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 June 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 August 12, 1997.
<PAGE>
ALYN CORPORATION
INDEX
- -------------------------------------------------------------------------------
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
June 30, 1997 (unaudited) and December 31, 1996 3
Condensed Statements of Operations -
Three months ended June 30, 1997 (unaudited) and June
30, 1996 (unaudited) and six months ended
June 30, 1997 (unaudited) and June 30, 1996 (unaudited). 4
Condensed Statements of Stockholders' Equity (Deficit) -
Six months ended June 30, 1997 (unaudited) 5
CondensedStatements of Cash Flows Six months ended June 30,
1997 (unaudited) and
June 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
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
ALYN CORPORATION
Condensed Balance Sheets
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents 15,113,000 24,411,000
Accounts receivable, net 228,000 57,000
Notes Receivable 25,000 -
Inventories 78,000 41,000
Other current assets 176,000 122,000
------- -------
Total current assets 15,620,000 24,631,000
Equipment, furniture and fixtures, net 11,549,000 5,027,000
Other assets, net 1,099,000 1,771,000
Intangibles, net 754,000 774,000
------- -------
29,022,000 32,203,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 176,000 945,000
Accrued and other current liabilities 197,000 192,000
------- -------
Total current liabilities 373,000 1,137,000
Stockholders' equity
Common stock 11,000 11,000
Additional paid-in capital 33,294,000 33,294,000
Accumulated deficit (4,656,000) (2,239,000)
---------- ----------
Total stockholders' equity 28,649,000 31,066,000
---------- ----------
29,022,000 32,203,000
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
<TABLE>
Alyn Corporation
Condensed Statements of Operations
(Unaudited)
<CAPTION>
Alyn Alyn
Alyn Pro Forma Alyn Pro Forma
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
<S> <C> <C> <C> <C>
Net sales 182,000 20,000 209,000 111,000
Contract revenue 30,000 25,000 45,000 25,000
------ ------ ------ ------
Total revenue 212,000 45,000 254,000 136,000
Costs and expenses:
Cost of goods sold 194,000 21,000 217,000 41,000
Establishment of manufacturing facilities 293,000 - 518,000 -
General and administrative expenses 709,000 361,000 1,140,000 390,000
Selling and marketing 295,000 40,000 665,000 54,000
Research and development 420,000 18,000 644,000 26,000
------- ------ ------- ------
Total costs and expenses 1,911,000 440,000 3,184,000 511,000
--------- ------- --------- -------
Operating income (loss) (1,699,000) (395,000) (2,930,000) (375,000)
---------- -------- ---------- --------
Interest expense - (28,000) (1,000) (30,000)
Interest income 235,000 8,000 525,000 8,000
------- ----- ------- -----
Loss before provision for income taxes (1,464,000) (415,000) (2,406,000) (397,000)
Provision for income taxes 10,000 2,000 11,000 2,000
Net income (loss) (1,474,000) (417,000) (2,417,000) (399,000)
========== ======== ========== ========
Net loss per share (0.14) (0.22)
Weighted average number of
common shares outstanding 10,750,000 10,750,000
Pro forma net loss (436,000) (437,000)
Pro forma net loss per share (0.05) (0.05)
Pro forma weighted average number of
common shares outstanding 8,000,000 8,000,000
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
<TABLE>
Alyn Corporation
Condensed Statement of Stockholders' Deficit
(Unaudited)
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
---------------------- ------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 10,750,000 11,000 33,294,000 (2,239,000)
Net Loss (2,417,000)
---------- ------ ---------- ----------
Balance at June 30, 1997 10,750,000 11,000 33,294,000 (4,656,000)
========== ====== ========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
<TABLE>
Alyn Corporation
Condensed Statements of Cash Flows
(Unaudited)
<CAPTION>
Alyn
Alyn Pro Forma
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
<S> <C> <C>
Cash flows used in operating activities (3,325,000) (1,064,000)
Cash flows used in investing activities:
Capital expenditures (5,973,000) (212,000)
Cash flows from financing activities
Short term loan - 2,437,000
---------- ---------
Net (decrease) increase in cash and cash equivalents (9,298,000) 1,161,000
Cash and cash equivalents at beginning of period 24,411,000 77,000
---------- ------
Cash and cash equivalents at end of period 15,113,000 1,238,000
---------- ---------
</TABLE>
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 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 six-month period ended June
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 for the three
months ended June 30, 1996 consists of the combined results of Old Alyn from
April 1, 1996 to May 1, 1996 and Alyn from May 2, 1996 to June 30, 1996. The Pro
forma of the Condensed Statements of Operations and the Condensed Statements of
Cash Flows for the six months ended June 30, 1996 consists of the combined
results of Old Alyn from January 1, 1996 to May 1, 1996 and Alyn from May 2,
1996 to June 30, 1996. Pro forma net loss per share is based upon the weighted
average number of common stock shares outstanding during the three-month period
ended June 30, 1996 and the six-month period ended June 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 six-month period ended
June 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
June 30, December 31,
1997 1996
(unaudited)
Raw materials $60,000 $24,000
Finished goods 18,000 17,000
-------- -----------
$78,000 $41,000
======= =======
<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 (the "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. Under the Agreement, the
parties are also to engage in good faith negotiation, design and testing of
irons and other golf equipment with a view to their possible inclusion within
the exclusive license. 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. 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 June 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 June 30, 1997 compared to three-month period
ended June 30, 1996 and six-month period ended June 30, 1997 compared to
six-month period ended June 30, 1996.
Total revenues in the three-month period ended June 30, 1997 increased
371% to $212,000 from $45,000 in the comparable period in 1996. Total revenues
for the six-month period ended June 30, 1997 increased 87% to $254,000 from
$136, 000 in the comparable period in 1996. The increase was the result of
prototype and tooling sales to certain customers.
Cost of goods sold increased 824% to $194,000 in the three-month period
ended June 30, 1997 from $21,000 in the comparable period in 1996. Cost of goods
sold for the six-month period ended June 30, 1997 increased 429% to $217,000
from $41,000 in the comparable period in 1996, reflecting the higher percentage
of cost of sales for custom built tooling.
Expenses for the establishment of a manufacturing facility of $293,000
were incurred in the three-month period ended June 30, 1997 and there were no
such expenses incurred in the comparable period in 1996. Expenses for
establishing a manufacturing facility for the six-month period ended June 30,
1997 were $518,000 and there were no such 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 continue to support the Company in
reaching normal production levels.
General and administrative expenses increased 96% to $709,000 in the
three-month period ended June 30, 1997, from $361,000 in the comparable period
in 1996. General and administrative expenses for the six-month period ended June
30, 1997 increased 192% to $1,140,000 from $390,000 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 637% to $295,000 in the
three-month period ended June 30, 1997 from $40,000 in the comparable period in
1996. Selling and marketing expenses for the six-month period ended June 30,
1997 increased 1,131% to $665,000 from $54,000 in the comparable period in 1996.
The increase was the result of increased sales staff, including specialists in
sporting goods, computers, and transportation industries, as well as increased
marketing staff and an increase in marketing expenses incurred in start-up
marketing efforts for Boralyn(R) products. These expenses are expected to
increase in the next several quarters to support anticipated growth in the
Company's business activities.
Research and development expenses increased 2,233% to $420,000 in the
three-month period ended June 30, 1997 from $18,000 in the comparable period in
1996. Research and development expenses for the six-month period ended June 30,
1997 increased 2,377% to $644,000 from $26,000 in the comparable period in 1996.
This increase was primarily the result of increased research staff and ongoing
development programs, including the establishment of a research facility in
Fremont, California focused on the computer disc substrate market. These
expenses are expected to increase over the next several quarters to support the
development of Boralyn(R)-based products.
<PAGE>
As a result of the foregoing factors, loss before provision for income
taxes increased 253% to $1,464,000 in the three-month period ended June 30, 1997
from a loss of $415,000 in the comparable period in 1996 and loss before
provision for income taxes for the six-month period ended June 30, 1997
increased 506% to $2,406,000 from a loss of $397,000 in the six-month period
ended June 30, 1996.
Liquidity and Capital Resources
At June 30, 1997, the Company had working capital of $15,247,000 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 six-month period ended June 30, 1997, the
Company invested approximately $5.0 million of net proceeds from the initial
public offering in new machinery and equipment and production facilities, and an
additional $1.0 million in deposits on machinery and equipment.
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 1998. 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.
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 Risk
Not Applicable
<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 six-month period ended
June 30, 1997.
(B) Reports on Form 8-K.
Report dated May 13, 1997, relating to an Exclusive Customer
Agreement by and between True Temper Sports and the Registrant
(for which confidential treatment has been obtained).
<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
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: August 12, 1997
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 15,113,000
<SECURITIES> 0
<RECEIVABLES> 253,000
<ALLOWANCES> 25,000
<INVENTORY> 78,000
<CURRENT-ASSETS> 15,620,000
<PP&E> 11,752,000
<DEPRECIATION> 203,000
<TOTAL-ASSETS> 29,022,000
<CURRENT-LIABILITIES> 373,000
<BONDS> 0
0
0
<COMMON> 11,000
<OTHER-SE> 28,638,000
<TOTAL-LIABILITY-AND-EQUITY> 29,022,000
<SALES> 209,000
<TOTAL-REVENUES> 254,000
<CGS> 217,000
<TOTAL-COSTS> 217,000
<OTHER-EXPENSES> 2,967,000
<LOSS-PROVISION> 4,000
<INTEREST-EXPENSE> (524,000)
<INCOME-PRETAX> (2,406,000)
<INCOME-TAX> 11,000
<INCOME-CONTINUING> (2,417,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,417,000)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
