UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended March 31,
1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________.
Commission file number 000-21153.
ALYN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-070359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16761 Hale Avenue, Irvine, California 92606
(Address of principal executive offices, including zip code)
(714) 475-1525
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (of for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.001 par value: 10,750,000 shares as of May 8, 1997.
<PAGE>
ALYN CORPORATION
INDEX
PAGE
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 1997 (unaudited) and December 31, 1996 3
Condensed Statements of Operations -
Three months ended March 31, 1997 (unaudited)
and March 31, 1996 (unaudited) 4
Condensed Statements of Stockholders' Equity -
Three months ended March 31, 1997 (unaudited) 5
Condensed Statements of Cash Flows -
Three months ended March 31, 1997 (unaudited)
and March 31, 1996 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II. OTHER INFORMATION 10
SIGNATURES 11
-2-
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Alyn Corporation
Condensed Balanced Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $20,120,000 $24,411,000
Accounts receivable, net 51,000 57,000
Inventories 52,000 41,000
Other current assets 116,000 122,000
------- -------
Total current assets 20,339,000 24,631,000
Equipment, furniture and fixtures, net 6,337,000 5,027,000
Other assets, net 4,297,000 2,545,000
--------- ---------
$30,973,000 $32,203,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other current liabilities $850,000 $1,137,000
Stockholders' equity
Preferred stock --- ---
Common stock 11,000 11,000
Additional paid-in capital 33,294,000 33,294,000
Accumulated deficit (3,182,000) (2,239,000)
----------- -----------
Total stockholders' equity 30,123,000 31,066,000
---------- ----------
$30,973,000 $32,203,000
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
-3-
<PAGE>
Alyn Corporation
Condensed Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Alyn Old Alyn
---- --------
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
---- ----
<S> <C> <C>
Net sales $27,000 $91,000
Contract revenue 15,000 ---
------ -------
Total revenue 42,000 91,000
------ ------
Costs and expenses:
Cost of goods sold 23,000 20,000
Establishment of manufacturing facilities 225,000 ---
General and administrative expenses 430,000 29,000
Selling and marketing 370,000 14,000
Research and development 225,000 8,000
-------- -------
Total costs and expenses 1,273,000 71,000
--------- ------
Operating income (loss) (1,231,000) 20,000
Interest expense (1,000) (2,000)
Interest income 290,000 ---
------- -------
Income (loss) before provision for income taxes (942,000) 8,000
Provision for income taxes 1,000 --
Net income (loss) ($943,000) $18,000
========== =======
Net loss per share ($0.09)
Weighted average number of common shares outstanding 10,750,000
==========
Pro forma net loss ($1,000)
Pro forma net loss per share ($0.00)
=======
Pro forma weighted average number of common
shares outstanding 8,000,000
=========
</TABLE>
See Notes to Condensed Financial Statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
Alyn Corporation
Condensed Statement of Stockholders' Equity
(unaudited)
Additional
Preferred Stock Common Stock Paid-in Accumulated
--------------- ------------ Capital Deficit
Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 -- 10,750,000 $11,000 $33,294,000 ($2,239,000)
Net loss (943,000)
-------- --------- ---------- ------- ----------- ------------
Balance, March 31, 1997 -- 10,750,000 $11,000 $33,294,000 ($3,182,000)
======== ========= ========== ======= =========== ============
</TABLE>
See Notes to Condensed Financial Statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
Alyn Corporation
Condensed Statements of Cash Flows
(unaudited)
Alyn Old Alyn
---- --------
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows used in operating activities: ($2,940,000) ($34,000)
------------ ---------
Cash flows used in investing activities:
Capital expenditures (1,351,000) (4,000)
----------- -------
Net cash used in investing activities (1,351,000) (4,000)
----------- -------
Cash flows from (used in) financing activities: -- --
----------- -------
Net decrease in cash and cash equivalents (4,291,000) (38,000)
Cash and cash equivalents at beginning of period 24,411,000 77,000
---------- ------
Cash and cash equivalents at end of period $20,120,000 $39,000
=========== =======
</TABLE>
See Notes to Condensed Financial Statements.
-6-
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. This financial information should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
1996, included in the Company's Form 10-K, which is on file with the Securities
and Exchange Commission. Operating results for the three-month period ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997.
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. 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.
In July 1996, the Company's Board of Directors amended its Articles 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
declared an 80-for-one split of its common stock. All common share and per share
amounts presented for Old Alyn have been adjusted to give retroactive effect for
this split.
Pro forma net loss per share is based upon the number of weighted average
of common stock shares outstanding during the three-month period ended March 31,
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. The effect on net loss per share of the
acquisition is to increase the net loss by $19,000 for goodwill amortization for
the three-month period ended March 31, 1996, 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 as such is not deemed material.
2. Composition of Inventories
March 31, December 31,
1997 1996
---- ----
(unaudited)
Raw materials $33,000 $24,000
Finished goods 19,000 17,000
------- -------
$52,000 $41,000
======= =======
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 was granted
a patent regarding Boralyn(R) in January 1996. In 1995 and 1996, Boralyn(R)
sales were primarily the result of prototype orders. In September 1996, the
Company and Taylor Made Golf Company, Inc. ("Taylor Made") entered into an
agreement which provides for the production and purchase of Boralyn(R) based
metalwood golf club heads through June 30, 1999, and an exclusive license
through that date should specific minimum volume requirements be met. Taylor
Made has placed its first purchase order under the Agreement, covering $2.25
million of metalwood golf club heads. No production revenues for Boralyn(R) are
anticipated prior to the third quarter of 1997. The Company does not expect to
achieve significant sales of Boralyn(R) prior to the second half of 1997, and
there can be no assurance that any significant sales will be achieved. The
Company was unprofitable through March 31, 1997, expects to incur a loss for the
full year 1997 as a result of start-up expenses in anticipation of production
orders, and may incur additional losses thereafter.
Results of Operations
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
1996
Total revenue in the three months ended March 31, 1997 decreased 54% to
$42,000 from $91,000 in the three months ended March 31, 1996. 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)
based products and to reduce its efforts to sell boron carbide powders and
ceramic products, which it had pursued in the past in order to generate cash.
Cost of goods sold increased 15% to $23,000 in the three months ended March
31, 1997 from $20,000 in the comparable period in 1996, reflecting the
inefficiencies of the low levels of production primarily for prototype parts and
samples.
Expenses for establishment of manufacturing facilities of $225,000 were
incurred in the three months ended March 31, 1997. There were no expenses
incurred in the comparable period in 1996. The expenses were incurred for the
additional manufacturing management and related pre-operating costs as the
Company built the infrastructure and installed machinery and equipment to
produce its Boralyn(R) products. These expenses are expected to increase in the
next few quarters to support the Company reaching normal production levels.
General and administrative expenses increased 1,383% to $430,000 in the
three months ended March 31, 1997, from $29,000 in the comparable period in
1996. The increase was primarily the result of the additional staff, including
recruiting and moving costs, professional services and other administrative
costs. These expenses are expected to increase in the next several quarters to
support anticipated growth in the Company's business activities.
Selling and marketing expenses increased 2,543% to $370,000 in the three
months ended March 31, 1997, from $14,000 in the comparable period in 1996. This
increase was the result of increased sales staff, including specialists in
sporting goods, computers, and transportation industries, marketing staff and an
increase in marketing expenses incurred in the start-up marketing efforts for
Boralyn(R) products. Such expenses are expected to increase over the next
several quarters as Boralyn(R)-related sales and marketing activities increase.
-8-
<PAGE>
Research and development expenses increased 2,713% to $225,000 in the three
months ended March 31, 1997, from $8,000 in the comparable period in 1996. This
increase was primarily the result of increased research staff and ongoing
development programs. These expenses are expected to increase over the next
several quarters to support the development of Boralyn(R)-based products.
Interest income of $290,000 was earned in the three months ended March 31,
1997. There was no interest earned in the comparable period in 1996. The
interest income resulted from the investment of cash available from the initial
public offering in October 1996.
As a result of the foregoing factors, loss before provision for income
taxes increased 5,333% to $942,000 in the three months ended March 31, 1997 from
a pre-tax profit of $18,000 in the comparable period in 1996.
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of $19,489,000 as a
direct result of its initial public offering completed in October 1996 of
2,750,000 shares of its common stock at a price of $13.50 per share, which
generated net proceeds of approximately $33.3 million after underwriting
discounts and offering expenses. Working capital at December 31, 1996 was
$23,494,000. During the three-month period ended March 31, 1997, the Company
invested approximately $1,351,000 in machinery and equipment and production
facilities, and made deposits for an additional $1,758,000 in machinery and
equipment, as the Company continued to establish the infrastructure for
production of its Boralyn(R) products.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, that its existing cash resources will be
sufficient to satisfy its contemplated cash requirements through at least 1998.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including results of marketing its Boralyn(R) products, the
products' acceptance in the market, and the costs and timing of growth in sales,
marketing and manufacturing activities.
The impact of inflation on the Company's financial position and results of
operations has not been significant during the three-month periods ended March
31, 1997 and 1996.
Except for historical information contained herein, this Quarterly Report
on Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements involve known
and unknown risks and uncertainties that may cause the Company's actual results
or outcomes to be materially different from those anticipated and discussed
herein. Further, the Company operates in an industry sector where securities
values may be volatile and may be influenced by regulatory and other factors
beyond the Company's control. Important factors that the Company believes might
cause such differences are discussed in the cautionary statements accompanying
the forward-looking statements in the Company's Annual Report on Form 10-K and
in the risk factors detailed in the Company's Prospectus, dated October 22,
1996, filed with the Securities and Exchange Commission. In assessing
forward-looking statements contained herein, readers are urged to read carefully
all cautionary statements contained in this quarterly report and in those other
filings with the Securities and Exchange Commission.
-9-
<PAGE>
ALYN CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits. The following Exhibits are filed herewith and made a part hereof:
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule for the three month period ended March
31, 1997.
(B) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended March 31, 1997.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALYN CORPORATION
(Registrant)
By: /s/ Robin A. Carden
------------------------------------
Robin A. Carden
President and
Chief Executive Officer
By: /s/ Walter R. Menetrey
------------------------------------
Walter R. Menetrey
Executive Vice President and
Chief Operating Officer
By: /s/ Phillip R. Gustavson
------------------------------------
Phillip R. Gustavson
Vice President, Finance
and Administration
(Chief Accounting Officer)
Dated: May 8, 1997
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENT OF ALYN CORPORATION FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 20,120,000
<SECURITIES> 0
<RECEIVABLES> 55,000
<ALLOWANCES> 4,000
<INVENTORY> 52,000
<CURRENT-ASSETS> 20,339,000
<PP&E> 6,445,000
<DEPRECIATION> 108,000
<TOTAL-ASSETS> 30,973,000
<CURRENT-LIABILITIES> 850,000
<BONDS> 0
0
0
<COMMON> 11,000
<OTHER-SE> 30,112,000
<TOTAL-LIABILITY-AND-EQUITY> 30,973,000
<SALES> 27,000
<TOTAL-REVENUES> 42,000
<CGS> 23,000
<TOTAL-COSTS> 23,000
<OTHER-EXPENSES> 1,250,000
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> (289,000)
<INCOME-PRETAX> (942,000)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (943,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (943,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
