15
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, 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;
11,107,878 shares as of November 10, 1998.
<PAGE>
ALYN CORPORATION INDEX
- - -------------------------------------------------------------------------------
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet -
September 30, 1998 (unaudited) and December 31, 1997 3
Condensed Statements of Operations -
Three months ended September 30, 1998(unaudited)and
September 30, 1997 (unaudited) and nine months ended
September 30, 1998 (unaudited) and
September 30, 1997 (unaudited) 4
Condensed Statements of Stockholders' Equity -
Nine months ended September 30, 1998 (unaudited) 5
Condensed Statements of Cash Flows -
Nine months ended September 30, 1998 (unaudited
and September 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 8-12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION 13
SIGNATURES 14
<PAGE>
Alyn Corporation
Condensed Balance Sheet
(Unaudited)
September 30, December 31,
1998 1997
Assets
Current assets:
Cash and cash equivalents ....... $ 5,928,000 $ 13,126,000
Accounts receivable, net ........ 482,000 94,000
Inventories ..................... 423,000 172,000
Other current assets ............ 125,000 201,000
Total current assets ................. 6,958,000 13,593,000
Equipment, furniture and fixtures, net 21,346,000 13,302,000
Other assets, net .................... 586,000 3,454,000
Intangibles, net ..................... 711,000 778,000
$ 29,601,000 $ 31,127,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .................... $ 546,000 $ 551,000
Current portion of long term debt ... 1,808,000 999,000
Accrued and other current liabilities 469,000 326,000
Total current liabilities ................ 2,823,000 1,876,000
Long term debt ........................... 7,795,000 5,501,000
Stockholders' equity:
Common stock .......................... 11,000 11,000
Additional paid-in capital ............ 37,796,000 33,294,000
Accumulated deficit ................... (18,824,000) (9,555,000)
Total stockholders' equity ............... 18,983,000 23,750,000
$ 29,601,000 $ 31,127,000
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net sales .........................$ 602,000 $ 64,000 $ 662,000 $ 273,000
Contract revenue .................. 14,000 59,000
-------- --------- --------- ---------
Total revenue ..................... 602,000 78,000 662,000 332,000
-------- --------- --------- ---------
Costs and expenses:
Cost of goods sold ............... 1,813,000 82,000 3,770,000 299,000
Establishment of mfg facilities ... -- 511,000 -- 1,029,000
General and administrative expenses 679,000 699,000 2,300,000 1,838,000
Selling and marketing ............. 328,000 339,000 928,000 1,004,000
Research and development .......... 628,000 522,000 2,578,000 1,166,000
--------- --------- --------- ---------
Total costs and expenses ......... 3,448,000 2,153,000 9,576,000 5,336,000
--------- --------- --------- ---------
Operating loss
(2,846,000) (2,075,000) (8,914,000) (5,004,000)
Other income/(expense) (169,000) 173,000 (354,000) 695,000
----------- --------- ---------- ----------
Loss before provision for
income taxes (3,015,000) (1,902,000) (9,268,000) (4,309,000)
Provision for income taxes - 1,000 1,000 12,000
----------- --------- ---------- ----------
Net loss ($3,015,000)($1,903,000)($9,269,000)($4,321,000)
========== ========== ========== ==========
Basic and diluted net loss
per share ($0.28) ($0.18) ($0.86) ($0.40)
===== ===== ===== =====
Common shares used in computing
basic and diluted
net loss per share 10,869,293 10,750,000 10,789,764 10,750,000
========== ========== ========== ==========
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Stockholders' Equity
(Unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
Balance at December 31, 1997 10,750,000 $10,750 $33,294,000 ($9,555,000)
Common stock contributed (500,000) (500) 500
Common stock issued 858,000 858 4,502,000
Net loss (9,269,000)
---------- ------- ------------ ------------
Balance at September 30, 1998 11,108,000 $11,108 $37,796,500 ($18,824,000)
========== ======= =========== ============
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Cash flows used in operating activities: ($7,759,000) ($5,280,000)
------------ ------------
Cash flows used in investing activities:
Capital expenditures (7,044,000) (8,384,000)
------------ -----------
Cash flows from financing activities:
Proceeds from long term debt (net) 3,103,000 -
Proceeds from common stock subscription 4,502,000 -
--------- -----------
Cash flows provided by financing activities 7,605,000 -
---------- -----------
Net decrease in cash and cash equivalents (7,198,000) (13,664,000)
----------- ------------
Cash and cash equivalents-beginning of period 13,126,000 24,411,000
---------- -----------
Cash and cash equivalents at end of period $ 5,928,000 $10,747,000
=========== ===========
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 nine months ended September 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 three quarters of 1998, all
labor, material and overhead pertaining to the Company's
under-utilization of production capacity.
2. Inventories
September 30, December 31,
1998 1997
---- ----
(Unaudited)
Raw materials $423,000 $157,000
Finished goods - 15,000
--------- --------
$423,000 $172,000
========= ========
3. Common Stock Rights Offering
On August 28, 1998 the Company completed a common stock Rights
Offering to its stockholders which resulted in net proceeds to the
Company of $4,502,000. Common shares outstanding increased a net of
357,878 to a total of 11,107,878. The Rights Offering resulted in an
additional 857,878 common shares being issued to existing
stockholders; however, Robin A. Carden, the Company's Founder
contributed 500,000 common shares of his stock to the Company at no
charge. This contribution reduced the dilutive effect of the Rights
Offering.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement
The following discussion and other sections of this Form 10-Q
may contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, and is subject to the safe harbors
created by those sections. These forward-looking statements are
subject to significant risks and uncertainties, including without
limitation those identified in the section of this Form 10-Q entitled
"Factors That May Affect Future Results and Financial Condition" and
in the Company's Prospectus dated July 15, 1998 as filed with the
Securities and Exchange Commission (the "SEC"). Such risks and
uncertainties may cause actual results to differ materially and
adversely from those discussed in such forward-looking statements. The
forward-looking statements within this Form 10-Q are identified by
words such as "believes," "anticipates," "expects," "intends," "may"
and other similar expressions. However, these words are not the
exclusive means of identifying such statements. In addition, any
statements that refer to expectations, projections or other
characterizations of future events or circumstances are
forward-looking statements. The Company disclaims any obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances
occurring subsequent to the filing of this Form 10-Q with the SEC or
otherwise to revise or update any oral or written forward-looking
statement that may be made from time to time by or on behalf of the
Company. The information contained in this Form 10-Q is not a complete
description of the Company's business or the risks associated with an
investment in the Company. Readers are urged to carefully review and
consider the various disclosures made by the Company in this Report
and in the Company's other filings with the SEC, including its
Prospectus dated July 15, 1998, that attempt to advise interested
parties of certain risks, uncertainties and other factors that may
affect the Company's business.
Overview
From its inception in 1990 until its initial public offering
in October 1996, the Company was engaged in research, development, and
testing of its advanced metal matrix composite materials. Following
its initial public offering, the Company 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 transitioned to production in the third quarter of 1998.
The initial production order for metal wood golf club heads
for Taylor Made Golf Company is expected to begin shipment in the
first quarter of 1999. San Diego-based Carbite Golf has placed an
initial production order for a new line of Polar Balanced putters
featuring Boralyn(R), with the first deliveries scheduled in the
fourth quarter of 1998. The Company is also working with The MacGregor
Golf Company on their new Boralyn line of Tourney(R) Putters, which
are expected to debut in January 1999, with initial shipments in the
fourth quarter of 1998. True Temper Sports announced that they will
commercially launch Boralyn golf club shafts in 1999, with initial
production also in the fourth quarter of 1998. General Motors selected
the Company to provide seventeen parts for its Next Generation Vehicle
(NGV), developed by its Advanced Technology Vehicles Group. Production
orders for these parts, which are for suspension, cross-member and
control arm components, have been received, with shipments scheduled
for delivery beginning in early 1999. The Company began shipping
engine cradles to General Motors for its EV-1 electric vehicle in the
third quarter of 1998. Shipments have also begun for aerospace
applications utilizing both Boralyn(R) and hard-alloy aluminum. The
Company anticipates completing several production orders for various
aerospace forgings and extrusions in the fourth quarter of 1998.
Development work continues in the Company's computer disk substrate
program. Test and evaluation programs have begun with three major
disk-drive manufacturers.
While the Company has achieved sales of Boralyn -based
products in 1998, there can be no assurance that any significant sales
will be achieved. The Company anticipates incurring 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 or maintain profitability, if achieved, on a
consistent basis. Moreover, the Company has entered into a ten-year
lease for its main facility in Irvine, California, and a ten-year
lease for its additional facility, also in Irvine, and the Company has
committed substantial capital to equip both facilities with
significant production capability. Unless and until the Company
achieves a significant level of sales, the Company will continue to
have substantial production overcapacity and underabsorbed costs that
would cause the Company to incur substantial additional operating
losses.
Results of Operations
For purposes of discussion, the results of operations for the
three-month period ended September 30, 1998 are compared to the
results of operations for the three-month period ended September 30,
1997 and the results of operations for the nine-month period ended
September 30, 1998 are compared to the nine-month period ended
September 30, 1997.
Total revenues for the third quarter of 1998 increased 672% to
$602,000 from $78,000 in the third quarter of 1997. Production
represents 48% of total revenue for the third quarter of 1998 as
compared to 20% of total revenue for the third quarter of 1997. The
remainder represents production tooling and prototyping. Total
revenues for the nine-month period ended September 30, 1998 increased
99% to $662,000 from $332,000 in the nine-month period ended September
30, 1997. Production for the first nine months of 1998 contributed 51%
of total revenue as compared to 20% for the same period in 1997. The
remainder represents production tooling and prototyping. Production in
the third quarter of 1998 included shipments to firms in the
aerospace, automotive and golf industries.
Cost of goods sold for the third quarter of 1998 increased
2,111% to $1,813,000 from $82,000 in the third quarter of 1997. Cost
of goods sold for the nine-month period ended September 30, 1998
increased 1,161% to $3,770,000 from $299,000 in the nine-month period
ended September 30, 1997. As the Company began production in the third
quarter of 1998, all excess manufacturing capacity costs were charged
to Cost of goods sold. In 1997, prior to completion of the Company's
first manufacturing facility, only labor, material and overhead
directly 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 the quarter and nine months ended September
30, 1997, $511,000 and $1,029,000 of expenses, respectively, were
incurred for the startup and testing of production equipment and
charged to Establishment of manufacturing facilities.
General and administrative expenses for the third quarter of
1998 decreased 3% to $679,000 from $699,000 in the third quarter of
1997. As cost savings measures are put into place, the Company expects
to see general and administrative expenses decrease in relation to
other expenses, but remain relatively flat in absolute terms over the
next two quarters. General and administrative expenses for the
nine-month period ended September 30, 1998 increased 25% to $2,300,000
from $1,838,000 in the nine-month period ended September 30, 1997. The
increase represents higher employee recruiting costs and other
generally non-recurring expenses in 1998.
Sales and marketing expenses for the third quarter of 1998
decreased 3 % to $328,000 from $339,000 in the third quarter of 1997.
Sales and marketing expenses for the nine-month period ended September
30, 1998 decreased 8 % to $928,000 from $1,004,000 in the nine-month
period ended September 30, 1997.
Research and development expenses for the third quarter of
1998 increased 20% to $628,000 from $522,000 in the third quarter of
1997. Expenses relating to disk substrate research were higher in the
third quarter of 1998 as compared to the same period in 1997. Research
and development expenses for the nine-month period ended September 30,
1998 increased 121% to $2,578,000 from $1,166,000 in the nine-month
period ended September 30, 1997. This increase was attributable to an
increase in internal development of products, including development of
the disk substrate program. The Company expects to continue investing
in research and development of new applications for Boralyn.
Liquidity and Capital Resources
At September 30, 1998, the Company had cash of $5,928,000 and
working capital of $4,135,000. The Company has funded its operations
through: a) net proceeds from its initial public offering in October
1996 of $33.3 million; b) debt financing of $10.5 million - $6.5
million completed in December 1997 and $4.0 million completed in the
second quarter of 1998; and c) net proceeds of $4.5 million from the
initial phase of equity financing, in the form of the common stock
Rights Offering, completed in August 1998. The Company intends to
complete its financing plans through additional equity financing,
although there can be no assurance that such financing, if available,
will be available under commercially reasonable terms. 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 cash flow
from operations, current cash balances, and its bank line of credit
will be sufficient to finance its working and other capital
requirements for the next eighteen months.
Factors That May Affect Future Results And Financial Condition
In future periods the Company's business, financial condition
and results of operations may be affected in a material and adverse
manner by many factors, including, but not limited to, the following:
Limited Revenues and Prior Losses. The Company has had
extremely limited revenues to date. The Company reported total net
revenues of $662,000 and a net loss of $9,269,000 for the nine-month
period ended September 30, 1998. The Company reported total net
revenues of $364,000 and a net loss of $7,316,000 for the year ended
December 31, 1997, and total net revenues of $194,000 and a net loss
of $2,255,000 for the year ended December 31, 1996. The Company
anticipates incurring 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 or maintain
profitability, if achieved, on a consistent basis. Moreover, the
Company has entered into a ten-year lease for its main facility in
Irvine, California, and a ten-year lease for its additional facility,
also in Irvine, and the Company has committed substantial capital to
equip both facilities with significant production capability. Unless
and until the Company achieves a significant level of sales, the
Company will continue to have substantial production overcapacity and
underabsorbed costs that would cause the Company to incur substantial
additional operating losses.
Limited Manufacturing History; Manufacturing Risk. The Company
has only limited experience in manufacturing its products in
commercial quantities. There can be no assurance that the Company will
be able to fully utilize its plants' capacity or that these facilities
will be adequate for all of the Company's future fabrication
requirements. The manufacturing processes for Boralyn utilize high
temperature and high pressure 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 interruption of the Company's
manufacturing capacity. Moreover, the Company's manufacturing
operations are using certain equipment that, if damaged or otherwise
rendered inoperable or unavailable, could result in the disruption of
the Company's manufacturing operations. Although the Company has
obtained business interruption insurance with coverage for lost
profits and out-of-pocket expenses up to $8 million per occurrence,
and presently maintains, and intends to continue to maintain, other
property and casualty coverage, an extended interruption of operations
at the Company's manufacturing facilities would have a material
adverse effect on the business of the Company.
No Assurance of Market Acceptance in Commercial Quantities.
Market acceptance of the Company's products in commercial quantities
will depend 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 material methodologies and products. The
Company has experienced, and will likely continue to experience, long
sales cycles and lengthy customer product design times prior to
production orders. There can be no assurance that the Company can
achieve customer acceptance in commercial quantities of Boralyn or the
Company's other current or future products. 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.
Revenue Timing; Quarterly Fluctuations in Operating Results.
The Company has experienced, and will likely continue to experience,
long sales cycle times, lengthy customer design processes for new
product introductions, and market trends that may significantly limit
management's ability to forecast accurately time-to-market schedules
or short-term results of operations. 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
and the size and actual delivery dates of orders. The Company's
operating results for any particular quarter are not necessarily
indicative of any future results. Fluctuations caused by variations in
quarterly operating results or the Company's failure to meet analysts'
projections or public expectations as to operating results may
adversely affect the market price of the Company's Common Stock.
Rapid Technological Change and New Product Development. The
Company operates in a rapidly evolving field - advanced 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 critical factors 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, 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. For accounting purposes, the costs of those
efforts will be recorded 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, if at all, until
subsequent periods.
Possible Dependence on Significant Customers. In view of the
early stage nature of the Company's business, currently it has only a
limited number of customers, several of whom may be material to the
Company's near term 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.
Dependence on Patents. The Company has been granted one United
States patent that it believes provides protection for its proprietary
Boralyn technology and contains claims that cover the use of Boralyn.
The Company has been granted additional patents, including divisional
(extension) patents and continuation-in-part patents, that stem from
the Company's original patent application. The Company has applied for
additional patents. There can be no assurance that the Company's
existing patents 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 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 any patent issued to the Company, the
costs of enforcing the Company's patent rights may be substantial or
even prohibitive. There can 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.
Competition. The materials industry is highly competitive. The
Company competes in its chosen markets against several larger domestic
and multi-national companies, all of which are well established in
their respective markets and have substantially greater financial and
other resources than 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.
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. 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 Principal Suppliers. The Company presently
purchases its principal ceramic 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 purchase boron carbide at prices and on terms
comparable to those presently available from its principal suppliers.
Although the Company believes that boron carbide is 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 or at prices and on terms deemed reasonable by the
Company.
Dependence on Management. The Company's future success and
profitability is substantially dependent upon the performance of its
senior executives, particularly Steven S. Price, the Company's
President and Chief Executive Officer. The loss of services from any
of the Company's senior executives could have a material adverse
effect on the Company. The Company does maintain key-man life
insurance policies of $2.5 million on each of the lives of Mr. Price
and Mr. Carden, the Company's Founder. The Company's future growth
will 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.
Dependence on Trademarks for Current and Future Markets. The
market for the Company's products is and will remain dependent in part
upon the goodwill engendered by its trademarks and trade names.
Trademark protection is therefore material to the Company's business.
Although Boralyn 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 could be substantial.
Year 2000 Compliance. The Company believes its current
accounting and management information systems are Year 2000 compliant.
The Company is in the process of evaluating all other internal
software applications, hardware, office equipment and manufacturing
equipment for Year 2000 compatibility. It will utilize both internal
and external resources to reprogram and/or replace any deficiencies;
this evaluation should be completed by January 1999. The Company is
not currently aware of any incompatibility and believes that no
material expenditures will be required and there would not be any
material effect on operations. The Company has determined it has no
exposure related to its products. Formal communications have been
initiated with all significant suppliers and large customers to
determine the extent to which the Company is vulnerable to those third
parties' failure to address their own Year 2000 Issue. The Company
expects to have analyzed and accessed the possible risk of significant
business interruptions as a result of a third party's noncompliance by
March 1999. At that time, any necessary contingency plans will be
developed to address any material consequences the Company could
suffer if a third party is not Year 2000 compliant. However, there can
be no guarantee that the failure of other companies to adequately
address the Year 2000 Issue will not have a material adverse effect on
the Company. The Company expects to complete its Year 2000 compliance
efforts by mid 1999. The total estimated project cost, which is not
considered material, includes the estimated costs and time associated
with the impact of third party compliance. However, there can be no
guarantee that these estimates will be achieved and actual results
could differ materially from those plans.
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
The following items were reported on Form 8-K during the
Quarter Ended September 30, 1998:
A press release dated July 2, 1998 was filed on Form 8-K on
July 2, 1998 titled, "Alyn Corporation Responds to Recent
Sharp Decline in Share Price and Provides Business
Update".
A press release dated August 3, 1998 was filed on Form 8-K
on August 3, 1998 titled, "Alyn Corporation Reports Second
Quarter Results".
A press release dated August 23, 1998 was filed on Form 8-K
on August 23, 1998 titled, "Alyn Corporation Provides
Further Business Update".
<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: November 10, 1998
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