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, 1998.
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)
(949) 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 July 24, 1998 .
<PAGE>
ALYN CORPORATION
INDEX
- --------------------------------------------------------------------------------
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
June 30, 1998 (unaudited) and December 31, 1997 3
Condensed Statements of Operations -
Three months ended June 30, 1998(unaudited) and
June 30, 1997 (unaudited) and six months ended
June 30, 1998 (unaudited) and June 30, 1997 (unaudited) 4
Condensed Statements of Stockholders' Equity -
Six months ended June 30, 1998 (unaudited) 5
Condensed Statements of Cash Flows -
Six months ended June 30, 1998(unaudited)
and June 30, 1997 (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
Market Risk 9
PART II. OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
Alyn Corporation
Condensed Balance Sheet
(Unaudited)
June 30, December 31,
1998 1997
---- ----
Assets
Current assets:
Cash and cash equivalents $ 8,018,000 $13,126,000
Accounts receivable, net 75,000 94,000
Inventories 358,000 172,000
Other current assets 105,000 201,000
----------- -----------
Total current assets 8,556,000 13,593,000
Equipment, furniture and fixtures, net 20,885,000 13,302,000
Other assets, net 957,000 3,454,000
Intangibles, net 732,000 778,000
----------- -----------
$31,130,000 $31,127,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,270,000 $ 551,000
Current portion of long term debt 1,698,000 999,000
Accrued and other current 324,000 326,000
--------- ---------
Total current liabilities 3,292,000 1,876,000
Long term debt 8,343,000 5,501,000
Stockholders' equity:
Common stock 11,000 11,000
Additional paid-in capital 35,700,000 33,294,000
Stock subscriptions receivable (407,000) -
Accumulated deficit (15,809,000) (9,555,000)
------------ -----------
Total stockholders' equity 19,495,000 23,750,000
------------ ------------
$31,130,000 $31,127,000
============ ============
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Net Sales $ 32,000 $ 182,000 $ 61,000 $ 209,000
Contract revenue -- 30,000 -- 45,000
-------- -------- -------- --------
Total revenue 32,000 212,000 61,000 254,000
Costs and expenses:
Cost of goods sold 1,322,000 194,000 1,910,000 217,000
Establishment of manufacturing
facilities - 293,000 - 518,000
General and administrative 1,005,000 709,000 1,667,000 1,139,000
Selling and marketing 298,000 295,000 599,000 665,000
Research and development 797,000 420,000 1,953,000 645,000
--------- --------- --------- ---------
Total costs and expenses 3,422,000 1,911,000 6,129,000 3,184,000
--------- --------- --------- ---------
Operating loss (3,390,000) (1,699,000) (6,068,000) (2,930,000)
Other income/(expense) (148,000) 235,000 (185,000) 524,000
---------- ---------- ---------- ---------
Loss before provision for
income taxes (3,538,000) (1,464,000) (6,253,000) (2,406,000)
Provision for income taxes - 10,000 1,000 11,000
---------- ---------- ---------- -----------
($3,538,000)($1,474,000)($6,254,000)($2,417,000)
Basic and diluted net loss
per share ($0.33) ($0.14) ($0.58) ($0.22)
Common shares used in computing
basic and diluted net loss
per share 10,750,000 10,750,000 10,750,000 10,750,000
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Stockholders' Equity
(Unaudited)
Additional Stock
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------------------ ----------- ------------ -----------
Balance at
December 31, 1997 10,750,000 $10,750 $33,294,000 ($9,555,000)
Common Stock
Subscribed 370,000 370 2,406,000
Stock Subscription
Receivable ($407,000)
Net loss (6,254,000)
---------- ------- ----------- ---------- ------------
Balance at
June 30,1998 11,120,000 $11,000 $35,700,000 ($407,000) ($15,809,000)
========== ======= =========== ========== =============
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Cash Flows
Six Months Ended
June 30,
1998 1997
---- ----
Cash flows used in operating ($4,645,000) ($3,325,000)
activities:
Cash flows used in investing activities:
Capital expenditures (6,004,000) (5,973,000)
Cash flows from financing activities:
Proceeds from long term debt (net) 3,541,000 -
Proceeds from common stock subscription 2,000,000 -
--------- -----------
Total cash flows from financing activities 5,541,000 -
Net (decrease) increase in cash (5,108,000) (9,298,000)
Cash and cash equivalents at
beginning of period 13,126,000 24,411,000
---------- ----------
Cash and cash equivalents at end of period $ 8,018,000 $15,113,000
=========== ===========
See Notes to Condensed Financial Statements
<PAGE>
ALYN CORPORATION
NOTES TO FINANCIAL STATEMENTS
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,
1997, included in the Company's Form 10-K, which is on file with the Securities
and Exchange Commission. Operating results for the six months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
Cost of goods sold includes, in addition to the costs associated with the
sales for the first two quarters of 1998 all labor, material and overhead
pertaining to the Company's under-utilization of production capacity.
2. Inventories
June 30, December 31,
1998 1997
Inventories:
Raw materials $358,000 $157,000
Finished goods - 15,000
-------- --------
$358,000 $172,000
======== ========
3. Stock Subscription Rights
On June 29, 1998 the Company filed a registration statement with the
Securities and Exchange Commission in connection with the Company's Rights
Offering to subscribe for an aggregate of 1.6 million shares of Alyn Common
Stock. The Company amended the original registration statement on July 15, 1998
to increase the number of shares to 1.9 million shares. The Rights Offering, if
fully subscribed for, will increase Alyn's outstanding shares by only 1.4
million shares because Robin A. Carden, the Company's Founder will transfer to
the company without charge, 500,000 shares of Alyn Common Stock. The Rights
Offering granted each shareholder of record on July 15, 1998 one Right for every
5.65803 shares of Alyn Common Stock owned. The exercise per Right is $5.50 and
the Rights expire on August 28, 1998. The Company had received $2.0 million from
a principal stockholder as an advance of the subscription price due from such
principal stockholder.
<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 of its advanced metal matrix composite materials. Following
its initial public offering in October 1996, the Company has focused on the
establishment of manufacturing facilities and prototype production of metal
matrix composite products. In 1997 and the first two quarters of 1998 the
Company's sales were primarily the result of prototype orders. The Company is in
transition from establishing manufacturing facilities and prototype development
to production. An initial production order for metal wood golf club heads was
received from Taylor Made Golf Company in June 1998 and the Company has received
prototype development orders from two other major golf club manufacturers.
Boralyn(R) -based golf club shaft prototypes are in True Temper Sports' field
testing program for evaluation. Shipments have begun for aerospace applications
utilizing both Boralyn(R) and hard-alloy aluminum. Development work continues in
the Company's disk substrate program. Production of the engine cradle for
General Motors began in June 1998, with the first shipments scheduled for July
1998. While the Company expects to achieve sales of Boralyn(R) -based products
in 1998, there can be no assurance that any significant sales will be achieved.
The Company was unprofitable through June 30, 1998 and incurred a loss for the
full year 1997 as a result of start-up expenses in anticipation of production
orders, and will incur additional losses thereafter.
Results of Operations
For purposes of discussion, the results of operations for the three-month period
ended June 30, 1998 are compared to the results of operations for the
three-month period ended June 30, 1997 and the results of operations for the
six-month period ended June 30, 1998 are compared to the six-month period ended
June 30, 1997.
Total revenues for the second quarter of 1998 decreased 85% to $32,000
from $212,000 in the second quarter of 1997. Total revenues for the six-month
period ended June 30, 1998 decreased 71% to $61,000 from $254,000 in the
six-month period ended June 30, 1997. The decrease in revenues is not considered
significant.
Cost of goods sold for the second quarter of 1998 increased 582% to
$1,322,000 from $194,000 in the second quarter of 1997. Cost of goods sold for
the six-month period ended June 30, 1998 increased 781% to $1,910,000 from
$217,000 in the six-month period ended June 30, 1997. All labor, material and
overhead costs not attributable to internal R & D projects were classified as
Cost of goods sold in 1998. In 1997, prior to completion of the Company's first
manufacturing facility, only labor, material and overhead associated with sales
went to Cost of goods sold with the remainder charged to Establishment of
manufacturing facilities.
There were no expenses for the Establishment of manufacturing facilities
during 1998. In 1997, $518,000 of expenses incurred for the startup and testing
of production equipment were charged to Establishment of manufacturing
facilities.
General and administrative expenses for the second quarter of 1998
increased 42% to $1,005,000 from $709,000 in the second quarter of 1997. General
and administrative expenses for the six-month period ended June 30, 1998
increased 46% to $1,667,000 from $1,139,000 in the six-month period ended June
30, 1997. The increase represents the costs incurred as a result of increasing
the Company's administrative employee base, including a new CEO in April, 1998.
These expenses are not expected to increase until the Company begins production.
Research and development expenses for the second quarter of 1998 increased
90% to $797,000 from $420,000 in the second quarter of 1997. Research and
development expenses for the six-month period ended June 30, 1998 increased 203%
to $1,953,000 from $645,000 in the six-month period ended June 30, 1997. This
increase was attributable to an increase in internal development of products the
Company anticipates producing. The Company expects to continue investing in
research and development of new applications of Boralyn(R).
Liquidity and Capital Resources
At June 30, 1998, the Company had working capital of $5,671,000. The
Company has funded its operations through proceeds from its initial public
offering in October 1996 of $33.3 million, net of expenses, and through debt
financing of $10.5 million, $6.5 million completed in December 1997, and $4.0
million completed in the second quarter of 1998. The Company announced a Common
Stock Rights Offering on June 29, 1998 that is anticipated to yield net proceeds
of approximately $10 million to the Company. As of June 30, 1998 the Company had
received $2 million in subscription advances from the offering. Cash balances in
excess of those required to fund operations are invested in interest-bearing
high quality short-term investment grade corporate securities and government
securities in accordance with investment guidelines approved by the Company's
Board of Directors.
The Company's future liquidity and capital funding requirements will
depend on numerous factors, including results of marketing its metal matrix
composite capabilities, their acceptance in the market, the timing of production
orders and their delivery and the costs and timing of growth in sales, marketing
and manufacturing activities. The Company intends to use debt financing for some
of its existing and future capital needs. The Company believes that the net
proceeds from the rights offering, together with cash flow from operations,
current cash balances, and bank line of credit will be sufficient to finance its
working and other capital requirements for the next eighteen months.
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 July 15, 1998, 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 those filings with the Securities and Exchange Commission
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
The results of the Annual Meeting of Stockholders held on June 3, 1998 were as
follows:
Total Shares voted 4,344,405
The election of the following directors:
Broker
Director For Withheld Non-Votes
Steven S. Price 4,336,105 8,300 0
Robin A. Carden 4,336,105 8,300 0
Walter R. Menetrey 4,336,305 8,100 0
Harry Edelson 4,335,405 9,000 0
Michael Markbreiter 4,335,505 8,900 0
Udi Toledano, Chairman 4,335,605 8,800 0
Ratified PricewaterhouseCoopers LLP as independent accountants of the Company
for its fiscal year ending December 31, 1998.
For Withheld Abstain
4,333,900 7,195 3,310
ITEM 5. OTHER INFORMATION
STOCKHOLDER PROPOSALS
The eligibility of stockholders to submit proposals, the proper
subjects of stockholder proposals and other issues governing stockholder
proposals are regulated by the rules (the "Stockholder Proposal Rules")
adopted under Section 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Stockholder proposals submitted pursuant to
Rule 14a-8 under the Exchange Act for inclusion in the Company's proxy
materials for the 1999 Annual Meeting of Stockholders must be received by
the Company at its principal executive office, 16761 Hale Avenue, Irvine,
CA 92606, no later than Monday, January 4, 1999.
In addition, in accordance with recent amendments to the Stockholder
Proposal Rules, written notice of stockholder proposals to be submitted
outside of Rule 14a-8 described above for consideration at the 1999 Annual
Meeting of Stockholders must be received by the Company, at the address
set forth in the preceding paragraph, on or before Thursday, March 19,
1999 in order to be considered timely for purposes of the Stockholder
Proposal Rules. The persons designated as proxies by the Company in
connection with the 1999 Annual Meeting of Stockholders will have
discretionary voting authority with respect to any stockholder proposal of
which the Company did not receive timely notice.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<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: -------------------------------
Steven S. Price
President and
Chief Executive Officer
By: -------------------------------
Richard L. Little
Vice President, Finance and
Administration and Chief
Accounting and Financial Officer
Dated: August 11, 1998
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