
            32,215,000
            
            
            61.3
            
            
            2,872,000
            
            
            8.9
            %Gross
                profit
            
            
            16,590,000
            
            
            32.1
            
            
            20,373,000
            
            
            38.7
            
            
            (3,783,000
            )
            
            (18.6
            )%Operating
                expenses:Research
                and development
            
            
            1,645,000
            
            
            3.2
            
            
            2,016,000
            
            
            3.8
            
            
            (371,000
            )
            
            (18.4
            )%General,
                selling and administration
            
            
            13,205,000
            
            
            25.5
            
            
            12,615,000
            
            
            24.0
            
            
            590,000
            
            
            4.7
            %Amortization
                of intangible assets
            
            
            504,000
            
            
            1.0
            
            
            504,000
            
            
            1.0
            
            
            —
            
            
            —Other
            
            
            (72,000
            )
            
            (0.1
            )
            
            (141,000
            )
            
            (0.3
            )
            
            69,000
            
            
            (48.9
            )%15,282,000
            
            
            29.6
            
            
            14,994,000
            
            
            28.5
            
            
            288,000
            
            
            1.9
            %Operating
                income
            
            
            1,308,000
            
            
            2.5
            
            
            5,379,000
            
            
            10.2
            
            
            (4,071,000
            )
            
            (75.7
            )%Loss
                on extinguishment of debt
            
            
            (215,000
            )
            
            (0.4
            )
            
            —
            
            
            —
            
            
            (215,000
            )
            
            N/AInterestExpense
            
            
            (975,000
            )
            
            (1.8
            )
            
            (1,258,000
            )
            
            (2.4
            )
            
            283,000
            
            
            (22.5
            )%Income
            
            
            331,000
            
            
            0.6
            
            
            195,000
            
            
            0.4
            
            
            136,000
            
            
            69.7
            %(644,000
            )
            
            (1.2
            )
            
            (1,063,000
            )
            
            (2.0
            )
            
            419,000
            
            
            (39.4
            )%Income
                before income taxes
            
            
            449,000
            
            
            0.9
            
            
            4,316,000
            
            
            8.2
            
            
            (3,867,000
            )
            
            (89.6
            )%Provision
                for income taxes
            
            
            132,000
            
            
            0.3
            
            
            1,643,000
            
            
            3.1
            
            
            (1,511,000
            )
            
            (92.0
            )%Net
                income
            
            $
            317,000
            
            
            0.6
            %
            $
            2,673,000
            
            
            5.1
            %
            $
            (2,356,000
            )
            
            (88.1
            )%




22


**Revenues.** Revenues
      decreased 2% to $51,677,000 in the year ended June 30, 2007 from $52,588,000
      during fiscal 2006, a decrease of $911,000. The decrease in revenues was due
      to
      a decline in the sales of Nitinol Products. The Polymer Products Segment’s
      revenues remained relatively flat at $15,821,000 for the year ended June 30,
      2007 as compared to $15,811,000 during fiscal 2006. Although sales to one of
      the
      Polymer Products Segment’s largest customers declined in fiscal 2007 from the
      prior year’s level, other large customers had increased sales, which offset a
      substantial portion of the decrease. The Polymer Products Segment increased
      slightly to 31% of total revenues in the year ended June 30, 2007 from 30%
      in
      fiscal 2006.




Revenues
      for the Nitinol Products Segment decreased 3% or $979,000 to $36,036,000 in
      the
      year ended June 30, 2007 from $37,015,000 during fiscal 2006. This decrease
      in
      revenues resulted primarily from contractual price reductions with respect
      to
      certain established products combined with unit volume decreases in older
      generation stent components. Revenues from superelastic nitinol tube decreased
      approximately $1,300,000 in the year ended June 30, 2007 from the prior year.
      This segment also experienced decreased shipments of nitinol tube-based stent
      components, which decreased approximately $1,050,000. Additionally, there were
      decreases in the year ended June 30, 2007 as compared to the prior fiscal year
      in shipments of endocatch products of approximately $1,070,000, arch wire of
      approximately $470,000, and high pressure sealing plugs of approximately
      $490,000. Offsetting a portion of these decreases, the Nitinol Products Segment
      had increased revenues of approximately $1,730,000 in etched wire-based stents
      for an existing customer compared to fiscal 2006. In the year ended June 30,
      2006, the Company’s revenues from the wire-based stent components were adversely
      affected by shortages in acceptable raw material from one of the Company’s
      suppliers related to this product line that occurred during the first quarter
      and which were subsequently resolved. The Company also had increased revenues
      from prototype development and research and development activities of
      approximately $920,000 in the year ended June 30, 2007 from the prior year.
      Additionally, revenues increased approximately $300,000 for a nitinol catheter
      product in the year ended June 30, 2007 from the prior year due to the product
      launch of a customer’s new product. Although
      the Company continues to work on new products, there can be delays in revenues
      from customers due to a slow validation process, product redesign or other
      factors. Looking
      forward to fiscal 2008, the Company anticipates that overall nitinol stent
      component revenues will experience some decline from their revenues in fiscal
      2007. The reason for this decline relates primarily to an anticipated reduction
      in shipments of tube-based stent components to our largest customer because
      of a
      potential reduction of the customer’s shipments and the customer’s desire for a
“second source.” The Company anticipates that the decline in mature stent
      product revenues will be offset by increased revenues from a combination of
      customer funded research and development projects and new products in both
      the
      Nitinol Products Segment and the Polymer Products Segment.




**Costs
      and Expenses.** Cost of
      revenues increased $2,872,000, or 9%, to $35,087,000 in the year ended June
      30,
      2007 from $32,215,000 in fiscal 2006. The increase was due primarily to
      unfavorable production variances as a result of lower production volumes
      combined with higher spending on personnel and new equipment to support future
      growth. The Nitinol Products Segment operated at a lower gross margin in the
      year ended June 30, 2007 than in fiscal 2006 primarily due to contractual sales
      price reductions on
      established products and these unfavorable production variances. Additionally,
      there was a shift in the product mix of shipments towards those products with
      lower margins from those with higher gross margins, such as nitinol superelastic
      tube. The Polymer Products Segment’s gross margin continues to be higher than
      the gross margin of the Nitinol Products Segment. However, the Polymer Products
      Segment’s gross margin also was lower in the year ended June 30, 2007 compared
      to the prior year. It decreased to 36.1% of revenues in the year ended June
      30,
      2007 from 44.4% in fiscal 2006 as the segment experienced a decline in revenues
      from some of its higher margin products and it experienced higher production
      costs with flat production volumes. Since the November 2004 acquisition of
      Putnam Plastics, the Company has invested in personnel and equipment to provide
      new capabilities and capacity to support the anticipated growth of the Polymer
      Products Segment.




As
      a
      result of these factors, the Company’s consolidated gross profit decreased from
      38.7% in fiscal 2006 to 32.1% in the year ended June 30, 2007. See the table
      in
      the beginning of this section for additional information on the results of
      the
      business segments. The Company’s ability to maintain or grow its gross profit
      margin is dependent on several factors. One is the product mix of the Company’s
      shipments, which can be affected by customer requirements, capacity of specific
      product lines and general timing. Another is the success of the Company in
      securing sufficient business to absorb plant overhead, particularly in the
      high
      margin nitinol tube business. A third is developing successful new products
      to
      offset the pricing pressures on older generation technology. In
      fiscal
      2008, an anticipated reduction from prior year levels in shipments of tube-based
      stent components will make it difficult to maintain gross profits in the Nitinol
      Products Segment. The
      Company continues to invest in the manufacturing operations of its Polymer
      Products Segment, including staff, equipment, and systems to grow the segment’s
      revenues over the next several years. These investments are expected to continue
      for the foreseeable future and may have the effect of reducing profitability,
      particularly in the short term, of the Polymer Products Segment.




Operating
      expenses, including research and development costs, general, selling and
      administration expenses and amortization of intangible assets increased
      $288,000, or 2%, to $15,282,000 in the year ended June 30, 2007, compared to
      $14,994,000 in fiscal 2006. However, the operating expenses in fiscal 2006
      included $1,130,000 of separation charges related to the retirement of the
      Company’s former Chief Executive Officer. Therefore, excluding the separation
      charges in fiscal 2006, the operating expenses in fiscal 2006 were $13,864,000
      and approximately 10% less than in fiscal 2007. The increase in operating
      expenses, exclusive of the separation charges, in the year ended June 30, 2007
      primarily was due to increased administration costs related to litigation costs
      and professional fees for legal and accounting services. The increased
      professional fees for accounting services are related to the Company preparing
      for the implementation of Sarbanes-Oxley Section 404 compliance requirements
      in
      fiscal 2008. Offsetting a portion of these increased operating expenses was
      a
      decrease in the incentive compensation expense in the year ended June 30, 2007
      as compared to the prior year. This decrease was due to the non-achievement
      of
      the financial targets pursuant to the incentive compensation plan. Total
      operating expenses as a percentage of revenues were 29.6% in the year ended
      June
      30, 2007 and 28.5% in fiscal 2006. Excluding the $1,130,000 of separation
      charges in fiscal 2006, total operating expenses as a percentage of revenues
      were 29.6% and 26.4% in fiscal 2007 and fiscal 2006, respectively. The Company
      expects operating expenses to increase slightly in fiscal 2008 as the Company
      undertakes implementation of Sarbanes-Oxley Section 404 compliance requirements
      and as the Company incurs increased employee costs for compensation and
      benefits.




23





**Nonoperating
      income and expenses.** Loss on
      extinguishment of debt was $215,000 for the year ended June 30, 2007. This
      loss
      represented the write-off of $44,000 of unamortized deferred financing costs
      related to the March 26, 2007 prepayment of a portion of the bank credit
      facility, a $126,000 write-off of unamortized deferred financing costs, and
      the
      payment of a prepayment penalty of $45,000 in connection with the prepayment
      of
      subordinated debt on April 26, 2007.





Net
      interest expense decreased $419,000 to $644,000 in the year ended June 30,
      2007
      as compared to net interest expense of $1,063,000 in fiscal 2006. The change
      from year to year was comprised of a $136,000 increase in interest income and
      a
      decrease of $283,000 in interest expense. The interest income increased due
      to
      increased invested cash balances in the year ended June 30, 2007 compared to
      the
      prior year. Interest expense decreased primarily due to lower average
      outstanding debt balance, which was partially offset by a slight increase in
      the
      average interest rate in the year ended June 30, 2007 as compared to the prior
      fiscal year.




**Income
      Taxes.** The
      Company recorded a provision for income taxes of $132,000 for the year ended
      June 30, 2007, compared to a provision for income taxes of $1,643,000 for fiscal
      2006. The decrease in the provision is the result of a decrease in the income
      before income taxes and the recognition of an extraterritorial income exclusion
      tax benefit related to export sales in the year ended June 30, 2007. 
Included in the income tax provision was the exclusion of the deduction for
      the
      recording of the stock-based compensation relating to incentive stock options
      (“ISOs”) in both years. The Company may recognize some income tax benefit in the
      future related to compensation expenses on ISOs. The amount of income tax
      benefit recognized will be contingent upon the amount of options exercised,
      whether the exercise is a disqualifying disposition and the statutory income
      tax
      rate at the time of exercise, among other factors. The effective tax rate was
      29% for the year ended June 30, 2007 as compared to 38% for fiscal 2006. The
      primary reason for the decrease in the effective tax rate is the amount of
      the
      extraterritorial income exclusion tax benefit and return to provision
      adjustments recognized relative to the income before income taxes for the year
      ended June 30, 2007. ****




**Net
      Income.** As
      a
      result of the factors discussed above, the Company recognized net income of
      $317,000 in the year ended June 30, 2007 compared to net income of $2,673,000
      for fiscal 2006.




24






***Year
      Ended June 30, 2006, compared to Year Ended June 30, 2005.***




The
      following table compares revenues and gross margin by business segment for
      the
      years ended June 30, 2006 and 2005.




**Year
                Ended
                June 30,****2006**
            
            
            
            **2005**
            
            
            
            **Increase/(decrease)****$**
            
            
            **% of 
                Revenues**
            
            
            
            **$**
            
            
            **% of
                 Revenues**
            
            
            
            **$**
            
            
            **%**RevenuesNitinol
                Products Segment
            
            $
            37,015,000
            
            
            70.4
            %
            
            $
            36,987,000
            
            
            82.2
            %
            
            $
            28,000
            
            
            0.1
            %Polymer
                Products Segment
            
            
            15,811,000
            
            
            30.1
            
            
            
            8,090,000
            
            
            18.0
            
            
            
            7,721,000
            
            
            95.4
            %Eliminations
            
            
            (238,000
            )
            
            (0.5
            )
            
            
            (69,000
            )
            
            (0.2
            )
            
            
            (169,000
            )
            
            244.9
            %Total
            
            $
            52,588,000
            
            
            100.0
            %
            
            $
            45,008,000
            
            
            100.0
            %
            
            $
            7,580,000
            
            
            16.8
            %Gross
                ProfitNitinol
                Products Segment
            
            $
            13,351,000
            
            
            36.1
            %
            
            $
            14,363,000
            
            
            38.8
            %
            
            $
            (1,012,000
            )
            
            (7.1
            )%Polymer
                Products Segment
            
            
            7,022,000
            
            
            44.4
            %
            
            
            3,550,000
            
            
            43.9
            %
            
            
            3,472,000
            
            
            97.8
            %Total
            
            $
            20,373,000
            
            
            38.7
            %
            
            $
            17,913,000
            
            
            39.8
            %
            
            $
            2,460,000
            
            
            13.7
            %




The
      following table sets forth the consolidated statements of income for the years
      ended June 30, 2006 and 2005.




**Year
                ended
                June 30,****2006**
            
            
            
            **2005**
            
            
            
            **Increase/(decrease)****$**
            
            
            **% of 
                Revenues**
            
            
            
            **$**
            
            
            **% of 
                Revenues**
            
            
            
            **$**
            
            
            **%**Revenues
            
            $
            52,588,000
            
            
            100.0
            %
            
            $
            45,008,000
            
            
            100.0
            %
            
            $
            7,580,000
            
            
            16.8
            %Cost
                of revenues
            
            
            32,215,000
            
            
            61.3
            
            
            
            27,095,000
            
            
            60.2
            
            
            
            5,120,000
            
            
            18.9
            %Gross
                profit
            
            
            20,373,000
            
            
            38.7
            
            
            
            17,913,000
            
            
            39.8
            
            
            
            2,460,000
            
            
            13.7
            %Operating
                expenses:Research
                and development
            
            
            2,016,000
            
            
            3.8
            
            
            
            1,923,000
            
            
            4.3
            
            
            
            93,000
            
            
            4.8
            %General,
                selling and administration
            
            
            12,615,000
            
            
            24.0
            
            
            
            10,049,000
            
            
            22.3
            
            
            
            2,566,000
            
            
            25.5
            %Amortization
                of intangible assets
            
            
            504,000
            
            
            1.0
            
            
            
            379,000
            
            
            0.8
            
            
            
            125,000
            
            
            33.0
            %Other
            
            
            (141,000
            )
            
            (0.3
            )
            
            
            (60,000
            )
            
            (0.1
            )
            
            
            (81,000
            )
            
            135.0
            %14,994,000
            
            
            28.5
            
            
            
            12,291,000
            
            
            27.3
            
            
            
            2,703,000
            
            
            22.0
            %Operating
                income
            
            
            5,379,000
            
            
            10.2
            
            
            
            5,622,000
            
            
            12.5
            
            
            
            (243,000
            )
            
            (4.3
            )%Loss
                on extinguishment of debt
            
            
            —
            
            
            —
            
            
            
            (182,000
            )
            
            (0.4
            )
            
            
            182,000
            
            
            (100.0
            )%InterestExpense
            
            
            (1,258,000
            )
            
            (2.4
            )
            
            
            (1,189,000
            )
            
            (2.6
            )
            
            
            (69,000
            )
            
            5.8
            %Income
            
            
            195,000
            
            
            0.4
            
            
            
            157,000
            
            
            0.3
            
            
            
            38,000
            
            
            24.2
            %(1,063,000
            )
            
            (2.0
            )
            
            
            (1,032,000
            )
            
            (2.3
            )
            
            
            (31,000
            )
            
            3.0
            %Income
                before income taxes
            
            
            4,316,000
            
            
            8.2
            
            
            
            4,408,000
            
            
            9.8
            
            
            
            (92,000
            )
            
            (2.1
            )%Provision
                for income taxes
            
            
            1,643,000
            
            
            3.1
            
            
            
            1,683,000
            
            
            3.7
            
            
            
            (40,000
            )
            
            (2.4
            )%Net
                income
            
            $
            2,673,000
            
            
            5.1
            %
            
            $
            2,725,000
            
            
            6.1
            %
            
            $
            (52,000
            )
            
            (1.9
            )%




25




**Revenues.** Revenues
      increased 17% to $52,588,000 in the year ended June 30, 2006 from
      $45,008,000 during the same period in fiscal 2005, an increase of $7,580,000.
      The increase in revenues was due principally to the inclusion of revenues from
      the Polymer Products Segment for a full year in fiscal 2006 as a result of
      the
      acquisition of Putnam on November 9, 2004. The Polymer Products Segment’s
      revenue for the year ended June 30, 2006 was $15,811,000 as compared to
      $8,090,000 during fiscal 2005, which represents both growth in the business
      and
      the fact that the Putnam Acquisition did not occur until the middle of the
      second quarter of fiscal 2005. The growth in the business was primarily due
      to
      increased shipments of guidewires to a major customer, although shipments of
      catheters to other customers and for other applications also grew during fiscal
      2006. Additionally, sales of the Polymer Products Segment increased to 30%
      of
      total revenues in the year ended June 30, 2006 from 18% in the year ended
      June 30, 2005.




Revenues
      for the Nitinol Products Segment increased slightly to $37,015,000 in the year
      ended June 30, 2006 from $36,987,000 during fiscal 2005. The revenue
      increase in the year ended June 30, 2006 compared to the year ended
      June 30, 2005 was primarily due to increased shipments of components
      utilized in general surgical applications of approximately $1,200,000, increased
      revenues of approximately $825,000 in superelastic tube, increased revenues
      from
      prototype development and research and development activities of approximately
      $975,000 and shipments of high pressure sealing plugs, which increased
      approximately $275,000 for the year ended June 30, 2006 compared with the
      similar period in fiscal 2005. Offsetting these increases were decreased
      shipments of nitinol laser cut tube-based and wire-based stent components,
      sold
      to the Company’s largest customer, which declined by approximately $2,500,000.
      The decrease in the tube-based stent components was due to an overall decline
      in
      the sales of the customer’s product and the loss of a portion of the customer’s
      business to a “second source.” The decrease in the wire-based stent components
      was caused primarily by shortages in acceptable raw material from one of the
      Company’s suppliers related to this product line that occurred during the first
      quarter and which were subsequently addressed, as well as competitive pressures.
      Additionally, the Nitinol Products Segment had lower sales in the year ended
      June 30, 2006 as compared to the year ended June 30, 2005 for arch
      wire of approximately $1,050,000 and microcoil and guidewire products, which
      decreased approximately $525,000.




**Costs
      and Expenses.** Cost of
      revenues increased $5,120,000, or 19%, to $32,215,000 in the year ended
      June 30, 2006 from $27,095,000 in the year ended June 30, 2005. The
      increase was due primarily to the inclusion of Putnam’s results of operations
      for twelve months in fiscal 2006, as compared to less than eight months in
      fiscal 2005. In fiscal 2006, Putnam recorded cost of revenues of $8,789,000.
      The
      Nitinol Products Segment operated at a slightly lower gross margin in the year
      ended June 30, 2006 (36.1%) than in fiscal 2005 (38.8%) primarily
      due to a shift in the product mix of shipments towards those products with
      higher per unit direct production costs in the area of general surgical
      applications. The Polymer Products Segment’s gross margin continues to be higher
      than the gross margin of the Nitinol Products Segment. The Polymer Products
      Segment’s gross margin increased slightly to 44.4% of revenues in the year ended
      June 30, 2006 from 43.9% in the year ended June 30, 2005 as the
      segment benefited from increased production volumes. Since the November 2004
      acquisition of Putnam, the Company has invested in personnel and equipment
      to
      provide capacity to support the increased business of the Polymer Products
      Segment.




The
      Company experienced price pressure on several product lines and, during the
      year
      ended June 30, 2006, it continued to incur additional expense associated
      with the launch of a new guidewire product. In addition, stock-based
      compensation of $50,000 was charged to cost of revenues for the year ended
      June 30, 2006 due to the adoption of SFAS No. 123(R).




As
      a
      result of these factors, consolidated gross profit decreased from 39.8% in
      the
      year ended June 30, 2005 to 38.7% in the year ended June 30, 2006. See
      the table in the beginning of the section for additional information on the
      results of the business segments. The Company’s ability to maintain or grow its
      gross profit margin is dependent on several factors. One is the product mix
      of
      the Company’s shipments, which can be affected by customer requirements,
      capacity of specific product lines and general timing. Another is the success
      of
      the Company in securing sufficient business to absorb plant overhead,
      particularly high margin nitinol tube business. The Company continued to invest
      in the manufacturing operations at its Polymer Products Segment, including
      staff, equipment, and systems to grow the segment’s revenues over the next
      several years.




Operating
      expenses, including research and development costs, general, selling and
      administration expenses and amortization of intangible assets increased
      $2,703,000, or 22%, to $14,994,000 in the year ended June 30, 2006,
      compared to $12,291,000 in the year ended June 30, 2005. The increase in
      operating expenses in the year ended June 30, 2006 was primarily as a
      result of the inclusion of Putnam’s results of operations for a full twelve
      months in fiscal 2006, as compared to less than eight months in fiscal 2005.
      Additionally, the operating expenses increased due to the $1,130,000 separation
      charges related to the retirement of the Company’s former Chief Executive
      Officer, the addition of engineering, administration and sales and marketing
      personnel, a full year’s amortization of intangible assets related to the Putnam
      Acquisition and marketing program initiatives undertaken in the year ended
      June 30, 2006. Further cost increases were also driven by the Company
      adopting SFAS No. 123(R) in the year ended June 30, 2006 and the
      related stock-based compensation charged to operating expenses of $314,000,
      the
      continuing increase in administration costs related to legal and accounting
      activities and higher personnel costs. Total operating expenses as a percentage
      of revenues increased from 27.3% in the year ended June 30, 2005 to 28.5%
      in the year ended June 30, 2006. Excluding the separation charges,
      operating expenses as a percentage of revenues were 26.4% in the year ended
      June 30, 2006.




26




**Nonoperating
      income and expenses.** Loss on
      extinguishment of debt of $182,000 in fiscal year 2005 was due to the write-off
      of deferred financing costs of $107,000 and a penalty on the prepayment of
      subordinated debt of $75,000. The Company prepaid $2.5 million of its
      subordinated debt in order to reduce interest expense in future periods.




Net
      interest expense was $1,063,000 in the year ended June 30, 2006 compared to
      $1,032,000 in the year ended June 30, 2005. The change from year to year
      was due principally to an increase in interest expense, including the
      amortization of deferred financing costs associated with a higher level of
      borrowings utilized to finance a portion of the Putnam Acquisition, and higher
      overall borrowing costs due to an increase in LIBOR from the year ended
      June 30, 2005 to the year ended June 30, 2006.




**Income
      Taxes.** The
      Company recorded a provision for income taxes of $1,643,000 for the year ended
      June 30, 2006, compared to a provision of $1,683,000 for the year ended
      June 30, 2005. The decrease in the provision is the result of lower income
      before taxes and the recognition of an extraterritorial income exclusion tax
      benefit related to export sales in the year ended June 30, 2006. Offsetting
      a portion of the decrease in the income tax provision was the exclusion of
      the
      deduction for the recording of the stock-based compensation relating to ISOs
      in
      the year ended June 30, 2006. The Company may recognize some income tax
      benefit in the future related to compensation expenses on ISOs. The amount
      of
      income tax benefit recognized will be contingent upon the amount of options
      exercised, whether the exercise is a disqualifying disposition and the statutory
      income tax rate at the time of exercise, among other factors. The effective
      tax
      rate was 38% for the years ended June 30, 2006 and 2005.




**Net
      Income.** As a
      result of the factors discussed above, the Company’s net income decreased by
      $52,000, to $2,673,000 in the year ended June 30, 2006 compared to
      $2,725,000 for fiscal 2005.




**LIQUIDITY
      AND CAPITAL RESOURCES**




At
      June 30, 2007, the Company’s cash and cash equivalents balance was
      $2,401,000, a decrease of $4,564,000 from $6,965,000 at the start of fiscal
      2007. This decrease in cash and cash equivalents was due primarily to cash
      used
      to prepay $5,154,000 of subordinated debt and $1,569,000 of bank debt.
      Additionally, the Company used $2,332,000 for capital expenditures. The use
      of
      cash for debt prepayments and capital expenditures was partially offset by
      cash
      provided by operations.





Net
      cash
      provided by operations was $5,411,000 for the year ended June 30, 2007, a
      decrease of $548,000 from $5,959,000 provided during fiscal 2006. This decrease
      was due principally to the $2,356,000 decrease in net income in fiscal 2007
      as
      compared to fiscal 2006, which was partially offset by cash provided by the
      increased collection of accounts receivable. During the year ended June 30,
      2007, there was a $1,875,000 decrease in accounts receivable as compared to
      a
      $2,305,000 increase during the prior year. The decrease in accounts receivable
      was due to an increased concentration on account management and cash collections
      during the year.





Net
      cash
      used in investing activities increased $321,000 to $2,327,000 for the year
      ended
      June 30, 2007 compared to $2,006,000 during fiscal 2006. In fiscal 2007 and
      2006, the primary capital requirement was to fund additions to property, plant
      and equipment. Additionally, in the year ended June 30, 2006, the Company
      made payments of $829,000 in connection with the purchase of Putnam and the
      Company recorded a $1,500,000 increase in cash when its principal lender
      permanently waived the requirement for a cash collateral deposit.




During
      the year ended June 30, 2007, net cash used in financing activities was
      $7,648,000, which includes the prepayment of $5,154,000 of subordinated debt
      and
      $1,569,000 of bank debt, along with the second annual $833,000 installment
      on
      the deferred payment for the Putnam Acquisition and the scheduled principal
      payments on bank debt, offset by the proceeds from the issuance of common stock
      from the exercise of stock options and warrants of $1,015,000. During the year
      ended June 30, 2006, net cash used in financing activities was $1,129,000,
      which included the $833,000 installment on the deferred payment for the Putnam
      Acquisition and the pay-down of the note payable to Webster Business Credit
      Corporation of $1,297,000, offset by the proceeds from notes payable of $388,000
      and the issuance of common stock from the exercise of stock options and warrants
      of $621,000.




Working
      capital at June 30, 2007 was $10,235,000, a decrease of $4,142,000 from
      $14,377,000 at June 30, 2006. The decrease in working capital primarily is
      a result of the prepayment of $5,154,000 of subordinated debt and $1,569,000
      of
      bank debt, which were partially offset by the net cash provided by operations.




27




In
      fiscal
      2007 and 2006, the primary capital requirements were to fund capital
      expenditures and principal payments on notes payable.




In
      connection with the Putnam Acquisition on November 9, 2004, the Company
      entered into a credit and security agreement with Webster Business Credit
      Corporation (the “Webster Agreement”). The Webster Agreement included a term
      loan facility consisting of a five year term loan of $1.9 million (the “Five
      Year Term”) and a three year term loan of $2.5 million (the “Three Year Term”),
      collectively (the “Term Loan Facility”). On March 26, 2007, the Company prepaid
      the principal amounts outstanding on the Term Loan Facility. The amount paid
      was
      $1,569,000. In connection with the prepayment of the Term Loan Facility, the
      Company recorded a loss on the extinguishment of debt of $44,000, which
      represented the write-off of unamortized deferred financing costs. Both term
      loans were repayable in equal monthly installments with the additional
      requirement that, under the Three Year Term, a prepayment of 50% of excess
      cash
      flow, as defined, be made annually within 90 days of the Company’s fiscal year
      end. The excess cash flow prepayment requirement had been waived by Webster
      Business Credit Corporation for fiscal 2006 and 2005. Interest under the Five
      Year Term was based upon, at the Company’s option, LIBOR plus 2.50% effective
      December 31, 2006, previously it was LIBOR plus 2.75%, or the alternate base
      rate, as defined, plus 0.25%. Interest under the Three Year Term was based
      upon,
      at the Company’s option, LIBOR plus 3.50% effective December 31, 2006,
      previously it was LIBOR plus 3.75%, or the alternate base rate, as defined,
      plus
      1.25%. Borrowings under the Term Loan Facility were used to repay approximately
      $1.4 million in outstanding borrowings under the previous facility with Webster
      Bank and to partially fund the Putnam Acquisition.




The
      Webster Agreement also provides for a revolving line of credit for borrowings
      up
      to the lesser of (a) $6,500,000 or (b) an amount equal to the
      aggregate of (1) 85% of the eligible accounts receivable plus (2) the
      lesser of $3,000,000 or 55% of eligible inventories. Interest under the
      revolving line of credit is based upon, at the Company’s option, LIBOR plus
      2.50% or the alternate base rate, as defined. The entire outstanding principal
      amount of the revolving line of credit is due November 9, 2009. As of
      June 30, 2007, there were no amounts outstanding under the revolving line
      of credit. Additionally, the Webster Agreement includes an equipment line of
      credit that provides for equipment financing up to the lesser of $1,000,000
      or
      80% of the hard cost for eligible equipment through November 9, 2005 at the
      same financing terms as the Five Year Term. As of November 9, 2005,
      $1,000,000 of the outstanding amount under the equipment line was converted
      to a
      term loan, payable monthly, based on a seven year amortization schedule, but
      with a balloon payment of the then unpaid balance due November 9, 2009. On
      December 21, 2005, the Webster Agreement was amended to provide an
      equipment line of credit that provides for equipment financing up to the lesser
      of $1,000,000 or 80% of the hard cost for eligible equipment through
      November 9, 2006 on the same financing terms as the Five Year Term.
      Borrowings under the Webster Agreement are collateralized by substantially
      all
      of the Company’s assets.




The
      Webster Agreement contains various restrictive covenants, including, among
      others, the limitation of mergers, acquisitions and joint ventures, limitations
      on encumbrances and additional debt, limitations on the payment of dividends
      or
      redemption of stock and compliance with a fixed charge coverage ratio and
      leverage ratio, as defined. Additionally, the Company was required to maintain
      cash as collateral security until the Three Year Term loan was paid in full.
      For
      the first year of the Webster Agreement, the collateral security was $1,500,000.
      This amount had been classified as cash collateral deposits on the June 30,
      2005 consolidated balance sheet. On November 9, 2005, Webster Business
      Credit Corporation permanently waived the cash collateral deposit requirements,
      and these funds have been accounted for as cash and cash equivalents as of
      June 30, 2006.




Additional
      financing for the Putnam Acquisition was obtained on November 9, 2004 from
      Brookside Pecks Capital Partners, L.P. and Ironbridge Mezzanine Fund, L.P.
      in
      the form of a $7.0 million subordinated loan due November 9, 2010 (the
“Subordinated Loan”). The interest rate on the Subordinated Loan was 16.5%, of
      which 12% was payable quarterly with the remaining 4.5% payable in additional
      promissory notes having identical terms as the Subordinated Loan. Originally,
      the interest rate was 17.5%, with 5.5% payable in additional promissory notes,
      but was reduced during fiscal 2006 because the Company achieved certain pretax
      income thresholds in fiscal 2005 and it was reduced in fiscal 2007 at the
      discretion of the lender. On April 26, 2007, the Company prepaid the outstanding
      balance on the Subordinated Loan. The amount prepaid was $5,154,000. In
      connection with the prepayment of the Subordinated Loan, the Company recorded
      a
      loss on the extinguishment of debt of $171,000 representing the write-off of
      $126,000 of unamortized deferred financing costs and a cash prepayment penalty
      of $45,000. The total of $171,000 is included in the loss on extinguishment
      of
      debt on the consolidated statement of income for the year ended June 30,
      2007.




In
      June
      2005, the Company made a payment of $2.5 million against the Subordinated Loan
      which resulted in a 3% prepayment penalty of $75,000 and, as a result of the
      prepayment, the Company wrote-off $107,000 of unamortized deferred financing
      costs. The total of $182,000 is included in the loss on extinguishment of debt
      on the consolidated statement of income for the year ended June 30, 2005.




28




The
      remaining financing for the Putnam Acquisition was provided for by cash on
      hand
      and $2,500,000 in deferred payments. The deferred payments are non-interest
      bearing and are required to be paid to the seller in three equal annual
      installments. The first and second of these installments of $833,000 were paid
      on November 9, 2005 and 2006, respectively.




On
      August 24, 2004, the Company entered into a joint development program (the
“Agreement”) with Biomer Technology Limited (“Biomer”), a privately owned
      company specializing in the development and manufacture of state-of-the-art
      polymers and biocompatible coatings for stents and other medical devices. Under
      the terms of the Agreement, the Company made a $400,000 initial investment
      in
      Biomer in the form of a 2% unsecured convertible promissory note (the “Note”).
      Interest on the Note was payable upon conversion, or upon repayment of the
      Note.
      Under the terms of the Note, the Note plus accrued interest was to be converted
      into ordinary shares of Biomer stock upon the occurrence of the earlier of,
      as
      defined, the successful completion of the joint development program, an
      additional equity financing of Biomer, the sale of Biomer, or December 31,
      2005. On October 5, 2005, Biomer completed an equity financing which
      triggered conversion of the Note into 37,860 ordinary shares of Biomer stock.
      The amount of the Company’s initial investment and accrued interest of $409,000
      were converted to an investment as of October 5, 2005 which, since the
      Company does not have a controlling ownership interest or significant influence
      over Biomer’s financial reporting or operations, has been accounted for on the
      cost basis.




The
      Agreement requires the Company to make an additional equity investment of at
      least $350,000 in Biomer in the event, as defined, a financing of Biomer occurs
      after the Note has been converted and successful completion of the joint
      development program has been accomplished. Additionally, as part of the joint
      development program and in consideration for services provided by Biomer in
      the
      joint development program, the Company agreed to pay Biomer $200,000 in four
      equal quarterly installments of $50,000 beginning August 24, 2004. As of
      December 31, 2005, all four installments had been paid totaling $200,000
      since the specific milestones that indicated completion of the joint development
      program, as specified in the Agreement, were met. The $200,000 was amortized
      over the initial one-year term of the joint development program.





On
      November 6, 2006, the Company entered into a licensing agreement with Biomer
      for
      the exclusive worldwide license to a biocompatible coating technology with
      potential drug-eluting capabilities for use on Nitinol stents. The agreement
      also requires the Company to sponsor a pre-clinical evaluation using
      Biomer’s  passive
      coatings  on
      a
      self-expanding Nitinol stent platform. The agreement requires the Company to
      pay
      $305,000 for the pre-clinical evaluation and Biomer’s management over the course
      of the evaluation. On December 23, 2006, the Company paid $153,000 to Biomer,
      as
      required by the agreement. This $153,000 was recorded in Prepaid Expenses and
      Other Current Assets. The remaining $152,000 is payable after pre-clinical
      evaluation has been completed and Biomer has issued its report thereon to the
      Company. The $305,000 is being charged to Research and Development Expense
      as
      the pre-clinical evaluation is conducted. The pre-clinical evaluation began
      in
      June 2007 and the Company recognized Research and Development expense of $38,000
      in fiscal 2007. At June 30, 2007, $115,000 has been recorded in Prepaid Expenses
      and Other Current Assets.




The
      Company has requirements to fund plant and equipment projects to support the
      expected increased sales volume of shape memory alloys and extruded-polymer
      products during fiscal 2008 and beyond. The Company estimates that it will
      invest between $3.0 million and $3.5 million in capital equipment and facility
      improvements during fiscal 2008. The Company expects that it will be able to
      finance these expenditures through a combination of existing working capital,
      cash flows generated through operations and increased borrowings (including
      equipment financing). The largest risk to the liquidity of the Company would
      be
      an event that caused an interruption of cash flow generated through operations,
      because such an event could also have a negative impact on the Company’s ability
      to access credit. The Company’s current dependence on a limited number of
      products and customers represents the greatest risk to operations.




The
      Company has in the past grown through acquisitions (including the Putnam
      Acquisition, Wire Solutions, Inc. 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. In the event that the Company should make an acquisition, it intends
      to use available cash from operations, debt, and authorized but unissued common
      stock to finance any such acquisitions.




In
      December 2004, the Company signed a lease for one of its manufacturing
      facilities located in Menlo Park, California, expanding its usage of the
      building from 10,000 to 22,000 square feet. The term of the lease began on
      December 1, 2004 and expires on June 30, 2008. The monthly base rent
      is $18,000.




In
      November 2004, the Company signed a lease for Putnam’s manufacturing facility
      located in Dayville, Connecticut. The lessor is Mr. James V.
      Dandeneau, the sole shareholder of Putnam Plastics Corporation, and currently
      a
      director and executive officer of the Company. The term of the lease runs from
      November 10, 2004 until November 30, 2009 with two renewal options to
      extend the lease for two terms of 30 months. The monthly rent is $18,000.




29




**Related
      Party Transactions**




Following
      the Putnam Acquisition, the Company entered into agreements with the sole
      shareholder of Putnam Plastics Corporation, who is now an executive officer
      of
      Memry and serves on the Board of Directors, and continued a supply arrangement
      with a corporation in which he is a 50% owner. Also, in November 2004, in
      conjunction with the Putnam Acquisition, the Company signed a lease for Putnam’s
      manufacturing facility located in Dayville, Connecticut in which the sole
      shareholder of Putnam Plastics Corporation is the lessor. The term of the lease
      is from November 10, 2004 to November 30, 2009 with renewal options to
      extend the term for thirty months. The monthly rent was based on an independent
      appraisal and is $18,000. In addition, the Company is leasing 2,012 square
      feet
      of warehousing space from the sole
      shareholder of Putnam Plastics Corporation on a month-to-month basis. Total
      rent
      paid to the sole shareholder of Putnam Plastics Corporation was $228,000 during
      the year ended June 30, 2007. The sole shareholder of Putnam Plastics
      Corporation also is a 50% shareholder of a company that is a supplier and
      customer of Putnam. Purchases from and sales to this company were $502,000
      and
      $1,000, respectively, during the year ended June 30, 2007.




**Off-Balance
      Sheet Arrangements**




The
      Company does not maintain any off-balance sheet arrangements, transactions,
      obligations or other relationships with unconsolidated entities that would
      be
      expected to have a material current or future effect upon the Company’s
      financial condition or results of operations.




**Contractual
      Obligations**




Presented
      below is a summary of contractual obligations as of June 30, 2007. See
      Notes 10 and 14 to the consolidated financial statements for additional
      information regarding long-term debt and operating lease obligations,
      respectively.




**Payment
                due by date**
              **(dollars
                in thousands)****Contractual
                Obligations**
            
            **Total**
            
            **Less than**
              **1
                year**
            
            **1
                - 3**
              **years**
            
            **3
                - 5**
              **years**
            
            **More than**
              **5
                years**Long-term
                debt obligations
            
            $
            1,749
            
            $
            1,045
            
            $
            704
            
            $
            —
            
            $
            —Operating
                lease obligations
            
            
            3,204
            
            
            1,156
            
            
            1,246
            
            
            802
            
            
            —Total
            
            $
            4,953
            
            $
            2,201
            
            $
            1,950
            
            $
            802
            
            $
            —




Long-term
      debt obligations include expected interest payments. Interest is calculated
      using fixed interest rates for indebtedness that has fixed rates and the rates
      in effect at June 30, 2007 for indebtedness that has variable rates.




**Impact
      of Recently Issued Accounting Standards**




In
      May
      2005, the FASB issued SFAS No. 154, “ *Accounting
      Changes and Error Corrections”* which
      replaces APB Opinion No. 20, “ *Accounting
      Changes”* ,
      and
      SFAS No. 3, “ *Reporting
      Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion
      No. 28”* .
      SFAS
      No. 154 provides guidance on the accounting for and reporting of accounting
      changes and error corrections. Specifically, SFAS No. 154 requires
“retrospective application” of the direct effect for a voluntary change in
      accounting principle to prior periods’ financial statements, if it is
      practicable to do so. SFAS No. 154 also strictly redefines the term
“restatement” to mean the correction of an error by revising previously issued
      financial statements. SFAS No. 154 replaces APB No. 20, which requires
      that most voluntary changes in accounting principle be recognized by including
      in net income of the period of the change to the new accounting principle.
      SFAS
      No. 154 is effective for accounting changes and corrections of errors made
      in fiscal years beginning after December 15, 2005.




In
      July
      2006, the FASB issued FASB Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement
      No. 109* ”
(“FIN
      48”). FIN 48 prescribes a recognition threshold and measurement attribute for
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return, and also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The Company will adopt the
      interpretation effective July 1, 2007, the first quarter of its 2008 fiscal
      year. The Company does not believe that the adoption of FIN 48 will have a
      material impact on its financial statements.




**FORWARD-LOOKING
      INFORMATION**




Certain
      statements in this Annual Report on Form 10-K that are not historical fact,
      as
      well as certain information incorporated herein by reference, constitute
“forward-looking statements” made pursuant to the safe harbor provisions of the
      Private Securities Litigation Reform Act of 1995. These forward-looking
      statements involve risks and uncertainties and often depend on assumptions,
      data
      or methods that may be incorrect or imprecise. The Company’s future operating
      results may differ materially from the results discussed in, or implied by,
      forward-looking statements made by the Company. Factors that may cause such
      differences include, but are not limited to, those discussed below and the
      other
      risks detailed in Item 1A. herein and in the Company’s other subsequent reports
      filed with the Securities and Exchange Commission.




30




Forward-looking
      statements give our current expectations or forecasts of future events. You
      can
      usually identify these statements by the fact that they do not relate strictly
      to historical or current facts. They often use words such as “anticipate”,
“estimate”, “expect”, “project”, “intend”, “plan”, “believe,” and other words
      and terms of similar meaning in connection with any discussion of future
      operating or financial performance. In particular, these include statements
      relating to future actions, prospective products or product approvals, future
      performance or results of current and anticipated products, sales efforts,
      expenses, the outcome of contingencies such as legal proceedings, and financial
      results.




Any
      or
      all of our forward-looking statements in this Annual Report on Form 10-K and
      information incorporated by reference may turn out to be wrong. They can be
      affected by inaccurate assumptions we might make or by known or unknown risks
      and uncertainties. Many factors mentioned in this discussion—for example,
      product competition and the competitive environment—will be important in
      determining future results. Consequently, no forward-looking statement can
      be
      guaranteed. Actual future results may vary materially. The Company undertakes
      no
      obligation to revise any of these forward-looking statements to reflect events
      or circumstances after the date hereof.




**Other
      Factors That May Affect Future Results**




·
            trends
                toward managed care, healthcare cost containment and other changes
                in
                government and private sector initiatives, in the U.S. and other
                countries
                in which we do business, that are placing increased emphasis on the
                delivery of more cost-effective medical therapies




·
            the
                trend towards consolidation in the medical device industry as well
                as
                among customers of medical device manufacturers, resulting in more
                significant, complex and long-term contracts than in the past, potentially
                greater pricing pressures, and the potential loss of significant
                revenue




·
            the
                sourcing decisions of large customers, which represent a significant
                portion of our revenues




·
            efficacy
                or safety concerns with respect to marketed products, whether
                scientifically justified or not, that may lead to product recalls,
                withdrawals or declining sales




·
            changes
                in governmental laws, regulations and accounting standards and the
                enforcement thereof that may be adverse to
                us




·
            the
                impact of litigation and claims made against us, including the current
                series of counterclaims made by Kentucky Oil, NVand
                the possible results of settlement
                negotiations




·
            other
                legal factors including environmental concerns




·
            agency
                or government actions or investigations affecting the industry in
                general
                or us in particular




·
            the
                trend of regulatory agencies to recommend that medical device companies
                have multiple suppliers of critical components




·
            changes
                in business strategy or development plans




·
            business
                acquisitions, dispositions, discontinuations or restructurings




·
            the
                continued integration of Putnam




·
            availability,
                terms and deployment of capital




·
            economic
                factors over which we have no control, including changes in inflation
                and
                interest rates




·
            the
                developing nature of the market for our products and technological
                change




·
            intensifying
                competition in the shape memory alloy and specialty polymer-extrusion
                fields




·
            success
                of operating initiatives




·
            operating
                costs




·
            advertising
                and promotional efforts




·
            the
                existence of adverse publicity




·
            our
                potential inability to obtain and maintain patent protection for
                our
                alloys, polymers, processes and applications thereof, to preserve
                our
                trade secrets and to operate without infringing on the proprietary
                rights
                of third parties




·
            the
                possibility that adequate insurance coverage and reimbursement levels
                for
                our products will not be available




·
            our
                dependence on outside suppliers and manufacturers




31




·
            availability,
                variability and quality of raw materials




·
            our
                exposure to potential product liability risks which are inherent
                in the
                testing, manufacturing, marketing and sale of medical products




·
            the
                ability to retain management




·
            business
                abilities and judgment of personnel




·
            availability
                of qualified personnel




·
            labor
                and employee benefit costs




·
            natural
                disaster or other disruption affecting Information Technology and
                telecommunication infrastructures




·
            acts
                of war and terrorist activities




·
            possible
                outbreaks of severe acute respiratory syndrome, or SARS, bird flu,
                or
                other diseases




**ITEM 7A.
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




Market
      risk generally represents the risk of loss that may be expected to result from
      the potential change in value of a financial instrument as a result of
      fluctuations in credit ratings of the issuer, equity prices, interest rates
      or
      foreign currency exchange rates. We do not use derivative financial instruments
      for any purpose.




We
      are
      also subject to interest rate risk on our $0.8 million notes payable with
      Webster Business Credit Corporation at June 30, 2007. Interest on the notes
      payable is variable based on LIBOR or an alternate base, as defined. We do
      not
      believe that an increase or decrease of 10% in the effective interest rate
      on
      the notes payable would have a material effect on our future results of
      operations.




**ITEM 8.
      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




The
      consolidated financial statements of the Company and the report of the
      independent registered public accounting firm thereon are set forth on pages
      F-1
      through F-23 hereof.




**ITEM 9.
      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




Not
      Applicable.




**ITEM 9A.
      CONTROLS AND PROCEDURES**




(a)
      Evaluation of disclosure controls and procedures.




We
      carried out an evaluation, under the supervision and with the participation
      of
      our management including our chief executive officer and chief financial
      officer, of the effectiveness of our disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
      period covered by this report. Based on this evaluation, our chief executive
      officer and chief financial officer have concluded that our disclosure controls
      and procedures are effective as of the end of the period covered by this report.




(b)
      Changes in internal control over financial reporting.




There
      was
      no change in our internal control over financial reporting that occurred during
      the fourth quarter of fiscal 2007 that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting.




**ITEM 9B.
      OTHER INFORMATION**




Not
      Applicable.




32




**PART
      III.**




**ITEM 10.
      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**




The
      information required in this Item will be contained in the Company’s Definitive
      Proxy Statement to be filed with the Commission within 120 days after
      June 30, 2007, and is incorporated herein by reference.




**ITEM 11.
      EXECUTIVE COMPENSATION**




The
      information required in this Item will be contained in the Company’s Definitive
      Proxy Statement to be filed with the Commission within 120 days after
      June 30, 2007, and is incorporated herein by reference.




**ITEM 12.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**




The
      information required in this Item will be contained in the Company’s Definitive
      Proxy Statement to be filed with the Commission within 120 days after
      June 30, 2007, and is incorporated herein by reference.




**ITEM 13.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**




The
      information required in this Item will be contained in the Company’s Definitive
      Proxy Statement to be filed with the Commission within 120 days after
      June 30, 2007, and is incorporated herein by reference.




**ITEM 14.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES**




The
      information required in this Item will be contained in the Company’s Definitive
      Proxy Statement to be filed with the Commission within 120 days after
      June 30, 2007, and is incorporated herein by reference.




**PART
      IV.**




**ITEM 15.
      EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**




(a)
      The
      following documents are filed as part of this report:




(1)
            Financial
                Statements: Report of Independent Registered Public Accounting Firm;
                Consolidated Balance Sheets as of June 30, 2007 and 2006;
                Consolidated Statements of Income for the Years Ended June 30, 2007,
                2006, and 2005; Consolidated Statements of Stockholders’ Equity for the
                Years Ended June 30, 2007, 2006, and 2005; and Consolidated
                Statements of Cash Flows for the Years Ended June 30, 2007, 2006 and
                2005; and Notes to the Consolidated Financial Statements.




(2)
            Financial
                statement schedules have been omitted since they are either not required,
                not applicable, or the information is otherwise included.


33


(b)
      Exhibit List




**Exhibit**
              **Number**
            
            **Description
                of Exhibit**2.1
            
            Asset
                Purchase Agreement dated November 9, 2004, among the Company, Putnam
                Plastics Corporation and Mr. James Dandeneau
            
            (16)3.1
            
            Certificate
                of Incorporation of the Company, as amended
            
            (7)3.2
            
            Amendment
                to Certificate of Incorporation of the Company, as amended
            
            (31)3.3
            
            By-Laws
                of the Company, as amended
            
            (2)3.4
            
            Amendment
                Number 1 to By-Laws of the Company, as amended
            
            (6)3.5
            
            Amendment
                Number 2 to By-Laws of the Company, as amended
            
            (22)4.1
            
            Warrant
                No. 03-01 to Purchase Common Stock of the Company, dated April 10,
                2003,
                issued to Trautman Wasserman & Co., Inc.
            
            (10)4.2
            
            Warrant
                No. 03-02 to Purchase Common Stock of the Company, dated July 1,
                2003,
                issued to Trautman Wasserman & Co., Inc.
            
            (12)4.3
            
            Warrant
                No. 03-03 to Purchase Common Stock of the Company, dated October
                1, 2003,
                issued to Trautman Wasserman & Co., Inc.
            
            (13)4.4
            
            Warrant
                No. 03-04 to Purchase Common Stock of the Company, dated January
                1, 2004,
                issued to Trautman Wasserman & Co., Inc.
            
            (14)10.1
            
            Convertible
                Subordinated Debenture Purchase Agreement, dated as of December 22,
                1994,
                between the Company and CII
            
            (1)10.2
            
            Memry
                Corporation Stock Option Plan, as amended
            
            *(3)10.3
            
            Amended
                and Restated Tinel-Lock Supply Agreement, dated as of February 19,
                1997,
                and effective as of December 20, 1996, between the Company and Raychem
                Corporation
            
            (4)10.4
            
            Memry
                Corporation’s Amended and Restated 1997 Long-Term Incentive Plan, as
                amended as of December 8, 2004
            
            *(17)10.5
            
            Form
                of Nontransferable Incentive Stock Option Agreement under the 1997
                Plan
            
            *(5)10.6
            
            Form
                of Nontransferable Non-Qualified Stock Option Agreement under the
                1997
                Plan
            
            *(24)10.7
            
            Sublease,
                dated February 3, 2000, by and between the Company and Pacific Financial
                Printing
            
            (7)10.8
            
            Lease,
                dated February 8, 2001, between Berkshire Industrial Corporation
                and the
                Company
            
            (8)10.9
            
            Business
                Park Lease, dated August 27, 2001, between 4065 Associates, L.P.
                and the
                Company, together with Agreement to Defer Certain Work, dated August
                27,
                2001, by and between 4065 Associates, L.P. and the Company
            
            (8)10.10
            
            Amendment
                to Lease, dated November 6, 2001, between 4065 Associates L.P. and
                Memry
                Corporation, with Amendment to Agreement, dated November 6, 2001,
                by and
                between 4065 Associates L.P. and the Company
            
            (9)10.11
            
            Sublease
                extension, dated September 2, 2003, by and between the Company and
                Pacific
                Financial Printing
            
            (11)10.12
            
            Amendment
                to Lease, dated July 24, 2003, between 4065 Associates L.P. and the
                Company, with Second Amendment to Agreement, dated July 24, 2003,
                by and
                between 4065 Associates L.P. and the Company
            
            (11)10.13
            
            Master
                Supply Agreement, date June 13, 2003, by and between Medtronic, Inc.
                and
                the Company
            
            (11)




34




10.14
            
            Amendment
                to Supply Agreement dated June 13, 2006 by and between Medtronic,
                Inc. and
                the Company
            
            (25)10.15
            
            Agreement,
                dated as of January 30, 2003, by and between the Company and United
                States
                Surgical, Division of Tyco Healthcare Group, LP
            
            +(11)10.16
            
            Amended
                and Restated Employment Agreement, dated as of April 28, 2006, between
                Dean Tulumaris and the Company
            
            *(31)10.17
            
            Amended
                and Restated Employment Agreement, dated as of March 1, 2003, between
                Ming
                Wu and the Company
            
            *(12)10.18
            
            Second
                Amended and Restated Commercial Revolving Loan, Term Loan, Line of
                Credit
                and Security Agreement, dated as of January 30, 2004, between the
                Company
                and Webster Bank.
            
            (14)10.19
            
            Revolving
                Credit Note dated November 9, 2004 made by the Company to the order
                of
                Webster Business Credit Corporation
            
            (16)10.20
            
            Capital
                Expenditure Note dated November 9, 2004 made by the Company to the
                order
                of Webster Business Credit Corporation
            
            (16)10.21
            
            Credit
                and Security Agreement dated as of November 9, 2004 between the Company
                as
                borrower and Webster Business Credit Corporation as lender
            
            (16)10.22
            
            Sublease
                extension, dated June 16, 2004, by and among the Company, Pacific
                Financial Printing and Albert Gounod
            
            (15)10.23
            
            Amended
                and Restated Employment Agreement, dated as of July 21, 2004, between
                Robert P. Belcher and the Company.
            
            *(15)10.24
            
            Amendment
                Number 1 to the Amended and Restated Employment Agreement dated January
                19, 2006 between Robert P. Belcher and the Company.
            
            *(21)10.25
            
            Amendment
                Number 2 to the Amended and Restated Employment Agreement dated April
                13,
                2006 between Robert P. Belcher and the Company.
            
            *(31)




10.26
            
            Employment
                Agreement, dated as of September 8, 2004, between James G. Binch and
                the Company.
            
            *(15)10.27
            
            Separation
                Agreement, dated December 9, 2005, between the Company and James
                G.
                Binch.
            
            *(20)10.28
            
            Commercial
                Lease Agreement dated as of November 9, 2004 between James V. Dandeneau,
                as lessor, and MPAV Acquisition LLC, as lessee
            
            (16)10.29
            
            Term
                Loan A Note dated November 9, 2004 made by the Company to the order
                of
                Webster Business Credit Corporation
            
            (16)10.30
            
            Term
                Loan B Note dated November 9, 2004 made by the Company to the order
                of
                Webster Business Credit Corporation
            
            (16)10.31
            
            Guaranty
                Agreement dated of as November 9, 2004 made by MPAV Acquisition LLC
                in
                favor of Webster Business Credit Corporation
            
            (16)10.32
            
            Subordinated
                Loan Agreement dated as of November 9, 2004 among the Company and
                MPAV
                Acquisition LLC, as borrowers, and Ironbridge Mezzanine Fund, L.P.
                and
                Brookside Pecks Capital Partners, L.P., as lenders
            
            (16)10.33
            
            Subordinated
                Promissory Note dated November 9, 2004 made by the Company and MPAV
                Acquisition LLC, jointly and severally, to the order of Brookside
                Pecks
                Capital Partners, L.P.
            
            (16)10.34
            
            Subordinated
                Promissory Note dated November 9, 2004 made by the Company and MPAV
                Acquisition LLC, jointly and severally, to the order of Ironbridge
                Mezzanine Fund, L.P.
            
            (16)10.35
            
            Standard
                Industrial/Commercial Single-Tenant Lease — Net dated as of December 1,
                2004 between Albert M. Gounod and the Company
            
            (16)




35




10.36
            
            Summary
                of Additional Compensation for Non-Management Chairs of the Board
                of
                Directors and Board Committees of Memry Corporation, as approved
                on
                December 8, 2004
            
            *(18)10.37
            
            Supply
                Agreement, dated as of November 9, 2004, by and between MPAV Acquisition
                LLC and Foster Corporation.
            
            (19)10.38
            
            Employment
                Agreement, dated as of November 9, 2004, between James Dandeneau
                and
                Putnam Plastics Company LLC.
            
            *(19)10.39
            
            Employment
                Agreement, dated August 14, 2006, between the Company and Richard
                F.
                Sowerby.
            
            *(31)10.40
            
            Master
                Supply Agreement, effective August 1, 2006, by and between the Company
                and
                Medtronic, Inc.
            
            (26)10.41
            
            Agreement,
                dated as of January 16, 2006, by and between the Company and United
                States
                Surgical, Division of Tyco Healthcare Group LP
            
            (22)10.42
            
            First
                Amendment Agreement dated as of November 9, 2005 by and between the
                Company (“Borrower”) and Webster Business Credit Corporation (“Lender”),
                amending a certain Credit and Security Agreement dated as of November
                9,
                2004 by and between Borrower and Lender.
            
            (23)10.43
            
            Second
                Amendment Agreement dated as of December 21, 2005 by and between
                the
                Company (“Borrower”) and Webster Business Credit Corporation (“Lender”),
                amending a certain Credit and Security Agreement dated as of November
                9,
                2004 by and between Borrower and Lender.
            
            (23)10.44
            
            Third
                Amendment Agreement dated as of December 5, 2006 by and between the
                Company (“Borrower”) and Webster Business Credit Corporation (“Lender”),
                amending a certain Credit and Security Agreement dated as of November
                9,
                2004 by and between Borrower and Lender.
            
            (32)10.45
            
            Fourth
                Amendment Agreement dated as of March 28, 2007 by and between the
                Company
                (“Borrower”) and Webster Business Credit Corporation (“Lender”), amending
                a certain Credit and Security Agreement dated as of November 9, 2004
                by
                and between Borrower and Lender.
            
            (29)10.46
            
            Memry
                Corporation 2006 Long-Term Incentive Plan
            
            *(27)10.47
            
            Form
                of Nontransferable Non-Qualified Stock Option Agreement under the
                2006
                Plan for Employees
            
            *(28)10.48
            
            Form
                of Nontransferable Stock Option Agreement under the 2006 Plan for
                Non-Employee Directors
            
            *(28)10.49
            
            Agreement
                for Stock Option Extension, dated September 22, 2006 between the
                Company
                and Dr. Ming H. Wu
            
            *(30)10.50
            
            First
                Amendment to Subordindated Loan Agreement, dated as of March 29,
                2007, by
                and among the Company, Putnam Plastics Company, LLC, Ironbridge Mezzanine
                Fund, L.P., and Brookside Pecks Capital Partners, L.P.
            
            (29)





36




21.1
            
            Information
                regarding Subsidiaries
            
            (32)23.1
            
            Consent
                of Deloitte & Touche LLP
            
            (32)31.1
            
            Certification
                of Principal Executive Officer pursuant to Rule 13a-14(a) under the
                Securities Exchange Act of 1934
            
            (32)31.2
            
            Certification
                of Principal Financial Officer pursuant to Rule 13a-14(a) under the
                Securities Exchange Act of 1934
            
            (32)32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            (32)32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            (32)







*
            Management
                contract or compensatory plan or arrangement.





+
            Certain
                confidential portions of this exhibit have been omitted pursuant
                to an
                Order Granting Confidential Treatment pursuant to Rule 24b-2 under
                the
                Securities Exchange Act of 1934, dated April 6, 2004.





(1)
            Incorporated
                by reference to the Company’s Registration Statement on Form SB-2, filed
                with the Commission on November 8, 1994, as amended by Amendment
                No. 1
                filed with the Commission on January 17, 1995.





(2)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-KSB for the fiscal
                year ended June 30, 1995, as amended.





(3)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-QSB for the
                fiscal quarter ended December 31, 1996.





(4)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-KSB for the fiscal
                year ended June 30, 1997, as amended.





(5)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-QSB for the
                fiscal quarter ended December 31, 1997.





(6)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-KSB for the fiscal
                year ended June 30, 1998.





(7)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-KSB for the fiscal
                year ended June 30, 2000.





(8)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-K for the fiscal
                year ended June 30, 2001, as amended by Amendment No. 1 thereto.





(9)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal
                quarter ended September 30, 2001.





(10)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal
                quarter ended March 31, 2003.





(11)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-K for the fiscal
                year ended June 30, 2003.





(12)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal
                quarter ended September 30, 2003.





(13)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal
                quarter ended December 31, 2003.





(14)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal
                quarter ended March 31, 2004.





(15)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-K for the fiscal
                year ended June 30, 2004.





(16)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K filed with the
                Securities Exchange Commission on November 12, 2004.





(17)
            Incorporated
                by reference to the definitive proxy statement on Schedule 14A filed
                with
                the Securities and Exchange Commission on October 28, 2004





(18)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, filed on
                December 14, 2004.





(19)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal
                quarter ended December 31, 2004.





(20)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, filed on
                December 14, 2005.





(21)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, filed on
                January 24, 2006.





(22)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, filed on
                February 9, 2006.





(23)
            Incorporated
                by reference to the Company’s Quarterly Report on Form 10-Q for the fiscal
                quarter ended December 31, 2005.





(24)
            Incorporated
                by reference to the Company’s Registration Statement on Form S-8, filed
                with the Securities and Exchange Commission on October 28, 2005.





(25)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, filed on
                June 20, 2006.





(26)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, filed on
                August 10, 2006.





(27)
            Incorporated
                by reference to Exhibit A to the Company’s Definitive Proxy Statement,
                filed on October 23, 2006.





(28)
            Incorporated
                by reference to the Company’s Registration Statement on Form S-8, filed on
                March 30, 2007.




37




(29)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, filed on March
                30, 2007.





(30)
            Incorporated
                by reference to the Company’s Current Report on Form 8-K, filed on
                September 25, 2006.





(31)
            Incorporated
                by reference to the Company’s Annual Report on Form 10-K for the fiscal
                year ended June 30, 2006.





(32)
            Filed
                herewith.




38




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) 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.




Date:
      September 21, 2007


MEMRYCORPORATIONBy:
            /s/ ROBERT
              P.
              BELCHER**Robert
              P. Belcher****Chief
              Executive Officer**


Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




**Signature**
            
            **Title**
            
            **Date**/s/
                MICHEL DE BEAUMONT
            
            Director
            
            September 21,
                2007**Michel
                de
                Beaumont**/s/
                ROBERT P. BELCHER
            
            Chief
                Executive Officer
            
            September 21,
                2007**Robert
                P.
                Belcher**
            
            (Principal
                Executive Officer) and Director/s/
                KEMPTON J. COADY, III
            
            Director
            
            September 21,
                2007**Kempton
                J. Coady, III**/s/
                JAMES V. DANDENEAU
            
            Director
            
            September 21,
                2007**James
                V.
                Dandeneau**/s/
                CARMEN L. DIERSEN
            
            Director
            
            September 21,
                2007**Carmen
                L.
                Diersen**/s/
                W. ANDREW KRUSEN, JR.
            
            Director
            
            September 21,
                2007**W.
                Andrew Krusen,
                Jr.**/s/
                FRANCOIS MARCHAL
            
            Director
            
            September 21,
                2007**Francois
                  Marchal**




/s/
                EDWIN SNAPE
            
            Chairman
            
            September 21,
                2007**Edwin
                Snape**/s/
                RICHARD F. SOWERBY
            
            Chief
                Financial Officer and Treasurer
            
            September 21,
                2007**Richard
                F.
                Sowerby**
            
            (Principal
                Financial and Accounting
                Officer)




39




**CONTENTS**




**REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
            
            
            F-2**FINANCIAL
                STATEMENTS**Consolidated
                balance sheets
            
            
            F-3Consolidated
                statements of income
            
            
            F-4Consolidated
                statements of stockholders’ equity
            
            
            F-5Consolidated
                statements of cash flows
            
            
            F-6Notes
                to consolidated financial statements
            
            
            F-7




F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




The
      Stockholders and Board of Directors


Memry
      Corporation


Bethel,
      Connecticut




We
      have
      audited the accompanying consolidated balance sheets of Memry Corporation and
      subsidiaries (the “Company”) as of June 30, 2007 and 2006, and the related
      consolidated statements of income, stockholders’ equity, and cash flows for each
      of the three years in the period ended June 30, 2007. These financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.




We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal controls over
      financial reporting. Our audits included consideration of internal control
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing our
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.




In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of the Company as of June 30, 2007 and
      2006, and the results of their operations and their cash flows for each of
      the
      three years in the period ended June 30, 2007, in conformity with
      accounting principles generally accepted in the United States of America.




As
      discussed in Note 11 to the consolidated financial statements, on July 1,
      2005, the Company changed its method of accounting for share-based payment
      arrangements to conform to Statement of Financial Accounting Standards
      No. 123(R), “Share-Based Payment.”




/s/ Deloitte
                & Touche LLPStamford,
                ConnecticutSeptember 20,
                2007





F-2




**MEMRY
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
        BALANCE SHEETS**
 **June 30,
        2007 and 2006**
  2007
              
              2006**Assets**Current
                  assetsCash
                  and cash equivalents
              
              $
              2,401,000
              
              $
              6,965,000Accounts
                  receivable, net
              
              
              6,312,000
              
              
              8,156,000Inventories
              
              
              6,230,000
              
              
              5,418,000Deferred
                  tax assets
              
              
              1,537,000
              
              
              1,663,000Prepaid
                  expenses and other current assets
              
              
              381,000
              
              
              41,000**Total
                  current assets**
              
              
              16,861,000
              
              
              22,243,000Property,
                  plant and equipment, net
              
              
              8,817,000
              
              
              8,996,000Other
                  assetsIntangible
                  assets, net
              
              
              6,500,000
              
              
              7,171,000Goodwill
              
              
              14,146,000
              
              
              14,146,000Deferred
                  financing costs, less accumulated amortization of $102,000 and
                  $184,000 at
                  June 30, 2007 and 2006, respectively
              
              
              89,000
              
              
              355,000Deferred
                  tax assets
              
              
              1,769,000
              
              
              1,821,000Investment
              
              
              409,000
              
              
              409,000Deposits
                  and other assets
              
              
              155,000
              
              
              159,000**Total
                  other assets**
              
              
              23,068,000
              
              
              24,061,000**Total
                  assets**
              
              $
              48,746,000
              
              $
              55,300,000**Liabilities
                  and stockholders’ equity**Current
                  liabilitiesAccounts
                  payable and accrued expenses
              
              $
              5,606,000
              
              $
              5,478,000Notes
                  payable
              
              
              970,000
              
              
              2,173,000Income
                  tax payable
              
              
              50,000
              
              
              215,000**Total
                  current liabilities**
              
              
              6,626,000
              
              
              7,866,000Notes
                  payable, less current maturities
              
              
              645,000
              
              
              7,818,000Other
                  non-current liabilities
              
              
              125,000
              
              
              116,000Commitments
                  and contingencies (See Notes)Stockholders’
                  equityCommon
                  stock, $0.01 par value, 60,000,000 shares authorized; 29,851,870
                  and
                  29,077,486 shares issued and outstanding at June 30, 2007 and 2006,
                  respectively
              
              
              299,000
              
              
              291,000Additional
                  paid-in capital
              
              
              56,471,000
              
              
              54,946,000Accumulated
                  deficit
              
              
              (15,420,000
              )
              
              (15,737,000
              )**Total
                  stockholders’ equity**
              
              
              41,350,000
              
              
              39,500,000**Total
                  liabilities and stockholders’ equity**
              
              $
              48,746,000
              
              $
              55,300,000
  See
        Notes
        to Consolidated Financial Statements.
  F-3
  **MEMRY
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF INCOME**
 **Years
        Ended June 30, 2007, 2006 and 2005**
  **2007******
              
              **2006**
              
              **2005**Revenues
              
              $
              51,677,000
              
              $
              52,588,000
              
              $
              45,008,000Cost
                  of revenues
              
              
              35,087,000
              
              
              32,215,000
              
              
              27,095,000**Gross
                  profit**
              
              
              16,590,000
              
              
              20,373,000
              
              
              17,913,000Operating
                  expensesResearch
                  and development
              
              
              1,645,000
              
              
              2,016,000
              
              
              1,923,000General,
                  selling and administration
              
              
              13,205,000
              
              
              12,615,000
              
              
              10,049,000Amortization
                  of intangible assets
              
              
              504,000
              
              
              504,000
              
              
              379,000Other
              
              
              (72,000
              )
              
              (141,000
              )
              
              (60,000
              )15,282,000
              
              
              14,994,000
              
              
              12,291,000**Operating
                  income**
              
              
              1,308,000
              
              
              5,379,000
              
              
              5,622,000Loss
                  on extinguishment of debt
              
              
              (215,000
              )
              
              —
              
              
              (182,000
              )InterestExpense
              
              
              (975,000
              )
              
              (1,258,000
              )
              
              (1,189,000
              )Income
              
              
              331,000
              
              
              195,000
              
              
              157,000(644,000
              )
              
              (1,063,000
              )
              
              (1,032,000
              )**Income
                  before income taxes**
              
              
              449,000
              
              
              4,316,000
              
              
              4,408,000Provision
                  for income taxes
              
              
              132,000
              
              
              1,643,000
              
              
              1,683,000**Net
                  income**
              
              $
              317,000
              
              $
              2,673,000
              
              $
              2,725,000Net
                  income per common shareBasic
              
              $
              0.01
              
              $
              0.09
              
              $
              0.10Diluted
              
              $
              0.01
              
              $
              0.09
              
              $
              0.10Weighted
                  average common shares used in calculationBasic
              
              
              29,572,975
              
              
              28,788,594
              
              
              27,496,849Diluted
              
              
              29,955,096
              
              
              29,507,780
              
              
              28,262,721
  See
        Notes
        to Consolidated Financial Statements.
  F-4
  **MEMRY
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **Years
        Ended June 30, 2007, 2006 and 2005**
  **Common
                  Stock**
              
              
              **Additional****Shares**
                **Issued**
              
              
              **Par**
                **Value**
              
              
              **Paid-in**
                **Capital**
              
              
              **Accumulated**
                **Deficit**
              
              
              **Total**Balance,
                  July 1, 2004
              
              
              25,570,419
              
              $
              256,000
              
              $
              49,103,000
              
              $
              (21,135,000
              )
              $
              28,224,000Issuance
                  of common stock
              
              
              153,029
              
              
              1,000
              
              
              249,000
              
              
              —
              
              
              250,000Issuance
                  of restricted common stock in conjunction with acquisition
              
              
              2,857,143
              
              
              29,000
              
              
              4,541,000
              
              
              —
              
              
              4,570,000Net
                  income
              
              
              —
              
              
              —
              
              
              —
              
              
              2,725,000
              
              
              2,725,000Balance,
                  June 30, 2005
              
              
              28,580,591
              
              
              286,000
              
              
              53,893,000
              
              
              (18,410,000
              )
              
              35,769,000Issuance
                  of common stock
              
              
              496,895
              
              
              5,000
              
              
              689,000
              
              
              —
              
              
              694,000Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              364,000
              
              
              —
              
              
              364,000Net
                  income
              
              
              —
              
              
              —
              
              
              —
              
              
              2,673,000
              
              
              2,673,000Balance,
                  June 30, 2006
              
              
              29,077,486
              
              
              291,000
              
              
              54,946,000
              
              
              (15,737,000
              )
              
              39,500,000Issuance
                  of common stock
              
              
              774,384
              
              
              8,000
              
              
              1,078,000
              
              
              —
              
              
              1,086,000Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              447,000
              
              
              —
              
              
              447,000Net
                  income
              
              
              —
              
              
              —
              
              
              —
              
              
              317,000
              
              
              317,000Balance,
                  June 30, 2007
              
              
              29,851,870
              
              $
              299,000
              
              $
              56,471,000
              
              $
              (15,420,000
              )
              $
              41,350,000
  See
        Notes
        to Consolidated Financial Statements.
  F-5
  **MEMRY
        CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **Years
        Ended June 30, 2007, 2006 and 2005**
 
 **2007**
              
              **2006**
              
              **2005**Cash
                  Flows From Operating ActivitiesNet
                  income
              
              $
              317,000
              
              $
              2,673,000
              
              $
              2,725,000Adjustments
                  to reconcile net income to net cash provided by operating activities:Provision
                  (benefit) for doubtful accounts
              
              
              (37,000
              )
              
              1,000
              
              
              36,000Depreciation
                  and amortization
              
              
              3,160,000
              
              
              2,912,000
              
              
              2,574,000Loss
                  (gain) from sale or write off of equipment
              
              
              75,000
              
              
              109,000
              
              
              (10,000
              )Deferred
                  income taxes
              
              
              178,000
              
              
              1,415,000
              
              
              1,251,000Stock-based
                  compensation
              
              
              519,000
              
              
              436,000
              
              
              78,000Accreted
                  interest on note receivable
              
              
              —
              
              
              (2,000
              )
              
              (7,000
              )Accreted
                  interest on notes payable
              
              
              252,000
              
              
              330,000
              
              
              336,000Loss
                  on extinguishment of debt, non-cash portion
              
              
              170,000
              
              
              —
              
              
              107,000Change
                  in operating assets and liabilities (net of business acquisition):Accounts
                  receivable
              
              
              1,875,000
              
              
              (2,305,000
              )
              
              (430,000
              )Inventories
              
              
              (812,000
              )
              
              (470,000
              )
              
              (1,026,000
              )Prepaid
                  expenses and other current assets
              
              
              (263,000
              )
              
              247,000
              
              
              (129,000
              )Deposits
                  and other assets
              
              
              4,000
              
              
              (11,000
              )
              
              45,000Accounts
                  payable and accrued expenses
              
              
              138,000
              
              
              613,000
              
              
              1,460,000Income
                  taxes payable
              
              
              (165,000
              )
              
              11,000
              
              
              142,000**Net
                  cash provided by operating activities**
              
              
              5,411,000
              
              
              5,959,000
              
              
              7,152,000Cash
                  Flows From Investing ActivitiesCapital
                  expenditures
              
              
              (2,332,000
              )
              
              (2,683,000
              )
              
              (2,095,000
              )Note
                  receivable
              
              
              —
              
              
              —
              
              
              (400,000
              )Payments
                  in connection with business acquisition
              
              
              —
              
              
              (829,000
              )
              
              (18,245,000
              )Cash
                  collateral deposits
              
              
              —
              
              
              1,500,000
              
              
              (1,500,000
              )Proceeds
                  from sale of equipment
              
              
              5,000
              
              
              6,000
              
              
              10,000**Net
                  cash used in investing activities**
              
              
              (2,327,000
              )
              
              (2,006,000
              )
              
              (22,230,000
              )Cash
                  Flows From Financing ActivitiesProceeds
                  from issuance of common stock
              
              
              1,015,000
              
              
              621,000
              
              
              172,000Proceeds
                  from notes payable
              
              
              —
              
              
              —
              
              
              11,400,000Principal
                  payments on notes payable
              
              
              (8,663,000
              )
              
              (2,138,000
              )
              
              (4,681,000
              )Financing
                  costs
              
              
              —
              
              
              —
              
              
              (659,000
              )Proceeds
                  from equipment line of credit
              
              
              —
              
              
              388,000
              
              
              612,000Principal
                  payments on capital lease obligations
              
              
              —
              
              
              —
              
              
              (29,000
              )**Net
                  cash provided by (used in) financing activities**
              
              
              (7,648,000
              )
              
              (1,129,000
              )
              
              6,815,000**Increase
                  (decrease) in cash and cash equivalents**
              
              
              (4,564,000
              )
              
              2,824,000
              
              
              (8,263,000
              )Cash
                  and cash equivalents, beginning of year
              
              
              6,965,000
              
              
              4,141,000
              
              
              12,404,000Cash
                  and cash equivalents, end of year
              
              $
              2,401,000
              
              $
              6,965,000
              
              $
              4,141,000**Supplemental
                  Disclosures of Cash Flow Information**Cash
                  payments for interest
              
              $
              742,000
              
              $
              904,000
              
              $
              721,000Cash
                  payments for income taxes
              
              $
              155,000
              
              $
              235,000
              
              $
              272,000**Supplemental
                  Schedule of Noncash Items**Conversion
                  of note receivable to investment
              
              $
              —
              
              $
              409,000
              
              $
              —Recognition
                  of asset retirement obligation
              
              $
              —
              
              $
              92,000
              
              $
              —Capital
                  lease obligation incurred
              
              $
              35,000
              
              $
              —
              
              $
              —**Business
                  Acquisition**Fair
                  value of assets acquired, including goodwill
              
              
              
              
              $
              200,000
              
              $
              25,807,000Cash
                  paid
              
              
              
              
              
              (829,000
              )
              
              (18,245,000
              )Accrued
                  purchase price payments
              
              
              
              
              
              629,000
              
              
              (629,000
              )Fair
                  value of restricted common stock issued
              
              
              
              
              
              —
              
              
              (4,570,000
              )Present
                  value of deferred payment
              
              
              
              
              
              —
              
              
              (2,228,000
              )Liabilities
                  assumed
              
              
              
              
              $
              —
              
              $
              135,000
  See
        Notes
        to Consolidated Financial Statements.
  F-6


**MEMRY
      CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Years
      Ended June 30, 2007, 2006 and 2005**




**Note
      1. Nature of Business and Summary of Significant Accounting Policies**




Nature
      of business




Memry
      Corporation, a Delaware corporation incorporated in 1981, and its subsidiaries
      (collectively the “Company”), are engaged in the business of developing,
      manufacturing and marketing products and components that are sold primarily
      to
      the medical device industry. The Company utilizes shape memory alloys (“SMAs”)
      and extruded polymers in the production of most of its products. The results
      of
      operations of Putnam Plastics Company LLC (“Putnam Plastics Company”) have been
      included in the consolidated statements of income from the November 9, 2004
      date of acquisition of substantially all of the assets and assumed selected
      liabilities of Putnam Plastics Corporation (the “Putnam Acquisition”). The term
“Putnam” is used herein to refer to the business operated by Putnam Plastics
      Corporation prior to the Putnam Acquisition and Putnam Plastics Company
      thereafter. See Note 2.




Accounting
      estimates




The
      preparation of financial statements requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenue and expenses during the reporting
      period. Actual results could differ from those estimates.




Principles
      of consolidation





The
      consolidated financial statements include the accounts of Memry Corporation
      and
      its wholly-owned subsidiaries, Putnam Plastics Company and Memry Holdings,
      S.A.
      Putnam Plastics Company was established to complete the Putnam Acquisition.
      Memry Holdings, S.A. is an inactive holding company. All significant
      intercompany accounts and transactions have been eliminated in consolidation.





Restatements





For
      years
      prior to July 1, 2006, the Company classified legal costs incurred for
      litigating, registering and maintaining patents as research and development
      expense. Commencing July 1, 2006, the Company began classifying such costs
      as
      general, selling and administration expense. For the years ended June 30, 2006
      and 2005, the Company has restated the consolidated financial statements to
      correct this error by $270,000 and $478,000, respectively, of such costs from
      research and development expense to general, selling and administration expense.
      There was no effect on operating income as a result of this restatement.





For
      years
      prior to July 1, 2006, the Company classified certain customer reimbursements
      and other items as other income. Commencing July 1, 2006, the Company began
      classifying such amounts as other operating expenses. For the years ended June
      30, 2006 and 2005, the Company has restated its consolidated financial
      statements to correct this error by $141,000 and $60,000, respectively, of
      such
      amounts from other income to other operating expenses. There was no effect
      on
      net income as a result of this restatement.




Cash
      and cash equivalents




For
      purposes of the consolidated statements of cash flows, the Company considers
      all
      highly liquid investments with a maturity of three months or less, when
      purchased, to be cash equivalents. During the years ended June 30, 2007 and
      2006, the Company had cash deposits in excess of FDIC insured limits at various
      banks. The Company has not experienced any losses from such excess deposits.




Accounts
      receivable




Accounts
      receivable are carried at original invoice amount less an estimate for doubtful
      accounts based on a review of all outstanding amounts on a monthly basis.
      Management determines the allowance for doubtful accounts by regularly
      evaluating individual customer receivables and considering a customer’s
      financial condition, credit history, and current economic conditions. Accounts
      receivable are written-off when deemed uncollectible.




Inventories




Inventories
      consist principally of various metal alloy rod, shape memory alloys and polymer
      pellets. Inventories are stated at the lower of cost, determined on the
      first-in, first-out method, or market.




F-7




Disclosure
      of fair value of financial statements




The
      carrying amount reported in the consolidated balance sheets for cash, accounts
      receivable, accounts payable and accrued expenses approximates fair value
      because of the short-term maturity of these financial instruments. The carrying
      value of the notes payable approximates fair value because current rates offered
      to the Company for debt with similar remaining maturities are approximately
      the
      same.





Impairment
      of long-lived assets




The
      Company reviews its long-lived assets for impairment whenever events or
      circumstances indicate that the carrying amount of the assets may not be
      recoverable. The Company measures impairment by comparing the asset’s estimated
      fair value to its carrying amount. The estimated fair value of these assets
      is
      based on estimated future cash flows to be generated by the assets, discounted
      at a market rate of interest.




Goodwill




Goodwill
      represents the excess of the aggregate purchase price over the fair value of
      net
      assets of acquired businesses. The Company accounts for goodwill in accordance
      with SFAS No. 142, “ *Goodwill
      and Other Intangible Assets* ”.
      SFAS
      No. 142 requires that goodwill not be amortized, but subjected to an
      impairment test on an annual basis or when facts and circumstances suggest
      such
      assets may be impaired. The Company has completed its impairment tests for
      the
      years ended June 30, 2007, 2006 and 2005, which did not result in an
      indication of impairment. All of the $14,146,000 of goodwill at June 30,
      2007 is deductible for income tax purposes.




Revenue
      recognition




Revenues
      from product sales are recognized when persuasive evidence of an arrangement
      exists, delivery has occurred, the sales price is fixed or determinable and
      collectibility is reasonably assured. Transfer of title and risk of ownership
      occurs upon shipment of product. Certain revenues are earned in connection
      with
      research and development grants and contracts, which are principally with
      various governmental agencies. Such revenues are recognized when services are
      rendered. Some of the Company’s research and development projects are
      customer-sponsored and typically provide the Company with the production rights
      or pay a royalty to the Company if a commercially viable product results. Such
      revenues are recognized as indicated above. Revenues from research and
      development activities were $5,105,000, $4,233,000 and $2,663,000 for the years
      ended June 30, 2007, 2006 and 2005, respectively.




Property,
      plant and equipment




Property,
      plant and equipment are stated at cost. Expenditures for major renewals and
      improvements are capitalized, while expenditures for maintenance and repairs
      not
      expected to extend the life of an asset beyond its normal useful life are
      charged to expense when incurred. Interest costs incurred during the
      construction of property, plant and equipment are capitalized and included
      as
      part of the cost of the asset. Interest costs capitalized during the years
      ended
      June 30, 2007, 2006 and 2005 were $93,000, $87,000 and $25,000,
      respectively. Depreciation of equipment is computed using the straight-line
      method over the estimated useful lives of the respective assets. The estimated
      useful lives of the assets are as follows:




**Years**Furniture
                and fixtures
            
            
            5-10Tooling
                and equipment
            
            
            3-10Office
                equipment
            
            
            3-5




Leasehold
      improvements are amortized over the term of the lease or the improvement’s
      estimated useful life, if shorter.




Deferred
      financing costs




Costs
      incurred in obtaining financing are capitalized and amortized over the term
      of
      the related debt. Deferred financing costs related to debt that is retired
      early
      is expensed at the time of retirement. Amortization of deferred financing costs
      was $96,000, $110,000 and $138,000 for the years ended June 30, 2007, 2006
      and 2005, respectively.




401(k)
      plan




The
      Company maintains a 401(k) profit sharing and savings plan for the benefit
      of
      substantially all of its employees. The Plan provides for contributions by
      the
      Company in such amounts as provided by the terms of the Plan. Contributions
      were
      $438,000, $435,000 and $280,000 for the years ended June 30, 2007, 2006 and
      2005, respectively.




F-8




Research
      and development expense




Research
      and development costs are expensed as incurred. The Company incurs research
      and
      development expenses for purposes of developing its own future products. Such
      costs are included in operating expenses. The Company also incurs research
      and
      development expenses that are funded by customers pursuant to customer
      arrangements. Such costs are included in cost of revenues and were $4,959,000,
      $4,753,000 and $3,415,000 for the years ended June 30, 2007, 2006 and 2005,
      respectively.




Shipping
      and handling costs




Shipping
      and handling costs associated with outbound freight are included in cost of
      revenues for the years ended June 30, 2007 and 2006. For the year ended
      June 30, 2005 these costs were included in general, selling and
      administration expenses and were $93,000.




Income
      taxes




Deferred
      income taxes are provided on the liability method whereby deferred tax assets
      are recognized for deductible temporary differences and operating loss and
      tax
      credit carryforwards and deferred tax liabilities are recognized for taxable
      temporary differences. Temporary differences are the differences between the
      reported amounts of assets and liabilities and their income tax bases. Deferred
      tax assets are reduced by a valuation allowance when, in the opinion of
      management, it is more likely than not that some portion or all of the deferred
      tax assets will not be realized. Deferred tax assets and liabilities are
      adjusted for the effects of changes in tax laws on the date of enactment.




Earnings
      per share




Basic
      earnings per share amounts are computed by dividing net income by the
      weighted-average number of common shares outstanding during the year. Diluted
      earnings per share amounts assume the exercise of all potential common stock
      instruments unless the effect is antidilutive.




The
      following is information about the computation of weighted-average shares
      utilized in the computation of basic and diluted earnings per share for the
      years ended June 30, 2007, 2006 and 2005:




**2007**
            
            **2006**
            
            **2005**Weighted
                average number of basic shares outstanding
            
            
            29,572,975
            
            
            28,788,594
            
            
            27,496,849Effect
                of dilutive securities:Warrants
            
            
            107,739
            
            
            277,702
            
            
            225,692Stock
                options
            
            
            274,382
            
            
            441,484
            
            
            540,180Weighted
                average number of fully diluted shares outstanding
            
            
            29,955,096
            
            
            29,507,780
            
            
            28,262,721




Stock
      options to purchase 1,820,468, 1,358,168 and 1,502,194 shares for the years
      ended June 30, 2007, 2006 and 2005, respectively, were outstanding, but
      were not included in the computation of diluted earnings per share because
      the
      exercise price of the stock options was greater than the average market price
      of
      the common shares and therefore, the effect would be antidilutive.




Stock-based
      compensation




At
      June
      30, 2007, the Company had stock-based compensation plans, which are described
      more fully in Note 11. “Capital Stock.” The Company accounts for those plans
      under the recognition and measurement principles of SFAS No. 123(R), *“Share-Based
      Payment.”* SFAS
      No. 123(R) establishes standards for the accounting for transactions where
      an entity exchanges its equity for goods or services and the transactions that
      are based on the fair value of the entity’s equity instruments or that may be
      settled by the issuance of those equity instruments.





Impact
      of recently issued accounting standards




In
      May
      2005, the FASB issued SFAS No. 154, “ *Accounting
      Changes and Error Corrections”* which
      replaces APB Opinion No. 20, “ *Accounting
      Changes”* ,
      and
      SFAS No. 3, “ *Reporting
      Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion
      No. 28”* .
      SFAS
      No. 154 provides guidance on the accounting for and reporting of accounting
      changes and error corrections. Specifically, SFAS No. 154 requires
“retrospective application” of the direct effect for a voluntary change in
      accounting principle to prior periods’ financial statements, if it is
      practicable to do so. SFAS No. 154 also strictly redefines the term
“restatement” to mean the correction of an error by revising previously issued
      financial statements. SFAS No. 154 replaces APB No. 20, which requires
      that most voluntary changes in accounting principle be recognized by including
      in net income of the period of the change to the new accounting principle.
      SFAS
      No. 154 is effective for accounting changes and corrections of errors made
      in fiscal years beginning after December 15, 2005.




F-9




In
      July
      2006, the FASB issued FASB Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB Statement
      No. 109* ”
(“FIN
      48”). FIN 48 prescribes a recognition threshold and measurement attribute for
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return, and also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The Company will adopt the
      interpretation effective July 1, 2007, the first quarter of its 2008 fiscal
      year. The Company does not believe that the adoption of FIN 48 will have a
      material impact on its consolidated financial statements.




**Note
      2. Acquisition**




On
      November 9, 2004, the Company completed the Putnam Acquisition. Putnam is
      one of the nation’s leading, specialty polymer-extrusion companies serving the
      medical device, laser, fiber-optic, automotive and industrial markets. Its
      primary products are complex, multi-lumen, multi-layer extrusions used for
      guidewires, catheter shafts, delivery systems and various other interventional
      medical procedures. Putnam’s products are known for their complex
      configurations, multiple material construction and innovative designs. Putnam
      also is well known for its ability to manufacture to tight tolerances.




The
      purchase price, including acquisition costs, consisted of $19.1 million in
      cash,
      2,857,143 shares of Memry Corporation common stock (with a fair value of $4.6
      million) and $2.5 million in deferred payments (with a fair value of $2.2
      million). The shares are subject to various restrictions, including, subject
      to
      certain exceptions, a limitation on the sale of shares in the public market
      to
      250,000 per calendar quarter. For a description of the financing of the
      Putnam Acquisition, see Note 10.




The
      purchase price of the Putnam Acquisition has been allocated to the assets
      acquired and liabilities assumed based on their respective fair values. The
      Company has allocated the purchase price as follows:




**Amount**Goodwill
            
            $
            13,108,000Developed
                technology, customer relationships and other intangible
                assets
            
            
            7,400,000Tangible
                assets acquired, net of liabilities assumed
            
            
            5,364,000Purchase
                price
            
            $
            25,872,000




**Note
      3. Inventories**




Inventories
      consist of the following at June 30, 2007 and 2006:




**2007**
            
            **2006**Raw
                materials and supplies
            
            $
            2,672,000
            
            $
            2,389,000Work-in-process
            
            
            2,077,000
            
            
            1,717,000Finished
                goods
            
            
            1,481,000
            
            
            1,312,000$
            6,230,000
            
            $
            5,418,000




**Note
      4. Property, Plant and Equipment**




Property,
      plant and equipment consist of the following at June 30, 2007 and 2006:




**2007**
            
            **2006**Furniture
                and fixtures
            
            $
            1,440,000
            
            $
            1,396,000Tooling
                and equipment
            
            
            19,927,000
            
            
            18,041,000Leasehold
                improvements
            
            
            3,370,000
            
            
            3,151,00024,737,000
            
            
            22,588,000Less
                accumulated depreciation and amortization
            
            
            (15,920,000
            )
            
            (13,592,000
            )$
            8,817,000
            
            $
            8,996,000




Depreciation
      and amortization of property, plant and equipment was $2,384,000, $2,107,000
      and
      $1,945,000 for the years ended June 30, 2007, 2006 and 2005, respectively.
      As of June 30, 2007 and 2006, there were amounts due for capital
      expenditures included in accounts payable of $47,000 and $57,000, respectively,
      in addition to the $2,332,000 and $2,683,000, respectively, of cash disbursed
      for capital expenditures during the years then ended. During the years ended
      June 30, 2007 and 2006, the Company wrote-off $27,000 and $117,000,
      respectively, of equipment no longer deemed realizable.




F-10




**Note
      5. Intangible Assets**




Intangible
      assets include the allocation of the purchase price relating to the Putnam
      Acquisition on November 9, 2004.




The
      following table sets forth intangible assets, including the accumulated
      amortization:




**June 30,
                2006****Useful Life**
            
            **Cost**
            
            **Accumulated**
              **Amortization**
            
            **Net Carrying**
              **Value**Patents
            
            
            15
                years
            
            $
            2,000,000
            
            $
            1,333,000
            
            $
            667,000Customer
                relationships
            
            
            15
                years
            
            
            3,400,000
            
            
            378,000
            
            
            3,022,000Developed
                technology
            
            
            15
                years
            
            
            2,500,000
            
            
            278,000
            
            
            2,222,000Trade
                name
            
            
            20
                years
            
            
            1,100,000
            
            
            92,000
            
            
            1,008,000Employment
                agreement
            
            
            4.5
                years
            
            
            400,000
            
            
            148,000
            
            
            252,000Total
            
            
            
            
            $
            9,400,000
            
            $
            2,229,000
            
            $
            7,171,000




**June 30,
                2007****Useful Life**
            
            **Cost**
            
            **Accumulated**
              **Amortization**
            
            **Net Carrying**
              **Value**Patents
            
            
            15
                years
            
            $
            2,000,000
            
            $
            1,467,000
            
            $
            533,000Customer
                relationships
            
            
            15
                years
            
            
            3,400,000
            
            
            605,000
            
            
            2,795,000Developed
                technology
            
            
            15
                years
            
            
            2,500,000
            
            
            444,000
            
            
            2,056,000Trade
                name
            
            
            20
                years
            
            
            1,100,000
            
            
            147,000
            
            
            953,000Employment
                agreement
            
            
            4.5
                years
            
            
            400,000
            
            
            237,000
            
            
            163,000Total
            
            
            
            
            $
            9,400,000
            
            $
            2,900,000
            
            $
            6,500,000




Intangible
      assets are amortized on a straight-line basis over their expected useful lives.
      Amortization expense related to intangible assets was $671,000, $671,000 and
      $491,000 for the years ended June 30, 2007, 2006 and 2005, respectively. Of
      the 2007, 2006 and 2005 amounts, $167,000, $167,000 and $112,000, respectively,
      were charged to cost of revenues. Estimated annual amortization expense of
      intangible assets for the next five years is expected to be as follows:




**Year
                ending June 30,**
            
            **Amount**2008
            
            $
            670,0002009
            
            
            656,0002010
            
            
            582,0002011
            
            
            582,0002012
            
            
            448,000Thereafter
            
            
            3,562,000$
            6,500,000




**Note
      6. Goodwill**




Goodwill
      includes the allocation of the purchase price relating to the Putnam Acquisition
      on November 9, 2004. The changes in the carrying amount of goodwill by
      segment for the years ended June 30, 2007, 2006 and 2005 are as follows:




**Nitinol**
              **Products**
            
            **Polymer**
              **Products**
            
            **Total**Balance
                as of July 1, 2005
            
            $
            1,038,000
            
            $
            12,908,000
            
            $
            13,946,000Goodwill
                acquired during 2006
            
            
            —
            
            
            200,000
            
            
            200,000Balance
                as of June 30, 2006 and 2007
            
            $
            1,038,000
            
            $
            13,108,000
            
            $
            14,146,000




Goodwill
      and intangible assets are reviewed for impairment and written down in the period
      in which the recorded value of such assets exceeds their fair value. The annual
      impairment test was performed as of November 1, 2006 and resulted in no
      indication of impairment. Subsequent impairment tests will be performed
      November 1 of each year and more frequently if circumstances warrant.




The
      Putnam Acquisition included a payment for the “Tax Gross-Up” of personal income
      tax differences due to the sole shareholder of Putnam Plastics Corporation.
      At
      June 30, 2005, the Company had estimated that the income tax difference
      would be $400,000 and this amount was included in the purchase price at
      June 30, 2005. However, the actual amount due to the sole shareholder of
      Putnam Plastics Corporation was $600,000. The full $600,000 was paid in fiscal
      2006 and has been accounted for as goodwill. In addition, there was a final
      working capital adjustment that was paid in fiscal 2006 to the sole shareholder
      of Putnam Plastics Corporation of $229,000 that was accrued for as of
      June 30, 2005.




F-11




**Note
      7. Investment / Note Receivable**




On
      August 24, 2004, the Company entered into a joint development program (the
“Agreement”) with Biomer Technology Limited (“Biomer”), a privately owned
      company specializing in the development and manufacture of state-of-the-art
      polymers and biocompatible coatings for stents and other medical devices. Under
      the terms of the Agreement, the Company made a $400,000 initial investment
      in
      Biomer in the form of a 2% unsecured convertible promissory note (the “Note”).
      Interest on the Note was payable upon conversion, or upon repayment of the
      Note.
      Under the terms of the Note, the Note plus accrued interest was to be converted
      into ordinary shares of Biomer stock upon the occurrence of the earlier of,
      as
      defined, the successful completion of the joint development program, an
      additional equity financing of Biomer, the sale of Biomer, or December 31,
      2005. On October 5, 2005, Biomer completed an equity financing which
      triggered conversion of the Note into 37,860 ordinary shares of Biomer stock.
      The amount of the Company’s initial investment and accrued interest of $409,000
      were converted to an investment as of October 5, 2005 which, since the
      Company does not have a controlling ownership interest or significant influence
      over Biomer’s financial reporting or operations, has been accounted for on the
      cost basis.




The
      Agreement requires the Company to make an additional equity investment of at
      least $350,000 in Biomer in the event, as defined, a financing of Biomer occurs
      after the Note has been converted and successful completion of the joint
      development program has been accomplished. Additionally, as part of the joint
      development program and in consideration for services provided by Biomer in
      the
      joint development program, the Company agreed to pay Biomer $200,000 in four
      equal quarterly installments of $50,000 beginning August 24, 2004. As of
      December 31, 2005, all four installments had been paid totaling $200,000
      since the specific milestones that indicated completion of the joint development
      program, as specified in the Agreement, were met. The $200,000 was amortized
      over the initial one-year term of the joint development program.





On
      November 6, 2006, the Company entered into a licensing agreement with Biomer
      for
      the exclusive worldwide license to a biocompatible coating technology with
      potential drug-eluting capabilities for use on Nitinol stents. The agreement
      also requires the Company to sponsor a pre-clinical evaluation using
      Biomer’s  passive
      coatings  on
      a
      self-expanding Nitinol stent platform. The agreement requires the Company to
      pay
      $305,000 for the pre-clinical evaluation and Biomer’s management over the course
      of the evaluation. On December 23, 2006, the Company paid $153,000 to Biomer,
      as
      required by the agreement. This $153,000 was recorded in Prepaid Expenses and
      Other Current Assets. The remaining $152,000 is payable after pre-clinical
      evaluation has been completed and Biomer has issued its report thereon to the
      Company. The $305,000 is being charged to Research and Development Expense
      as
      the pre-clinical evaluation is conducted. The pre-clinical evaluation began
      in
      June 2007 and the Company recognized Research and Development expense of $38,000
      in fiscal 2007. At June 30, 2007, $115,000 has been recorded in Prepaid Expenses
      and Other Current Assets.




**Note
      8. Cash Collateral Deposits**




In
      connection with the Putnam Acquisition on November 9, 2004, the Company
      entered into a credit and security agreement with Webster Business Credit
      Corporation (the “Webster Agreement”), which replaced the prior credit facility
      with Webster Bank. As part of the Webster Agreement, the Company was required
      to
      maintain cash collateral deposits of $1,500,000. On November 9, 2005,
      Webster Business Credit Corporation permanently waived the cash collateral
      deposit requirements.




F-12




**Note
      9. Accounts Payable and Accrued Expenses**




Accounts
      payable and accrued expenses consist of the following at June 30, 2007 and
      2006:




**2007**
            
            **2006**Accounts
                payable
            
            $
            2,019,000
            
            $
            1,716,000Accrued
                employee compensation
            
            
            2,070,000
            
            
            3,097,000Accrued
                expenses - other
            
            
            1,517,000
            
            
            665,000$
            5,606,000
            
            $
            5,478,000




**Note
      10. Notes Payable**




Notes
      payable consist of the following at June 30, 2007 and 2006:




**2007**
            
            **2006**Deferred
                payment as part of Putnam Acquisition of $2.5 million, in three equal
                annual installments beginning November 9, 2005. The payments are
                non-interest bearing and had a present value of $2.2 million (at
                a
                discount rate of 6%) as of November 9, 2004.
            
            $
            816,000
            
            $
            1,587,000Advance
                on equipment line of credit from Webster Business Credit Corporation,
                interest at a variable rate, interest only until December 2005, at
                which
                time it converted to a term loan amortized over seven years with
                interest
                and principal payable monthly with a balloon payment due November 9,
                2009.
            
            
            774,000
            
            
            917,000Five
                year term note payable to Webster Business Credit Corporation dated
                November 9, 2004, due in monthly installments of $31,666, plus
                interest at a variable rate, due November 9, 2009.
            
            
            —
            
            
            1,298,000Three
                year term note payable to Webster Business Credit Corporation dated
                November 9, 2004, due in monthly installments of $69,445, plus
                interest at a variable rate, due November 9, 2007.
            
            
            —
            
            
            1,180,000Subordinated
                loan payable to Brookside Pecks Capital Partners, L.P. and Ironbridge
                Mezzanine Fund, L.P., due November 9, 2010. Interest of 12% interest
                per annum is paid quarterly, plus the loan accrues additional interest
                at
                4.5% per annum which is paid in the form of additional promissory
                notes.
            
            
            —
            
            
            4,974,000Other.
            
            
            25,000
            
            
            35,0001,615,000
            
            
            9,991,000Less
                current maturities
            
            
            970,000
            
            
            2,173,000$
            645,000
            
            $
            7,818,000




Future
      maturities of notes payable at June 30, 2007 are as follows:




**Year
                ending June 30,**
            
            **Amount**2008
            
            $
            970,0002009
            
            
            155,0002010
            
            
            490,000$
            1,615,000




In
      connection with the Putnam Acquisition on November 9, 2004, the Company
      entered into a credit and security agreement with Webster Business Credit
      Corporation (the “Webster Agreement”). The Webster Agreement included a term
      loan facility consisting of a five year term loan of $1.9 million (the “Five
      Year Term”) and a three year term loan of $2.5 million (the “Three Year Term”),
      collectively (the “Term Loan Facility”). On March 26, 2007, the Company prepaid
      the principal amounts outstanding on the Term Loan Facility. The amount paid
      was
      $1,569,000. In connection with the prepayment of the Term Loan Facility, the
      Company recorded a loss on the extinguishment of debt of $44,000, which
      represented the write-off of unamortized deferred financing costs. Both term
      loans were repayable in equal monthly installments with the additional
      requirement that, under the Three Year Term, a prepayment of 50% of excess
      cash
      flow, as defined, be made annually within 90 days of the Company’s fiscal year
      end. The excess cash flow prepayment requirement had been waived by Webster
      Business Credit Corporation for fiscal 2006 and 2005. Interest under the Five
      Year Term was based upon, at the Company’s option, LIBOR plus 2.50% effective
      December 31, 2006, previously it was LIBOR plus 2.75%, or the alternate base
      rate, as defined, plus 0.25%. Interest under the Three Year Term was based
      upon,
      at the Company’s option, LIBOR plus 3.50% effective December 31, 2006,
      previously it was LIBOR plus 3.75%, or the alternate base rate, as defined,
      plus
      1.25%. Borrowings under the Term Loan Facility were used to repay approximately
      $1.4 million in outstanding borrowings under the previous facility with Webster
      Bank and to partially fund the Putnam Acquisition.




F-13




The
      Webster Agreement also provides for a revolving line of credit for borrowings
      up
      to the lesser of (a) $6,500,000 or (b) an amount equal to the
      aggregate of (1) 85% of the eligible accounts receivable plus (2) the
      lesser of $3,000,000 or 55% of eligible inventories. Interest under the
      revolving line of credit is based upon, at the Company’s option, LIBOR plus
      2.50% or the alternate base rate, as defined. The entire outstanding principal
      amount of the revolving line of credit is due November 9, 2009. As of
      June 30, 2007, there were no amounts outstanding under the revolving line
      of credit. Additionally, the Webster Agreement includes an equipment line of
      credit that provides for equipment financing up to the lesser of $1,000,000
      or
      80% of the hard cost for eligible equipment through November 9, 2005 at the
      same financing terms as the Five Year Term. As of November 9, 2005,
      $1,000,000 of the outstanding amount under the equipment line was converted
      to a
      term loan, payable monthly, based on a seven year amortization schedule, but
      with a balloon payment of the then unpaid balance due November 9, 2009. On
      December 21, 2005, the Webster Agreement was amended to provide an
      equipment line of credit that provides for equipment financing up to the lesser
      of $1,000,000 or 80% of the hard cost for eligible equipment through
      November 9, 2006 on the same financing terms as the Five Year Term.
      Borrowings under the Webster Agreement are collateralized by substantially
      all
      of the Company’s assets.




The
      Webster Agreement contains various restrictive covenants, including, among
      others, the limitation of mergers, acquisitions and joint ventures, limitations
      on encumbrances and additional debt, limitations on the payment of dividends
      or
      redemption of stock and compliance with a fixed charge coverage ratio and
      leverage ratio, as defined. Additionally, the Company was required to maintain
      cash as collateral security until the Three Year Term loan is paid in full.
      For
      the first year of the Webster Agreement, the collateral security was $1,500,000.
      This amount had been classified as cash collateral deposits on the June 30,
      2005 consolidated balance sheet. On November 9, 2005, Webster Business
      Credit Corporation permanently waived the cash collateral deposit requirements,
      and these funds have been accounted for as cash and cash equivalents as of
      June 30, 2006.




Additional
      financing for the Putnam Acquisition was obtained on November 9, 2004 from
      Brookside Pecks Capital Partners, L.P. and Ironbridge Mezzanine Fund, L.P.
      in
      the form of a $7.0 million subordinated loan due November 9, 2010 (the
“Subordinated Loan”). The interest rate on the Subordinated Loan was 16.5%, of
      which 12% was payable quarterly with the remaining 4.5% payable in additional
      promissory notes having identical terms as the Subordinated Loan. Originally,
      the interest rate was 17.5%, with 5.5% payable in additional promissory notes,
      but was reduced during fiscal 2006 because the Company achieved certain pretax
      income thresholds in fiscal 2005 and it was reduced in fiscal 2007 at the
      discretion of the lender. On April 26, 2007, the Company prepaid the outstanding
      balance on the Subordinated Loan. The amount prepaid was $5,154,000. In
      connection with the prepayment of the Subordinated Loan, the Company recorded
      a
      loss on the extinguishment of debt of $171,000 representing the write-off of
      $126,000 of unamortized deferred financing costs and a cash prepayment penalty
      of $45,000. The total of $171,000 is included in the loss on extinguishment
      of
      debt on the consolidated statement of income for the year ended June 30,
      2007.




In
      June
      2005, the Company made a payment of $2.5 million against the Subordinated Loan
      which resulted in a 3% prepayment penalty of $75,000 and, as a result of the
      prepayment, the Company wrote-off $107,000 of unamortized deferred financing
      costs. The total of $182,000 is included in the loss on extinguishment of debt
      on the consolidated statement of income for the year ended June 30, 2005.




The
      remaining financing for the Putnam Acquisition was provided for with the
      Company’s cash on hand and $2,500,000 in deferred payments. The deferred
      payments are non-interest bearing and are required to be paid to the seller
      in
      three equal annual installments. The first and second of these installments
      of
      $833,000 were paid on November 9, 2005 and 2006, respectively.




**Note
      11. Capital Stock**




Common
      stock




During
      the years ended June 30, 2007, 2006 and 2005, 36,474, 32,610 and 39,674
      shares of common stock with a fair value of $72,000, $72,000 and $78,000,
      respectively, were awarded to the Company’s non-employee directors. These shares
      were awarded to the non-employee directors in accordance with one of the
      Company’s stock-based compensation plans. Compensation expense recognized for
      the issuance of shares of common stock is calculated utilizing the fair market
      value of the common stock at the date of issuance. During the year ended
      June 30, 2004, the Company began issuing the shares in the quarter
      subsequent to their award. As a result, 11,040, 5,922 and 8,862 shares awarded
      during the years ended June 30, 2007, 2006 and 2005, respectively, were
      issued in the subsequent year.




On
      November 9, 2004, in connection with the Putnam Acquisition, the Company
      issued 2,857,143 shares of Memry common stock (with a fair value of $4.6
      million) to the sole shareholder of Putnam Plastics Corporation.




F-14




Stock-Based
      Compensation Plans




During
      the year ended June 30, 1994, the Company adopted the Memry Corporation
      Stock Option Plan (the “1994 Plan”). Under the 1994 Plan, incentive stock
      options were granted at prices equal to or greater than the fair market value
      of
      the Company’s common stock at the date of grant, and were exercisable at the
      date of grant unless otherwise stated. In addition, non-qualified stock options
      were granted at prices determined by the Company’s compensation committee, which
      may have been less than the fair market value of the Company’s common stock at
      the date of grant, in which case an expense equal to the difference between
      the
      stock option exercise price and fair market value was recognized. The exercise
      period for both the incentive and non-qualified stock options generally could
      not exceed ten years. The 1994 Plan expired on September 23, 2003. No
      additional stock options may be granted from the 1994 Plan after this date.




During
      the year ended June 30, 1998, the Company adopted the Memry Corporation
      Long-term Incentive Plan (the “1997 Plan”). Under the 1997 Plan, 6,000,000
      incentive and non-qualified stock options may be granted to employees and
      non-employee directors under terms similar to the 1994 Plan. Stock options
      are
      granted at prices equal to the fair market value of the Company’s common stock
      at the date of grant, have a ten year contractual term and vest over three
      or
      four years. Also, under the 1997 Plan, Stock Appreciation Rights (“SARs”),
      Limited Stock Appreciation Rights (“Limited SARs”), restricted stock, and
      performance shares may be granted to employees. With respect to SARs, upon
      exercise, the Company must pay to the employee the difference between the
      current market value of the Company’s common stock and the exercise price of the
      SARs. The SARs terms are determined at the time of each individual grant.
      However, if SARs are granted which are related to an incentive stock option,
      then the SARs will contain similar terms to the related option. Limited SARs
      may
      be granted in relation to any option or SARs granted. Upon exercise, the Company
      must pay to the employee the difference between the current market value of
      the
      Company’s common stock and the exercise price of the related options or SARs.
      Upon the exercise of SARs or Limited SARs, any related stock option or SARs
      outstanding will no longer be exercisable. As of June 30, 2007 and 2006,
      there were no SARs or Limited SARs outstanding.





The
      Company’s stockholders approved a new long-term incentive plan, the 2006
      Long-Term Incentive Plan (the “2006 Plan”), at the Company’s Annual Meeting of
      Stockholders on December 20, 2006. The 2006 Plan authorizes the grant of awards
      to officers, employees and non-employee directors to purchase or acquire an
      aggregate of 4,500,000 shares of the Company’s common stock. Under the 2006
      Plan, the Company may grant awards of incentive and non-qualified stock options,
      SARs, and restricted stock, under terms similar to the 1997 Plan. Also, under
      the 2006 Plan, the Company may grant stock units and performance units which
      may
      be settled in stock or cash. As a result of the approval by the stockholders
      of
      the 2006 Plan, the Board of Directors approved the termination of the 1997
      Plan
      and shares are no longer available for grant under the 1997 Plan. Stock options
      are granted at prices equal to the fair market value of the Company’s common
      stock at the date of grant, have a ten year contractual term and vest over
      three
      or four years. As of June 30, 2007, 4,484,000 shares were available for
      grant under the 2006 Plan.




During
      the first quarter of fiscal 2006, the Company began granting performance-based
      options (“PBOs”) under the 1997 Plan. No PBOs were granted during the year ended
      June 30, 2007. The Company may grant PBOs under the 2006 Plan. Under the PBO
      feature, each fiscal year the Company may grant selected executives and other
      key employees share option awards whose vesting is contingent on meeting various
      company-wide performance goals based primarily on revenue growth and
      profitability over a multi-year period. The fair value of each PBO granted
      is
      estimated on the date of the grant using the same option valuation model used
      for options previously granted under the 1997 Plan and assuming performance
      goals will be achieved. If any of such goals are met, a percentage of such
      options will vest in accordance with the prescribed vesting schedule. If such
      goals are not met, no compensation cost is recognized and any previously
      recognized compensation cost is reversed relating to the specific goal and
      vesting period. The performance goals for the years ended June 30, 2007 and
      2006 were not met. Accordingly, no compensation expense was recorded for the
      PBOs.




Under
      the
      2006 Plan, restricted shares of common stock may also be granted to employees
      for no consideration. The terms of the restrictions are determined at the time
      of each individual grant. Generally, if employment is terminated during the
      restriction period, the participant must forfeit any common stock still subject
      to restriction. Performance shares are granted to employees based on individual
      performance goals, and may be paid in shares or cash, the amount of which is
      determined based on the shares earned and the market value of the Company’s
      common stock at the end of certain defined periods. No performance or restricted
      shares have been granted to employees.




Also
      under the 2006 Plan and the 1997 Plan, all non-employee directors, each quarter,
      are granted shares of the Company’s common stock with a value equal to $3,000
      and stock options with a value equal to $4,500, determined based on the closing
      market value of the Company’s common stock as of the last day of such quarter.
      The stock options granted to non-employee directors are non-qualified options.




During
      the years ended June 30, 2007, 2006 and 2005, the Company’s directors were
      granted options to purchase 47,000, 53,000 and 65,000 shares, respectively.




F-15




On
      July 1, 2005, the Company adopted SFAS No. 123(R), *“Share-Based
      Payment.”* SFAS
      No. 123(R) establishes standards for the accounting for transactions where
      an entity exchanges its equity for goods or services and the transactions that
      are based on the fair value of the entity’s equity instruments or that may be
      settled by the issuance of those equity instruments. SFAS No. 123(R)
      focuses primarily on accounting for transactions in which an entity obtains
      employee services in share-based payment transactions and, in effect, accounts
      for those transactions as part of the consolidated financial statements of
      the
      entity and not as a footnote disclosure, as the Company had elected under the
      provisions of SFAS No. 123. Under SFAS No. 123(R), the Company is
      required to record compensation expense for all awards granted after the date
      of
      adoption and for the unvested portion of previously granted stock awards that
      remain outstanding as of the date of adoption. The Company recorded compensation
      expense of $447,000 and $364,000 in accordance with SFAS No. 123(R) for the
      years ended June 30, 2007 and 2006, respectively. Prior to fiscal 2007, the
      majority of the Company’s stock option grants had been qualified incentive stock
      options (“ISOs”). Beginning in fiscal 2007, the Company began issuing the
      majority of stock option grants as non-qualified stock options. Compensation
      expense for ISOs is nondeductible for income tax purposes, except as noted
      below. Therefore, an income tax benefit has only been recorded for compensation
      expense on non-qualified stock options calculated under the provisions of SFAS
      No. 123(R). The Company may recognize some income tax benefit in the future
      on ISOs issued on or after the adoption date. The amount of income tax benefit
      recognized will be contingent upon the number of options exercised, whether
      the
      exercise is a disqualifying disposition and the statutory income tax rate at
      the
      time of exercise, among other factors. For the years ended June 30, 2007 and
      2006, compensation expense of $180,000 ($129,000 net of income taxes) and
      $43,000 ($26,000 net of income taxes), respectively, was recorded on
      non-qualified options. At June 30, 2007, there was $1,084,000 of total
      unrecognized compensation cost related to stock-based compensation. That cost
      is
      expected to be recognized over a weighted average period of 1.2
      years.





In
      adopting SFAS No. 123(R), the Company elected not to use the modified
      retrospective application and, therefore did not restate its results for the
      year ended June 30, 2005. During this year, the Company was following SFAS
      No. 123, which allowed an entity to continue to measure compensation cost
      for those plans using the intrinsic value based method of accounting prescribed
      by Accounting Principles Board (“APB”) Opinion No. 25, *“Accounting
      for Stock Issued to Employees,”* whereby
      compensation cost was the excess, if any, of the quoted market price of the
      stock at the grant date (or other measurement date) over the amount an employee
      must pay to acquire the stock. Stock options issued to employees and directors
      under the Company’s stock option plans have no intrinsic value at the grant
      date, and under Opinion No. 25 no compensation cost was recognized. Under
      APB Opinion No. 25, the Company generally only recorded stock-based
      compensation expense for the fair value of common stock issued to its directors
      which was $72,000 ($52,000 net of income taxes), $72,000 ($45,000 net of income
      taxes) and $78,000 ($48,000 net of income taxes) for the years ended
      June 30, 2007, 2006 and 2005, respectively.





On
      January 1, 2003, the Company adopted SFAS No. 148, “ *Accounting
      for Stock-Based Compensation - Transition and Disclosure, an Amendment of SFAS
      No. 123.”* For the
      for the year ended June 30, 2005, the Company has elected to continue with
      the accounting methodology in APB Opinion No. 25 and, as a result, has
      provided a pro forma disclosure of net income and earnings per share, and other
      disclosures, as if the fair value based method of accounting had been applied.
      Had compensation cost for issuance of such stock options and warrants been
      recognized based on the fair values of awards on the grant dates, in accordance
      with the method described in SFAS No. 123(R) for the year ended
      June 30, 2005, reported net income and per share amounts for year ended
      June 30, 2005, would have been as shown in the following table.




**Year
                Ended June 30, 2005**Net
                income, as reported
            
            $
            2,725,000Add:
                stock-based employee compensation expense included in reported net
                income,
                net of related tax effects
            
            
            48,000Deduct:
                compensation expense determined under fair value based method for
                all
                awards, net of related tax effects
            
            
            (350,000
            )Net
                income, pro forma
            
            $
            2,423,000Basic
                earnings per share:As
                reported
            
            $
            0.10Pro
                forma
            
            $
            0.09Diluted
                earnings per share:As
                reported
            
            $
            0.10Pro
                forma
            
            $
            0.09




F-16




The
      fair
      value of each grant is estimated on the grant date using a Black-Scholes option
      valuation model based on the assumptions in the following table. The Company
      currently has no history or expectation of paying dividends on its common stock.
      The risk free interest rate was based on the United States Treasury yield for
      a
      term consistent with the expected life of the awards in effect at the time
      of
      the grant. The weighted average expected lives (estimated period of time
      outstanding) was estimated using the simplified method for determining the
      expected term. Expected volatility was based on the historical volatility for
      a
      period equal to the stock option’s expected life.




**Year
                Ended June 30,****2007**
            
            **2006**
            
            **2005**Expected
                dividend rate
            
            
            —
            
            
            —
            
            
            —Risk
                free interest rate
            
            
            4.51%
                - 5.11
            %
            
            4.35%
                - 5.05
            %
            
            2.89%
                - 3.90
            %Weighted
                average expected lives, in years
            
            
            4.9
            
            
            5.6
            
            
            3.0Price
                volatility
            
            
            62
            %
            
            73
            %
            
            70
            %Weighted
                average fair value at date of grant for options granted (per
                share)
            
            $
            1.08
            
            $
            1.51
            
            $
            0.83Total
                intrinsic value of options exercised
            
            $
            127,000
            
            $
            386,000
            
            $
            68,000Total
                cash received from options exercised
            
            $
            344,000
            
            $
            543,000
            
            $
            72,000




The
      following is a summary of stock options under all of the Company’s plans:




**Number
                of Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted**
              **Average**
              **Remaining
                ContractualLife (in years)**
            
            **Aggregate
                Intrinsic Value**Outstanding
                at July 1, 2006
            
            
            2,695,055
            
            $
            1.88Canceled
            
            
            (400,451
            )
            $
            2.18Granted
            
            
            921,034
            
            $
            1.93Exercised
            
            
            (218,028
            )
            $
            1.58Outstanding
                at June 30, 2007
            
            
            2,997,610
            
            $
            1.88
            
            
            6.9
            
            $
            256,000Exercisable
                at June 30, 2007
            
            
            1,567,774
            
            $
            1.82
            
            
            5.3
            
            $
            242,000Vested
                or expected to vest at June 30,2007
            
            
            2,590,107
            
            $
            1.87
            
            
            6.6
            
            $
            252,000




For
      the
      years ended June 30, 2007, 2006 and 2005, all stock options granted have an
      exercise price equal to the fair market value of the Company’s stock at the date
      of grant. Options expected to vest are determined by applying the pre-vesting
      forfeiture rate assumptions to total unvested, outstanding options.




Warrants




The
      Company has also issued warrants. There were no costs for warrants in the years
      ended June 30, 2007, 2006 and 2005. All warrants are immediately
      exercisable upon issuance and have a five year contractual term.




The
      following table summarizes warrants outstanding at June 30, 2007 and the
      changes during the year then ended:





**Number
                ofWarrants**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted**
              **Average**
              **Remaining
                ContractualLife (in years)**
            
            **AggregateIntrinsic
                Value**Outstanding
                at July 1, 2006
            
            
            775,000
            
            $
            1.41Exercised
            
            
            (525,000
            )
            $
            1.27Outstanding
                at June 30, 2007
            
            
            250,000
            
            $
            1.70
            
            
            1.1
            
            $
            —Exercisable
                at June 30, 2007
            
            
            250,000
            
            $
            1.70
            
            
            1.1
            
            $
            —




F-17




**Note
      12. Major Customers**




Revenues
      for the years ended June 30, 2007, 2006 and 2005, includes sales to major
      customers, each of which accounted for greater than 10% of the total revenues
      of
      the Company. Sales to these customers during the years ended June 30, 2007,
      2006 and 2005, and accounts receivable from these customers at June 30,
      2007 and 2006, are as follows (Putnam revenues are included for the period
      subsequent to the Putnam Acquisition):




**2007**
            
            **2006**
            
            **2005****Sales**
            
            **Accounts**
              **Receivable**
            
            **Sales**
            
            **Accounts**
              **Receivable**
            
            **Sales**Company
                A
            
            $
            7,112,000
            
            $
            968,000
            
            $
            7,880,000
            
            $
            1,457,000
            
            $
            6,774,000Company
                B
            
            
            14,421,000
            
            
            2,049,000
            
            
            14,609,000
            
            
            2,066,000
            
            
            14,364,000$
            21,533,000
            
            $
            3,017,000
            
            $
            22,489,000
            
            $
            3,523,000
            
            $
            21,138,000




**Note
      13. Major Suppliers**




The
      Company currently purchases a significant portion of raw materials from five
      suppliers. The Company obtains its SMAs from one principal source. The Company
      anticipates it will be able to continue to acquire SMAs in sufficient quantities
      for its needs from this supplier. In addition, if the Company were, for whatever
      reason, not able to secure an adequate supply of SMAs from this supplier, the
      Company has identified other suppliers that, after a period of time, would
      be
      able to supply the Company with sufficient quantities of SMAs. It is probable
      the Company would suffer meaningful transitional difficulties if it had to
      switch to and validate alternate suppliers.




The
      Company obtains its polymers from four principal sources. The Company expects
      to
      be able to continue to acquire polymers in sufficient quantities for its needs
      from these suppliers. In addition, if the Company were, for whatever reason,
      not
      able to secure an adequate supply of polymers from these suppliers, the Company
      believes that there is an active worldwide polymer market and would not
      anticipate any long term problem procuring necessary quantities of polymers.




While
      the
      Company also relies on outside suppliers for its non-SMA and non-polymer
      components of sub-assembled products, the Company does not anticipate any
      difficulty in continuing to obtain non-SMA and non-polymer raw materials and
      components necessary for the continuation of the Company’s business.




**Note
      14. Operating Leases**




The
      Company leases its Bethel and Dayville, Connecticut and California manufacturing
      and office facilities under operating leases. The lease on the Bethel,
      Connecticut facility expires in June 2011 and the lease on the principal
      California facility expires in June 2008. In conjunction with the Putnam
      Acquisition, the Company entered into a lease agreement for the Dayville,
      Connecticut facility with the sole shareholder of Putnam Plastics Corporation
      that expires in November 2009 with renewal options to extend the term for thirty
      months. In addition, the Company is leasing 2,012 square feet of warehousing
      space from the sole shareholder of Putnam Plastics Corporation on a
      month-to-month basis. Total rent paid to the sole shareholder of Putnam Plastics
      Corporation was $228,000, $228,000 and $145,000 during the years ended
      June 30, 2007, 2006 and 2005, respectively.




Future
      minimum lease payments under non-cancelable operating leases, with remaining
      terms of one year or more, are as follows at June 30, 2007:




**Year
                ending June 30,**
            
            **Amount**2008
            
            $
            1,156,0002009
            
            
            623,0002010
            
            
            623,0002011
            
            
            586,0002012
            
            
            216,000Thereafter
            
            
            —$
            3,204,000




Rent
      expense for the years ended June 30, 2007, 2006 and 2005, was $1,223,000,
      $1,218,000 and $1,294,000, respectively. The leases require the Company to
      pay
      operating expenses. Rent expense is recognized on a straight-line basis over
      the
      minimum lease term.




F-18




**Note
      15. Income Taxes**




The
      provision (benefit) for income taxes for the years ended June 30, 2007,
      2006 and 2005 is as follows:




**2007**
            
            **2006**
            
            **2005**Current:Federal
            
            $
            —
            
            $
            14,000
            
            $
            235,000State
            
            
            (46,000
            )
            
            214,000
            
            
            197,000(46,000
            )
            
            228,000
            
            
            432,000Deferred:Federal
            
            
            87,000
            
            
            1,400,000
            
            
            1,275,000State
            
            
            91,000
            
            
            15,000
            
            
            (24,000
            )178,000
            
            
            1,415,000
            
            
            1,251,000$
            132,000
            
            $
            1,643,000
            
            $
            1,683,000




A
      reconciliation of the statutory U.S. Federal rate to the effective rate is
      as
      follows:




**Year
                Ended June 30,****2007**
            
            **2006**
            
            **2005**Provision
                for income taxes at statutory federal rate
            
            $
            153,000
            
            
            34
            %
            $
            1,467,000
            
            
            34
            %
            $
            1,498,000
            
            
            34
            %Increase
                (decrease) resulting from:Nondeductible
                expense for equity-based compensation
            
            
            90,000
            
            
            20
            %
            
            109,000
            
            
            3
            %
            
            —
            
            
            —State
                income taxes, net of federal tax benefit
            
            
            14,000
            
            
            3
            %
            
            152,000
            
            
            3
            %
            
            115,000
            
            
            2
            %Extraterritorial
                income exclusion-tax benefit on export sales
            
            
            (137,000
            )
            
            (31
            )%
            
            (139,000
            )
            
            (3
            )%
            
            —
            
            
            —Other
            
            
            12,000
            
            
            3
            %
            
            54,000
            
            
            1
            %
            
            70,000
            
            
            2
            %Provision
                (benefit) for income taxes
            
            $
            132,000
            
            
            29
            %
            $
            1,643,000
            
            
            38
            %
            $
            1,683,000
            
            
            38
            %




The
      recognition of tax benefits related to the exercise of warrants and the exercise
      of stock options and subsequent sale of the underlying stock of $267,000 is
      being deferred per SFAS No. 123(R) and will be recognized when the net
      operating loss carryforwards are fully utilized.




The
      components of deferred tax assets and liabilities included on the consolidated
      balance sheets are as follows:




**June 30,****2007**
            
            **2006**Deferred
                tax assets:Allowance
                for doubtful accounts
            
            $
            127,000
            
            $
            141,000Inventory
                write-downs
            
            
            223,000
            
            
            214,000Separation
                charges
            
            
            52,000
            
            
            186,000Capitalization
                of inventory costs
            
            
            839,000
            
            
            798,000Vacation
                accruals
            
            
            285,000
            
            
            266,000State
                R&D and other credit carryforwards
            
            
            731,000
            
            
            757,000Net
                operating loss carryforwards
            
            
            2,177,000
            
            
            1,848,000Other
            
            
            (90,000
            )
            
            72,000Deferred
                tax assets
            
            
            4,344,000
            
            
            4,282,000Deferred
                tax liabilities:Depreciation
            
            
            95,000
            
            
            161,000Amortization
                of intangible assets
            
            
            943,000
            
            
            637,000Deferred
                tax liabilities
            
            
            1,038,000
            
            
            798,000Net
                deferred tax assets
            
            $
            3,306,000
            
            $
            3,484,000




No
      valuation allowance has been provided on the deferred tax assets, as the Company
      has determined that it is more likely than not, that these assets will be
      realized. To the extent that estimates of future taxable income decrease or
      do
      not materialize, a valuation allowance may be required in the future.




F-19




At
      June 30, 2007, the Company has federal net operating loss carryforwards for
      income tax purposes, which expire as follows:




**Year
                ending June 30,**
            
            **Amount**2009
            
            $
            1,090,0002010
            
            
            2,498,0002011
            
            
            2,622,0002027
            
            
            183,000$
            6,393,000




In
      addition, the Company has state tax credit carryforwards available to offset
      future taxable income of $686,000, which expire in various amounts from 2016
      through 2021.




**Note
      16. Bonus Plan**




The
      Company has a bonus plan under which its employees may earn a bonus based on
      a
      combination of pre-tax profits and individual performance. The payment of
      bonuses is subject to annual approval by the Board of Directors. Expenses
      recognized under this plan were $733,000, $1,500,000 and $897,000 for the years
      ended June 30, 2007, 2006 and 2005, respectively.




**Note
      17. Business Segments**




The
      Company’s product lines consist of SMAs and specialty polymer-extrusion
      products. Currently, the predominant SMA utilized by the Company is a
      nickel-titanium alloy commonly referred to as nitinol. Prior to the Putnam
      Acquisition, the Company only produced SMAs. Both product lines provide products
      primarily to the medical device industry using the Company’s proprietary shape
      memory alloy and polymer-extrusion technologies. Medical device products
      utilizing these technologies include stent components, catheter components,
      guidewires, laparoscopic surgical sub-assemblies, orthopedic instruments,
      urological devices and similar products. The Company also produces a limited
      number of products for the commercial and industrial market. In addition, the
      Company provides engineering services to assist customers in the development
      of
      products based on the properties of shape memory alloys and extruded polymers.
      During the quarter ended December 31, 2005, the Company began managing its
      business as two business segments: (i) Nitinol Products Segment, and
      (ii) Polymer Products Segment. Prior to that time, the Company had operated
      as one business segment. All years reflect the results based on these two
      business segments.




The
      Nitinol Products Segment provides design support, manufactures and markets
      advanced materials which possess the ability to change their shape in response
      to thermal and mechanical changes, and the ability to return to their original
      shape following deformations from which conventional materials cannot recover.
      The Nitinol Products Segment’s products are used in applications for stent
      components, filters, embolic protection devices, guidewires, catheters, surgical
      instruments and devices, orthopedic devices, orthodontic apparatus, high
      pressure sealing devices, fasteners, and other devices.




The
      Polymer Products Segment designs, manufactures and markets specialty
      polymer-extrusion products to companies serving the medical device, laser,
      fiber-optic, automotive and industrial markets. Its primary products are
      complex, multi-lumen, multi-layer extrusions used for guidewires, catheter
      shafts, delivery systems and various other interventional medical procedures.
      The Polymer Products Segment’s products are known for their complex
      configurations, multiple material construction and innovative designs, all
      while
      maintaining tight tolerances.




F-20




Included
      in the line item “Corporate items and eliminations” below are the eliminations
      between the two segments, as well as general and corporate items. Business
      segment information is presented below:




**Year
                Ended June 30,****2007**
            
            **2006**
            
            **2005****Revenues**Nitinol
                Products
            
            $
            36,036,000
            
            $
            37,015,000
            
            $
            36,987,000Polymer
                Products
            
            
            15,821,000
            
            
            15,811,000
            
            
            8,090,000Corporate
                items and eliminations
            
            
            (180,000
            )
            
            (238,000
            )
            
            (69,000
            )Consolidated
            
            $
            51,677,000
            
            $
            52,588,000
            
            $
            45,008,000**Gross
                profit**Nitinol
                Products
            
            $
            10,880,000
            
            $
            13,351,000
            
            $
            14,363,000Polymer
                Products
            
            
            5,710,000
            
            
            7,022,000
            
            
            3,550,000Consolidated
            
            $
            16,590,000
            
            $
            20,373,000
            
            $
            17,913,000




**June 30,****2007**
            
            **2006****Total
                Assets**Nitinol
                Products
            
            $
            16,798,000
            
            $
            17,597,000Polymer
                Products
            
            
            25,304,000
            
            
            26,153,000Corporate
                items and eliminations
            
            
            6,644,000
            
            
            11,550,000Consolidated
            
            $
            48,746,000
            
            $
            55,300,000




Geographic
      segment information is presented below:




**Year
                Ended June 30,****2007**
            
            **2006**
            
            **2005****Revenues**United
                States
            
            $
            40,517,000
            
            $
            40,604,000
            
            $
            35,838,000Dominican
                Republic
            
            
            5,816,000
            
            
            6,892,000
            
            
            4,382,000All
                other
            
            
            5,344,000
            
            
            5,092,000
            
            
            4,788,000Total
            
            $
            51,677,000
            
            $
            52,588,000
            
            $
            45,008,000




The
      Company attributes sales to unaffiliated customers in different countries on
      the
      basis of the ship-to location of the customer. Substantially all of the revenues
      in the Dominican Republic represent sales to an off-shore manufacturing facility
      of a company based in the United States.




**Note
      18. Separation Charges**




Effective
      December 9, 2005, the Company’s President and Chief Executive Officer
      retired from his position and was succeeded by the Company’s Senior Vice
      President and Chief Financial Officer, who was serving as President and Chief
      Executive Officer on an interim basis. In connection with the retirement, the
      Company has recorded separation charges of $1,130,000, including $182,000 of
      associated legal fees, during the year ended June 30, 2006. These
      separation charges are included as General, Selling and Administration expenses.
      As of June 30, 2007, $142,000 of these separation costs has been accrued
      and are included as Accrued Employee Compensation in Accounts Payable and
      Accrued Expenses.




**Note
      19. Commitments and Contingencies**




The
      Company is a co-defendant in a series of counterclaims filed by Kentucky Oil,
      NV
      (“Kentucky Oil”) vs. the Company and a third-party, Schlumberger Technologies
      Corporation (“Schlumberger”). The referenced action was initiated by a filing
      made by the Company in the U.S. District Court for the Southern District of
      Texas on May 14, 2004. The Company filed the action in response to written
      statements made by Kentucky Oil to Schlumberger alleging that the Company had
      misappropriated proprietary technology from Kentucky Oil and improperly
      transferred it to Schlumberger. In its complaint, the Company alleged that
      Kentucky Oil committed libel, business disparagement, and engaged in unfair
      business practices against the Company as a result of the statements. In
      addition, the Company requested a declaratory judgment that no misappropriation
      of technology occurred.




F-21




Pursuant
      to a stipulation between the parties, the civil action was transferred to the
      Northern District of California, San Jose Division, on September 13, 2004.
      Further, as a result of the stipulation, Kentucky Oil waived its objections
      to
      personal jurisdiction and the Company withdrew its claims for libel,
      disparagement, and unfair business practices, leaving the Company’s claim for a
      declaratory judgment as the sole remaining count.




Kentucky
      Oil filed an Answer and Counterclaims on November 2, 2004, which included
      counterclaims against the Company for breach of a Collaboration Agreement,
      on
      behalf of Kentucky Oil (“First and Second Counterclaims”), against the Company
      and Schlumberger for misappropriation of trade secrets (“Third Counterclaim”),
      conversion of intellectual property (“Fourth Counterclaim”), joinder of
      Defendant Peter Besselink as co-inventor of several patent applications filed
      by
      Schlumberger based on the alleged misappropriated intellectual property (“Fifth
      Counterclaim”), and, alternatively, for a declaration that the Schlumberger
      patent applications are invalid and unenforceable (“Sixth Counterclaim”). In
      February 2005, the Company and Schlumberger filed motions to dismiss Kentucky
      Oil’s Third, Fourth, Fifth and Sixth Counterclaims. The motions were heard on
      April 1, 2005 and, on April 8, 2005, the Court issued an Order
      granting the motions to dismiss as to the Fourth, Fifth and Sixth Counterclaims,
      and denying the motions as to the Third Counterclaim.




On
      May 6, 2005, Kentucky Oil filed its second amended counterclaims, adding
      claims against the Company and Schlumberger for unfair competition and unjust
      enrichment. Schlumberger filed a motion to dismiss the two new counterclaims
      in
      June 2005, and a hearing on the motions was held on July 8, 2005. On
      June 30, 2005, the parties held a mediation session before a court
      appointed mediator in which the parties did not reach a settlement. On
      July 14, 2005, the Court issued an order denying the motion to dismiss the
      newly added counterclaims.





On
      May 12, 2006, the Company and Schlumberger filed a motion for summary
      judgment that Kentucky Oil lacks standing to assert causes of action for trade
      secrets misappropriation and or correction of inventorship. A hearing on the
      motion was held on July 21, 2006 and, on December 18, 2006, the Court
      issued an Order acknowledging that Kentucky Oil had failed to establish
      ownership of the alleged trade secrets due to a faulty chain of title between
      previous alleged owners. However, the Court declined to enter summary judgment,
      but rather granted Kentucky Oil until January 10, 2007 to cure the evidentiary
      deficiency. Kentucky Oil filed a supplemental affidavit prior to the deadline.
      Pursuant to the Court’s Order, the Company and Schlumberger filed objections to
      the supplemental evidence within five days. The Court has not yet ruled on
      the
      sufficiency of Kentucky Oil’s supplemental evidence or the Company and
      Schlumberger’s objections.





On
      January 26, 2007, the Company and Schlumberger filed multiple motions for
      summary judgment against Kentucky Oil’s several counterclaims, including motions
      for summary judgment that: (1) Kentucky Oil is estopped from asserting loss
      of
      trade secrets, (2) Kentucky Oil’s claim for misappropriation of trade secrets
      and related claim for breach of contract is barred by the statute of
      limitations, (3) no trade secrets were misappropriated, (4) Peter Besselink
      made
      no inventive contribution to Schlumberger’s patents; (5) Kentucky Oil has not
      suffered any compensable injury; and for (6) partial summary judgment on
      Kentucky Oil’s claims for unfair competition and unjust enrichment. On May 24,
      2007, the Court issued “tentative” rulings on the above motion and heard oral
      argument on the following day. In its tentative rulings, the Court granted
      Memry
      and Schlumberger’s motions that Kentucky Oil’s claim for misappropriation of
      trade secrets and related claims for unfair competition and unjust enrichment
      are barred by the statute of limitations. The remaining motions were denied.
      The
      Court has not yet issued final rulings. It is possible that the final rulings
      may differ substantively from the tentative rulings, so it is unclear at this
      time what issues remain for trial. It is expected that the Court will issue
      final rulings on the motions for summary judgment in advance of trial, which
      is
      currently set to begin on November 19, 2007.




On
      June
      13, 2007, Memry filed a motion to dismiss Kentucky Oil’s counterclaims for lack
      of subject matter jurisdiction. In the motion to dismiss, Memry argued that
      Kentucky Oil lacks standing to assert its counterclaims in California because
      Kentucky Oil’s alleged predecessor in interest, United Stenting, Inc., was never
      qualified under California regulations to conduct business in California. Memry
      also reaffirmed its argument that Kentucky Oil lacks standing to sue for damages
      because Kentucky Oil never acquired rights to non-medical applications of the
      Biflex technology. The Court did not schedule oral argument for the motion
      to
      dismiss and has indicated that it will issue a ruling based solely on the
      papers.





On
      August
      3, 2007, Kentucky Oil filed a motion to amend its counterclaims to include
      several patents that have been issued to Schlumberger based on the disputed
      technology over the past several months. Memry and Schlumberger filed
      oppositions on the grounds that Kentucky Oil’s motion is untimely, prejudicial
      and futile.





Pursuant
      to the Court’s January 4, 2007 Order in response to a motion to compel, Kentucky
      Oil served a supplemental initial disclosure on January 11, 2007, delineating
      the bases for its alleged damages. In the disclosure, Kentucky Oil contends
      that
      its current calculation for unmultiplied damages is approximately $30 million.
      Kentucky Oil also served two expert reports in support of its alleged damages
      on
      January 19, 2007. Notwithstanding the fact that Kentucky Oil bears the burden
      of
      proof on damages, the Company served an initial expert report on damages on
      January 19, 2007 concluding, *inter
      alia* ,
      that
      Kentucky Oil’s alleged damages are speculative and contrary to the evidence. The
      Company served a full rebuttal to Kentucky Oil’s expert reports on February 9,
      2007. The Company and Kentucky Oil also exchanged expert reports on certain
      technological issues on January 19, 2007 and served rebuttal reports on February
      9, 2007.




F-22





On
      December 29, 2006, Kentucky Oil forwarded a settlement proposal to the Company
      and Schlumberger calling for, *inter
      alia* ,
      a lump
      sum payment of $5 million jointly from the Company and Schlumberger and an
      assignment of all of the Company’s rights under the Company- Schlumberger
      Development Agreement to Kentucky Oil. The proposal also includes a
      multi-faceted licensing arrangement between Kentucky Oil and Schlumberger over
      the disputed Schlumberger patents. Both the Company and Schlumberger rejected
      the settlement proposal and declined to make a counterproposal at that time.
      On
      March 14, 2007, the parties met for a settlement conference before the
      magistrate judge (the Court previously ordered the parties to engage in a
      settlement conference prior to trial). During the settlement conference, a
      number of settlement offers and counter offers were made. The settlement
      conference did not result in a resolution of this matter. The Company believes
      the counterclaims are without merit and is vigorously defending its position.
      However, the Company has recorded a liability as of June 30, 2007 and charged
      the amount to operations during the year ended June 30, 2007 for its share
      of
      the last combined settlement offer made by the Company and Schlumberger to
      Kentucky Oil. Although the Company cannot predict with certainty the ultimate
      resolution of this litigation, the Company does not believe that it is likely
      to
      have a material adverse effect on its consolidated financial statements.




There
        are
        various lawsuits and claims pending against the Company incidental to its
        business. Although the final results in such suits and proceedings cannot
        be
        predicted with certainty, in the opinion of the Company’s management, the
        ultimate liability, if any, will not have a material adverse effect on the
        consolidated financial statements.


The
      Company purchases SMAs and polymer materials in connection with the manufacture
      of its products. Some of the Company’s vendors have minimum order requirements
      from their suppliers and, as a result, require the Company to place purchase
      orders large enough to support their own minimum order requirements. However,
      although the Company has open purchase orders for raw materials and supplies,
      the Company does not have a contractual obligation to pay for items not yet
      shipped.





**Note
      20. Valuation and Qualifying Accounts**




**Balance
                at**
              **Beginning of**
              **Year**
            
            **Charged
                (Credited)**
              **To
                Costs and**
              **Expenses**
            
            **Deductions**
              **and Write-offs (A)**
            
            **Balance
                at**
              **End of Year**Allowance
                for doubtful accounts:Year
                ended June 30, 2007
            
            $
            60,000
            
            $
            (37,000
            )
            $
            (1,000
            )
            $
            24,000Year
                ended June 30, 2006
            
            $
            60,000
            
            $
            1,000
            
            $
            1,000
            
            $
            60,000Year
                ended June 30, 2005
            
            $
            30,000
            
            $
            36,000
            
            $
            6,000
            
            $
            60,000







(A)  Represents
      uncollectible accounts receivable written-off.




**Note
      21. Related Party Transactions**




Following
      the Putnam Acquisition, the Company entered into agreements with the sole
      shareholder of Putnam Plastics Corporation, who is currently an executive
      officer of the Company and serves on the Board of Directors. The Company entered
      into a lease for Putnam’s manufacturing facility located in Dayville,
      Connecticut in which the sole shareholder of Putnam Plastics Corporation is
      the
      lessor (see Note 14). The monthly rent of $18,000 is based on an independent
      appraisal. In addition, the Company is leasing 2,012 square feet of warehousing
      space from the sole shareholder of Putnam Plastics Corporation on a
      month-to-month basis. Total rent paid to the sole shareholder of Putnam Plastics
      Corporation was $228,000 and $228,000 and $145,000 during the years ended
      June 30, 2007 and 2006 and the period from November 9, 2004 to
      June 30, 2005, respectively. The sole shareholder of Putnam Plastics
      Corporation also is a 50% shareholder of a company that is a supplier and
      customer of Putnam. Purchases from this company were $502,000, $384,000 and
      $124,000 during the years ended June 30, 2007 and 2006 and the period from
      November 9, 2004 to June 30, 2005, respectively. Sales to this company
      were $1,000, $4,000 and $13,000 during the years ended June 30, 2007 and
      2006 and the period from November 9, 2004 to June 30, 2005,
      respectively. Additionally, during the year ended June 30, 2006, the
      Company sold equipment to this company for $6,000 and recognized a gain of
      $4,000. As of June 30, 2007 and 2006, $57,000 and $26,000, respectively,
      was owed to this company by the Company, and these amounts are included in
      “Accounts Payable and Accrued Expenses.”




During
      each of the years ended June 30, 2007, 2006 and 2005, the Company incurred
      $30,000 for investor relations services to a company in which a member of the
      Company’s Board of Directors is a director of such company.




F-23