As filed with the Securities and Exchange Commission on September 11, 1996
Registration No. 333-09143
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------------
ALYN CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 33-0709359
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3299
(Primary Standard Industrial Classification Code Number)
16871 Noyes Avenue
Irvine, CA 92606
(714) 475-1525
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------------
ROBIN A. CARDEN
ALYN CORPORATION
16871 Noyes Avenue
Irvine, CA 92606
(714) 475-1525
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Copies to:
GERALD A. EPPNER, ESQ. STEVEN DELLA ROCCA, ESQ.
BATTLE FOWLER LLP LATHAM & WATKINS
Park Avenue Tower 885 Third Avenue
75 East 55th Street Suite 1000
New York, New York 10022 New York, New York 10022
(212) 856-7000 (212) 906-1200
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
---------------------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to to be Offering Price Aggregate Offering Registration
be Registered Registered(1) Per Share(2) Price(2) Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $.001 par value........... 2,760,000 shares $13.50 $37,260,000 $12,848.25
================================================================================================================================
</TABLE>
(1) Includes 360,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- -------------------------------------------------------------------------------
C/M: 12156.0001 369440.21
<PAGE>
<TABLE>
<CAPTION>
CORPORATION
_________________________
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Between Items Required in Part 1 of Registration Statement
(Form S-1) and Information in Prospectus
Item
No. Form S-1 Caption Prospectus Page or Caption
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................ Facing Page of Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Risk Factors; Manage-
ment's Discussion and Analysis of Financial
Condition and Results of Operations; Selected
Financial Data
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Risk Factors; Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. N/A
8. Plan of Distribution.................................. Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered............ Description of Capital Stock
10. Interests of Named Experts and Counsel................ Legal Matters; Experts
11. Information with Respect to the Registrant
a. Description of Business.......................... Prospectus Summary; Risk Factors; Business
b. Description of Property.......................... Business
c. Legal Proceedings................................ Business
d. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.............................. Dividend Policy; Capitalization; Shares Eligible
for Future Sale
e. Financial Statements............................. Prospectus Summary; Selected Financial Data;
Financial Statements
f. Selected Financial Data.......................... Prospectus Summary; Selected Financial Data
g. Supplementary Financial Information.............. Prospectus Summary; Selected Financial Data
h. Management's Discussion and Analysis of
Financial Condition and Results of Operations Management's Discussion and Analysis of
Financial Condition and Results of Operations
i. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure N/A
j. Directors, Executive Officers, Promoters and
Control Persons....................... Management
k. Executive Compensation........................... Management
l. Security Ownership of Certain Beneficial
Owners and Management................. Principal Stockholders
m. Certain Relationships and Related Transactions... Certain Transactions
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................. N/A
</TABLE>
C/M: 12156.0001 369440.21
<PAGE>
A Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective.
Information contained herein is subject to completion or amendment. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 11, 1996
2,400,000 Shares
ALYN
CORPORATION
Common Stock
All of the 2,400,000 shares of Common Stock of Alyn Corporation ("Alyn" or
the "Company") offered hereby are being sold by the Company. Prior to this
offering, there has been no public market for the Common Stock, and there can
be no assurance that a trading market will develop after the completion of this
offering, or, if developed, that it will be sustained. It is currently
estimated that the initial public offering price of the Common Stock will be
between $11.50 and $13.50 per share. See "Underwriting" for information
relating to factors considered in determining the initial public offering
price. Application will be made for the Common Stock to be approved for
quotation on the Nasdaq National Market under the symbol "ALYN."
Certain existing stockholders of the Company, consisting of M. Kingdon
Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson
Technology Partners III, who hold approximately $3.3 million of the
approximately $4.5 million of indebtedness that will be repaid by the Company
with a portion of the net proceeds of this offering, intend to purchase
approximately 440,000 of the shares of Common Stock offered hereby for an
aggregate purchase price of approximately $5.5 million (based on the mid-point
of the range set forth above), for their respective accounts or those of their
affiliates or designees. See "Principal Stockholders" and "Underwriting."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
ON PAGE 8 AND "DILUTION" ON PAGE 16.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
============================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- ----------------------------------------------------------------------------
Per share $ $ $
- ----------------------------------------------------------------------------
Total (3) $ $ $
============================================================================
(1) Excludes five-year warrants to purchase 240,000 shares of Common Stock at
an exercise price equal to 125% of the initial public offering price. The
Company has also agreed to indemnify the Underwriters (as defined herein)
against certain liabilities, including certain liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses estimated to be approximately
$____________, payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 360,000 additional shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as the shares of
Common Stock offered hereby. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $_______________, $_______________ and
$_______________, respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Furman Selz LLC, New York, New York, on
or about _______________, 1996.
Furman Selz____________________ Needham & Company, Inc.
The date of this Prospectus is , 1996.
C/M: 12156.0001 369440.21
<PAGE>
[INSIDE OF FRONT COVER WITH PHOTOGRAPHS]
[PHOTOGRAPH OF BICYCLE] [PHOTOGRAPH OF BICYCLE COMPONENTS]
The Company believes that Boralyn(R) bicycle frames
and components offer a combination of light weight
and strength that improve riding efficiency.
<TABLE>
<CAPTION>
[PHOTOGRAPH OF GOLF CLUBS] [PHOTOGRAPH OF HARD DISKS]
<S> <C>
The Company believes that golf clubs manufactured The Company believes that Boralyn(R) disks will allow
with Boralyn(R) heads achieve greater distance than for greater storage capabilities and higher data transfer
titanium golf club heads and provide for a larger rates than computer hard disk drives in use today.
"sweet spot" and "more forgiving" golf club.
</TABLE>
------------------------------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing unaudited summary financial information for each
of the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
Boralyn(R) is a registered trademark and Ceralyn(TM) is a trademark of the
Company. All other trade names and trademarks appearing in this Prospectus are
the property of their respective holders.
C/M: 12156.0001 369440.21
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus gives effect to the merger, effective on May 2, 1996, of Alyn
Corporation, a California corporation ("Old Alyn"), with and into Alyn
Corporation, a Delaware corporation formerly named AC Acquisition Corp. ("Alyn"
or the "Company"), and the issuance of 0.026111 shares of Common Stock of the
Company in exchange for each issued and outstanding share of common stock of
Old Alyn (the "Merger"), and an 80-for-one stock split of the Common Stock
effective on July 16, 1996. Unless the context otherwise requires, the term
"the Company" as used in this Prospectus includes the Company and its
predecessor, Old Alyn. For the definition of certain technical terms used
herein, see the "Glossary of Certain Technical Terms." Unless otherwise
indicated, all share, per share and financial information set forth herein
assumes no exercise of the Underwriters' over-allotment option. Each
prospective investor is urged to read this Prospectus in its entirety.
The Company
Alyn designs, develops, manufactures and markets consumer and industrial
products utilizing its proprietary advanced metal matrix composite materials,
which it believes have a superior combination of physical properties, including
strength, light weight, stiffness, hardness and fracture resistance, for a
variety of selected markets. The Company has developed technology, for which it
obtained a patent in January 1996, for the application of boron carbide in
combination with aluminum in lightweight metal matrix composites under the name
Boralyn(R). Boron carbide, a principal component of Boralyn(R), is an advanced
ceramic that is the third hardest material in the world, and the hardest
material available at a commercially reasonable cost. The Company believes that
no other material offers a range of properties comparable to those Boralyn(R)
provides. Boralyn(F) is lighter and can be more easily fabricated than
titanium; has a higher specific stiffness than titanium, aluminum or specialty
steel; is one-third the density of many steels; has a hardness and resistance
to wear greater than aluminum and comparable to specialty steel and titanium;
is more resistant to corrosion than aluminum; is highly fracture resistant; and
exhibits minimal resonance over a wide range of rotational speeds. Boralyn(R)
is available in a range of grades with varying properties to satisfy specific
customer requirements and is easily welded, cast, bent, coated and extruded
with conventional equipment and tools. The Company believes that Boralyn(R) is
a highly effective replacement for many existing premium-priced metal and
composite products, such as those used in high-end sporting goods,
high-capacity disks for computer hard disk drives, neutron shielding and other
applications. The Company is focusing its initial marketing efforts on the use
of Boralyn(R) in applications where its unique combination of properties will
justify an appropriate price premium. These applications include the following:
High-end Sporting Goods. The Company has targeted premium-priced golf club
heads and shafts and high-end lightweight bicycle frames and components as a
primary market for Boralyn(R)-based products.
Golf Club Heads and Shafts. The U.S. wholesale market for premium-priced
golf clubs was estimated by industry sources to be approximately $890 million
in 1994, reflecting a 23% increase over the prior year. The Company has
produced or is producing prototype golf club heads for Nicklaus Golf Equipment
Limited, Hillerich & Bradsby Co., Inc. (Power-Bilt), Prince Sports Group, Inc.
and Taylor Made Golf Company, Inc., each a golf club producer, including
pre-tooling versions based on production molds customized for Boralyn(R)
composite heads. The Company believes that production and customer approval of
pre-tooling versions of golf clubs based on customized molds is usually the
final step before receipt of a definitive production order. The Company is
actively engaged in negotiations with each of the named prospective customers
that it believes may lead, by late 1996, to production orders for delivery in
1997, although there can be no assurance that any production orders will be
obtained. The Company believes that the higher specific stiffness, higher
specific strength and ease of fabrication of Boralyn(R), compared with
titanium, allow the design and manufacture of golf club heads with a larger
"sweet spot" and better mass distribution compared with titanium heads, thus
yielding what golfers term a "more forgiving" golf club. In an independent
third-party's comparison test against two premium-priced titanium golf club
heads, a Boralyn(R) golf
1
C/M: 12156.0001 369440.21
<PAGE>
club head drove the ball longer distances. The higher specific stiffness
of Boralyn(R) compared with graphite composite, a commonly used golf club shaft
material, also should permit stiffer shafts to be made with Boralyn(R).
Bicycle Components and Frames. The U.S. retail market for bicycles,
bicycle components and related products and services was estimated by industry
sources to be approximately $5 billion in 1994. The Company believes that
approximately 220,000 premium-priced (over $600 at retail) bicycles were sold
in 1995. The Company has received orders for prototype components or frames
from Campagnolo S.R.L., Cannondale Corporation and Trek Bicycle Corporation,
each a leading manufacturer of bicycle components and/or frames. The higher
specific strength and specific stiffness of Boralyn(R) compared to aluminum and
specialty steel allows for the production of lighter bicycle components and
frames with no decrease in strength or stiffness, or if weight is not a
dominant consideration, for stiffer components and frames with no increase in
weight. These characteristics improve riding efficiency.
Other potential sporting goods applications where strength and stiffness
are important include tennis and other sports racquets, baseball bats and
arrows. The Company has received orders from Spalding Sports Worldwide, Inc., a
division of Spalding & Evenflo Cos., Inc., for prototype racquetball and tennis
racquets.
Computer Hard Disks. The U.S. wholesale market for computer hard disk
substrates was estimated by industry sources to be approximately 247 million
units in 1996. The Company believes that disks for high-speed, high-capacity
drives, which the Company is targeting in its marketing efforts, represent
between 5% and 10% of the total market. The Company is producing preliminary
sample disk substrates of Boralyn(R) for evaluation by several major disk drive
manufacturers. Unlike conventional aluminum and glass substrates in use as
disks in computer hard drives, Boralyn(R) disks exhibit minimal resonance over
the entire range of rotational speeds, from initial spin-up to current maximum
speeds, as well as at substantially higher rotational speeds. Lower resonance
disks will permit hard disk drives to be designed for closer head-to-disk
distances and higher rotational speeds, characteristics that will allow for
greater storage capabilities and faster data transfer rates. The Company does
not anticipate production orders for hard disk applications prior to the second
half of 1997, as a result of stringent testing requirements, substantial
marketing efforts and the redesign of computer hard disk drives by disk drive
manufacturers that would be necessary to realize the benefits of disks based on
Boralyn(R), and there can be no assurance that any production orders will be
obtained.
Neutron Shielding. Materials traditionally used for neutron absorption in
nuclear reactors and disposal containers for radioactive products and waste
require a separate neutron-absorbing material such as boron carbide, encased in
layers of metallic alloy such as aluminum supported by steel, in order to
provide stiffness and structural integrity. The metal matrix structure of
Boralyn(R), combined with its boron carbide ingredients, provides acceptable
neutron absorption characteristics as well as stiffness in an homogeneous,
single structure, with advantages in ease of use and fabrication. The Company
has received small initial orders from Framatome S.A., a major nuclear plant
construction company, for prototype disposal containers. The Company does not
anticipate production orders for neutron shielding applications prior to the
second half of 1997, and there can be no assurance that any production orders
will be obtained.
Other Potential Applications. Other potential applications of Boralyn(R)
include its use in automotive and motorcycle components, where the Company is
producing prototype motorcycle brake drums for Honda R&D North America, Inc.
and connecting rods for Maverick Racing; marine applications, where the Company
is producing prototype drive shafts for Power Ski International Inc.;
structural components for aircraft, where the Company is producing prototype
sensor housings for Rosemount Aerospace, a division of BF Goodrich, Inc., and
prototype thin foil structures for Engelhard Corporation; semiconductors, where
the Company is producing prototype semiconductor packaging for Motorola, Inc.;
satellite components, where the Company is producing samples for Endgate
Corporation; and armor for government and military vehicles and for personal
protection.
The Company has also developed what it believes to be a superior
manufacturing process that benefits from the characteristics of Boralyn(R). The
Company recently filed a patent application for its soluble core method of
2
C/M: 12156.0001 369440.21
<PAGE>
manufacturing metal matrix composite die-cast metal structures, which allows
for forming complex hollow chambers and passages, often within a one-piece
structure, without the need for welding together separate components or other
secondary manufacturing processes.
Many of the Company's claims with respect to the physical characteristics
of Boralyn(R) have been subjected to studies and testing, performed by
independent laboratories, universities and other testing facilities, of its
various properties such as specific strength, specific stiffness, density,
hardness, resonance and neutron absorption. The results of those tests have
verified and supported many of the Company's claims with respect to Boralyn(R).
See "Business - Characteristics of Boralyn(R)."
Alyn's objective is to become a leader in advanced metal matrix composite
products and establish significant market share and brand awareness for
Boralyn(R) in niche markets, such as higher-priced consumer products and
specialized uses, where value-added premiums can be obtained. The Company
intends to do so by capitalizing on its existing proprietary technology and
patented process for producing Boralyn(R) through the direct manufacture and
sale of Boralyn(R)-based products to consumer and industrial product
manufacturers and distributors, and, to a lesser extent, to producers of
military products. The Company believes that its focus on marketing Boralyn(R)
for use in higher-priced consumer and commercial products and applications
where its properties provide performance advantages will afford it the best
opportunity for meaningful market penetration.
The Company anticipates commencing production in late 1996, for shipment
in early 1997, of Boralyn(R) in commercial quantities at its newly-leased
48,000 square foot facility in Irvine, California, which is expected to be
operational in the fourth quarter of 1996. The new facility will include
sintering, casting (including soluble core) and extrusion capabilities. Until
production commences at the new facility, production and shipment of Boralyn(R)
will continue to be undertaken by unaffiliated subcontractors.
The Company has been engaged in the sale of boron carbide powder since
1990, but the Company has been unprofitable since its commencement of
operations through the year ended December 31, 1995, and expects to incur
significant operating losses for the year ended December 31, 1996, as a result
of start-up expenses in anticipation of production orders. No production
revenues for Boralyn(R) have been recognized since late 1994, and none are
anticipated prior to the fourth quarter of 1996. The Company does not expect to
achieve significant sales of Boralyn(R) prior to 1997, and there can be no
assurance that any significant sales will be achieved.
The Company's principal executive offices are currently located at 16871
Noyes Avenue, Irvine, California 92606, where its telephone number is (714)
475-1525, and its fax number is (714) 475-1531, until its newly leased
facility, located nearby at 16761 Hale Avenue, Irvine, California 92606 is
ready for occupancy in the fourth quarter of 1996.
3
C/M: 12156.0001 369440.21
<PAGE>
The Offering
Common Stock Offered by the Company..... 2,400,000 shares
Common Stock to be Outstanding after
the Offering............................ 10,400,000 shares(1)
Use of Proceeds......................... Approximately (i) $12.6 million for
capital expen- ditures for new
production facilities, equipment
and tooling and management
information systems; (ii) $4.5
million to repay approximately $4.4
million principal amount of
stockholder loans and accrued
interest incurred since May 1996
(including approximately $3.3
million principal amount of loans
held by certain existing
stockholders who intend to
purchase, for their respective
accounts, approximately 440,000 of
the shares of Common Stock offered
hereby for an aggregate purchase
price of approximately $5.5 million
(based on the mid- point of the
estimated initial public offering
price range set forth on the cover
page of this Prospectus)), and
(iii) $3.0 million for marketing
activities for Boralyn(R) products.
The remainder of the net proceeds
will be used for working capital
and general corporate purposes. See
"Use of Proceeds."
Risk Factors and Dilution............... Prospective investors should
carefully consider the matters set
forth under the captions "Risk
Factors - Emerging Technology;
Substantial Risk of Uncertain
Market Acceptance; - Limited
Operating History; Prior Losses; -
No Manufacturing Experience;
Reliance on Manufacturing
Facilities; - Rapid Technological
Change and New Product Development;
- Dependence on Patents; - Product
Liability Risks; - Dependence on
Management; - Need for Additional
Management Information Systems; -
Competition; - Need for Future
Capital; - Dependence on Trademarks
for Current and Future Markets; -
Dependence on Principal Suppliers;
- Possible Dependence on
Significant Customers; - Quarterly
Fluctuations in Operating Results;
- Control by Existing Stockholders;
Anti- takeover Provisions; -
Dilution; Benefits of the Public
Offering to the Company's
Affiliates and Principal
Stockholders; - Use of Proceeds for
Repayment of Stockholder
Indebtedness; - Shares Eligible for
Future Sale; - Absence of Prior
Public Market; - Possible
Volatility of Stock Price," and
"Dilution." An investment in the
shares of Common Stock offered
hereby involves a high degree of
risk and immediate and substantial
dilution.
Proposed Nasdaq National Market Symbol "ALYN"
________________
(1) Does not include 1,240,000 shares of Common Stock, consisting of (i)
1,000,000 shares of Common Stock reserved for future issuance under the
Company's stock incentive plan, and (ii) 240,000 shares of Common Stock
reserved for issuance upon the exercise of warrants issued to Furman Selz
LLC. See "Management - The 1996 Stock Incentive Plan" and "Underwriting."
Also assumes no exercise of the Underwriters' over-allotment option.
4
C/M: 12156.0001 369440.21
<PAGE>
Summary Financial Data
(In thousands, except per share data)
Set forth below are selected financial data with respect to the statements
of operations of the Company for the three years ended December 31, 1993, 1994,
and 1995, and for the six months ended June 30, 1995, for the period from
January 1, 1996 to May 1, 1996 and the period from May 2, 1996 to June 30,
1996, and the balance sheet of the Company at June 30, 1996. The financial data
as of and for the years ended December 31, 1993, 1994, and 1995 have been
derived from financial statements of the Company contained elsewhere herein,
which have been audited by Price Waterhouse LLP. The financial data as of June
30, 1996, and for the six months ended June 30, 1995, for the period from
January 1, 1996 to May 1, 1996 and the period from May 2, 1996 to June 30,
1996, have been derived from interim financial statements of the Company
contained elsewhere herein, which are unaudited. The unaudited financial data
includes all adjustments, which were of a normal recurring nature, that the
Company considers necessary to present fairly, in all material respects, the
financial position and the results of operations for these periods. Operating
results for the period from January 1, 1996 to May 1, 1996 and the period from
May 2, 1996 to June 30, 1996, are not indicative of the results that may be
expected for the entire year ending December 31, 1996, as the Company
anticipates incurring a substantial operating loss for the entire 1996 year.
The data should be read in conjunction with the audited financial statements
and the unaudited interim financial statements included herein.
The Company is the successor by merger to Old Alyn. From 1990 to May 1,
1996, Old Alyn conducted its operations as Alyn Corporation, a California
corporation, with 2,000,000 shares outstanding as of April 1996. Old Alyn
repurchased 200,000 of its shares of Common Stock in April 1996, leaving
1,800,000 shares outstanding. In April 1996, certain prospective investors
formed AC Acquisition Corp., a Delaware corporation, in order to facilitate
their investment in and loans to Old Alyn, and were issued 53,000 shares of AC
Acquisition Corp.'s common stock. In May 1996, Old Alyn was merged into AC
Acquisition Corp., and each share of Old Alyn was exchanged for 0.026111 shares
of Common Stock of AC Acquisition Corp. (the "Merger"), with 47,000 shares in
the aggregate being issued to shareholders of Old Alyn. AC Acquisition Corp.'s
name was changed to Alyn Corporation, which had 100,000 of shares of common
stock issued and outstanding following the Merger. In July 1996, the Company
effected an 80-for-one stock split, resulting in 8,000,000 shares being issued
and outstanding. The pro forma financial information set forth below presents
the Company's results as if the Merger had occurred as of January 1, 1995. See
Note (1) below.
<TABLE>
<CAPTION>
Old Alyn Alyn
Period from
Six Months January 1, Period from
Ended 1996 to May 2, 1996
Year Ended December 31, June 30, May 1, to June 30,
1993 1994 1995 1995 1996 1996
------ ------- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenue $540 $309 $319 $216 $104 $32
Costs and expenses:
Cost of goods sold 265 92 203 102 34 7
General and administrative expenses 259 352 219 89 53 337
Selling and marketing 114 143 52 10 23 31
Research and development 24 180 79 19 7 19
----- ----- ----- ----- ----- ------
Total costs and expenses 662 767 553 220 117 394
----- ----- ----- ----- ----- ------
Operating loss (122) (458) (234) (4) (13) (362)
Other income (expense), net (3) (11) (10) (6) (2) (20)
----- ----- ----- ----- ----- ------
Loss before provision for income taxes (125) (469) (244) (10) (15) (382)
Provision for income taxes 1 1 1 1 1 1
----- ----- ----- ----- ----- ------
Net loss ($126) ($470) ($245) ($11) ($16) ($383)
===== ===== ===== ===== ===== ======
Net loss per share (1) ($0.05)
======
Weighted average common shares
outstanding (1) 8,000
======
Pro forma net loss (1) ($322) ($42)
===== =====
Pro forma net loss per share (1) ($0.04) ($0.01)
===== =====
Pro forma weighted average common
shares outstanding (1) 8,000 8,000
===== =====
See notes on the following page.
</TABLE>
5
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<TABLE>
<CAPTION>
Balance Sheet Data:
June 30, 1996
As
Actual Adjusted (2)
<S> <C> <C>
Working capital $1,078 $25,584
Total assets 2,650 26,927
Long-term obligations 2,794 0
Total stockholders' equity (deficit) (378) 26,693
</TABLE>
___________________________
(1) Presented on a pro forma basis to reflect the change of Old Alyn's status
for federal income tax purposes from an "S" corporation to a "C"
corporation as a result of the Merger. The effect of such change in status
was not material. As discussed above, this data reflects the Merger,
including the amortization of intangible assets of $77,000 and $26,000 for
the year ended December 31, 1995 and the period from January 1, 1996 to
May 1, 1996, respectively, and the 80-for-one stock split. See Notes to
Financial Statements.
(2) As adjusted to reflect the sale of 2,400,000 shares of Common Stock
offered hereby and the application of the net proceeds therefrom, after
giving pro forma effect to the Merger. See "Use of Proceeds."
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk and immediate and substantial dilution and should only be made
by persons who can afford a loss of their entire investment. In evaluating an
investment in the Common Stock being offered hereby, investors should consider
carefully, among other matters, the following risk factors, as well as the
other information contained in this Prospectus.
Emerging Technology; Substantial Risk of Uncertain Market Acceptance.
Since commencement of operations in 1990, the Company has been engaged in
the formulation, development and fabrication of Boralyn(R) for use in
commercial and consumer products. As with any new technology, there is the
substantial risk that the marketplace may not be receptive to products based on
it. The Company expects to incur substantial expenses as it continues its
development and marketing activities and, if they are successful, to penetrate
the markets for its products. Market acceptance of the Company's products will
depend, in large part, upon the pricing of those products and the Company's
ability to manufacture and deliver them on a timely basis, as well as the
ability of the Company to demonstrate the advantages of its products over
competing methodologies and products. There can be no assurance that the
Company will be able to market Boralyn(r) successfully or that any of the
Company's future boron carbide-based or other products will be accepted in the
marketplace. The costs of the Company's marketing efforts will be substantial
and will be recorded as expenses as they are incurred, notwithstanding that the
benefits, if any, from those marketing efforts (in the form of revenues) may
not be reflected, if at all, until subsequent periods.
Limited Operating History; Prior Losses
The Company has a limited operating history, having commenced its
materials development and manufacturing activities in 1990, and having had
extremely limited revenues through early 1996, with net revenue declining from
$540,000 in 1993 to $319,000 in 1995. The Company has not received a production
order for Boralyn(R) since late 1994, when it ceased supplying a bicycle frame
manufacturer in order to pursue what it believed to be more promising marketing
and distribution channels in the high-end bicycle frame and components market.
The Company had a net loss of $399,000 for the six months ended June 30, 1996,
compared with a net loss of $11,000 for the six months ended June 30, 1995. It
incurred a net loss of $245,000 in the year ended December 31, 1995, compared
with a net loss of $470,000 in the year ended December 31, 1994, and a net loss
of $126,000 in the year ended December 31, 1993. The Company anticipates
incurring significant operating losses for the current fiscal year, and may
continue to incur losses thereafter. There can be no assurance that the Company
will ever achieve profitability in the future or maintain profitability, if
achieved, on a consistent basis. Moreover, the Company has entered into a
five-year lease of a facility in Irvine, California, and intends to commit
substantial capital, including approximately $12.6 million of the net proceeds
of this offering, to provide that facility with significant production
capability. Unless and until the Company achieves a significant level of sales
of Boralyn(R) or Boralyn(R(-based products, the Company will have substantial
production overcapacity and underabsorbed costs that would cause the Company to
incur substantial operating losses. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
No Manufacturing Experience; Reliance on Manufacturing Facilities
The Company currently has no internal manufacturing capacity and no
experience in manufacturing its products in commercial quantities. The Company
intends to manufacture a substantial portion of its products at its newly-
leased facility in Irvine, California. The new facility, when fully equipped,
will include sintering, casting (including soluble core) and extrusion
capabilities, although there can be no assurance that these capabilities will
be adequate for all of the Company's future fabrication requirements, or, on
the other hand, that the Company will be able to fully utilize the plant's
capacity. The manufacturing process for Boralyn(R) utilizes high temperature
and high pressure processes and may be subject to volatile chemical reactions.
A mechanical or human failure or unforeseen condition, including natural
disasters such as earthquakes, characteristic of Southern California, could
result in temporary interruption of the Company's manufacturing capacity.
Moreover, the Company's manufacturing
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<PAGE>
operations will use certain equipment which, if damaged or otherwise rendered
inoperable or unavailable, could result in the disruption of the Company's
manufacturing operations. Although the Company intends to obtain business
interruption insurance with coverage for lost profits and out-of-pocket
expenses of $1.0 million per occurrence, and presently maintains and intends to
continue to maintain other property and casualty coverage that it believes to
be adequate, any extended interruption of operations at the Company's
manufacturing facility would have a material adverse effect on the business of
the Company. See "Business-Manufacturing and Supply."
Rapid Technological Change and New Product Development
The Company operates in a rapidly evolving field -- advanced composite
materials -- that is likely to be affected by future technological
developments. The Company's ability to anticipate changes in technologies,
markets and industry trends and to develop and introduce new and enhanced
products on a timely basis will be a critical factor in its ability to grow and
remain competitive. There can be no assurance that new products will be
completed or that any new products can be marketed successfully. In addition,
the anticipated development schedules for new or improved products are
inherently difficult to predict and are subject to change as a result of
shifting priorities in response to customers' requirements and competitors' new
product introductions. Moreover, the Company expects that it will devote
substantial resources to research and development efforts. The costs of those
efforts will be expensed as they are incurred, notwithstanding that the
benefits, if any, from the Company's research and development efforts (in the
form of increased revenues or decreased product costs) may not be reflected, if
at all, until subsequent periods.
In order to realize the benefits of Boralyn(R), hard disk drive
manufacturers will have to modify existing hard disk drive designs. The Company
believes that hard disk drive manufacturers will be motivated to modify or
introduce new hard disk drive designs only after a substantial testing period
and significant marketing efforts by the Company. The Company expects to incur
substantial expenses in connection with those testing and marketing efforts,
and anticipates ultimately that disks based on Boralyn(R) will be accepted by
hard disk drive manufacturers, if at all, only if such disks can be
demonstrated to have superior characteristics and can be offered at competitive
prices. Further, the Company expects that use of disks based on Boralyn(R) will
commence with, and could be limited to, high-end computer hard disk drives,
which constitute a small but significant percentage of the current market for
computer hard disks.
Dependence on Patents
The Company has obtained one United States patent that it believes
provides protection for its proprietary Boralyn(R) technology and contains
claims that cover the use of Boralyn(R), particularly in high-end sporting
goods, as well as in certain other markets targeted by the Company. The Company
has also filed additional patent applications, including divisional patent
applications and continuation-in-part applications that stem from the Company's
original patent application. The divisional patent applications relate to
methods of fabricating Boralyn(R) and to bicycle frames that were disclosed in
the original patent application. The continuation-in-part patent applications
expand the scope of the claims in the original patent, and cover the Company's
processes of fabricating Boralyn(R). Divisional patent applications and
continuation-in-part patent applications generally are likely to complete the
U.S. Patent Office review process on an expedited basis and, with respect to
claims having a common subject matter with those in the original patent, are
entitled to the date of filing of the original patent for purposes of
considering patentability. The divisional patent application relating to
bicycle frames was filed in September 1995 and was allowed in June 1996, but
there can be no assurance that the Company's other pending divisional patent
and continuation-in-part patent applications will receive expedited review. New
patent applications recently filed by the Company cover (i) application of
Boralyn(R) in neutron shielding, (ii) application of Boralyn(R) in computer
hard disk drives and (iii) a new soluble core manufacturing method for
Boralyn(R)-based structures. The Company is not aware of any reason why its
pending applications should not be granted with claims that will provide
coverage and, therefore, adequate protection for its anticipated business
activities, although there can be no assurance in that regard. There can also
be no assurance that the Company's existing patent and the divisional patent
application that was allowed, or any other patents that may be granted, will be
valid and enforceable or provide the Company with meaningful protection from
competitors. Further, there can be no assurance that any pending patent
application will issue as a patent or that any claim thereof will provide
protection against infringement. If the Company's present
8
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<PAGE>
or future patent rights are ineffective in protecting the Company against
infringement, the Company's marketing efforts and future revenues could be
materially and adversely affected. Moreover, if a competitor were to infringe
the Company's patent, the costs of enforcing the Company's patent rights may be
substantial or even prohibitive. There can also be no assurance that the
Company's future products will not infringe the patent rights of others or that
the Company will not be forced to expend substantial funds to defend against
infringement claims of, or to obtain licenses from, third parties. The Company
currently has only limited patent protection for its technology outside the
United States, and may be unable to obtain even limited protection for its
proprietary technology in certain foreign countries. See "Business-Patents and
Trademarks."
Product Liability Risks
The Company faces an inherent business risk of exposure to product
liability claims in the event that any of its products are alleged to be
defective or cause harmful effects. The cost of defending or settling product
liability claims may be substantial. The Company currently maintains and
intends to continue to maintain product liability insurance coverage that it
believes to be adequate. There can be no assurance that the Company will be
able to obtain such insurance on acceptable terms in the future or that such
insurance will adequately cover any claims.
Dependence on Management
The Company's future success and profitability is substantially dependent
upon the performance of its senior executives, including Robin A. Carden, the
Company's founder and principal stockholder, and Walter R. Menetrey, its chief
operating officer. Each of the Company's senior executives has an employment
agreement with the Company and has or is expected to have a substantial equity
interest in the Company through ownership of shares of Common Stock or the
grant of options to purchase shares of Common Stock, none of which options will
be, in the case of all such executives, vested as of the date of this offering.
The loss of Mr. Carden or Mr. Menetrey could have a material adverse effect on
the Company. Moreover, the Company does not maintain key-man life insurance on
any of its executives other than a $5.0 million policy on the life of Mr.
Carden. See "Management." The Company's future growth will also be dependent
upon its ability to attract and retain additional qualified management,
technical, scientific, administrative and other personnel. By reason both of
its location and the nature of its business, the Company believes it will
experience significant competition for qualified management, supervisory,
engineering and other personnel. There can be no assurance that the Company
will be successful in hiring or retaining the personnel it requires for
continued growth.
Need for Additional Management Information Systems
The Company's existing management information and accounting systems are
not designed for, and are likely to be inadequate to handle, information and
accounting requirements arising from large-scale production of Boralyn(R) and
future sales growth, should they materialize. The Company anticipates that a
portion of the net proceeds of this offering that are intended to be used for
capital expenditures will be allocated to procurement and installation of
accounting and manufacturing production management software and related
computer hardware designed for a large-scale manufacturing enterprise. There
can be no assurance that such management information systems will be adequate
for the Company's future needs.
Competition
The materials industry is highly competitive. The Company competes in its
chosen markets against several larger multi-national companies, all of which
are well-established in those markets and have substantially greater financial
and other resources than those of the Company. Competitive market conditions
could adversely affect the Company's results of operations if it were required
to reduce product prices to remain competitive or were unable to achieve
significant sales of its products. See "Business-Competition."
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Need for Future Capital
Through mid-1996, the Company financed all of its working and other
capital requirements from equity infusions and borrowings from certain of its
stockholders. Future growth will be dependent, in part, upon the capital
resources available to the Company from time to time. In May 1996, in
connection with the Merger, the Company obtained from certain stockholders a
$5 million, 60-month credit facility (the "Subordinated Credit Line").
Approximately $4.4 million of the Subordinated Credit Line had been drawn upon
as of September 1, 1996. All of the amounts owing under the Subordinated Credit
Line will be repaid with a portion of the net proceeds of this offering. The
Company's ability to obtain future debt financing will be dependent in part on
the quality and amount of the Company's trade receivables and inventory. The
Company believes that internally generated funds and cash on hand, together
with the net proceeds of this offering, should satisfy the Company's
anticipated capital needs for the next 24 months. However, there can be no
assurance that those funds will be sufficient to support the Company's business
strategy or that, if additional financing is required, it will be available in
amounts and on terms satisfactory to the Company, if at all. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Dependence on Trademarks for Current and Future Markets
The market for the Company's products is and will remain dependent upon
the goodwill engendered by its trademarks and trade names. Trademark protection
is therefore material to the Company's business. Although Boralyn(R) is
registered in the United States, there can be no assurance that the Company
will be successful in asserting trademark or trade name protection for its
significant marks and names in the United States or other markets, and the
costs to the Company of such efforts may be substantial. See "Business--atents
and Trademarks."
Dependence on Principal Suppliers
The Company presently purchases its principal raw material, boron carbide,
from a limited number of suppliers, including one supplier that provides
approximately 50% of the Company's present requirements. The Company's business
would be materially and adversely affected if it were unable to continue to
receive boron carbide at prices and on terms presently made available to it by
its principal supplier. Although the Company believes that boron carbide is
readily available from other suppliers, there can be no assurance that the
Company will be able to continue to obtain desired quantities of boron carbide
on a timely basis at prices and on terms deemed reasonable by the Company. The
Company's business would be materially and adversely affected if it were unable
to continue to receive boron carbide at prices and on terms comparable to those
presently made available to it by its principal supplier. See
"Business-Manufacturing and Supply."
Possible Dependence on Significant Customers
In view of the very early stage nature of the Company's business,
currently it has only a limited number of customers, each of whom is material
to the Company's present results of operations. Even after the Company matures,
however, certain customers may be material to the business, operations and
future prospects of the Company. There can be no assurance that one or more
principal customers will not suffer business or financial setbacks resulting in
reduction or cancellation of product orders or the Company being unable to
obtain payment from such customers at any time or from time to time. The loss
of sales to one or more significant customers could have a material adverse
effect on the business and operations of the Company. Moreover, although the
Company does not presently intend to enter into exclusive production or
distribution arrangements with any of its customers, there may be circumstances
in which the benefits offered by a proposed exclusive arrangement could justify
the Company committing to an exclusive relationship as regards a product or
product line for a period of months or years. However, there can be no
assurance that the prospective benefits of such an exclusive relationship
would, in fact, materialize, and the existence of exclusive relationships with
one or more parties might prevent the Company from pursuing other market
alternatives, with possible adverse results on future revenues and prospects.
See "Business-Marketing and Customer Support."
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Quarterly Fluctuations in Operating Results
The Company's operating results may vary significantly from quarter to
quarter, in part because of the costs associated with changes in the Company's
products and personnel, the size and actual delivery dates of orders, and the
timing of, and costs related to, any future acquisitions. The Company's
operating results for any particular quarter are not necessarily indicative of
any future results. The uncertainties associated with new product introduction
and market trends may limit management's ability to forecast accurately
short-term results of operations. Fluctuations caused by variations in
quarterly operating results or the Company's failure to meet analyst's
projections or public expectations as to operating results may adversely affect
the market price of the Common Stock.
Control by Existing Stockholders; Anti-takeover Provisions
After this offering, the Company's present stockholders will own
approximately 81.2% of the outstanding shares of voting stock, including
approximately 440,000 shares offered hereby that certain existing stockholders
of the Company, consisting of M. Kingdon Offshore NV, Kingdon Associates, L.P.,
Kingdon Partners, L.P. and Edelson Technology Partners III, who hold
indebtedness that will be repaid with a portion of the net proceeds of this
offering, intend to purchase at the initial public offering price, for their
respective accounts or those of their affiliates or designees (approximately
78.4% if the Underwriters' over-allotment option is exercised in full).
Consequently, the present stockholders will have the ability to elect all the
Company's directors and to control the outcome of all other issues submitted to
the Company's stockholders, and new stockholders who acquire shares of Common
Stock in this offering will not have the ability to elect any of the Company's
directors or to control the outcome of other matters submitted to the
stockholders. Additionally, the Company's Board of Directors has the authority
to issue up to 5,000,000 shares of Preferred Stock and to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the stockholders. The rights of holders of Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
Preferred Stock that may be issued in the future. Although the Company has no
present intention to issue shares of Preferred Stock, any issuance of Preferred
Stock, while potentially providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Certain provisions of Delaware law
applicable to the Company may also discourage third-party attempts to acquire
control. See "Principal Stockholders" and "Description of Capital Stock."
Dilution; Benefits of the Public Offering to the Company's Affiliates and
Principal Stockholders
The initial public offering price of a share of Common Stock is
substantially in excess of the net tangible book value per share of Common
Stock, which results in a benefit to all existing stockholders. For instance,
8,000,000 shares of Common Stock were acquired by the existing stockholders for
an effective cash consideration of $5,300, or an average of $0.0007 per share,
as compared to new investors who will be paying $30 million or $12.50 per share
(the mid-point of the estimated initial public offering price range set forth
on the cover page of this Prospectus) for the 2,400,000 shares being offered
hereby. Accordingly, existing stockholders will realize an effective
appreciation of $12.50 per share of Common Stock in the value of the shares
they currently own as a result of this offering. See "Dilution."
Use of Proceeds for Repayment of Stockholder Indebtedness
A portion of the net proceeds of this offering will be used to repay all
amounts owing under the Subordinated Credit Line indebtedness to principal
stockholders of the Company. The Company will apply approximately $4.5 million
of the proceeds of this offering to repay the Subordinated Credit Line, which
includes a principal amount of $4.4 million and accrued interest thereon.
Accordingly, approximately 15% of the net proceeds of this offering will be
paid directly to certain principal stockholders of the Company, although
certain existing stockholders of the Company, consisting of M. Kingdon Offshore
NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson Technology
Partners III, who hold approximately $3.3 million of the indebtedness that will
be repaid, intend to
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purchase approximately 440,000 of the shares of Common Stock offered hereby,
for an aggregate purchase price of approximately $5.5 million (based on the
mid-point of the estimated initial public offering price range set forth on the
cover page of this Prospectus) for their respective accounts or those of their
affiliates or designees. See "Certain Transactions-Agreement and Plan of
Merger; Repayment of Stockholder Loans."
Shares Eligible for Future Sale
Future sales of shares of Common Stock by existing stockholders pursuant
to Rule 144 ("Rule 144") promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), or otherwise, could have an adverse effect on
the price of the shares of Common Stock. Upon consummation of this offering,
the Company will have outstanding 10,400,000 shares of Common Stock. The
2,400,000 shares of Common Stock offered hereby (2,760,000 if the Underwriters'
over-allotment option is exercised in full) will be freely transferable without
restriction or further registration under the Securities Act. The remaining
8,000,000 outstanding shares of Common Stock will be "restricted securities,"
as that term is defined in Rule 144, and may only be sold pursuant to a
registration statement under the Securities Act or an applicable exemption from
registration thereunder, including exemptions provided by Rule 144. In
addition, the Company has contractually granted certain of its existing
stockholders, including, among others, Robin A. Carden, Walter R. Menetrey, M.
Kingdon Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P., Udi
Toledano and Edelson Technology Partners III, certain registration rights. No
prediction can be made as to the effect that future sales of Common Stock, or
the availability of shares of Common Stock for future sales, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
The Company has agreed not to issue, and all of the existing stockholders, have
agreed (i) not to, directly or indirectly, issue, agree or offer to sell, sell,
grant an option for the purchase or sale of, assign, transfer, pledge, or
otherwise dispose of, any shares of Common Stock or other equity securities of
the Company or other securities convertible into or exercisable for such shares
of Common Stock or other equity securities for nine months from the date of
this Prospectus without the prior written consent of the Company and Furman
Selz LLC; and (ii) not to exercise their registration rights for a period of
nine months from the date of this Prospectus. Two of the existing stockholders
of the Company, Robin A. Carden and Walter R. Menetrey, have also agreed not to
offer, sell or otherwise dispose of more than 104,000 shares of Common Stock
during any three-month period in the six months following expiration of the
nine-month period, other than in an underwritten public offering, without the
consent of Furman Selz LLC. See "Shares Eligible for Future Sale" and
"Underwriting."
Absence of Prior Public Market
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or continue after the offering. The initial public offering
price per share of Common Stock has been determined by negotiation between the
Company and the representative of the Underwriters and does not necessarily
bear any relationship to the Company's assets, book value, revenues or other
established criteria of value, and should not be considered indicative of the
price at which the Common Stock will trade after completion of the offering.
There can be no assurance that the market price of the Common Stock will not
decline below the initial public offering price. See "Underwriting."
Possible Volatility of Stock Price
Trading volume and prices for the Common Stock could be subject to wide
fluctuations in response to quarterly variations in operations, results,
announcements with respect to sales and earnings, as well as technological
innovations, and new product developments and other events or factors, which
cannot be foreseen or predicted by the Company, including the sale or attempted
sale of a large amount of securities in the public market, the registration for
resale of any shares of Common Stock, and the effect on the Company's earnings
of existing or future equity-based compensation awards to management. See
"Management-Executive Compensation."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,400,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.50 (the mid-point of the estimated initial public offering price range set
forth on the cover page of this Prospectus) are estimated to be $27.3 million
($31.4 million if the Underwriters' over-allotment option is exercised in
full), after deducting the underwriting discount and offering expenses payable
by the Company.
The Company intends to use the net proceeds as follows: (i) approximately
$12.6 million for capital expenditures for new production facilities, equipment
and tooling intended to provide a production capacity of up to approximately
125,000 pounds of Boralyn(R) per month by the first quarter of 1997, and up to
500,000 pounds per month by the third quarter of 1997, and for management
information systems; (ii) approximately $4.5 million to repay the outstanding
principal of and accrued interest on the Subordinated Credit Line; and (iii)
approximately $3.0 million for marketing activities for Boralyn(R) products.
Certain existing stockholders of the Company, consisting of M. Kingdon Offshore
NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson Technology
Partners III, who hold approximately $3.3 million of the indebtedness that will
be repaid, intend to purchase approximately 440,000 of the shares of Common
Stock offered hereby for an aggregate purchase price of approximately $5.5
million (based on the mid-point of the estimated initial public offering price
range set forth on the cover page of this Prospectus), for their respective
accounts or those of their affiliates or designees. The indebtedness
outstanding under the Subordinated Credit Line obtained in May 1996 and
expected to be repaid bears interest at the annual rate of 8.0%. The Company
may from time to time incur other borrowings, as needed for its working capital
and general corporate requirements, although it does not currently have a
credit facility and there can be no assurance that the Company will be able to
borrow funds on acceptable terms now or in the future. The remaining net
proceeds from this offering (including any proceeds received from the exercise
of the over-allotment option) are expected to be utilized for working capital
and general corporate purposes.
The amounts and timing of actual expenditures will depend upon numerous
factors, including, primarily, the progress of the Company's research and
development programs, product marketing strategies and the competitive
environment. Additionally, it is the Company's policy regularly to review
potential opportunities to acquire, or enter into joint venture or licensing
relationships with respect to, products and businesses compatible with its
existing business. The Company may, therefore, use a portion of the net
proceeds to make acquisitions or to fund joint ventures, although the Company
does not have any arrangements, agreements or understandings with respect
thereto. See "Business-Research and Development."
The Company believes that the net proceeds of this offering together with
cash flow from operations will be sufficient to finance its working and other
capital requirements for a period of approximately 24 months from the date of
this Prospectus. Pending the aforementioned uses, the net proceeds from this
offering will be invested in short-term, investment grade securities.
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock
in the foreseeable future. The Company presently intends to retain its
earnings, if any, to finance the development of its business. The payment of
any dividends in the future will depend on the evaluation by the Company's
Board of Directors of such factors as it deems relevant at the time. Currently,
the Board of Directors believes that all of the Company's earnings, if any,
should be retained for the development of the Company's business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
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CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
(i) at June 30, 1996, adjusted to give effect to the Merger and to the
80-for-one stock split effected in July, 1996, and (ii) as further adjusted to
reflect the issuance and sale by the Company of the 2,400,000 shares of Common
Stock offered hereby, and the receipt by the Company of the estimated net
proceeds from this offering (after deducting the underwriters' discount and
estimated offering expenses payable by the Company).
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------
Actual As Adjusted
(in thousands)
<S> <C> <C>
Long-term debt (1) $2,794 $0
Stockholders' equity (2):
Preferred stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding -
Common stock, $0.001 par value; 20,000,000
shares authorized; 8,000,000 shares issued and
outstanding; 10,400,000 shares issued
and outstanding, as adjusted (3) 8 10
Additional paid in capital (3) 27,066
Accumulated deficit (383) (383)
Total stockholders' equity (378) 26,693
Total capitalization $2,416 $26,693
</TABLE>
(1) Certain stockholders provided a $5 million credit facility (approximately
$4.4 million outstanding as of September 1, 1996) to the Company, all due
and payable in April 2001. The outstanding principal amount, plus accrued
interest will be repaid with a portion of the net proceeds of this
offering.
(2) The amounts in the table give effect to the amendment of the Company's
certificate of incorporation to increase the number of authorized shares
of Common Stock from 110,000 to 20,000,000 and to authorize 5,000,000
shares of preferred stock, and the 80-for-one stock split effective
July 16, 1996.
(3) Does not include 1,240,000 shares of Common Stock, consisting of (i)
1,000,000 shares of Common Stock reserved for future issuance under the
Company's stock incentive plan and (ii) 240,000 shares of Common Stock
reserved for issuance upon the exercise of warrants issued to Furman Selz
LLC. See "Management - The 1996 Stock Incentive Plan" and "Underwriting."
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<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at June 30,
1996, was a negative $1,184,000, or ($0.15) per share of Common Stock. "Net
tangible book value" per share is equal to the total tangible assets of the
Company reduced by the Company's total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the estimated net
proceeds from sale of the 2,400,000 shares of Common Stock offered hereby at
$12.50 per share (the mid-point of the estimated initial public offering price
range set forth on the cover page of this Prospectus), the net tangible book
value of the Company at June 30, 1996, would have been $25.9 million, or $2.49
per share, representing an immediate increase in net tangible book value of
$2.64 per share to existing stockholders, and an immediate dilution in net
tangible book value of $10.01 per share (or 80.1%) to investors purchasing
shares at the assumed initial public offering price ("New Investors"). The
following table illustrates the per share dilution to New Investors:
Assumed initial public offering price per share............. $12.50
Net tangible book value per share before this offering...... $(0.15)
------
Increase in net tangible book value per share
attributable to New Investors............................... 2.64
------
As adjusted, net tangible book value per share as of
June 30, 1996, after this offering ......................... 2.49
------
Dilution in net tangible book value to new investors........ $10.01
======
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock after this offering
would be $2.79 per share, which would result in dilution to new investors in
this offering of $9.71 (or 77.7%) per share of Common Stock.
The following table summarizes at June 30, 1996, on a pro forma basis the
total consideration paid and the average price paid per share of Common Stock
by the existing stockholders and the new investors who purchase pursuant to
this offering (before deducting the underwriting discount and the other
offering expenses payable by the Company):
<TABLE>
<CAPTION>
Average
Common Stock Acquired Total Consideration Price
--------------------- ------------------- Per
Number Percent Amount Percent Share
--------- -------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).......... 8,000,000 76.92% $5,300 0.02% $0.0007
New investors..................... 2,400,000 23.08% $30,000,000 99.98% $12.50
Total........................... 10,400,000 100.0% $30,005,300 100.00%
</TABLE>
__________
(1) Does not reflect that certain existing stockholders of the Company,
consisting of M. Kingdon Offshore NV, Kingdon Associates, L.P., Kingdon
Partners, L.P. and Edelson Technology Partners III, who hold indebtedness which
will be repaid with a portion of the net proceeds of this offering, intend to
purchase approximately 440,000 of the shares of Common Stock offered hereby at
the initial public offering price, for their respective accounts.
15
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<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following selected financial data as of and for each of the three
years in the period ended December 31, 1995, have been derived from financial
statements of the Company contained elsewhere herein, which have been audited
by Price Waterhouse LLP. The financial data as of and for the years ended
December 31, 1991, and 1992, and as of June 30, 1996, and for the six months
ended June 30, 1995, for the period from January 1, 1996 to May 1, 1996 and the
period from May 2, 1996 to June 30, 1996, have been derived from financial
statements of the Company which are unaudited. The unaudited financial data
includes all adjustments, which were of a normal recurring nature, that the
Company considers necessary to present fairly, in all material respects, the
financial position and the results of operations for these periods. Operating
results for the period from January 1, 1996 to May 1, 1996 and the period from
May 2, 1996 to June 30, 1996, are not indicative of the results that may be
expected for the entire year ending December 31, 1996, as the Company
anticipates incurring a substantial operating loss for the entire 1996 year.
The data should be read in conjunction with the audited financial statements
and the unaudited interim financial statements included herein.
The Company is the successor by merger to Old Alyn. From 1990 to May 1,
1996, Old Alyn conducted its operations as Alyn Corporation, a California
corporation, with 2,000,000 shares outstanding as of April 1996. Old Alyn
repurchased 200,000 of its shares of Common Stock in April 1996, leaving
1,800,000 shares outstanding. In April 1996, certain prospective investors
formed AC Acquisition Corp., a Delaware corporation, in order to facilitate
their investment in and loans to Old Alyn, and were issued 53,000 shares of AC
Acquisition Corp.'s common stock. In May 1996, Old Alyn was merged into AC
Acquisition Corp., and each share of Old Alyn was exchanged for 0.026111 shares
of Common Stock of AC Acquisition Corp. (the "Merger"), with 47,000 shares in
the aggregate being issued to shareholders of Old Alyn. The name of AC
Acquisition Corp. was changed to Alyn Corporation, which had 100,000 shares of
common stock issued and outstanding following the Merger. In July 1996, the
Company effected an 80-for-one stock split, resulting in 8,000,000 shares being
issued and outstanding. The pro forma financial information set forth below
presents the Company's results as if the Merger had occurred as of January 1,
1995. See Note (1) below.
<TABLE>
<CAPTION>
Old Alyn Alyn
----------------------------------------------------------------------- ----
Period
from Period
Six Months January 1, from May
Ended 1996 to 2, 1996 to
Years Ended December 31, June 30, May 1, June 30,
------------------------------------------------ --------------------- ----------
1991 1992 1993 1994 1995 1995 1996 1996
-------- -------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenue $319 $377 $540 $309 $319 $216 $104 $32
Costs and expenses
Cost of goods sold 224 273 265 92 203 102 34 7
General and administrative
expenses 39 53 259 352 219 89 53 337
Selling and marketing 38 32 114 143 52 10 23 31
Research and development 19 19 24 180 79 19 7 19
Total costs and expenses 320 377 662 767 553 220 117 394
Operating loss (1) 0 (122) (458) (234) (4) (13) (362)
Other income (expense), net 0 0 (3) (11) (10) (6) (2) (20)
Loss before provision for income taxes (1) 0 (125) (469) (244) (10) (15) (382)
Provision for income taxes 1 1 1 1 1 1 1 1
Net loss ($2) ($1) ($126) ($470) ($245) ($11) ($16) ($383)
Net loss per share (1) ($0.05)
Weighted average common
shares outstanding (1) 8,000
</TABLE>
(cont'd. next page)
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<PAGE>
<TABLE>
<CAPTION>
Old Alyn Alyn
----------------------------------------------------------------------- ----
Period
from Period
Six Months January 1, from May
Ended 1996 to 2, 1996 to
Years Ended December 31, June 30, May 1, June 30,
------------------------------------------------ --------------------- ----------
1991 1992 1993 1994 1995 1995 1996 1996
-------- -------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C>
Pro forma net loss (1) ($322) ($42)
Pro forma net loss per share (1) ($0.04) ($0.01)
Pro forma weighted average common
shares outstanding (1) 8,000 8,000
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
Years Ended December 31, June 30, 1996
------------------------------------------------ ---------------------------------
1991 1992 1993 1994 1995 Actual As Adjusted (2)
-------- -------- -------- -------- -------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $152 $145 $ 18 $(133) $(382) $1,078 $25,584
Total assets 178 198 219 193 128 2,650 26,927
Long-term obligations 128 128 128 128 128 2,794 0
Total stockholders' equity (deficit) (27) (26) (99) (245) (490) (378) 26,693
</TABLE>
_______________
(1) Presented on a pro forma basis to reflect the change of Old Alyn's status
for federal income tax purposes from an "S" corporation to a "C"
corporation as a result of the Merger. The effect of such change in status
was not material. As discussed above, this data reflects the Merger,
including the amortization of intangible assets of $77,000 and $26,000 for
the year ended December 31, 1995 and the period from January 1, 1996 to
May 1, 1996, respectively, and the 80-for-one stock split. See Notes to
Financial Statements.
(2) As adjusted to reflect the sale of 2,400,000 shares of Common Stock
offered hereby and the application of the net proceeds therefrom in the
manner contemplated under the caption "Use of Proceeds" after giving
effect to the Merger.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Selected Financial Data and the financial statements and related notes
thereto appearing elsewhere in this Prospectus.
Overview
Since its inception in 1990, the Company has been engaged in research,
development, testing and prototype production of advanced metal matrix
composite materials, utilizing proprietary technology for the application of
boron carbide in combination with aluminum, under the name Boralyn(R). The
Company applied for a patent regarding Boralyn(R) in January 1994, and the
patent was granted in January 1996. In the fourth quarter of 1993 and in 1994,
the Company sold Boralyn(R) tubes, as well as Boralyn(R) prototype cast parts,
with approximately 44% of the Boralyn(R) sales in each of 1993 and 1994 being
production tubes for one bicycle manufacturer. In 1995, the Company stopped
supplying that manufacturer in order to pursue what it considered to be more
promising marketing alternatives. In 1995 and the first six months of 1996,
Boralyn(R) sales were primarily the result of prototype orders. The number of
prospective customers placing such prototype orders increased in the first half
of 1996. As a result, the Company had a backlog, as of June 30, 1996, of
approximately $73,000 of prototype orders for Boralyn(R) for delivery in the
third and fourth quarters of 1996. There can be no assurance that all or any of
these orders will result in revenues. Prior to and during the development of
Boralyn(R), the Company operated as a seller of other materials, principally
boron carbide and had significant revenues from these products. The Company
continues to sell materials as it transitions to a manufacturer of
Boralyn(R)-based products. No production revenues for Boralyn(R) have been
recognized since late 1994, and none are anticipated prior to the fourth
quarter of 1996. For reasons discussed below, the Company does not expect to
achieve significant sales of Boralyn(R) prior to 1997, and there can be no
assurance that any significant sales will be achieved.
Historically, the Company has financed its operations from capital and
loans provided by existing stockholders and funds generated by operations, and
its lack of sufficient working capital until the second quarter of 1996 had
limited its ability to pursue its long-term marketing goals. Obtaining the
Subordinated Credit Line from new investors in May 1996 allowed the Company,
for the first time, to pursue a comprehensive marketing program oriented to
long-term sales growth and market penetration. The anticipated reduction in
sales of Boralyn(R) in the second and third quarters of 1996 is the result of a
termination of active selling efforts at the request of the new investors who
simultaneously acquired an equity interest in the Company and provided it with
the Subordinated Credit Line in May 1996. Sales efforts were initially
suspended while those investors conducted their pre- investment due diligence,
particularly relating to the Company's patent position. Following the receipt
of the investors' commitments and initial loan proceeds, sales efforts were not
resumed while the Company's management prepared a comprehensive business,
marketing and manufacturing plan that took into account the working capital
made available by the Subordinated Credit Line and the flexibility afforded
thereby, including its enhancement of the Company's ability to attract senior
management and engineering personnel, as well as the possibility of a public
offering of the Company's Common Stock. Sales efforts have now resumed.
From 1993 through June 30, 1996, the Company recognized approximately
$396,000 in total revenues from sales of Boralyn(R). The balance of the
Company's revenues through June 30, 1996, resulted primarily from the sale to
end-users of boron carbide powder purchased from producers of the powder, and
to a lesser extent, from sales of Ceralyn(TM), a silicon nitride matrix
composite developed by the Company for use in tool inserts and abrasives. These
sales were pursued in order to generate operating cash flow to fund the
Company's development and marketing efforts regarding Boralyn(R). The Company
was unprofitable through 1995, expects to incur a substantial loss for the full
1996 year as a result of start-up expenses in anticipation of production
orders, and may incur additional losses thereafter.
The following table sets forth the relative contribution of Boralyn(R) and
other sources of revenue to total Company revenues since 1993, in thousands of
dollars and as a percentage of total revenues:
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<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, Six Months ended June 30,
--------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Boralyn(R) $ 96 17.7% $109 35.2% $111 34.8% $30 13.9% $80 58.8%
Boron carbide
powders and
other $444 82.3% $200 64.8% $208 65.2% $186 86.1% $56 41.2%
Total revenues $540 100.0% $309 100.0% $319 100.0% $216 100.0% $136 100.0%
</TABLE>
Results of Operations
Six Months Ended June 30, 1996, Compared to Six Months Ended June 30, 1995
For purposes of comparison with the six month period ended June 30, 1995,
the results of operations for the period from January 1, 1996 through May 1,
1996 and the period from May 2, 1996 through June 30, 1996 have been
aggregated.
Net sales in the six months ended June 30, 1996, decreased 37.0% to
$136,000, from $216,000 in the six months ended June 30, 1995. The decrease was
primarily the result of the Company's decision, following the grant in January
1996 of the patent for Boralyn(R), to focus its efforts on sales of Boralyn(R),
and, in anticipation of receiving additional private financing in the second
quarter of 1996, to reduce its efforts to sell boron carbide powders and
ceramic products, which it had pursued in the past in order to generate cash.
The reduction in such sales was not fully offset by increases in sales of
Boralyn(R) prototype products.
Cost of goods sold decreased 59.8% to $41,000 in the six months ended June
30, 1996, from $102,000 in the comparable period in 1995, reflecting the
reduction in revenues in the 1996 period. Cost of goods sold decreased as a
percentage of net sales to 30.1% in the six months ended June 30, 1996, from
47.2% in the comparable period in 1995 primarily as a result of the higher
percentage of sales of higher margin Boralyn(R) prototype products.
General and administrative expenses increased 338.2% to $390,000 in the
six months ended June 30, 1996, from $89,000 in the comparable period in 1995.
As a percentage of net sales, these expenses increased to 286.8% in the six
months ended June 30, 1996, from 41.2% in the comparable period in 1995.
General and administrative expenses will increase substantially in the several
quarters following the quarter ended June 30, 1996 to support anticipated
growth in the Company's business activities.
Selling and marketing expenses increased 440.0% to $54,000 in the six
months ended June 30, 1996 from $10,000 in the comparable period in 1995. As a
percentage of net sales, these expenses increased to 39.7% in the six months
ended June 30, 1996, from 4.6% in the comparable period in 1995. This increase
was a result of increased sales and marketing staff and an increase in
marketing expenses, primarily printing costs, incurred in renewing marketing
efforts for Boralyn(R) products. Such expenses are expected to increase over
the several quarters following the quarter ended June 30, 1996, as
Boralyn(R)-related marketing and sales activities increase.
Research and development expenses increased 36.8% to $26,000 in the six
months ended June 30, 1996, from $19,000 in the comparable period in 1995. As a
percentage of net sales, these expenses increased to 19.1% in the six months
ended June 30, 1996, from 8.8% in the comparable period in 1995. This increase
was primarily a result of completion of certain contract development programs
and the addition of one staff member. The Company expects research and
development personnel expenses to increase substantially in the second half of
1996.
As a result of the foregoing factors, loss before provision for income
taxes increased 3,870.0% to $397,000 in the six months ended June 30, 1996,
from a loss of $10,000 in the comparable period in 1995.
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<PAGE>
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994
Net sales in the year ended December 31, 1995, increased 3.2% to $319,000
from $309,000 in the year ended December 31, 1994. The increase reflected a
slight increase in Boralyn(R) sales, as well as an increase in sales of boron
carbide powders and ceramics products.
Cost of goods sold increased 120.7% to $203,000 in the year ended
December 31, 1995, from $92,000 in the prior year. Cost of goods sold increased
as a percentage of net sales to 63.6% in 1995 from 29.8% in the prior year. The
increase was primarily attributable to the price of boron carbide, which
adversely affected the margins on sales of boron carbide powder.
General and administrative expenses decreased 37.8% to $219,000 in the
year ended December 31, 1995, from $352,000 in the prior year. As a percentage
of net sales, general and administrative expenses decreased to 68.7% in 1995
from 113.9% in the prior year. The decrease in expenses was primarily a result
of expense reduction efforts to conserve cash.
Selling and marketing expenses decreased 63.6% to $52,000 in the year
ended December 31, 1995, from $143,000 in the prior year. As a percentage of
net sales, selling and marketing expenses decreased to 16.3% in 1995 from 46.3%
in the prior year. The decrease in expenses was primarily a result of a
reduction in selling expenses as the Company reduced expenses to conserve cash.
Research and development expenses decreased 56.1% to $79,000 in the year
ended December 31, 1995, from $180,000 in the prior year. As a percentage of
net sales, research and development expenses decreased to 24.8% in 1995 from
58.3% in the prior year. The decrease in expenses was primarily a result of the
lower level of product development contracts, and a reduction in research and
development efforts in order to conserve cash.
As a result of the foregoing, loss before provision for income taxes
decreased 48.0% to $244,000 in the year ended December 31, 1995, from a loss of
$469,000 in the prior year.
Year Ended December 31, 1994, Compared to Year Ended December 31, 1993
Net sales in the year ended December 31, 1994, decreased 42.8% to $309,000
from $540,000 in the year ended December 31, 1993. The decrease was primarily
the result of the Company's decision to pursue its long-term strategic goals by
focusing its efforts on selling Boralyn(R) tubes for bicycle frames and
castable products, rather than rely on sales of lower margin boron carbide
powders and ceramics products in order to generate cash. The Company sold
common stock during 1994 to finance its activities.
Cost of goods sold decreased 65.3% to $92,000 in the year ended
December 31, 1994, from $265,000 in the prior year. Cost of goods sold
decreased as a percentage of net sales to 29.8% in 1994 from 49.1% in the prior
year, primarily a result of the change in the product mix to include a greater
proportion of higher margin Boralyn(R) product sales.
General and administrative expenses increased 35.9% to $352,000 in the
year ended December 31, 1994, from $259,000 in the prior year. As a percentage
of net sales, general and administrative expenses increased to 113.9% in 1994
from 48.0% in the prior year. The increase was primarily a result of personnel
added to assist in new business development and in reviewing the contracts
entered into as a result of these efforts.
Selling and marketing expenses increased 25.4% to $143,000 in the year
ended December 31, 1994 from $114,000 in the prior year. As a percentage of net
sales, selling and marketing expenses increased to 46.3% in 1994 from 21.1% in
the prior year. This increase was primarily a result of the increased marketing
of the Company's Boralyn(R) products.
20
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<PAGE>
Research and development expenses increased 650.0% to $180,000 in the year
ended December 31, 1994, from $24,000 in the prior year. As a percentage of net
sales, research and development expenses increased to 58.3% in 1994 from 4.4%
in the prior year. The increase was primarily a result of customer-supplied
funds being available for Boralyn(R) product development.
As a result of the foregoing, loss before provision for income taxes
increased 275.2% to a loss of $469,000 in the year ended December 31, 1994,
from a loss of $125,000 in the prior year.
Liquidity and Capital Resources
Historically, the Company has financed its operations from capital and
loans provided by existing stockholders and funds generated by operations. At
June 30, 1996, the Company's working capital was $1,078,000, compared to
working capital deficits of $382,000 and $133,000 at December 31, 1995 and
1994, respectively. Net cash used in investing activities in 1994, 1995 and the
first six months of 1996 was $3,000, $4,000, and $43,000, respectively. Cash
used in investing activities related primarily to purchases of equipment,
furniture, and office equipment. Net cash provided from financing activities
from 1994 through May 1, 1996 was limited to $325,000, representing proceeds
from the sales of Common Stock in early 1994. Net cash provided from financing
activities from May 2, 1996 through June 30, 1996 was $2,666,000, representing
proceeds from the Subordinated Credit Line discussed below.
Inventory levels decreased from $154,000 at December 31, 1994 to $16,000
at December 31, 1995. In 1995, the Company's Boralyn(R) sales were primarily
the result of prototype orders. The balance of the revenues resulted primarily
from the sale of boron carbide powders and silicon nitride composites,
comprising approximately 19,000 pounds of material, activities not anticipated
to recur in the future. As the Company sold powders and composites, it
purposefully did not replace that inventory in order to manage its limited
resources, choosing instead to direct its efforts towards development of its
Boralyn(R) products. This inventory management policy has remained consistent.
Raw materials are readily available from suppliers.
The increase of $158,000 in accrued and other current liabilities from
1994 to 1995 was primarily the result of deferred compensation of $94,000
payable to one employee and major shareholder, to be paid at a future date
(which was paid in the second quarter of 1996), and a customer advance of
$40,000 paid in December 1995 to the Company for contract research and
development services which were to be provided in 1996. Other accrued
liabilities were for audit fees and outside services. None of these amounts
were past due at December 31, 1995 or as of the date of this Prospectus.
In anticipation of the net proceeds from this offering, the Company has
initiated the process of building its infrastructure. Key management, sales and
technical staff have been sought and hired. This was made possible as cash
became available from the advances under the Subordinated Credit Line. The
proceeds of this offering will enable the Company to finance its future growth.
See "Use of Proceeds."
In May 1996, certain new stockholders of the Company provided the
Subordinated Credit Line, pursuant to which such stockholders became obligated
to loan to the Company on a monthly basis up to an aggregate maximum amount of
$5 million, which loans bear interest at the annual rate of 8%. The outstanding
principal amount of the Subordinated Credit Line (approximately $4.4 million as
of September 1, 1996), plus accrued interest, will be repaid with a portion of
the net proceeds of this offering. Certain stockholders of the Company,
consisting of M. Kingdon Offshore NV, Kingdon Associates, L.P., Kingdon
Partners, L.P. and Edelson Technology Partners III, who hold, or whose
affiliates hold, $3.3 million of the indebtedness which will be repaid, intend
to purchase at least 440,000 of the shares of Common Stock offered hereby for
an aggregate purchase price of approximately $5.0 million (based on the
mid-point of the estimated initial public offering price range set forth on the
cover page of this Prospectus), for their respective accounts or those of their
affiliates or designees.
The Company currently intends, following this offering, to seek a loan
commitment from one or more lenders for a working capital credit facility,
subject to satisfaction of such collateral and other requirements as may be
21
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<PAGE>
required by the lender. There can be no assurance that any such facility will
be obtained. The Company believes that the net proceeds of this offering,
together with cash flow from operations, will be sufficient to finance its
working and other capital requirements for a period of approximately 24 months
from the date of this Prospectus. Pending the aforementioned uses, the net
proceeds from this offering will be invested in interest bearing government
securities or short-term, investment grade securities.
Inflation
Inflation has not had a material impact on operating results and the
Company does not expect it to have such an impact in the future. There can be
no assurance, however, that the Company's business will not be affected by
inflation.
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<PAGE>
BUSINESS
Alyn designs, develops, manufactures and markets consumer and industrial
products utilizing its proprietary advanced metal matrix composite materials,
which it believes have a superior combination of physical properties, including
strength, light weight, stiffness, hardness and fracture resistance, for a
variety of selected markets. The Company has developed technology, for which it
obtained a patent in January 1996, for the application of boron carbide in
combination with aluminum in lightweight metal matrix composites under the name
Boralyn(R). Boron carbide, a principal component of Boralyn(R), is an advanced
ceramic that is the third hardest material in the world, and the hardest
material available at a commercially reasonable cost. The Company believes that
no other material offers a range of properties comparable to those Boralyn(R)
provides. Boralyn(R) is lighter and can be more easily fabricated than
titanium; has a higher specific stiffness than titanium, aluminum or specialty
steel; is one-third the density of many steels; has a hardness and resistance
to wear greater than aluminum and comparable to specialty steel and titanium;
is more resistant to corrosion than aluminum; is highly fracture resistant; and
exhibits minimal resonance over a wide range of rotational speeds. Boralyn(R)
is available in a range of grades with varying properties to satisfy specific
customer requirements and is easily welded, cast, bent, coated and extruded
with conventional equipment and tools. The Company believes that Boralyn(R) is
a highly effective replacement for many existing premium-priced metal and
composite products, such as those used in high-end sporting goods,
high-capacity disks for computer hard disk drives, neutron shielding and other
applications.
The Company is focusing its initial marketing efforts on the use of
Boralyn(R) in applications where its unique combination of properties will
justify an appropriate price premium. These applications include: (i) high-end
sporting goods such as premium-priced golf club heads and shafts, high-end
lightweight bicycle frames and components and sports racquets; (ii) disks for
computer hard disk drives; and (iii) neutron shielding for both disposal
containers and reactor installations.
Development of the Company's Business
The growth of interest in metal matrix composites is a result of the
engineering properties of these composites. Metal matrix composites compare
favorably to other materials with respect to weight, stiffness and strength,
high temperature capabilities, and low thermal expansion, and can be relatively
easily fabricated. Based on independent studies, the Company believes these
materials can provide up to 60% savings in weight compared to traditional
metallic alloys while still retaining key structural and design properties.
They also compare favorably with certain other composite materials, namely
polymer-matrix materials that have temperature and strength limitations, are
sensitive to moisture and in some cases also release gases or moisture.
The Company was founded in January 1990 by Robin A. Carden, who had
previously been a senior engineer at Ceradyne Inc., a company engaged in
advanced ceramics, where he developed civilian applications for advanced
ceramics originally developed for military use. At that time, boron carbide
technology had recently been declassified by the U.S. Department of Defense. In
order to capitalize on the commercial possibilities of a boron carbide/metallic
alloy composite structure, under Mr. Carden's direction the Company began to
experiment with new techniques for bonding boron carbide to different metals,
creating new composite structures. From 1990 through 1993 the Company continued
development of metal matrix composites, while purchasing and reselling boron
carbide powders in order to generate cash for its Boralyn(R) development
efforts. These efforts led to the filing of a patent application in January
1994, first sales of Boralyn(R) bicycle frames, and the grant of a U.S. patent
for the "Metal Matrix Compositions and Method of Manufacture Thereof" in
January 1996, which covers the initial matrix composites and methods for making
them.
In May 1996, the Company received significant debt financing from its new
stockholders, including Kingdon Capital Management Corp. affiliates and Edelson
Technology Partners III, enabling the Company to pursue further its Boralyn(R)
business. In that same month and in the month thereafter, the Company assembled
a senior management team with experience in areas such as operations,
manufacturing, research and development and finance and administration. This
senior management team has prepared a comprehensive business, marketing and
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<PAGE>
manufacturing plan that takes into account the working capital made available
by the debt financing as well as the possibility of a public offering of the
Company's Common Stock. Following the completion of this offering, the Company
intends to add personnel to its marketing, sales and engineering support staff
in an effort to sell Boralyn(R) products to those customers who will be able to
charge a premium for their Boralyn(R)-based products.
The following table lists selected customers for Boralyn(R) products as of
the date of this Prospectus. Each of the customers identified below has placed
an order for prototype Boralyn(R) products for the application listed opposite
that customer's name.
Selected Customers
Application Customer
High-End Sports Equipment
Golf Club Heads and/or Shafts Hillerich & Bradsby Co., Inc. (Power-Bilt)
Nicklaus Golf Equipment Limited
Prince Sports Group, Inc.
Taylor Made Golf Company, Inc.
Bicycle Frames and/or Components Campagnolo S.R.L.
Cannondale Corporation
Trek Bicycle Corporation
Sports Racquets Spalding Sports Worldwide, a division of
Spalding & Evenflo Cos.
Neutron Shielding
Waste Containment Framatome S.A.
Other
Semiconductor Packaging Motorola, Inc.
Aerospace/Defense Endgate Corporation
Engelhard Corporation
Rosemount Aerospace, a division of
BF Goodrich, Inc.
Marine Power Ski International, Inc.
Automotive/Motorcycle Honda R&D North America, Inc.
Maverick Racing
Assembly Equipment Cartesian Data, Inc.
Computer Hard Disks
The Company is producing preliminary sample disk substrates of Boralyn(R)
for evaluation by several major disk drive manufacturers. To date, the Company
has not received any prototype orders for hard disk substrates.
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Company Strategy
Alyn's objective is to become a leader in advanced metal matrix composite
products and establish significant market share and brand awareness for
Boralyn(R) in niche markets, such as higher-priced consumer products and
specialized uses, where value-added premiums can be obtained. The Company
intends to do so by capitalizing on its existing proprietary technology and
patented process for producing Boralyn(R) through the direct manufacture and
sale of Boralyn(R)-based products to industrial and consumer product
manufacturers and distributors, and, to a lesser extent, to producers of
military products. The Company believes that its focus on marketing Boralyn(R)
for use in higher-priced consumer and commercial products and applications
where its properties provide performance advantages will provide it with the
best opportunity for meaningful market penetration. The Company has also
developed what it believes to be a superior manufacturing process which
benefits from the characteristics of Boralyn(R). The Company recently filed a
patent application for its soluble core method of manufacturing metal matrix
composite die-cast metal structures, which allow for forming complex hollow
chambers and passages, often within a one-piece structure, without the need for
welding together separate components or other secondary manufacturing
processes.
The Company anticipates commencing production in late 1996 of Boralyn(R)
in commercial quantities at its newly leased 48,000 square foot facility in
Irvine, California, which is expected to be operational in the fourth quarter
of 1996. The new facility will include sintering, casting (including soluble
core) and extrusion capabilities. Until production commences at the new
facility, production and shipment of Boralyn(R) will continue to be undertaken
by unaffiliated subcontractors.
Characteristics of Boralyn(R)
Boralyn(R) is a new metal matrix composite material with the principal
constituents being aluminum and boron carbide. Boralyn(R) compares favorably to
other materials with which it will compete in markets selected by the Company,
with respect to density, specific strength, specific stiffness, hardness and
resistance to wear, fatigue and corrosion resistance, resonance and neutron
absorption.
Density. Boralyn(R) exhibits relatively low density compared to certain
alternative materials (see Figure 1). This characteristic contributes to its
greater specific strength and greater specific stiffness.
Figure 1
[GRAPHIC OMITTED]
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Specific Strength. Figure 2 indicates the greater specific strength of two
grades of Boralyn(R) when compared to titanium alloy, aluminum alloy and
specialty steel products with which it will compete in markets selected by the
Company. As shown, the specific strength range (dependent somewhat on the
grade) of Boralyn(R) is higher by a considerable margin than that of titanium
and aluminum. Specific strength is particularly significant in applications
such as bicycle components.
Figure 2
[GRAPHIC OMITTED]
Specific Stiffness. Figure 3 indicates the greater specific stiffness of
Boralyn(R) when compared to titanium alloy, aluminum alloy and specialty steel.
Specific stiffness is particularly significant in applications such as computer
hard drive disks and golf club heads.
Figure 3
[GRAPHIC OMITTED]
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Specific Strength/Specific Stiffness. Figure 4 compares the combination of
specific strength and specific stiffness, characteristics that are important
for any structure, such as premium-priced golf clubs and high-end bicycle
frames and components, where the combination of strength, stiffness and light
weight is important. As shown, Boralyn(R) exhibits a significantly superior
combination of specific strength and specific stiffness compared to the other
competing materials. For many applications, far less Boralyn(R) is required to
provide necessary strength and stiffness; conversely, for the same density,
Boralyn(R) provides significantly more strength and stiffness than the other
competing materials. Other applications such as arrows, baseball bats, sailing
masts, and spinnaker poles for boats also benefit from these strength and
stiffness advantages.
Figure 4
[GRAPHIC OMITTED]
Hardness and Resistance to Wear. Hardness directly relates to resistance
to wear. Boralyn(R) of a grade that can easily be welded, extruded or casted
exhibits greater wear resistance than aluminum and wear resistance comparable
to alternative materials, and therefore can be used to advantage in
applications where high wear resistance is significant, such as in engine
blocks, brake discs and pistons.
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Fatigue and Corrosion Resistance. Figure 5 shows a comparison of
Boralyn(R) to an aluminum alloy. Boralyn(R), in a 5% salt moist environment,
will endure a large number of stress cycles. This property makes Boralyn(R)
superior to aluminum alloy for applications in which many stress cycles are
encountered, particularly in corrosive environments. Any structural support
where stress is applied repeatedly needs high fatigue characteristics. Bicycle
frames and components, airplane structures, motorcycle frames, piston rods and
satellite supports are some of the applications where high fatigue resistance
is necessary, and many of those applications take place in areas characterized
by salt and moist atmospheric conditions.
Figure 5
[GRAPHIC OMITTED]
Resonance. Figure 6A shows a comparison of the resonance characteristics
of Boralyn(R) compared with glass and aluminum substrates (materials commonly
used in computer hard disk drives) over rotational speeds ranging from 1,000 to
10,000 revolutions per minute. As shown by the absence of peaks and valleys,
Boralyn(R) disks exhibit minimal resonance over the entire range of rotational
speeds. (The downward slope of the line reflecting Boralyn(R) data has no
bearing on the measurement of resonance). The lower resonance of Boralyn(R) is
of particular advantage in computer hard disk drives, where lower resonance
allows for closer head-to-disk distance at higher rotational speeds.
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Figure 6A
[GRAPHIC OMITTED]
Figure 6B shows a magnification of the resonance characteristics of
Boralyn(R) over rotational speeds ranging from 7,250 to 10,000 revolutions per
minute depicted in Figure 6A above.
Figure 6B
[GRAPHIC OMITTED]
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Neutron Absorption. Neutron absorption (attenuation) in boron
carbide-based materials such as Boralyn(R) is primarily a function of the
density (referred to as areal density) and degree of uniformity of distribution
(i.e., homogeneity) of boron carbide particles within the material. The
absorption is primarily accomplished by the B-10 isotope contained in the boron
carbide material. Figure 7A shows the uniformity of the B-10 areal density of
four separate samples of Boralyn(R) when measured over five separate positions
on each sample during a scanning test, reflected in the flatness and closeness
in proximity to each other of the lines. Figure 7B shows the small variations
between actual measured boron carbide areal density and the theoretical, or
calculated, boron carbide areal density, determined in accordance with
engineering standards, as a function of neutron attenuation fraction (the
fraction of neutrons that were absorbed), illustrating the predictability of
the material in this application. The predictable homogeneity of Boralyn(R)
allows for the design of structures to customer requirements without
incorporating additional material, compared with competing materials that can
require as much as 40% additional material to compensate for irregular
distribution of neutron-absorbing particles (i.e., relative lack of
homogeneity) and therefore achieve adequate levels of uniform absorption.
Accordingly, Boralyn(R) can produce the same neutron absorbing results as
competing materials, but with less Boralyn(R), thereby reducing the weight and
cost of the structure.
Figure 7A
[GRAPHIC OMITTED]
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Figure 7B
[GRAPHIC OMITTED]
Broad Range of Available Grades. Boralyn(R) is available in various grades
depending principally on the aluminum alloy of choice and the percent of boron
carbide that is included. A specific grade can be matched to a specific
application where a specific property or properties are to be highlighted. For
example, in aerospace applications, where thermal expansion is a problem due to
the extremes of the environment, the percentage of boron carbide can be
increased to lower the thermal expansion; for transducers, the electrical
resistivity can be lowered by decreasing the boron carbide to a few percent;
for better wearability of tools, 20% to 25% boron carbide can be used for
harder surfaces; for higher corrosion resistance, corrosion-resistant materials
can be added.
Ease of Fabrication. In addition to the properties described above,
Boralyn(R) also has excellent brazing and welding capabilities, can be easily
extruded and wrought and can be used in a variety of casting processes. The
Company has also developed what it believes to be a superior manufacturing
process that benefits from the characteristics of Boralyn(R). The Company
recently filed a patent application for its soluble core method of
manufacturing metal matrix composite die-cast metal structures, which allows
for forming complex hollow chambers and passages, often within a one-piece
structure, without the need for welding together separate components or other
secondary manufacturing processes.
Independent Third Party Testing. Many of the Company's claims with respect
to the physical characteristics of Boralyn(R) have been subjected to, and were
verified and supported by, studies and testing, performed by independent third
parties, including testing by: (i) the Department of Chemical Engineering and
Materials Science of the University of California, Irvine, of its specific
strength, homogeneity, hardness, density and specific stiffness; (ii) Corning
Incorporated CELS - Laboratory Services, of its chemical composition; (iii) the
University of Michigan's Nuclear Reactor Laboratory of its neutron radiation
absorption characteristics; (iv) THoT Technologies, Inc. of its minimal
resonance through a wide range of computer hard disk drive rotational speeds;
and (v) Golf Laboratories, Inc. of its effect on the driving distance achieved
by a golf club head.
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Products and Applications
The Company is focusing its initial marketing efforts on the use of
Boralyn(R) in applications where its unique combination of properties will
justify an appropriate price premium. These applications include the following:
High-end Sporting Goods. The Company has targeted premium-priced golf club
heads and shafts and high- end lightweight bicycle frames and components as a
primary market for Boralyn(R)-based products.
Golf Club Heads and Shafts. The U.S. wholesale market for premium-priced
golf clubs was estimated by industry sources to be approximately $890 million
in 1994, reflecting a 23% increase over the prior year. The Company has
produced or is producing prototype golf club heads for Nicklaus Golf Equipment
Limited, Hillerich & Bradsby Co., Inc. (Power-Bilt), Prince Sports Group, Inc.
and Taylor Made Golf Company, Inc., each a golf club producer, including
pre-tooling versions based on production molds customized for Boralyn(R)
composite heads. The Company believes that production and customer approval of
pre-tooling versions of golf clubs based on customized molds is usually the
final step before receipt of a definitive production order. The Company is
actively engaged in negotiations with each of the named prospective customers
that it believes may lead, by late 1996, to production orders for delivery in
1997, although there can be no assurance that any production orders will be
obtained. The Company believes that the higher specific stiffness, higher
specific strength and ease of fabrication of Boralyn(R), compared with
titanium, allow the design and manufacture of golf club heads with a larger
"sweet spot" and better mass distribution compared with titanium heads, thus
yielding what golfers term a "more forgiving" golf club. In an independent
third-party's comparison test against two premium-priced titanium golf club
heads, a Boralyn(R) golf club head drove the ball longer distances. The higher
specific stiffness of Boralyn(R) compared with graphite composite, a commonly
used golf club shaft material, also should permit stiffer shafts to be made
with Boralyn(R).
Bicycle Components and Frames. The U.S. retail market for bicycles,
bicycle components and related products and services was estimated by industry
sources to be approximately $5 billion in 1994. The Company believes that
approximately 220,000 premium-priced (over $600 at retail) bicycles were sold
in 1995. The Company has received orders for prototype components or frames
from Campagnolo S.R.L., Cannondale Corporation and Trek Bicycle Corporation,
each a leading manufacturer of bicycle components and/or frames. The higher
specific strength and specific stiffness of Boralyn(R) compared to aluminum and
specialty steel allows for the production of lighter bicycle components and
frames with no decrease in strength or stiffness, or if weight is not a
dominant consideration, for stiffer components and frames with no increase in
weight. These characteristics improve riding efficiency.
Other potential sporting goods applications where strength and stiffness
are important include tennis and other sports racquets, baseball bats and
arrows. The Company has received orders from Spalding Sports Worldwide, Inc., a
division of Spalding & Evenflo Cos., Inc. for prototype racquetball and tennis
racquets.
Computer Hard Disks. The U.S. wholesale market for computer hard disk
substrates was estimated by industry sources to be approximately 247 million
units in 1996. The Company believes that disks for high- speed, high-capacity
drives, which the Company is targeting in its marketing efforts, represent
between 5% and 10% of the total market. The Company has produced preliminary
sample disk substrates of Boralyn(R) for evaluation by several major disk drive
manufacturers. Unlike conventional aluminum and glass substrates currently in
use as disks in computer hard drives, Boralyn(R) disks exhibit minimal
resonance over the entire range of rotational speeds, from initial spin-up to
current maximum speeds, as well as at substantially higher rotational speeds.
Lower resonance disks will permit hard disk drives to be designed for closer
head-to-disk distances and higher rotational speeds, characteristics that will
allow for greater storage capabilities and faster data transfer rates. In order
to realize the benefits of Boralyn(R), hard disk drive manufacturers will have
to modify existing hard disk drive designs, and such modifications may be
substantial. The Company believes that hard disk drive manufacturers will be
motivated to modify or introduce new hard disk drive designs only after a
substantial testing period and significant marketing efforts by the Company.
The Company expects to
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incur substantial expenses in connection with those testing and marketing
efforts, and anticipates ultimately that disks based on Boralyn(R) will be
accepted by hard disk drive manufacturers, if at all, only if such disks can be
demonstrated to have superior characteristics and can be offered at competitive
prices. Further, the Company expects that use of disks based on Boralyn(R) will
commence with, and could be limited to, high-end computer hard disk drives,
which constitute a small but significant percentage of the current market for
computer hard disks. The Company does not anticipate production orders for hard
disk applications prior to the second half of 1997, as a result of stringent
testing requirements, substantial marketing efforts and the redesign of
computer hard disk drives by disk drive manufacturers that would be necessary
to realize the benefits of disks based on Boralyn(R), and there can be no
assurance that any production orders will be obtained.
Neutron Shielding. Materials traditionally used for neutron absorption in
nuclear reactors and disposal containers for radioactive products and waste
require a separate neutron-absorbing material such as boron carbide, encased in
layers of metallic alloy such as aluminum supported by steel, in order to
provide stiffness and structural integrity. The metal matrix structure of
Boralyn(R), combined with its boron carbide ingredients, provides acceptable
neutron absorption characteristics as well as stiffness in an homogeneous,
single structure, with advantages in ease of use and fabrication. The Company
has received small initial orders from Framatome S.A., a major nuclear plant
construction company based in France, for prototype disposal containers. The
Company does not anticipate production orders for neutron shielding
applications prior to the second half of 1997, and there can be no assurance
that any production orders will be obtained.
Other potential applications. Other potential applications of Boralyn(R)
include its use in automotive and motorcycle components, where the Company is
producing prototype motorcycle brake drums for Honda R&D North America, Inc.
and connecting rods for Maverick Racing; marine applications, where the Company
is producing prototype drive shafts for Power Ski International Inc.;
structural components for aircraft, where the Company is producing prototype
sensor housings for Rosemount Aerospace, a division of BF Goodrich, Inc., and
prototype thin foil structures for Engelhard Corporation; semiconductors, where
the Company is producing prototype semiconductor packaging for Motorola, Inc.;
satellite components, where the Company is producing samples for Endgate
Corporation; and armor for government and military vehicles and for personal
protection.
Marketing and Customer Support
To date, most of the Company's prototype orders have been the result of
unsolicited inquiries from prospective customers. The Company intends to
achieve market penetration in selected markets through a multi-step process
usually consisting of initial discussions of the application highlighting the
advantages of Boralyn(R), an engineering and marketing evaluation by the
prospective customer of sample material and demonstration products, appropriate
agreements allowing the customer to use and market Boralyn(R) in the relevant
application and market and, finally, a production program where appropriate
expenditures are made on tooling, equipment and quality control necessary to
fulfill market requirements. The Company intends to sell primarily to OEM
customers, with distribution from the Company manufacturing site to customer
facilities.
The Company anticipates incurring increased expenditures in connection
with its marketing activities in the next two years, and has allocated a
substantial portion of the net proceeds of this offering to fund those
activities. See "Use of Proceeds." The existing sales staff on June 30, 1996,
of two persons is expected to increase to approximately ten persons by the end
of 1997. The Company's marketing activities are also expected to include
substantial applications engineering support to assist in the development of
products for specific customers and markets, evaluation of Boralyn(R) by
institutions that specialize in technology and/or markets of this type,
development of appropriate sales materials such as specification sheets and
corporate brochures, and promotion through appearances at selected trade shows
and selective advertising in journals and the trade press. For example, the
Company will exhibit Boralyn(R) bicycle components and frames at the annual
Interbike Exhibition in Las Vegas, Nevada in September 1996. These activities,
if successful, may not result in proportional or any revenue increases in the
same period in which those activities occur. The
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Company's marketing activities will initially focus on prospective
customers in the United States, but it is anticipated that international
efforts will develop within the next 18 months. However, in view of the
anticipated concentration outside the United States, and particularly in
Europe, of prospective customers for neutron shielding applications of
Boralyn(R), the Company believes that it may be required to focus on
international marketing efforts in order to obtain any significant production
orders for such applications.
Patents and Trademarks
The Company believes that protection of its proprietary technology and
know-how is important to the development of its business. It seeks to protect
its interests through a combination of patent protection and confidentiality
agreements with key employees, as well as by limiting the availability of
certain critical information to a small number of key employees.
The Company intends to pursue a vigorous patent application program in the
United States and abroad. The Company has obtained one United States patent
(No. 5,486,223, issued to Robin A. Carden in January 1996, and which expires in
January 2014), that it believes provides protection for its proprietary
Boralyn(R) technology and contains claims that cover the use of Boralyn(R),
particularly in high-end sporting goods, as well as in certain other markets
targeted by the Company. The Company has also filed additional patent
applications, including divisional patent applications and continuation-in-part
applications that stem from the Company's original patent application. The
divisional patent applications relate to methods of fabricating Boralyn(R) and
to bicycle frames that were disclosed in the original patent application. The
continuation-in-part patent applications expand the scope of the claims in the
original patent, and cover the Company's processes of fabricating Boralyn(R).
Divisional patent applications and continuation-in-part patent applications
generally are likely to complete the U.S. Patent Office review process on an
expedited basis and, with respect to claims having a common subject matter with
those in the original patent, are entitled to the date of filing of the
original patent for purposes of considering patentability. The divisional
patent application relating to bicycle frames was filed in September 1995 and
was allowed in June 1996, but there can be no assurance that the Company's
other pending divisional patent and continuation-in-part applications will
receive expedited review. New patent applications recently filed by the Company
cover (i) application of Boralyn(R) in neutron shielding, (ii) application of
Boralyn(R) in computer hard disk drives and (iii) a new soluble core
manufacturing method for Boralyn(R)-based structures. The Company is not aware
of any reason why its pending applications should not be granted with claims
that will provide coverage and, therefore, adequate protection for its
anticipated business activities, although there can be no assurance in that
regard.
There can be no assurance that the Company's existing patent and the
divisional patent application that was allowed, or any other patents that may
be granted, will be valid and enforceable or provide the Company with
meaningful protection from competitors. There also can be no assurance that any
pending patent application will issue as a patent or that any claim thereof
will provide protection against infringement. If the Company's present or
future patent rights are ineffective in protecting the Company against
infringement, the Company's marketing efforts and future revenues could be
materially and adversely affected. Moreover, if a competitor were to infringe
the Company's patent, the costs of enforcing the Company's patent rights may be
substantial or even prohibitive. The Company currently has only limited patent
protection for its technology outside the United States, and may be unable to
obtain even limited protection for its proprietary technology in certain
foreign countries. See "Risk Factors-Dependence on Patents."
The Company believes that its current and anticipated business does not
infringe on any patent owned by others, although there can also be no assurance
that the Company's products will not infringe the patent rights of others or
that it will not be forced to expend substantial funds to defend against
infringement claims of, or to obtain licenses from, third parties.
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Research and Development
The Company continuously engages in the development of new products and
improvements to its existing formulations and will maintain laboratory
facilities for these purposes as well as a network of outside independent test
laboratories and specialty subcontractors. The Company's past research and
development effort was focused on various applications for cast, soluble-core
and extruded Boralyn(R) products, and the tooling and methods for product
production, and the formulation of other metal matrix composites using
magnesium and titanium. It is expected that formulations and techniques will
continue to be developed and refined through empirical tests and prototype
development. The Company expects that it will devote substantial resources to
research and development efforts. The costs of those efforts will be recorded
for accounting purposes as expenses as they are incurred, notwithstanding that
the benefits, if any, from the Company's research and development efforts (in
the form of increased revenues or decreased product costs) may not be reflected
in the Company's operating results, if at all, until subsequent periods.
Manufacturing and Supply
Raw materials used by Alyn are principally aluminum and boron carbide. The
Company presently purchases boron carbide from a limited number of suppliers,
including one supplier that provides approximately 50% of the Company's present
requirements. Although the Company believes that boron carbide is readily
available from other suppliers, there can be no assurance that the Company will
be able to continue to obtain desired quantities of boron carbide on a timely
basis at prices and terms deemed reasonable by the Company. Alyn's other
principal raw material, aluminum, is available from several domestic suppliers
and the Company is not dependent on the availability of supplies from any other
single source.
Unlike a number of other metal-matrix composites, Boralyn(R) is not made
through a molten process. Instead of adding boron carbide powder into the
molten base metal alloy, the various powdered elements are blended dry and
mixed uniformly to avoid stratification and settling. After the particulates
have sufficiently mixed, they are directed into a die and then into a
cylindrical container, where the particulates are subjected to up to 85,000
pounds per square inch (psi) of pressure, transforming the elements into a
solid ingot. These Boralyn(R) ingots are used for casting and to extrude forms
such as plates and tubes for use in various consumer products and other end
uses.
The Company monitors the quality of its products that are produced by
subcontractors by frequent tests and material certification, and intends to
maintain a strict internal quality control system to monitor the quality of
production at its renovated facility. The quality control laboratory is
expected to be capable of conducting both physical and chemical testing. The
Company also maintains product liability insurance at levels it believes to be
adequate.
The Company intends to maintain a sufficient inventory of raw materials
and finished Boralyn(R) in the on- site warehouse that will occupy part of its
newly-leased facility, which is expected to be ready for inventory storage by
October 1996. Finished inventory generally is expected to be warehoused for
distribution by commercial trucking throughout the United States at the
Company's plant, but products produced for third parties are likely to be
immediately released to third party warehouses and not remain at the Company's
plant.
Government Regulation
The Company's manufacturing and packaging operations will be subject to a
wide range of federal, state and local regulations, including the discharge,
handling and disposal of hazardous wastes regulations contained in the
environmental laws and the plant and laboratory safety requirements of various
occupational safety and health laws that are applicable to all the Company's
facilities and operations.
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The Company believes it has complied in all material respects with regard
to governmental regulations applicable to it. To date, those regulations have
not materially restricted or impeded the Company's operations.
Competition
The materials industry is highly competitive. The Company competes in its
chosen markets against several larger multi-national companies, all of which
are well-established in those markets and have substantially greater financial
and other resources than those of the Company. Competitive market conditions
could adversely affect the Company's results of operations if it were required
to reduce product prices to remain competitive or were unable to achieve
significant sales of its products.
In the golf club market, the Company competes primarily with titanium,
used widely today in premium- priced golf club heads, with the base material
being supplied by companies such as RMI Titanium Company, Tremont Industries,
Inc., and Titanium Metals Corporation of America (Timet), and with clubs
produced by CoastCast and Sturm Ruger. In the premium-priced bicycle market,
the current market uses titanium, aluminum alloys, and other materials supplied
by companies such as The Aluminum Corporation of America (Alcoa), Reynolds
Metals Co., Easton Aluminum, Inc., Sandvik Steel Co. and Oregon Metallurgical
Corporation (Oremet Titanium). In the computer disk drive market, the disks
currently being used are made from aluminum supplied by Alcoa and other
suppliers. For neutron shielding, current disposal containers typically use
Boral, a material supplied by AAR Brook & Perkins.
Personnel
The Company employed 19 persons as of September 1, 1996, including three
Company executive officers, six manufacturing personnel and five persons
engaged in sales and marketing activities. None of the Company's employees is a
member of a labor union. The Company considers its relationship with its
employees to be good. The Company anticipates hiring approximately 12
additional manufacturing, four additional research and product development and
three additional sales and marketing personnel during the remainder of 1996.
Facilities
The Company leases its new facility in Irvine, California, under a
five-year lease entered into in June 1996 and expiring in August 2001, with a
five-year renewal option. The 48,000 square foot, primarily single story
facility, to be available in September 1996, is located on a three-acre site at
16761 Hale Avenue in Irvine in an industrial park with close proximity to
truck, rail and air (John Wayne Airport, a major regional airport in Orange
County) connections and a highly trained labor pool. Of the total 48,000 square
foot area of the facility, approximately 10,000 square feet will be for office
space and approximately 38,000 square feet will be for manufacturing operations
dedicated to Boralyn(R) ingot manufacturing, including powder consolidation and
sintering (approximately 10,000 square feet), extrusion of tubes and other
shapes (approximately 8,000 square feet), die casting (approximately 8,000
square feet), and secondary processes and warehousing.
Commencement of manufacturing operations at the new facility, expected in
late 1996, is dependent on obtaining various local permits and approvals. The
Company does not presently anticipate that any of the required permits and
approvals will not be obtained on a timely basis. However, there can be no
assurance in this regard, and a delay in or failure to obtain the required
permits could adversely affect the Company's operations.
The facility is designed for expansion of capacity to match future needs
over the next several years, with additional warehousing to be leased at a
nearby location, if required. There can be no assurance that these
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facilities will be adequate for all of the Company's future fabrication
requirement, or, alternatively, that the Company will be able to fully utilize
the capacity of its new facility. The Company believes the new facility will be
adequate for its contemplated needs.
Litigation
There are no material legal proceedings pending or, to the Company's best
knowledge, threatened against the Company. Based on certain correspondence
described below, however, the Company believes that litigation against the
Company may be under contemplation by Lynx Golf, Inc. ("Lynx"), a subsidiary of
Zurn Industries, Inc.
In late August 1995, the Company commenced activities related to the
development for Lynx of a prototype golf club head using Boralyn(R). This
marked the Company's first adaptation of Boralyn(R) for golf club heads. When
Lynx determined in December 1995 that tooling delays were being experienced by
the independent die casting company engaged by Lynx to produce the
developmental club heads to its specifications, Lynx advised the Company to
cease further work. By that time, prototype Boralyn(R) golf club heads had been
produced and delivered to a golf professional sponsored by Lynx, Mr. Fred
Couples. The Company did not hear further from Lynx until April 10, 1996, when
it received from Lynx a draft proposed contract that provided, among other
things, for Lynx to have exclusive rights to the use of Boralyn(R) in the golf
industry. Otherwise than with respect to the limited developmental activities
that had been performed prior to December 1995, there was no prior contract
between the parties. The Company rejected Lynx's proposed contract and offered
a counterproposal that provided for non-exclusivity. Lynx did not respond to
that counterproposal. On May 24, 1996, however, the Company's counsel received
a letter, dated May 17, 1996, from Lynx's counsel alleging that Lynx had been
misled as to Boralyn(R)'s properties and capabilities, but demanding
nevertheless that the Company grant Lynx the exclusive contract it had proposed
on April 10. The Company commenced a review of its patents and processes in
response to the May 17 letter, utilizing the services of new, independent
patent counsel and an outside testing laboratory (see "Business-Characteristics
of Boralyn(R)"). Subsequently, the Company's counsel contacted Lynx's counsel
and advised Lynx's counsel that the Company rejected Lynx's contentions and
urged, instead, that the parties resume negotiations for the purpose of
entering into a fair and reasonable agreement. On May 30, Lynx's counsel
notified the Company's counsel that Lynx was withdrawing its May 17 letter and
wished to resume negotiations.
Despite the Company's attempts to resume negotiations with Lynx, the
parties did not meet further and, on June 28, 1996, Lynx's counsel sent the
Company's counsel a letter to the effect that Lynx was of the view that it had
suffered damages of approximately $10 million as a result of the matters first
referred to in the May 17 letter. Of that amount, Lynx claimed approximately
$200,000 was for out-of-pocket expenses related to tooling and other golf club
developmental activities, including approximately $84,000 for one unpublished
advertisement, and approximately $9.8 million was for the loss of anticipated
profits from future sales of products. Lynx's counsel offered to settle the
entire matter for a $5 million payment at that time. Following various
communications between counsel on July 19, 1996, counsel for Lynx advised that
his client had authorized action to be taken unless the Company presented a
written offer for a cash settlement by July 23, 1996. On July 23, the Company
informed Lynx that Lynx's claims were without basis and that the Company would
not offer any settlement. At the same time, the Company formally terminated
communications with Lynx. In August 1996, ownership of Lynx was sold to a new
group of investors. There have been no further communications from or to Lynx,
its new owners or its counsel since July 1996.
Each correspondence from Lynx's counsel to the Company's counsel was
accompanied by a notation to the effect that its contents were included solely
for the purpose of "settlement and compromise in regard to pending and/or
otherwise likely litigation" and were not to be disclosed to any third person.
Telephonically, Lynx's counsel advised the Company's counsel that the foregoing
correspondence was not intended to rise to the level of a threatened claim
requiring financial statement or other disclosure and that, in the view of
Lynx's counsel, such disclosure was not required. The Company believes,
however, that disclosure of the foregoing should be made available to
prospective investors in this offering.
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<PAGE>
The Company believes, and has advised both Lynx and its former corporate
parent, that Lynx's contentions are totally without merit and that the Company
will defend itself vigorously against such contentions should they be brought
in the form of a legal action. If Lynx were to commence litigation against the
Company, the cost to the Company of defending such litigation might be
material. There can be no assurance that the Company would ultimately prevail
in any such proceedings or that the outcome of such proceedings would not have
a materially adverse effect on the Company and its future results of operations
or financial condition.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Robin A. Carden....... 38 President, Chief Executive Officer and a Director
Walter R. Menetrey.... 62 Executive Vice President, Chief Operating Officer
and a Director
Phillip R. Gustavson.. 52 Vice President, Finance and Administration
Harry Edelson......... 59 Director
Michael Markbreiter... 34 Director
Udi Toledano.......... 46 Director
The business experience, principal occupations and employment, as well as
the periods of service, of each of the directors and executive officers of the
Company during at least the last five years are set forth below.
Robin A. Carden is the founder of the Company and has been the President,
Chief Executive Officer and a Director since its formation in 1990. Prior to
1990, Mr. Carden was employed by Ceradyne Inc., a company engaged in the
development and production of advanced ceramics products, as Senior Sales
Engineer, and was engaged in developing civilian applications for advanced
ceramics products originally developed for military use. Mr. Carden graduated
from Long Beach State University with a Bachelor of Science degree. A number of
United States patents have been issued to Mr. Carden.
Walter R. Menetrey has been the Executive Vice President, Chief Operating
Officer and a Director of the Company since May 1996. From August 1992 to April
1996, he worked as an independent management consultant to numerous companies
engaged in, among other things, the security and software industries. From
April 1988 to July 1992, Mr. Menetrey was Chief Executive Officer of Meret,
Inc., a company engaged in the manufacture and sale of fibre optics
communication equipment. From February 1987 to May 1988, he was Chief Executive
Officer of Cambrian Systems, Inc., a company engaged in disk drive test
equipment manufacture. From March 1985 to December 1986, Mr. Menetrey was
President of Applied Circuit Technology, a company engaged in disk drive test
equipment manufacture. Prior to 1985, he was employed with Xerox Corp., most
recently as a principal of Xerox Development Corp. In July 1995, Mr. Menetrey
filed for personal bankruptcy under Chapter 7 of the Bankruptcy Code, and Mr.
Menetrey was granted a discharge of the claims of certain creditors pursuant to
Section 727 of the Bankruptcy Code in November 1995. Mr. Menetrey received a
Bachelor of Science degree in Physics and a Master of Science degree in
Electrical Engineering from the California Institute of Technology.
Phillip R. Gustavson has been the Vice President, Finance and
Administration, of the Company since June 1996. From March 1995 to June 1996,
Mr. Gustavson was the Corporate Controller for PIA Merchandising, Co., Inc., a
public company engaged in the retail merchandising services industry. From
March 1993 to December 1994, he was the Chief Financial and Administrative
Officer of Aztec Toys, Inc., a toy manufacturing company. From March 1990 to
September 1992, he was the Vice President (Finance and Administration) of
Geneva Capital Markets, Inc., a private investment company. From March 1988 to
March 1990, Mr. Gustavson was the Assistant Corporate Controller of Mattel,
Inc., a toy manufacturing company. From April 1982 to December 1987, he was
Vice President of Finance of Tungsten Carbide Mfg., a division of Smith
International, Inc., a company engaged in the manufacturing of oil field
equipment. From 1974 to 1982, he was a Senior Audit Manager at Price Waterhouse
LLP. Mr. Gustavson is a Certified Public Accountant.
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<PAGE>
Harry Edelson has been a Director of the Company since May 1996. Mr.
Edelson has been the Managing Partner of Edelson Technology Partners, a venture
capital fund that is an affiliate of Edelson Technology Partners III, a
principal stockholder of the Company, for more than ten years. Edelson
Technology Partners and its related funds have invested in more than 70
companies involved in a wide range of technologies, including
telecommunications, computers, semiconductors, specialty chemicals,
environmental and publishing, with a focus on funding technologies that could
assist its corporate partners. Mr. Edelson was a financial analyst for over 12
years, covering technology companies for Merrill Lynch & Co., Drexel Burnham
Lambert and First Boston Corporation. He has consulted for dozens of companies
and is a frequent speaker and contributor to leading business magazines in
Europe, Asia and the United States.
Michael Markbreiter has been a Director of the Company since May 1996.
Since August 1995, Mr. Markbreiter has been a portfolio manager for private
equity investments for Kingdon Capital Management Corp., a manager of
investment funds. In April 1994, he co-founded Ram Investment Corp., a venture
capital company. From March 1993 to March 1994, he served as a portfolio
manager for Kingdon Capital Management Corp. From December 1989 to February
1993, he worked as an analyst at Alliance Capital Management Corp. From July
1983 to September 1989, he worked as Executive Editor for Arts of Asia
magazine. Mr. Markbreiter graduated from Cambridge University with a degree in
Engineering.
Udi Toledano has been a Director of the Company since May 1996. Mr.
Toledano has been the President of Andromeda Enterprises, Inc., a private
investment company, since December 1993. Prior to that he was the President of
CR Capital Inc., a private investment company, for more than five years. He has
been an advisor to various public and private corporations, none of which
competes with the Company. Since May 1996, Mr. Toledano has been a Director of
HumaScan Inc., a medical device company, and since April 1995, he has been a
Director of Global Pharmaceutical Corporation, a public generic pharmaceutical
manufacturing company. Since July 1994, Mr. Toledano has been a Director of
Universal Stainless & Alloy Products, Inc., a public specialty steel producing
company, and since January 1993, he has been a Director of Pudgie's Chicken,
Inc., a public national fast food chain.
All Directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Messrs. Carden, Edelson
and Toledano were elected as Directors of the Company pursuant to the terms of
a Stockholders' Agreement, dated as of May 1, 1996 (the "Stockholders'
Agreement"), by and among the Company and certain stockholders of the Company.
The voting arrangements in the Stockholders' Agreement will terminate upon the
consummation of this offering.
Committees of the Board of Directors
The Executive Committee, established in June 1996, currently consists of
Messrs. Carden (Chairman), Markbreiter and Toledano. The Executive Committee
has all of the powers of the Company's Board of Directors except that it is not
authorized to amend the Company's Certificate of Incorporation, declare any
dividends or issue shares of the capital stock of the Company.
The Audit Committee, also established in June 1996, currently consists of
Messrs. Edelson (Chairman), Markbreiter and Toledano. The functions of the
Audit Committee are to recommend annually to the Board of Directors the
appointment of the independent public accountants of the Company, review the
scope of the annual audit and other services they are asked to perform, review
the report on the Company's financial statements following the audit, review
the accounting and financial policies of the Company and review management's
procedures and policies with respect to the Company's internal accounting
controls.
The Compensation Committee, also established in June 1996, currently
consists of Messrs. Toledano (Chairman), Carden and Markbreiter. The functions
of the Compensation Committee are to review and approve salaries, benefits and
bonuses for all executive officers of the Company, and to review and recommend
to the Board of Directors matters relating to employee compensation and
employee benefit plans. The Compensation Committee also administers the
Company's stock option plans. See "Management - The 1996 Stock Incentive Plan."
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<PAGE>
Key Employees
Thomas Flessner, age 49, has been the Director of Casting of the Company
since June 1996. From March 1995 to June 1996, he was an Engineering Manager
for Allied Die Casting of North Carolina, responsible for product engineering.
From April 1990 to February 1995, he was Chief Engineer for Puget Cast
Products, responsible for product engineering. From March 1988 to April 1990,
he was a Senior Die Casting Engineer for Dycast Inc., responsible for product
and tooling development. Mr. Flessner received a Bachelor of Science degree in
Mechanical Engineering from the University of Illinois.
William C. Harrigan, Jr., Ph.D., age 52, has been the Director of Research
and Development of the Company since June 1996. From May 1995 to June 1996, he
was the President of MMC Engineering, Inc., and was responsible for developing
production applications for metal matrix composites. From February 1993 to
April 1995, he was the Vice President (Technology) of Pacific Metal Craft,
Inc., and was responsible for product development. From mid-1977 to January
1993, he was the General Manager (Technology) of DWA Composite Specialties,
Inc., and was responsible for research and development and production.
Dr. Harrigan received a Bachelor of Science degree in Metallurgical Engineering
from the University of Notre Dame and a Master of Science degree and Ph.D. in
Materials Science from Stanford University.
Tom Miller, age 45, has entered in an employment agreement to be the
Director of Marketing and Sales of the Company commencing August 12, 1996. From
June 1991 to July 1996, he was the Director of Business Development for Premier
Services Corp., responsible for identifying market opportunities, product
development, business planning and implementation. From August 1986 to March
1991, he was the President of Industrial Insulations, Inc., a company engaged
in supplying insulation materials. From November 1977 to July 1985, he was the
founder and President of Industrial Furnace Services, Inc., a company engaged
in the design and manufacture of furnaces. Mr. Miller received a Bachelor of
Science degree in Industrial Engineering from Fenn College of Engineering and a
Master of Science degree in Industrial Engineering from Cleveland State
University.
Raymond Lee Stanish, age 46, has been the Director of Manufacturing of the
Company since June 1996. From June 1995 to June 1996, he was a Vice President
at MMC Engineering, Inc. From August 1993 to June 1995, he was the Manager of
Composite Manufacturing for Pacific Metal Craft, Inc., responsible for product
manufacturing. From June 1980 to June 1993, he was a Product/Program Manager
for DWA Composite Specialties, Inc., responsible for supervising the production
of all forms of metal matrix composites.
Executive Compensation
The table below summarizes the compensation received by the Company's
Chief Executive Officer for each of the Company's last three completed fiscal
years. No other executive officer of the Company received any compensation
during that period, nor were any grants or exercises of stock options made
during the fiscal year ended December 31, 1995.
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<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Number of
---------------------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- --------------------------- ---- ------- ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robin A. Carden 1995 $40,348 - - ___ ___
President and Chief Executive 1994 $76,328 - - ___ ___
Officer.......................... 1993 $15,550 - - ___ ___
</TABLE>
Employment Agreements. Robin A. Carden has entered into a three-year
employment agreement with the Company in the positions of President and Chief
Executive Officer, commencing May 1, 1996. Subject to the provisions for
termination provided therein, the term of Mr. Carden's employment agreement
shall automatically be renewed for a one-year term after the expiration of the
initial three-year term and for successive one-year terms thereafter for a
maximum of 10 years. The employment agreement provides that Mr. Carden's annual
base salary shall be determined by the Board of Directors, but in no event
shall such annual salary be less than $150,000, which amount shall be increased
annually in an amount equal to at least the annual Consumer Price Index. In
addition to his base salary, Mr. Carden is entitled to a bonus and a customary
benefits package. The employment agreement prohibits Mr. Carden from (i)
competing with the Company for a period of two years following termination of
employment with the Company and (ii) disclosing confidential information or
trade secrets in any unauthorized manner.
Each of Walter R. Menetrey, Phillip R. Gustavson, Thomas Flessner,
William C. Harrigan, Jr., Tom Miller and Raymond Lee Stanish has entered into a
two-year employment agreement with the Company for the position of Chief
Operating Officer, Vice President, Finance and Administration, Director of
Casting, Director of Research and Development, Director of Marketing and Sales
and Director of Manufacturing, respectively. Subject to the termination
provisions provided therein, Mr. Menetrey's, Mr. Gustavson's, Mr. Flessner's,
Dr. Harrigan's, Mr. Miller's and Mr. Stanish's employment agreements shall
automatically be renewed for a one-year term after the expiration of the
initial two-year term and for successive one-year terms thereafter. Mr.
Menetrey's, Mr. Gustavson's, Mr. Flessner's, Dr. Harrigan's, Mr. Miller's and
Mr. Stanish's employment agreements provide for an annual base salary to be
determined by management (or, in the case of Mr. Menetrey, by the Board of
Directors), but in no event shall such annual salary be less than $100,000,
$95,000, $100,000, $95,000, $100,000 and $85,000, respectively. In addition to
an annual base salary, Mr. Menetrey's, Mr. Gustavson's, Mr. Flessner's,
Dr. Harrigan's, Mr. Miller's and Mr. Stanish's employment agreements provide
for a bonus and a customary benefits package. In the event that the Company
terminates the respective employment agreement without cause, Mr. Menetrey, Mr.
Gustavson, Mr. Flessner, Dr. Harrigan, Mr. Miller and Mr. Stanish would be
entitled to receive their base salary and benefits until the earlier of (i) the
expiration of the then current term of the respective employment agreement
without any further extensions and (ii) the date which is three months (or, in
the case of Mr. Menetrey, six months) after the termination date. Each of the
employment agreements of Mr. Menetrey, Mr. Gustavson, Mr. Flessner, Dr.
Harrigan, Mr. Miller and Mr. Stanish prohibits the employee from (i) competing
with the Company for a period of two years following termination of employment
with the Company and (ii) disclosing confidential information or trade secrets
in any unauthorized manner.
The 1996 Stock Incentive Plan
The Company's 1996 Stock Incentive Plan (the "1996 Plan") was adopted by
the Company's Board of Directors and approved by the Company's stockholders in
July 1996 for the purpose of securing for the Company and its stockholders the
benefits of ownership of Company stock options by non-employee Directors, and
by officers and other key employees (the "Key Employees") of the Company (and
any subsidiary corporations) who are expected to contribute materially to the
Company's future growth and success. No shares of Common Stock have been issued
under the 1996 Plan. No award may be granted under the 1996 Plan after June 30,
2006.
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<PAGE>
Under the 1996 Plan, the Company may grant options with respect to a
maximum of 1,000,000 shares of Common Stock ("Options"). It is anticipated that
on the effective date of this offering options with respect to approximately
200,000 shares of Common Stock will have been granted under the 1996 Plan. The
Company may in its sole discretion grant Options to Key Employees and shall
grant Options to the Company's non-employee Directors subject to specified
terms and conditions and in accordance with a specified formula (the "Formula")
as discussed below. Options granted to Key Employees may be either incentive
stock options ("ISOs") meeting the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options
("NQSOs") not meeting the requirements of Section 422 of the Code. Options
granted to non-employee Directors shall be NQSOs.
The 1996 Plan provides that the Plan may be administered by the Board of
Directors or a committee appointed by the Board. The Board has designated the
Compensation Committee (the "Committee") to administer the 1996 Plan. Subject
to the terms of the 1996 Plan, the Committee will determine the Key Employees
who will receive grants of Options, the number of shares of Common Stock
subject to each Option, the grant date, the expiration date and other terms and
conditions for the Options. Options granted to non-employee Directors are
governed by the formula discussed below. The Committee has the authority to
construe and interpret the provisions of the 1996 Plan or the Options granted
thereunder. Each grant of Options will be evidenced by a Stock Option Agreement
executed by the Company and the non-employee Director or Key Employee, as the
case may be at the time of grant, in accordance with the terms and conditions
of the 1996 Plan.
An Option granted to a Key Employee shall expire on the date determined by
the Committee, which date may not exceed ten years from the date the Option is
granted. Unless otherwise specified by the Committee for a particular grant,
Options granted to Key Employees vest as follows: 33 1/3% one year after the
date of grant, 66 2/3% two years after the date of grant and 100% three years
after the date of grant, in each case assuming that the recipient has been
continuously employed by the Company or any subsidiary during that time.
If a Key Employee's employment with the Company is terminated for any
reason other than death or disability or a discharge for cause, any outstanding
Option, to the extent that it was exercisable on the date of such termination,
may be exercised by the holder within three months after such termination (or
such shorter time as may be specified by the Committee), but in no event later
than the expiration of the Option. If a Key Employee dies or becomes totally
and permanently disabled while an employee of the Company or a subsidiary, or
dies within three months after the Key Employee ceases to be such an employee,
any outstanding Option, to the extent that it has vested, may be exercised by
the Key Employee (his estate, or by the person to whom the Option is
transferred by will or the laws of descent and distribution, as the case may
be), within the period of one year after the date of death or disability (or
within such lesser period as may be specified by the Committee). If a Key
Employee is discharged for "cause" (as defined in the 1996 Plan), the right of
such Key Employee to exercise an Option will terminate immediately upon
cessation of such services.
Under the formula, each non-employee Director will be granted, immediately
prior to the date of this Prospectus, (x) Options (the "Director Options") to
purchase 10,000 shares of Common Stock in the aggregate, subject to partial
vesting as described below and (y) 5,000 Director Options that will be fully
vested on the date of grant. On the first business day following the annual
meeting of stockholders of the Company to elect directors in 1997 and
thereafter on the first business day following each successive annual meeting
of stockholders, so long as Options remain available to grant to non-employee
Directors, each person who is elected as a director after that meeting and is a
non-employee Director, and each person who continues to serve as a director
after that meeting and is a non-employee Director, shall be granted (x) 10,000
Director Options in recognition of service as a director, subject to partial
vesting, and (y) to the extent such non-employee Director has not previously
served as a non- employee Director, 5,000 Director Options that will be fully
vested on the date of grant. Director Options expire ten years from the date of
grant and vest as follows: 33 1/3% on the date of grant, 66 2/3% one year after
the date of grant and 100% two years after the date of grant, assuming that the
recipient continuously serves as a director during that time. Director Options
that have vested as of the date on which a non-employee Director ceases to
serve as a director, including by reason of his or her death, remain
exercisable until their expiration date.
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<PAGE>
Options granted under the 1996 Plan must be exercised within ten years of
the grant date, except that an ISO granted to a person owning more than 10% of
the total combined voting power of all classes of stock of the Company or of
any parent or subsidiary of the Company (a "Ten Percent Stockholder") must be
exercised within five years of the grant date.
The exercise price for each Option granted under the 1996 Plan shall not
be less than 100% of the fair market value (the "Fair Value") per share of
Common Stock on the date such Option is granted, which with respect to the
Director Options granted immediately prior to the date of this prospectus shall
be equal to the initial public offering price per share. For ISOs granted to a
Ten Percent Stockholder, the exercise price shall not be less than 110% of the
Fair Value per share of Common Stock. The exercise price may be paid in cash
(by check) by transferring shares of Common Stock owned by the Option holder
and having a Fair Value on the date of surrender equal to the aggregate
exercise price of the Option, or solely with respect to Options granted to Key
Employees by cash payments in installments or pursuant to a full recourse
promissory note, in either case, upon the terms and conditions as the Committee
shall determine. Upon the exercise of any Option, the Company is required to
comply with all applicable withholding tax requirements.
The Board may amend or terminate the 1996 Plan at any time and in any
respect, including modifying the form of the Stock Option Agreements, except
that the Committee cannot, without the approval of the stockholders of the
Company, amend the 1996 Plan if stockholder approval is required or desired for
compliance with (i) Rule 16b-3 under the Securities Exchange Act of 1934, as
amended or (ii) Section 422 of the Code and such amendment would affect the
status of any ISO under Section 422 of the Code. No amendment of the 1996 Plan,
without the Option holder's consent, may adversely affect any Options
previously granted to him or her.
Director Compensation
Members of the Board of Directors of the Company presently receive no
annual remuneration for acting in that capacity. The Company anticipates its
non-employee directors will be paid $500 (plus reasonable expenses) for each
attended meeting of the Board of Directors or committee thereof. Certain
members of the Board of Directors of the Company will also be eligible for the
grant of Options under the 1996 Plan that currently provides for each non-
employee Director (currently, Messrs. Edelson, Markbreiter and Toledano) to
receive an initial grant of Options to purchase 15,000 shares of Common Stock
and, beginning in 1997, an annual grant of Options to purchase 10,000 shares of
Common Stock. See "Management-The 1996 Stock Incentive Plan."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 30, 1996, certain information
regarding beneficial ownership of the Common Stock by (a) each stockholder
known to the Company to be the beneficial owner of more than 5% of the Common
Stock, (b) each Director and named executive officer of the Company and (c) all
executive officers and Directors as a group, before and after the offering.
Unless otherwise indicated, each of the stockholders has sole voting investment
power with respect to the shares beneficially owned by such stockholders.
Name and Address of Amount and Nature of Percentage Owned
Beneficial Owners(1) Beneficial Ownership Before Offering After Offering(8)
- -------------------- -------------------- --------------- -----------------
Robin A. Carden 3,132,000 39.15% 30.12%
Kingdon Capital 2,088,000 26.10% 23.92%
Management Corp.(2)
Udi Toledano(3) 564,333 7.05% 5.42%
Herbert V. Turk(4) 560,000 7.00% 5.38%
Edelson Technology
Partners III 480,000 6.00% 5.00%
Walter R. Menetrey 240,000 3.00% 2.31%
Harry Edelson(5) 8,333 * *
Michael Markbreiter(6) 8,333 * *
All executive officers
and directors of the
Company as a group
(six persons)(7) 3,904,999 48.81% 37.55%
______________________________________
*Less than 1%.
(1) The address for each of the persons listed below is c/o Alyn Corporation,
16871 Noyes Avenue, Irvine, California 92606.
(2) Includes 1,246,400 shares of Common Stock held by M. Kingdon Offshore NV,
420,800 shares of Common Stock held by Kingdon Associates, L.P. and
420,800 shares of Common Stock held by Kingdon Partners, L.P. Does not
include any shares of Common Stock intended to be purchased by Kingdon
Capital Management Corp. and its affiliates in this offering, and does not
include the shares of Common Stock underlying immediately exercisable
options that appear in the table above opposite the name of Michael
Markbreiter, a Director of the Company and an employee of Kingdon Capital
Management Corp. Mr. Mark Kingdon is the sole shareholder, director and
executive officer of Kingdon Capital Management Corp.
(3) Includes options immediately exercisable for 8,333 shares of Common Stock.
Also includes 276,000 shares of Common Stock held by Mr. Toledano's wife
and 80,000 shares of Common Stock held by a certain trust for the benefit
of their minor children. Also includes an aggregate of 48,000 shares of
Common Stock owned by certain other members of Mr. Toledano's family, with
respect to which Mr. Toledano disclaims beneficial ownership.
(4) Includes 344,000 shares of Common Stock held by Mr. Turk jointly with his
wife. Also includes 216,000 shares of Common Stock held by Mr. Turk's two
adult daughters, with respect to which Mr. Turk disclaims beneficial
ownership.
(5) Includes options immediately exercisable for 8,333 shares of Common Stock.
Does not include 480,000 shares of Common Stock held by Edelson Technology
Partners III, with respect to which Mr. Edelson disclaims beneficial
ownership.
(6) Includes options immediately exercisable for 8,333 shares of Common Stock.
Does not include 420,800 shares of Common Stock held by Kingdon Partners,
L.P. 420,800 shares of Common Stock held by Kingdon Associates, L.P., and
1,246,400 shares of Common Stock M. Kingdon Offshore NV, with respect to
which Mr. Markbreiter disclaims beneficial ownership.
(7) Includes options immediately exercisable for 25,000 shares of Common
Stock. Does not include (i) 480,000 shares of Common Stock held by Edelson
Technology Partners III, with respect to which Mr. Edelson, a Director,
disclaims beneficial ownership, (ii) 420,800 shares of Common Stock held
by Kingdon Partners, L.P. 420,800 shares of Common Stock held by Kingdon
Associates, L.P., and 1,246,400 shares of Common Stock held by M. Kingdon
Offshore NV, with respect to which Mr. Markbreiter, a Director, disclaims
beneficial ownership and (iii) 48,000 shares of Common Stock owned by
certain members of Mr. Toledano's family, with respect to which Mr.
Toledano, a Director, disclaims beneficial ownership.
(8) Includes 440,000 shares of Common Stock to be purchased by certain
existing stockholders of the Company, consisting of M. Kingdon Offshore
NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson
Technology Partners III.
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<PAGE>
CERTAIN TRANSACTIONS
Agreement and Plan of Merger; Repayment of Stockholder Loans
Pursuant to an Agreement and Plan of Merger, dated as of May 1, 1996 (the
"Merger Agreement"), among Old Alyn, Robin Carden and the Company, Old Alyn was
merged with and into the Company, with the Company being the surviving
corporation. In accordance with the terms of the Merger Agreement, certain
stockholders of the Company provided the Subordinated Credit Line, pursuant to
which such stockholders became obligated to loan to the Company on a monthly
basis up to an aggregate maximum amount of $5 million, which loans bear
interest at the annual rate of 8%. The outstanding principal amount of the
Subordinated Credit Line (approximately $4.4 million as of September 1, 1996),
plus accrued interest, will be repaid with a portion of the net proceeds of
this offering. As of September 1, 1996, Mr. Toledano, a Director of the
Company, Kingdon Capital Management Corp., a principal stockholder of the
Company, Herbert V. Turk, a principal stockholder of the Company, and Edelson
Technology Partners III, a principal stockholder of the Company, had advanced
$330,000, $2,640,000, $330,000 and $660,000, respectively, or an aggregate of
approximately $3.96 million of the approximately $4.4 million of loans
outstanding. To the extent that the holders of such indebtedness loan
additional amounts to the Company, if necessary, prior to the closing date of
the offering, such amounts will be paid from the net proceeds of the offering.
See "Use of Proceeds."
Certain existing stockholders of the Company, consisting of M. Kingdon
Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson
Technology Partners III, who together with their affiliates hold approximately
$3.3 million of the indebtedness that will be repaid by the Company with a
portion of the net proceeds of this offering, intend to purchase approximately
440,000 of the shares of Common Stock offered hereby for an aggregate purchase
price of approximately $5.5 million (based on the mid-point of the estimated
initial public offering price range set forth on the cover page of this
Prospectus), for their respective accounts or those of their affiliates or
designees.
In 1990, the Company borrowed $128,000 from Robin A. Carden, the
President, Chief Executive Officer and a Director of the Company. The
outstanding principal amount of such loan, plus accrued and unpaid interest,
was repaid in May 1996 with a portion of the initial proceeds of the
Subordinated Credit Line.
Andromeda Enterprises, Inc.
Andromeda Enterprises, Inc., a Delaware corporation ("Andromeda"),
received $100,000 from the Company in May 1996 for sales, marketing and
consulting services performed by Andromeda on behalf of Old Alyn and on behalf
of the Company. Mr. Udi Toledano, a Director and a principal stockholder of the
Company, is the President of Andromeda, and, together with his wife,
beneficially owns all of its outstanding capital stock.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.001 par value, and 5,000,000 shares of preferred stock,
$0.01 par value per share (the "Preferred Stock"). As of June 30, 1996, there
were 8,000,000 shares of Common Stock outstanding held by 29 stockholders and
no shares of Preferred Stock issued or outstanding.
Common Stock
The shares of Common Stock currently outstanding are, and the shares of
Common Stock that will be outstanding upon the consummation of this offering
will be, validly issued, fully paid and non-assessable. Each holder of Common
Stock is entitled to one vote for each share owned of record on all matters
voted upon by the
46
C/M: 12156.0001 369440.21
<PAGE>
stockholders, and a majority vote is required for action to be taken by the
stockholders. In the event of liquidation, dissolution or winding-up of the
Company, the holders of Common Stock are entitled to share equally and ratably
in the assets of the Company, if any, remaining after the payment of all debts
and liabilities of the Company. The holders of the Common Stock have no
preemptive rights or cumulative voting rights and there are no redemption,
sinking fund or conversion provisions applicable to the Common Stock. Holders
of Common Stock are entitled to receive dividends if, as and when declared by
the Board of Directors, out of funds legally available for such purpose. See "
Dividend Policy."
Limitations Upon Transactions with "Interested Stockholders"
Section 203 of the Delaware General Corporation Law prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder unless
(1) prior to the date of the business combination, the transaction is approved
by the board of directors of the corporation, (2) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock or (3) on or after such date the business combination is approved
by the board of directors and by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own), 15% or more of the corporation's voting stock.
The restrictions of Section 203 do not apply, among other things, if a
corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed
by Section 203, provided that, in addition to any other vote required by law,
such amendment to the certificate of incorporation or by-laws must be approved
by the affirmative vote of a majority of the shares entitled to vote. Moreover,
an amendment so adopted is not effective until twelve months after its adoption
and does not apply to any business combination between the corporation and any
person who became an interested stockholder of such corporation on or prior to
such adoption. The Company's Certificate of Incorporation and By-laws do not
currently contain any provisions electing not to be governed by Section 203 of
the Delaware General Corporation Law. The provisions of Section 203 of the
Delaware General Corporation Law may have a depressive effect on the market
price of the Common Stock because they could impede any merger, consolidating
takeover or other business combination involving the Company or discourage a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of the Company.
Preferred Stock
The Company's Certificate of Incorporation provides that the Company may,
by vote of its Board of Directors, issue Preferred Stock in one or more series
having the rights, preferences, privileges and restrictions thereon, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or designation of such series without further vote or
action by the stockholders. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and
other rights of the holders of Common Stock. The issuance of Preferred Stock
with voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others.
Transfer Agent and Registrar
Continental Stock Transfer and Trust Company has been appointed as the
transfer agent and registrar for the Common Stock.
47
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by current stockholders could adversely affect the
price of the Company's Common Stock. Upon completion of this offering, the
Company will have 10,400,000 shares of Common Stock outstanding, of which
8,000,000 shares of Common Stock (77% of the shares to be outstanding) were
issued by the Company in private transactions. Some of these shares are treated
as "restricted securities" pursuant to Rules 144 and 701 under the Securities
Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be "affiliates" of
the Company (as that term is defined under the Securities Act), who has
beneficially owned his or her shares for at least two years is entitled to sell
within any three-month period that number of restricted securities that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock (104,000 shares based on the number of shares to be outstanding after the
offering), or the average weekly trading volume of the Common Stock during the
four calendar weeks immediately preceding such sale, notice and the
availability of current public information about the Company. After three years
have elapsed from the later of the issuance of restricted securities by the
Company or their acquisition from an affiliate, such shares may be sold without
limitations by persons who have not been affiliates of the Company for at least
three months.
Registration Rights. The Company's existing holders of Common Stock and
the Company are parties to an agreement providing certain registration rights,
including one demand registration right exercisable at any time after nine
months from the date of this Prospectus for registration of "restricted
securities" provided the holders of at least 1,600,000 shares join in the
request for registration. Each of the Company's existing holders of Common
Stock has also been granted "piggyback" registration rights for a two-year (in
some instances, three-year) period following their respective purchases of
Common Stock. The Company has agreed to pay all registration expenses (other
than underwriting or sales commissions) incurred in complying with the
registration rights described above. Notwithstanding the foregoing, all
existing stockholders of the Company have agreed (i) to waive their
registration rights with respect to this offering and (ii) without the prior
written consent of the Company and Furman Selz LLC, not to exercise their
registration rights for a period of nine months from the date of this
Prospectus.
Prior to this offering there has been no public market for the Common
Stock. The Company cannot predict the number of shares which may be sold in the
future pursuant to Rule 144 since such sales will depend upon the market price
of Common Stock, the circumstances of individual holders thereof and other
factors. In addition, the Company can make no predictions as to the effect, if
any, that sales of shares of Common Stock or the availability of shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
The Company intends to file a registration statement under the Securities
Act to register all of the shares of Common Stock reserved for issuance under
its 1996 Stock Incentive Plan. Registration would permit the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act.
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<PAGE>
UNDERWRITING
Each of the underwriters named below (the "Underwriters"), for whom Furman
Selz LLC and Needham & Company, Inc. are acting as representatives (the
"Representatives"), has severally agreed, subject to the terms and conditions
of the underwriting agreement, dated ________, 1996, between the Company and
the Underwriters (the "Underwriting Agreement"), to purchase from the Company
the aggregate number of shares of Common Stock set forth opposite its name
below:
Underwriter Number of Shares
----------- ----------------
Furman Selz LLC...................
Needham & Company, Inc............
---------
Total........................ 2,400,000
=========
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions precedent, including the approval of certain legal matters
by counsel. The Underwriting Agreement also provides that the Underwriters are
committed to purchase all of the above shares of Common Stock if any are
purchased.
The Underwriters have advised the Company that the Underwriters propose to
offer the shares of Common Stock directly to the public at the public offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per share
to certain other dealers. After the commencement of the public offering, the
offering price and other selling terms may be changed by the Representatives.
The Company has granted the Underwriters an option to purchase up to
360,000 additional shares of Common Stock at the public offering price less
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any, incurred in the sale of
the shares of Common Stock offered hereby. Such option may be exercised at any
time until 30 days after the date of the Prospectus. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment as indicated in the
above table.
In connection with this offering, the Company has agreed to sell to Furman
Selz LLC, for nominal consideration, warrants to purchase 240,000 shares of
Common Stock (the "Warrants"). The Warrants are initially exercisable at a
price of $______ per share of Common Stock (125% of the initial public offering
price) for a period of five years, commencing one year from the effective date
of this offering and are restricted from sale, transfer, assignment or
hypothecation for a period of 12 months from the effective date of the
offering, except to officers, partners or successors of Furman Selz LLC. The
exercise price of the Warrants and the number of shares of Common Stock
issuable upon exercise thereof are subject to adjustment under certain
circumstances. The Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise of the Warrants. [The
Warrants are redeemable by the Company, on prior notice, if the price of the
Common Stock two years after the closing of the offering, exceeds $______ (___%
of the initial public offering price) for a [60]-day period.]
The Company, all of its executive officers and directors, and all current
stockholders of the Company have agreed not to offer, issue, sell or otherwise
dispose of any of the Common Stock owned by them for a period of nine months
after the date of this Prospectus, without the prior written consent of Furman
Selz LLC, except for the offering contemplated by this Prospectus and for
shares of Common Stock being sold pursuant to the Underwriters' over-allotment
option. Certain of the existing stockholders of the Company, consisting of
Robin A. Carden and Walter R. Menetrey, has also agreed not to offer, sell or
otherwise dispose of more than 104,000 shares of Common Stock during any
three-month period in the six months following expiration of that initial
nine-month period. Notwithstanding the foregoing, the Company may issue and
sell Common Stock upon the exercise of stock options
49
C/M: 12156.0001 369440.21
<PAGE>
granted pursuant to any employee stock option plan or pursuant to any other
employee benefit plan of the Company in effect as of the date of the
Underwriting Agreement.
The Representatives have informed the Company that the Underwriters do not
expect sales to accounts over which they exercise discretionary authority to
exceed 5% of the total number of shares of Common Stock offered hereby and that
the Underwriters (excluding the Representatives) do not intend to confirm sales
to accounts over which they exercise discretionary authority without the
consent of the Representatives.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
Certain existing stockholders of the Company, consisting of M. Kingdon
Offshore NV, Kingdon Associates, L.P., Kingdon Partners, L.P. and Edelson
Technology Partners III, who hold part of the indebtedness owed by the Company
that will be repaid with a portion of the net proceeds of this offering, intend
to purchase approximately 440,000 of the shares of Common Stock offered hereby
for their respective accounts or those of their affiliates or designees.
Certain officers of Furman Selz LLC hold an aggregate of 64,000 shares of
Common Stock of the Company, acquired in May 1996 at a cash purchase price of
$0.00125 per share. Such persons have also advanced approximately $86,000 in
the aggregate of the approximately $4.4 million of loans outstanding under the
Subordinated Credit Line, which amounts will be repaid with a portion of the
net proceeds of this offering. See "Certain Transactions."
Prior to the offering, there has been no public market for the Common
Stock of the Company. There can be no assurance that any active trading market
will develop for the Common Stock or as to the price at which the Common Stock
may trade in the public market from time to time subsequent to the offering.
The initial price to the public for the Common Stock offered hereby has been
determined by negotiations among the Company and the Representatives and was
based upon the following factors: the financial and operating history and
condition of the Company; the Company's business and financial prospects; the
prospects for the industries in which the Company operates; prevailing market
conditions; the present stage of the Company's development; the
Representatives' assessment of the Company's management team; and the recent
market prices of securities of companies in businesses similar to that of the
Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Battle Fowler LLP, New York, New York, certain legal
matters concerning United States patent laws will be passed upon for the
Company by Cooper & Dunham LLP, New York, New York, and certain legal matters
in connection with this offering will be passed upon for the Underwriters by
Latham & Watkins, New York, New York.
EXPERTS
The financial statements of Old Alyn as of December 31, 1994, and 1995,
and for each of the three years in the period ended December 31, 1995, included
in this Prospectus, have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
50
C/M: 12156.0001 369440.21
<PAGE>
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and exhibits and schedules thereto, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and to the exhibits and
schedules thereto. Copies of the Registration Statement and the exhibits and
schedules thereto may be inspected without charge at the Commission's principal
offices in Washington, D.C. and copies of all or any part thereof may be
obtained from such office upon payment of prescribed fees. Descriptions
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the Registration Statement are not necessarily
complete and each such description is qualified by reference to such contract
or document. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission, including the Company, and the address
is (http://www.sec.gov).
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<PAGE>
GLOSSARY OF CERTAIN TECHNICAL TERMS
B-10 Areal Density: The amount of B-10 (an isotope of Boron which is
normally just under 20% of naturally occurring Boron)
concentration per unit volume, which has a direct
effect on neutron attenuation.
Casting: The manufacture of shapes of material by the process
of melting the material and pouring or injecting into
a mold, producing the desired shape.
Ceramic Material: A material composed of one or more phases in which the
phases exhibit covalent bonding of a metal with either
a nitride, oxide, boride, carbide or silicide.
Extrusion: The fabrication of shapes (tube, rod, L-shape, etc.)
by the application of pressure against an ingot of the
material, forcing it through a tooling die, producing
the desired shape.
Modulus of A generally accepted measure of the rigidity or
Elasticity: stiffness of a material.
Rockwell B A value derived from the net increase in the depth of
Hardness: impression as a load on a material is increased from a
fixed minor load to a major load and then returned to
the minor load. Various scales of hardness numbers
have been developed, designated by alphabetic suffixes
to the hardness designation. The " B" scale is
typically used for metals and alloys.
Sintering: The insertion of a body of material into a furnace
that is heated to a temperature approximately 85% of
the material's melting temperature such that the
material is further consolidated and hardened,
creating a more stable material.
Soluble Core: A salt/ceramic core used to form inner passages in a
mold which, after the molten material is poured and
solidifies, is washed out by means of water or steam.
Specific Stiffness: The modulus of elasticity divided by the density of a
material, thereby providing a measure of the relative
stiffness of various materials.
Specific Strength: The yield tensile strength divided by the density of a
material, thereby providing a measure of the relative
strength of various materials.
Substrate: The disk of material that is the basic structure for a
hard disk used in a computer drive, on to which is
deposited magnetic layers.
Yield Tensile The stress at which a material exhibits a specified
Strength: deviation from proportionality of stress and strain.
C/M: 12156.0001 369440.21
<PAGE>
ALYN CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
Number
Alyn Corporation
Report of Independent Accountants. . . . . . . . . . . . . . . . F-2
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statement of Operations . . . . . . . . . . . . . . . . . . . . . F-4
Statement of Stockholders Deficit . . . . . . . . . . . . . . . F-5
Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . F-6
Notes to the Financial Statements. . . . . . . . . . . . . . . F-7 to F-12
F-1
C/M 12156.0001 402142.1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Alyn Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Alyn Corporation at December 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit 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, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
July 16, 1996
F-2
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Balance Sheet
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Old Alyn Alyn
December 31, June 30,
1994 1995 1996
Assets (unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 15,000 $ 77,000 $1,238,000
Accounts receivable, net of allowance
for doubtful accounts of $8,000 at
June 30, 1996 8,000 15,000 20,000
Inventories 154,000 16,000 20,000
Other current assets 34,000
------- ------- ---------
Total current assets 177,000 108,000 1,312,000
Equipment, furniture and fixtures, net 5,000 3,000 45,000
Deferred offering costs (Note 1) 229,000
Other assets (Note 7) 258,000
Intangible assets, net 11,000 17,000 806,000
----------- ----------- ----------
$ 193,000 $ 128,000 $2,650,000
=========== =========== ==========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 42,000 $ 64,000 $ 138,000
Accrued and other current liabilities 268,000 426,000 96,000
----------- ----------- ----------
Total current liabilities 310,000 490,000 234,000
Note payable to stockholder 128,000 128,000
Credit facility from stockholders 2,794,000
Commitments and contingencies (Note 7)
Stockholders' deficit:
Alyn:
Preferred stock, $0.01 par value; 5,000,000
shares authorized; no shares issued and
outstanding --
Common stock, $0.001 par value; 20,000,000
shares authorized, 8,000,000 shares issued
and outstanding 8,000
Additional paid-in capital (3,000)
Old Alyn:
Common stock, Class A, no par value;
10,000,000 shares authorized; 1,700,000
shares issued and outstanding 1,000 1,000
Common stock, Class B, no par value;
10,000,000 shares authorized; 300,000
shares issued and outstanding 325,000 325,000
Accumulated deficit (571,000) (816,000) (383,000)
----------- ----------- -------------
Total stockholders' deficit (245,000) (490,000) (378,000)
----------- ------------ -------------
$ 193,000 $ 128,000 $ 2,650,000
=========== =========== =============
See accompanying notes to financial statements.
</TABLE>
F-3
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Statement of Operations
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Old Alyn Alyn
---------------------------------------------------------------------- ------------
Six Period from Period from
Year Ended Months January 1, May 2,
--------------------------------------- Ended 1996 to 1996 to
December 31, June 30, May 1, June 30,
1993 1994 1995 1995 1996 1996
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 540,000 $ 309,000 $ 261,000 $ 216,000 $ 104,000 $ 7,000
Contract revenue 58,000 25,000
------------ ------------ ------------- ----------- ------------ -------------
Total revenue 540,000 309,000 319,000 216,000 104,000 32,000
------------ ------------ ------------- ----------- ------------ -------------
Costs and expenses:
Cost of goods sold 265,000 92,000 203,000 102,000 34,000 7,000
General and administrative
expenses 259,000 352,000 219,000 89,000 53,000 337,000
Selling and marketing 114,000 143,000 52,000 10,000 23,000 31,000
Research and development 24,000 180,000 79,000 19,000 7,000 19,000
------------ ------------ ------------- ----------- ------------ -------------
Total costs and expenses 662,000 767,000 553,000 220,000 117,000 394,000
------------ ------------ ------------- ----------- ------------ -------------
Operating loss (122,000) (458,000) (234,000) (4,000) (13,000) (362,000)
Interest expense (4,000) (12,000) (12,000) (6,000) (3,000) (27,000)
Other income 1,000 1,000 2,000 1,000 7,000
------------ ------------ ------------- ----------- ------------ -------------
Loss before provision
for income taxes (125,000) (469,000) (244,000) (10,000) (15,000) (382,000)
Provision for income taxes 1,000 1,000 1,000 1,000 1,000 1,000
------------ ------------ ------------- ----------- ------------ -------------
Net loss $ (126,000) $ (470,000) $ (245,000) $ (11,000) $ (16,000) $ (383,000)
============ ============ ============= ============ ============ =============
Net loss per share $ (0.05)
=============
Weighted average number of
common shares outstanding (Note 1) 8,000,000
=============
Unaudited pro forma data
(Notes 1 and 3)
Pro forma net loss $ (322,000) $ (42,000)
============= ============
Pro forma net loss per share $ (0.04) $ (0.01)
============= ============
Pro forma weighted average
number of common shares
outstanding (Note 1) 8,000,000 8,000,000
============= ============
See accompanying notes to financial statements.
</TABLE>
F-4
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Statement of Stockholders' Deficit
<TABLE>
<CAPTION>
Common Stock Common Stock, Class A
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Old Alyn (Notes 1 and 6)
Balance at December 31, 1992 1,000 $ 1,000
Net loss
-------------- ---------- --------------- ------------
Balance at December 31, 1993 1,000 1,000
Sale of common stock warrant
Exchange of shares of common
stock for shares of common
stock, Class A (1,000) (1,000) 1,700,000 $ 1,000
Issuance of common stock,
Class B
Net loss
-------------- ---------- --------------- ------------
Balance at December 31, 1994 1,700,000 1,000
Net loss
-------------- ---------- --------------- ------------
Balance at December 31, 1995 1,700,000 1,000
Unaudited:
Repurchase of common stock
Net loss
-------------- ---------- --------------- ------------
Balance at May 1, 1996 (unaudited) -- -- 1,700,000 $ 1,000
============== ========== =============== ============
<CAPTION>
Common Stock, Class B Accumulated
Shares Amount Deficit
------ ------ -------
<S> <C> <C> <C>
Old Alyn (Notes 1 and 6) $ 25,000
Balance at December 31, 1992 (126,000)
Net loss ------------ -------------- --------------------
(101,000)
Balance at December 31, 1993 $ 75,000
Sale of common stock warrant
Exchange of shares of common
stock for shares of common
stock, Class A
Issuance of common stock, 300,000 250,000
Class B (470,000)
Net loss ------------ -------------- --------------------
300,000 325,000 (571,000)
Balance at December 31, 1994 (245,000)
Net loss ------------ -------------- --------------------
300,000 325,000 (816,000)
Balance at December 31, 1995
Unaudited: (200,000) (217,000) (43,000)
Repurchase of common stock (16,000)
Net loss ------------ -------------- --------------------
100,000 $ 108,000 $ (875,000)
Balance at May 1, 1996 (unaudited) ============ ============== ====================
</TABLE>
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Alyn (Note 1)
Unaudited:
Issuance of common stock -- -- 4,240,000 $ 4,000 $ 1,000
Common stock issued in exchange
for Old Alyn common stock 3,760,000 4,000 (4,000)
Net Loss $ (383,000)
----------- ---------- ------------- ------------ ----------- -----------
Balance at June 30, 1996 (unaudited) -- $ -- 8,000,000 $ 8,000 $ (3,000) $ (383,000)
=========== ========== ============= ============ =========== ===========
See accompanying notes to financial statements.
</TABLE>
F-5
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<PAGE>
Alyn Corporation
Statement of Cash Flows
<TABLE>
<CAPTION>
Old Alyn
Year Ended
December 31,
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (126,000) $ (470,000) $ (245,000)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 5,000 3,000 2,000
Provisions for allowance for doubtful accounts
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (58,000) 50,000 (7,000)
Decrease (increase) in inventories 56,000 (49,000) 138,000
Increase in other current assets
Increase in deferred offering costs
Increase in other assets
Increase in intangible assets (2,000) (6,000) (6,000)
(Decrease) increase in accounts
payable 5,000 (7,000) 22,000
Increase in accrued and other
current liabilities 142,000 126,000 158,000
---------------- ----------------- ----------------
Net cash provided by (used in)
operating activities 22,000 (353,000) 62,000
---------------- ----------------- ----------------
Cash flows from investing activities:
Capital expenditures (3,000) (4,000)
---------------- ----------------- ----------------
Net cash used in investing
activities (3,000) (4,000)
----------------- ------------------ ----------------
Cash flows from financing activities:
Sale of common stock warrant 75,000
Issuance of Old Alyn common stock, Class B 250,000
Payment of stockholder note payable
Proceeds from stockholder credit facility
----------------- ------------------ ----------------
Net cash provided from
financing activities 325,000
---------------- ----------------- ----------------
Net increase (decrease) in cash 19,000 (32,000) 62,000
Cash at beginning of period 28,000 47,000 15,000
---------------- ----------------- ----------------
Cash at end of period $ 47,000 $ 15,000 $ 77,000
================ ================= ==================
Supplemental cash flow information:
Cash paid during the period for
income taxes $ 1,000 $ 1,000 $ 1,000
================ ================= ================
Cash paid during the period for interest $ -- $ -- $ --
================ ================= ================
Noncash investing and financing activities:
Liability recorded for repurchase of
common stock from stockholder
<CAPTION>
Old Alyn Alyn
Six Period from Period from
Months January 1, May 2,
Ended 1996 to 1996 to
June 30, May 1, June 30,
1995 1996 1996
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (11,000) $ (16,000) $ (383,000)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 1,000 13,000
Provisions for allowance for doubtful accounts 8,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (23,000) (30,000) 17,000
Decrease (increase) in inventories 70,000 7,000 (11,000)
Increase in other current assets (34,000)
Increase in deferred offering costs (128,000) (101,000)
Increase in other assets (258,000)
Increase in intangible assets (1,000) (35,000)
(Decrease) increase in accounts
payable (9,000) (4,000) 78,000
Increase in accrued and other
current liabilities 65,000 94,000 (684,000)
--------------- -------------- --------
Net cash provided by (used in)
operating activities 92,000 (69,000) (1,398,000)
--------------- --------------- -----------
Cash flows from investing activities:
Capital expenditures (4,000) (39,000)
--------------- -------------- --------------
Net cash used in investing
activities (4,000) (39,000)
--------------- --------------- --------------
Cash flows from financing activities:
Sale of common stock warrant
Issuance of Old Alyn common stock, Class B
Payment of stockholder note payable (128,000)
Proceeds from stockholder credit facility 2,794,000
---------------- -------------- --------------
Net cash provided from
financing activities 2,666,000
--------------- -------------- --------------
Net increase (decrease) in cash 92,000 (73,000) 1,229,000
Cash at beginning of period 15,000 77,000 9,000
--------------- -------------- --------------
Cash at end of period $ 107,000 $ 4,000 $ 1,238,000
=============== ============== ==============
Supplemental cash flow information:
Cash paid during the period for
income taxes $ 1,000 $ 1,000 $ --
=============== ================= =================
Cash paid during the period for interest $ -- -- $ --
=============== $================ =================
Noncash investing and financing activities:
Liability recorded for repurchase of
common stock from stockholder $ 260,000
=================
See accompanying notes to financial statements.
</TABLE>
F-6
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 1
- -------------------------------------------------------------------------------
1. Description of business and summary of significant accounting policies
Description of business
Alyn Corporation (Alyn or the Company) was incorporated in Delaware on
April 9, 1996. In May 1996, the Company acquired Alyn Corporation (Old
Alyn), a California corporation, whereby all of the 1,800,000
outstanding shares of common stock of Old Alyn were exchanged at a
ratio of 2.1-to-one for 3,760,000 shares of common stock of the
Company (0.02611-to-one for 47,000 shares pre-split discussed below).
Subsequent to the acquisition, Old Alyn stockholders owned forty-seven
percent of Alyn. As a result of the change in control of Old Alyn, the
acquisition was accounted for as a purchase. Goodwill and other
intangibles of $766,000 were recorded and are amortized on a straight
line basis over their estimated useful life of ten years. Also in
connection with the acquisition, the original stockholders of Alyn
provided a $5 million, five-year credit facility to the Company due
and payable in April 2001. See Note 4.
Alyn designs, develops, manufactures and markets industrial and
consumer products utilizing its proprietary advanced metal matrix
composite materials. Old Alyn has developed technology, for which it
obtained a patent in January 1996, for the application of Boron
Carbide in combination with aluminum in lightweight metal matrix
composites under the name Boralyn.
In July 1996, the Company's Board of Directors amended its Articles of
Incorporation to increase the number of shares authorized of common
stock from 110,000 to 20,000,000 and to authorize 5,000,000 shares of
preferred stock and declared an 80-for-one split of its common stock.
All share amounts presented for Alyn and loss per share data for Old
Alyn have been adjusted to give retroactive effect for this split.
Also in July 1996, the Company's Board of Directors adopted the 1996
Stock Incentive Plan (the 1996 Plan) for the purpose of securing for
the Company and its stockholders the benefits of ownership of Company
stock options by non-employee directors, and by officers and other key
employees of the Company who are expected to contribute to the
Company's future growth and success. Under the 1996 Plan, the Company
may grant options with respect to a maximum of 1,000,000 shares of
common stock. The options will be granted at not less than fair market
value and vest ratably over a three-year period with the exception of
certain non-employee director options that will be fully vested at the
date of grant. No award may be granted under the 1996 Plan after June
30, 2006.
Funding of Activities
To date the Old Alyn funded its efforts to engage in the design,
development, manufacture and marketing of industrial and consumer
products through equity and debt financing. Alyn intends to expend
substantial funds for capital expenditures for a new production
facility and the related equipment and tooling. Alyn also expects to
incur substantial additional expenditures to develop its
manufacturing, sales and marketing capabilities. The Company will
require additional funds for these purposes in 1996, and, in the
interim, raised funds through the five-year credit facility obtained
from the stockholders of Alyn. In the future the Company plans to
raise funds through the use of proceeds from a planned initial public
offering. The Company also intends to use the proceeds from the
planned offering to repay all of the outstanding borrowings under the
credit facility. The Company's failure to raise sufficient capital or
to produce and sell sufficient quantities of its products, would
adversely affect its cash flows and operating and development plans.
F-7
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 2
- -------------------------------------------------------------------------------
Summary of accounting policies
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out cost basis.
Equipment, furniture and fixtures
Equipment, furniture and fixtures, including tooling, are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of individual assets, which range from 18
months to 5 years. Amortization of leasehold improvements is recorded
using the straight-line method over the shorter of the life of the
improvement or the term of the related lease.
Deferred offering costs
Costs incurred directly related to the Company's planned initial
public offering totaling $229,000 at June 30, 1996 have been
capitalized. Upon successful completion of the Company's planned
initial public offering, these costs will be offset against the
proceeds received and charged to stockholders' deficit.
Intangible assets
Intangible assets consisting of patents for the Boralyn technology and
goodwill are amortized on a straight-line basis over the estimated
economic life of 10 years. Intangible assets are periodically reviewed
for impairment to ensure that they are fairly stated.
Revenue
The Company recognizes sales of product at the time of shipment.
Contract revenue of $58,000 in 1995 was recognized as the related
research and development costs of $58,000 were incurred. Amounts
received prior to performance are classified as customer advances and
recognized as earned. The Company performs on-going credit evaluations
and maintains reserves for potential credit losses. Amounts not
collected subsequent to December 31, 1994 and 1995 were written-off.
In 1993, two customers accounted for 33% of product sales,
individually 19% and 14%. In 1994, two customers accounted for 47% of
product sales, individually 31% and 16%. In 1995, two customers
accounted for 54% of product sales, individually 40% and 14%.
Research and development
Expenditures for research and development costs are charged to expense
as incurred.
Net loss per share
Net loss per share is based upon the number of weighted average of
common stock shares outstanding during the period from May 2, 1996 to
June 30, 1996 after giving retroactive effect to the 80-for-one stock
split (Note 1).
Unaudited pro forma net loss and net loss per share
Pro forma net loss per share is based upon the number of weighted
average of common stock shares outstanding during the year ended
December 31, 1995 and the period from January 1, 1996 to May 1, 1996,
after giving retroactive effect for the acquisition of Old Alyn,
assuming the change from an S to C-Corporation tax status as a result
of the acquisition, and the 80-for-one stock split (Note 1). The
effect on net loss per share of the acquisition is to increase
F-8
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 3
- -------------------------------------------------------------------------------
the net loss by $77,000 and $26,000 for goodwill amortization for the
year ended December 31, 1995 and the period from January 1, 1996 to
May 1, 1996, respectively, and to increase the weighted average shares
outstanding by 3,760,000 (post-split). The effect of the change in tax
status was not material. Historical net loss per share of Old Alyn has
not been presented for all periods as such is not deemed meaningful.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenues
and expenses during the reporting period.
Concentrations of credit risk
The Company sells its products and services to various companies
across several industries, and therefore management believes that no
material concentrations of credit risk exist.
Fair value of financial instruments
The Company's financial instruments consist primarily of cash,
accounts receivable, accounts payable, accrued and other current
liabilities and the note payable to stockholder. These financial
instruments are stated at current value which approximates fair value.
Unaudited interim information
The information presented as of June 30, 1996 of Alyn and for the six
month period ended June 30, 1995 and the period from January 1, 1996
to May 1, 1996 of Old Alyn and the period from May 2, 1996 to June 30,
1996 of Alyn, has not been audited. In the opinion of management, the
unaudited interim financial information includes all adjustments,
consisting only of normal recurring adjustments, necessary to present
fairly the Company's financial position as of June 30, 1996, and the
results of its operations and its cash flows for the six month period
ended June 30, 1995 and the period from January 1, 1996 to May 1, 1996
of Old Alyn and the period from May 2, 1996 to June 30, 1996 of Alyn,
and the stockholders' deficit for the period from January 1, 1996 to
May 1, 1996 of Old Alyn and the period from May 2, 1996 to June 30,
1996 of Alyn.
New accounting pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting of
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 must be adopted
by the Company in 1996 and establishes an alternative method of
accounting for stock-based compensation plans. The Company intends to
adopt the disclosure alternative for stock compensation and does not
expect that the adoption of SFAS No. 123 will have a material impact
on the Company's results of operations or financial position.
F-9
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 4
- -------------------------------------------------------------------------------
2. Balance sheet components
Inventories:
<TABLE>
<CAPTION>
Old Alyn Alyn
December 31, June 30,
1994 1995 1996
(unaudited)
<S> <C> <C> <C>
Raw materials $ 129,000 $ 6,000 $ 2,000
Finished goods 25,000 10,000 18,000
---------------- ----------------- ----------------
$ 154,000 $ 16,000 $ 20,000
================ ================= ================
Equipment, furniture and fixtures:
Old Alyn
December 31,
1994 1995
Equipment and tooling $ 11,000 $ 11,000
Furniture and office equipment 2,000 2,000
Leasehold improvements 2,000 2,000
---------------- -----------------
15,000 15,000
Less accumulated depreciation
and amortization (10,000) (12,000)
----------------- ------------------
$ 5,000 $ 3,000
================ =================
Accrued and other current liabilities:
Old Alyn
December 31,
1994 1995
Accrued compensation $ 173,000 $ 255,000
Accrued professional fees 49,000 73,000
Customer advance 40,000
Other 46,000 58,000
---------------- -----------------
$ 268,000 $ 426,000
================ =================
</TABLE>
3. Income taxes
The Company accounts for income taxes under the liability method.
Accordingly, deferred tax assets and liabilities are measured each
year based on the difference between the financial statement and tax
bases of all assets and liabilities at the current expected income
tax rates. Deferred tax assets and liabilities are not material to
the financial position of the Company at December 31, 1994 and 1995.
F-10
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 5
- ------------------------------------------------------------------------------
In 1994, Old Alyn elected to become an S-Corporation for federal and
California income tax purposes. As a result of these elections,
federal and California tax attributes of Old Alyn passed to the Old
Alyn stockholders. Alyn is a C-Corporation for income tax purposes
and is taxed accordingly.
The provision for income taxes in each of the three years ended
December 31, 1993, 1994 and 1995 is comprised of the annual minimum
California franchise tax.
4. Credit facility from stockholders
In May 1996 and in connection with the acquisition discussed in Note
1, the original stockholders of Alyn provided a $5 million, five-year
credit facility to the Company due and payable in April 2001.
Borrowings under the credit facility bear interest at a rate of 8%
per annum payable quarterly, or as defined by the loan agreement, and
are secured by substantially all of the assets of the Company.
Amounts outstanding at June 30, 1996 totalled $2,794,000.
5. Note payable to stockholder
At December 31, 1994 and 1995, Old Alyn had an unsecured note payable
due to a stockholder of $128,000. In May 1996, the outstanding
principal and accrued interest were paid to the stockholder.
6. Stockholders' deficit - Old Alyn
In June 1994, Old Alyn's Articles of Incorporation were amended
authorizing 10,000,000 shares of Series A common stock and 10,000,000
shares of Series B common stock. The stockholders of Old Alyn
exchanged their existing shares of common stock for 1,700,000 shares
of Series A common stock. Old Alyn received $75,000 cash in exchange
for an option to acquire Series B common stock of Old Alyn. Pursuant
to this option agreement, Old Alyn issued 300,000 shares of the new
Series B common stock for an additional $250,000 in cash.
In April 1996, Old Alyn executed an agreement to repurchase 200,000
shares of the Series B common stock for $260,000 in cash. The cash
was paid to the stockholder in May 1996.
7. Commitments and contingencies
Commitments and leases
Future minimum lease payments required under a non-cancelable
operating lease at December 31, 1995 for a vehicle operated by a
former officer of the Company, who performs legal services from time
to time, and for a new five-year manufacturing facility lease
agreement executed in June 1996 and commencing in September 1996, are
as follows:
F-11
C/M 12156.0001 402142.1
<PAGE>
Alyn Corporation
Notes to Financial Statements Page 6
- --------------------------------------------------------------------------------
Year ending December 31:
Manufacturing
Vehicle facility
1996 $ 5,000 $ 85,000
1997 3,000 235,000
1998 269,000
1999 280,000
2000 292,000
Thereafter 200,000
-------------- ----------------
$ 8,000 $ 1,361,000
============== ================
Rent expense totaled $11,000, $15,000 and $17,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
Included in other assets at June 30, 1996 is a security deposit of
$85,000 for the new manufacturing facility and approximately $170,000
of deposits for equipment purchases.
Litigation and claims
In June 1996, the Company received correspondence from the counsel of
a customer asserting damages suffered as a result of
misrepresentations as to the properties and capabilities of Boralyn
and the customer's loss of anticipated profits from future sales of
products. Management believes that the customer's assertions are
without merit and intends to vigorously defend any litigation brought
by the customer. However, the cost of defending such litigation may
be material and there can be no assurance that the Company would
ultimately prevail or that the outcome of such litigation would not
have a material adverse effect on the Company's financial position or
results of operations. This matter is currently in the discovery
stage.
Also, in the ordinary course of business, the Company is generally
subject to claims, complaints, and legal actions. The litigation
process is inherently uncertain and it is possible that the
resolution of such matters might have a material adverse effect upon
the financial position of the Company. However, in the opinion of
management, such matters are not expected to have a material adverse
effect on the financial position of the Company.
F-12
C/M 12156.0001 402142.1
<PAGE>
<PAGE>
[INSIDE OF BACK COVER WITH ARTWORK]
[Photograph of Boralyn(R) pistons]
The Company believes that the hardness and
resistance to wear of Boralyn(R) can be used to
advantage in automotive and other applications.
[GRAPHIC OMITTED]
[Two photographs of soluble core die-cast structures]
The products shown above are examples of the use of the Company's soluble
core method of manufacturing, which allows for forming complex one-piece metal
matrix die-cast structures without the need for welding together separate
components or other secondary manufacturing processes.
<PAGE>
<TABLE>
<S> <C>
No dealer, salesman or any other person has been
authorized to give any information or to make any
representation in connection with this offering other
than those contained in this Prospectus and, if given or ALYN
made, such information or representation must not be CORPORATION
relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to 2,400,000 Shares
buy any of these securities in any state to any person to
whom it is unlawful to make such offer or solicitation
in such state. The delivery of this Prospectus at any
time does not imply that information herein is correct
as of any time subsequent to its date. Common Stock
Until , 1996, all dealers effecting
transactions in the registered securities, whether or not
participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the
obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold PROSPECTUS
allotments or subscriptions.
---------------------------------------
TABLE OF CONTENTS
Page
Furman Selz
Prospectus Summary......................................... 1
Risk Factors............................................... 7 Needham & Company, Inc.
Use of Proceeds............................................ 13
Dividend Policy............................................ 13
Capitalization............................................. 14
Dilution................................................... 15
Selected Financial Data.................................... 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 19
Business................................................... 24
Management................................................. 40
Principal Stockholders..................................... 47
Certain Transactions....................................... 47
Description of Capital Stock............................... 47
Shares Eligible for Future Sale............................ 49
Underwriting............................................... 50
Legal Matters.............................................. 51
Experts.................................................... 51
Additional Information..................................... 51
Glossary of Certain Technical Terms........................ 53
Index to Financial Statements............................. F-1
</TABLE>
C/M: 12156.0001 369440.21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the securities being registered
hereunder. All of the amounts shown are estimates (except for the SEC and NASD
registration fees).
Securities and Exchange Commission filing fee.................. $12,848
National Association of Securities Dealers, Inc. filing fee.... 4,226
NASDAQ listing fee............................................. 46,940
Transfer agent's and registrar's fee........................... 5,000
Printing expenses.............................................. 150,000
Legal fees and expenses........................................ 225,000
Accounting fees and expenses................................... 125,000
Blue sky filing fees and expenses (including counsel fees)..... 15,000
Miscellaneous expenses......................................... 16,026
_______
Total.................................................... $600,000
14. Indemnification of Directors and Officers
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation (the "Certificate") provides that no
director shall be personally liable to the Company or any stockholder for
monetary damages for breach of fiduciary duty as a director, except for
liability: (i) arising from payment of dividends or approval of a stock
purchase in violation of Section 174 of the DGCL; (ii) for any breach of the
duty of loyalty to the Company or its stockholders; (iii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; or (iv) for any action from which the director derived an
improper personal benefit. While the Certificate provides protection from
awards for monetary damages for breaches of the duty of care, it does not
eliminate the director's duty of care. Accordingly, the Certificate will not
affect the availability of equitable remedies, such as an injunction, based on
a director's breach of the duty of care. The provisions of the Certificate
described above apply to officers of the Company only if they are directors of
the Company and are acting in their capacity as directors, and does not apply
to officers of the Company who are not directors.
In addition, the Company's By-Laws provide that the Company shall
indemnify its officers and directors, and any employee who serves as an officer
or director of any corporation at the Company's request, to the fullest extent
permitted under and in accordance with the DGCL. Under the DGCL, directors and
officers as well as employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation as a derivative action) if they acted in good
faith and in a manner they reasonably believed to be in or not
II-1
C/M: 12156.0001 369440.21
<PAGE>
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful.
Reference is made to Section ___ of the Underwriting Agreement (Exhibit
1.1 to this Registration Statement), which provides for indemnification of the
Company's officers, directors and controlling persons by the Underwriters
against certain civil liabilities, including certain liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
The Company has applied for a director and officer liability insurance
policy, under which each director and certain officers of the Company would be
insured against certain liabilities.
15. Recent Sales of Unregistered Securities
The Registrant and its predecessors have issued the following securities
without registration under the Securities Act during the last three years (with
all share and per share data presented before giving effect to the Merger and
the 80-for-one stock split):
(1) On April 3, 1994, Old Alyn granted to three individuals, in consideration
of payment of $75,000, options to purchase up to 20% of Old Alyn's capital
stock.
(2) On May 4, 1994, Old Alyn issued, upon partial exercise of the options
referred to above, to:
A. Art Liang, 100,000 shares of Series B common stock for $1.00 per
share; and
B. Larry Liou, 200,000 shares of Series B common stock for $1.00 per
share.
(3) On May 1, 1996, the Registrant issued to:
A. Stephen and Rosalie Balog, 400 shares of common stock for $0.10 per
share;
B. Gary and Stephanie Escandon, 800 shares of common stock for $0.10 per
share;
C. Frontier PTY Limited, Trustee for Frontier Trust, 1,200 shares of
common stock for $0.10 per share;
D. First Pacific Capital, 800 shares of common stock for $0.10 per
share;
E. Herbert and Edith Turk, 4,300 shares of common stock for $0.10 per
share;
F. Udi Toledano, 1,900 shares of common stock for $0.10 per share;
G. Janet Toledano, 3,450 shares of common stock for $0.10 per share;
H. James M. Stuart, Jr., 360 shares of common stock for $0.10 per share;
I. James M. Stuart, Jr., Trustee under agreement dated May 1, 1987, for
the benefit of John E. Stuart, 360 shares of common stock for $0.10
per share;
J. James M. Stuart, Jr. and John E. Stuart, Trustees under agreement
dated January 1, 1989, for the benefit of Mary E. Stuart, 80 shares
of common stock for $0.10 per share;
II-2
C/M: 12156.0001 369440.21
<PAGE>
K. Fred Fraenkel, 400 shares of common stock for $0.10 per share;
L. Edelson Technology Partners III, 6,000 shares of common stock for
$0.10 per share;
M. Kingdon Associates, L.P., 5,260 shares of common stock for $0.10 per
share;
N. Kingdon Partners, L.P., 5,260 shares of common stock for $0.10 per
share;
O. M. Kingdon Offshore NV, 15,580 shares of common stock for $0.10 per
share;
P. Steve Hourigan, 2,000 shares of common stock for $0.10 per share;
Q. Bergen Enterprises Corp., 500 shares of common stock for $0.10 per
share;
R. Janet Toledano, Trustee under agreement dated 9/2/93 for the benefit
of Alexander and Anna Toledano, 1,000 shares of common stock for
$0.10 per share;
S. Judith Green, 150 shares of common stock for $0.10 per share;
T. Stephanie Bier Toledano, 150 shares of common stock for $0.10 per
share;
U. Gideon Toledano, 150 shares of common stock for $0.10 per share;
V. Robert Lax, 150 shares of common stock for $0.10 per share;
W. Jennifer Thompson, 50 shares of common stock for $0.10 per share;
X. Rachel Turk Balter, 1,350 shares of common stock for $0.10 per share;
and
Y. Miriam Turk, 1,350 shares of common stock for $0.10 per share.
(4) On May 2, 1996, the Registrant issued, in exchange for all outstanding
shares of Old Alyn, in connection with the Merger, to:
A. Robin A. Carden, 39,150 shares of Common Stock;
B. Walter R. Menetrey, 3,000 shares of Common Stock;
C. Charles Rosenblum 2,500 shares of Common Stock; and
D. Art Liang 2,350 shares of Common Stock;
The issuances described above were made in reliance upon the exemption
from the registration requirements of the Securities Act provided by Section
4(2) of the Securities Act for transactions by an issuer not involving a public
offering. The recipients of the securities in each of the above-referenced
transactions represented their intentions to acquire the securities for
investment only and not with a view to or a sale in connection with any
distribution thereof. All recipients had adequate access, through their
relationships with the Registrant, to information about the Registrant. No
underwriter or underwriting discount or commission was involved in any of such
sales.
II-3
C/M: 12156.0001 369440.21
<PAGE>
16. Exhibits and Financial Statement Schedules
The following Exhibits are filed herewith and made a part hereof:
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
*1.1 Form of Underwriting Agreement.
+3.1 Restated Certificate of Incorporation of the Registrant.
+3.2 By-Laws of the Registrant.
*4.1 Specimen Copy of Stock Certificate for shares of Common Stock.
+4.2 Stockholders Agreement, dated as of May 1, 1996, by and among the
Company and certain stockholders of the Registrant.
*5.1 Opinion of Battle Fowler as to the securities being offered.
+10.1 Loan Agreement, dated as of May 1, 1996, between certain persons and the
Registrant.
*10.2 1996 Stock Incentive Plan of the Registrant.
+10.3 Employment Agreement between the Company and Robin A. Carden, dated
as of April 1, 1996, as amended by Amendment Number One, dated as of
April 30, 1996.
*10.4 Form of Employment Agreement between the Company and certain senior
executives.
+10.5 Lease, dated as of June 12, 1996, between the Registrant and Taylor-
Longman, with respect to premises at 16761 Hale Avenue, Irvine, California.
*23.1 Consent of Battle Fowler LLP (included in its opinion to be filed as Exhibit
5.1).
23.2 Consent of Price Waterhouse LLP.
+24 Power of Attorney (included in the signature page hereto).
27.1 Financial Data Schedule for the year ended December 31, 1995.
27.2 Financial Data Schedule for the six month period ended June 30, 1996.
+9.1 U.S. Patent Number 5,496,223, dated January 23, 1996.
</TABLE>
+ Previously filed.
* To be filed by amendment.
(b) Financial Statement Schedules
All other schedules have been omitted because the information to be set
forth therein is not applicable or is shown in the financial statements or the
notes thereto.
17. Undertakings
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Certificate of Incorporation, its By-
II-4
C/M: 12156.0001 369440.21
<PAGE>
Laws, the Underwriting Agreement, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such directors, officers or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
Prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of Prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of Prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide
offering thereof.
II-5
C/M: 12156.0001 369440.21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Irvine, State of California, on September 11, 1996.
ALYN CORPORATION
By:/s/ Robin A. Carden
-------------------------------------
Robin A. Carden
President and Chief Executive Officer
POWER OF ATTORNEY
Alyn Corporation, a Delaware corporation, and each person whose signature
appears below constitutes and appoints Robin A. Carden, Michael Markbreiter,
and Udi Toledano, and each of them, as his true and lawful attorney-in-fact and
agent, with full power of substitution and re-substitution, for him and his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact, full power and authority to do and perform
each and every act and thing necessary or desirable to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, thereby ratifying and confirming all that said attorney-in-fact, or his
substitute, may lawfully do or cause to be done by virtue hereof.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and of the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Robin A. Carden President, Chief Executive Officer and September 11, 1996
- ------------------------------ a Director
Robin A. Carden (Principal Executive Officer)
* Vice President, Finance and September 11, 1996
- ------------------------------ Administration
Phillip R. Gustavson (Principal Financial and Accounting
Officer)
* Director September 11, 1996
- ------------------------------
Harry Edelson
* Director September 11, 1996
- ------------------------------
Michael Markbreiter
* Director September 11, 1996
- ------------------------------
Walter R. Menetrey
* Director September 11, 1996
- ------------------------------
Udi Toledano
</TABLE>
* By:/s/ Robin A. Carden
---------------------------
Attorney-in-Fact and Agent
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated July 16,
1996, relating to the financial statements of Alyn Corporation, which
appears in such Prospectus. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has
not prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Costa Mesa, California
September 10, 1996
C/M 12156.0001 402251.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENT OF
ALYN CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 77
<SECURITIES> 0
<RECEIVABLES> 15
<ALLOWANCES> 0
<INVENTORY> 16
<CURRENT-ASSETS> 108
<PP&E> 15
<DEPRECIATION> 12
<TOTAL-ASSETS> 128
<CURRENT-LIABILITIES> 490
<BONDS> 0
0
0
<COMMON> 326
<OTHER-SE> (816)
<TOTAL-LIABILITY-AND-EQUITY> 128
<SALES> 261
<TOTAL-REVENUES> 319
<CGS> 203
<TOTAL-COSTS> 261
<OTHER-EXPENSES> 292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (244)
<INCOME-TAX> 1
<INCOME-CONTINUING> (245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (245)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENT OF ALYN CORPORATION FOR
THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1238
<SECURITIES> 0
<RECEIVABLES> 28
<ALLOWANCES> 8
<INVENTORY> 20
<CURRENT-ASSETS> 1312
<PP&E> 58
<DEPRECIATION> 13
<TOTAL-ASSETS> 2650
<CURRENT-LIABILITIES> 234
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> (386)
<TOTAL-LIABILITY-AND-EQUITY> 2650
<SALES> 111
<TOTAL-REVENUES> 136
<CGS> 41
<TOTAL-COSTS> 66
<OTHER-EXPENSES> 445
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (397)
<INCOME-TAX> 2
<INCOME-CONTINUING> (399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (399)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
