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 September 30, 1997.
OR
[ ] 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 33-0709359
-------- ----------
(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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ x ] No [ ]
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, $.001 par value; 10,750,000 shares as of November 12, 1997.
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ALYN CORPORATION
INDEX
Page Number
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Balance Sheets -
September 30, 1997 (unaudited) and December 31, 1996 3
Condensed Statements of Operations -
Three months ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited) and nine months ended
September 30, 1997 (unaudited) and September 30, 1996 (unaudited) 4
Condensed Statements of Stockholders' Equity -
Nine months ended September 30, 1997 (unaudited) 5
Condensed Statements of Cash Flows -
Nine months ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited) 6
Notes to Condensed Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
Item 3. Quantitative and Qualitative Disclosures About 9
Market Risk
PART II. OTHER INFORMATION 10
SIGNATURES 11
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2
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Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
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ALYN CORPORATION
CONDENSED BALANCE SHEETS
<S> <C> <C>
September 30, December 31,
1997 1996
--------------- ------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $10,747,000 $24,411,000
Accounts receivable, net 81,000 57,000
Inventories 131,000 41,000
Other current assets 294,000 122,000
--------------- ------------------
Total current assets 11,253,000 24,631,000
Equipment, furniture and fixtures, net 12,954,000 5,027,000
Other assets, net 2,049,000 1,771,000
Intangibles, net 794,000 774,000
--------------- ------------------
$27,050,000 $32,203,000
=============== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $222,000 $945,000
Accrued and other current liabilities 83,000 192,000
--------------- ------------------
Total current liabilities 305,000 1,137,000
Stockholders' equity:
Common stock 11,000 11,000
Additional paid-in capital 33,294,000 33,294,000
Accumulated deficit (6,560,000) (2,239,000)
--------------- ------------------
Total stockholders' equity 26,745,000 31,066,000
--------------- ------------------
$27,050,000 $32,203,000
=============== ==================
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See Notes to Condensed Financial Statements.
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Alyn Corporation
Condensed Statements of Operations
(Unaudited)
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<S> <C> <C> <C> <C> <C> <C>
Pro Forma
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
-------------------- -------------------- -------------------- --------------------
Net sales $64,000 $12,000 $273,000 $123,000
Contract revenue 14,000 10,000 59,000 35,000
-------------------- -------------------- ------------------- --------------------
Total revenue 78,000 22,000 332,000 158,000
Costs and expenses:
Cost of goods sold 82,000 49,000 299,000 90,000
Establishment of manufacturing facilities 511,000 64,000 1,029,000 64,000
General and administrative expenses 699,000 408,000 1,838,000 798,000
Selling and marketing 339,000 178,000 1,004,000 232,000
Research and development 522,000 93,000 1,166,000 119,000
-------------------- -------------------- -------------------- -------------------
Total costs and expenses 2,153,000 792,000 5,336,000 1,303,000
-------------------- -------------------- -------------------- -------------------
Operating loss (2,075,000) (770,000) (5,004,000) (1,145,000)
Interest expense - (83,000) (1,000) (113,000)
Interest income 173,000 20,000 696,000 28,000
-------------------- -------------------- -------------------- -------------------
Loss before provision for income taxes (1,902,000) (833,000) (4,309,000) (1,230,000)
Provision for income taxes (1,000) - (12,000) (2,000)
-------------------- -------------------- -------------------- -------------------
Net loss (1,903,000) (833,000) (4,321,000) (1,232,000)
==================== ==================== ==================== ===================
Net loss per share ($0.18) ($0.10) ($0.40)
Weighted average number of
common shares outstanding 10,750,000 8,000,000 10,750,000
Pro forma net loss ($1,270,000)
Pro forma net loss per share ($0.16)
Pro forma weighted average
number of common shares
outstanding 8,000,000
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See Notes to Condensed Financial Statements.
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Alyn Corporation
Condensed Statement of Stockholders' Equity
(Unaudited)
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Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
---------------------------- --------------- -----------------
Balance at December 31, 1996 10,750,000 $11,000 $33,294,000 ($2,239,000)
Net loss (4,321,000)
---------------------------- --------------- -----------------
Balance at September 30, 1997 10,750,000 $11,000 $33,294,000 ($6,560,000)
============================ =============== =================
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See Notes to Condensed Financial Statements.
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<CAPTION>
Alyn Corporation
Condensed Statements of Cash Flows
(Unaudited)
<S> <C> <C>
Alyn
Alyn Pro Forma
Nine Months Nine Months
Ended Ended
September 30, 1997 September 30, 1996
----------------------- ------------------------
Cash flows used in operating activities: ($5,280,000) ($2,020,000)
Cash flows used in investing activities:
Capital expenditures (8,384,000) (1,589,000)
Cash flows from financing activities:
Short term loan - 4,441,000
----------------------- ------------------------
Net (decrease) increase in cash (13,664,000) 832,000
Cash and cash equivalents at beginning of period 24,411,000 77,000
----------------------- ------------------------
Cash and cash equivalents at end of period $10,747,000 $909,000
======================= ========================
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See Notes to Condensed Financial Statements.
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ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1997 and 1996
(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 nine-month period ended
September 30, 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 Alyn and Old Alyn have been adjusted to give retroactive
effect for this split.
The pro forma of the Condensed Statements of Operations and the
Condensed Statements of Cash Flows for the nine months ended September 30, 1996
consists of the combined results of Old Alyn from January 1, 1996 to May 1, 1996
and of Alyn from May 2, 1996 to September 30, 1996. Pro forma net loss per share
is based upon the weighted average number of common stock shares outstanding
during the nine-month period ended September 30, 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 $38,000 for goodwill amortization for the nine-month period
ended September 30, 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 and is not deemed meaningful.
2. Inventories
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<S> <C> <C>
September 30, December 31,
1997 1996
---- ----
(unaudited)
Raw materials $108,000 $24,000
Finished goods 23,000 17,000
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$131,000 $41,000
======== =============
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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. In May 1997, the Company and True Temper Sports
("True Temper") entered into an agreement which provides for the production and
purchase of Boralyn(R) based golf club shafts through August 31, 2003 and an
exclusive license through that date should specific minimum volume requirements
be met. Under a five-year agreement entered into in September 1997 the Company
will supply True Temper with tubing for bicycle frame sets and components. The
Company and Bolle Inc. have entered into an agreement that provides for the
purchase of approximately $5 million of sunglass frames over a three-year
period, with the first deliveries scheduled for mid 1998. Under a multi-year
agreement entered into in October 1997 the Company will be the sole supplier of
the engine cradle for General Motors Corporation's new consumer electric vehicle
commencing in 1998. The Company has also entered into a joint development effort
with Seagate to produce alternative computer hard-disk substrates. The Company
does not expect to achieve sales of Boralyn(R) prior to the fourth quarter of
1997, and there can be no assurance that any significant sales will be achieved.
The Company was unprofitable through September 30, 1997 and 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-month period ended September 30, 1997 compared to three-month period ended
September 30, 1996 and nine-month period ended September 30, 1997 compared to
nine-month period ended September 30, 1996.
Total revenues increased 255% to $78,000 for the three-month period
ended September 30, 1997 from $22,000 in the comparable period in 1996. Total
revenues increased 110% to $332,000 for the nine-month period ended September
30, 1997 from $158,000 in the comparable period in 1996. The increase was the
result of prototype and tooling sales.
Cost of goods sold increased 67% to $82,000 for the three-month period
ended September 30, 1997 from $49,000 in the comparable period in 1996. Cost of
goods sold increased 232% to $299,000 for the nine-month period ended September
30, 1997 from $90,000 in the comparable period in 1996, reflecting the lower
margin on sales of custom built tooling. Certain customers have renegotiated
tooling contracts where future tooling payments are to be treated as a
reimbursement of tooling expenses as opposed to being recorded as revenue.
Expenses for the establishment of a manufacturing facility increased
698% to $511,000 for the three-month period ended September 30, 1997 from
$64,000 in the comparable period in 1996. Expenses for establishing a
manufacturing facility increased 1508% to $1,029,000 for the nine-month period
ended September 30, 1997 from $64,000 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. The Company expects
to begin production in the fourth quarter of 1997, reaching normal production
levels in mid 1998.
General and administrative expenses increased 71% to $699,000 for the
three-month period ended September 30, 1997, from $408,000 in the comparable
period in 1996. General and administrative expenses increased 130% to $1,838,000
for the nine-month period ended September 30, 1997 from $798,000 in the
comparable period in 1996. The increase was primarily the result of the
additional staff, including recruiting, professional services and other
administrative costs. These expenses will increase in the next several quarters
to support anticipated growth in the Company's business activities.
Selling and marketing expenses increased 90% to $339,000 for the
three-month period ended September 30, 1997 from $178,000 in the comparable
period in 1996. Selling and marketing expenses increased 333% to $1,004,000 for
the nine-month period ended September 30, 1997 from $232,000 in the comparable
period in 1996. The increase was the result of an increase in marketing expenses
incurred in the expanding marketing efforts for Boralyn(R) products. These
expenses will continue to increase to support anticipated Company growth.
Research and development expenses increased 461% to $522,000 for the
three-month period ended September 30, 1997 from $93,000 in the comparable
period in 1996. Research and development expenses increased 880% to $1,166,000
for the nine-month period ended September 30, 1997 from $119,000 in the
comparable period in 1996. This increase was attributable to an
8
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increase in ongoing development programs, including the management of the
research facility in Fremont, California which is focused on the computer
hard-disk substrate market. These expenses are expected to increase over the
next several quarters to support the development of Boralyn(R)-based products.
As a result of the foregoing factors, loss before provision for income
taxes increased 128% to $1,902,000 for the three-month period ended September
30, 1997 from $833,000 in the comparable period in 1996. As a result of the
foregoing factors, loss before provision for income taxes increased 250% to
$4,309,000 for the nine-month period ended September 30, 1997 from $1,230,000 in
the comparable period in 1996.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $10,948,000
as a direct result of the completed initial public offering in October 1996 of
2,750,000 shares of its common stock at a price of $13.50 per share, which
generated net proceeds to the Company of approximately $33.3 million after
underwriting discounts and offering expenses. Working capital at December 31,
1996 was $23,494,000. During the nine-month period ended September 30, 1997, the
Company invested approximately $8.4 million of net proceeds from the initial
public offering in new machinery and equipment and production facilities.
The Company's future liquidity and capital funding requirements will
depend on numerous factors, including results of marketing its Boralyn(R)
products, their acceptance in the market, and the costs and timing of growth in
sales, marketing and manufacturing activities. The Company intends to finance
some of its existing and future capital equipment needs. The Company
anticipates, based on its currently proposed plans and assumptions relating to
its operations, that its existing cash resources and future capital equipment
financing will be sufficient to satisfy its contemplated cash requirements
through 1998.
Except for historical information contained herein, this 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, in the
risk factors detailed in the Company's Annual Report on Form 10-K and 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, in the Company's Annual Report on Form 10-K and in the
Company's Prospectus dated October 22, 1996.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Not Applicable
9
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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 nine-month period ended September
30, 1997.
(B) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALYN CORPORATION
(Registrant)
By: /s/Robin A. Carden
------------------------
Robin A. Carden
Chief Executive Officer and
President
By: /s/Walter R. Menetrey
----------------------------
Walter R. Menetrey
Executive Vice President and
Chief Operating Officer
By: /s/Richard L. Little
-----------------------------
Richard L. Little
Vice President, Finance and Administration
and Chief Accounting Officer
Dated: November 12, 1997
11
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENT OF ALYN CORPORATION FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 10,747,000
<SECURITIES> 0
<RECEIVABLES> 81,000
<ALLOWANCES> 25,000
<INVENTORY> 131,000
<CURRENT-ASSETS> 11,253,000
<PP&E> 12,954,000
<DEPRECIATION> 359,949
<TOTAL-ASSETS> 27,050,000
<CURRENT-LIABILITIES> 305,000
<BONDS> 0
0
0
<COMMON> 11,000
<OTHER-SE> 26,745,000
<TOTAL-LIABILITY-AND-EQUITY> 27,050,000
<SALES> 273,000
<TOTAL-REVENUES> 332,000
<CGS> 299,000
<TOTAL-COSTS> 299,000
<OTHER-EXPENSES> 5,037,000
<LOSS-PROVISION> 23,302
<INTEREST-EXPENSE> (695,000)
<INCOME-PRETAX> (4,309,000)
<INCOME-TAX> 12,000
<INCOME-CONTINUING> (4,321,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,321,000)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
