UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 [ ] No [ x ]
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 May 11, 1998 .
<PAGE>
ALYN CORPORATION
INDEX
- --------------------------------------------------------------------------------
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 1998 (unaudited) and December 31, 1997 3
Condensed Statements of Operations -
Three months ended March 31, 1998 (unaudited) and
March 31, 1997 (unaudited) 4
Condensed Statements of Stockholders' Equity -
Three months ended March 31, 1998 (unaudited) 5
Condensed Statements of Cash Flows -
Three months ended March 31, 1998 (unaudited) and
March 31, 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)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $8,696,000 $13,126,000
Accounts receivable, net 83,000 94,000
Inventories 377,000 172,000
Other current assets 136,000 201,000
------------------------------------------
Total current assets 9,292,000 13,593,000
Equipment, furniture and fixtures, net 15,536,000 13,302,000
Other assets, net 3,336,000 3,454,000
Intangibles, net 758,000 778,000
------------------------------------------
$28,922,000 $31,127,000
==========================================
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable $1,285,000 $551,000
Current portion of long term debt 1,143,000 999,000
Accrued and other current liabilities 229,000 326,000
------------------------------------------
Total current liabilities 2,657,000 1,876,000
Long term debt
5,231,000 5,501,000
Stockholders' equity:
Common stock 11,000 11,000
Additional paid-in capital 33,294,000 33,294,000
Accumulated deficit (12,271,000) (9,555,000)
------------------------------------------
Total stockholders' equity 21,034,000 23,750,000
------------------------------------------
$28,922,000 $31,127,000
==========================================
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
March 31, 1998 March 31, 1997
--------------------------------------------
<S> <C> <C>
Net sales $28,000 $27,000
Contract revenue - 15,000
---------------------------------------
Total revenue 28,000 42,000
Costs and expenses:
Cost of goods sold 634,000 23,000
Establishment of manufacturing facilities - 225,000
General and administrative expenses 544,000 430,000
Selling and marketing 327,000 370,000
Research and development 1,202,000 225,000
---------------------------------------
Total costs and expenses 2,707,000 1,273,000
---------------------------------------
Operating loss (2,679,000) (1,231,000)
Other income/(expense) (36,000) 289,000
---------------------------------------
Loss before provision for income taxes (2,715,000) (942,000)
Provision for income taxes 1,000 1,000
---------------------------------------
($2,716,000) ($943,000)
=======================================
Basic and diluted net loss per share ($0.25) ($0.09)
Common shares used in computing
basic and diluted net loss per share 10,750,000 10,750,000
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
---------------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 10,750,000 $11,000 $33,294,000 ($9,555,000)
Net loss (2,716,000)
---------------------------- --------------- -----------------
Balance at March 31, 1998 10,750,000 $11,000 $33,294,000 ($12,271,000)
============================ =============== =================
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
Alyn Corporation
Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
---------------------------------
<S> <C> <C>
Cash flows used in operating activities: ($1,577,000) ($2,940,000)
Cash flows used in investing activities:
Capital expenditures (2,727,000) (1,351,000)
Cash flows from financing activities:
Payments on short term debt (126,000) -
---------------------------------
Net (decrease) increase in cash (4,430,000) (4,291,000)
Cash and cash equivalents at beginning of period 13,126,000 24,411,000
---------------------------------
Cash and cash equivalents at end of period $8,696,000 $20,120,000
=================================
</TABLE>
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 three months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
Cost of Goods Sold for the first quarter of 1998 includes all labor,
material and overhead pertaining to the Company's preparation for production, in
addition to the costs associated with the sales for the quarter.
2. Inventories
March 31, 1998 December 31, 1997
-------------- -----------------
Inventories:
Raw materials $ 362,000 $ 157,000
Finished goods 15,000 15,000
----------- -----------
$ 377,000 $ 172,000
=========== ==========
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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 primarily for the application of
boron carbide in combination with aluminum alloys, under the name Boralyn(R).
The Company has been granted several patents for process and applications
pertaining to metal matrix technologies. In 1997 and the first quarter of 1998
the Company's sales were primarily the result of prototype orders. The Company
expects to transition from establishing manufacturing facilities and prototype
development to production during 1998. Golf clubs are in various stages of
prototype development and product evaluation with Taylor Made Golf Company.
Boralyn(R) -based golf club shaft prototypes are in True Temper Sports' testing
program for evaluation. Sunglass frames for Bolle Inc. are in pre-production
awaiting the delivery of tooling. Development work continues in the Company's
disk substrate program with Seagate Technology. Production of the engine cradle
for General Motors is pending the delivery of tooling. 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 March 31, 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 quarter ended
March 31, 1998 are compared to the results of operations for the quarter ended
March 31, 1997.
Total revenues for the first quarter of 1998 decreased 33% to $28,000 from
$42,000 in the first quarter of 1997. The change is insignificant.
Cost of Goods Sold for the first quarter of 1998 increased 2657% to
$634,000 from $23,000 in the first quarter of 1997. All labor, material and
overhead not attributable to R & D were classified as Cost of Goods Sold in the
first quarter of 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, as the Company's workforce was employed in this
effort.
There were no expenses for the Establishment of Manufacturing Facilities
during the first quarter of 1998, as there were no costs incurred in this
effort. In the first quarter of 1997, $225,000 of expenses incurred for the
startup and testing of production equipment were charged to Establishment of
Manufacturing Facilities.
General and Administrative expenses for the first quarter of 1998 increased
27% to $544,000 from $430,000 in the first quarter of 1997. The increase
represents the costs incurred as a result of increasing the Company's
administrative employee base. These expenses are expected to increase as the
Company begins production.
Selling and Marketing expenses for the first quarter of 1998 decreased by
12% to $327,000 from $370,000 in the first quarter of 1997. As the Company
begins production, Selling and Marketing expenses are expected to increase.
Research and Development expenses for the first quarter of 1998 increased
434% to $1,202,000 from $225,000 in the first quarter of 1997. This increase was
attributable to an increase in the development of products the Company
anticipates producing. The Company expects to continue investing in Research and
Development of new applications of Boralyn(R) and other metal matrix composites.
Costs and expenses for the first quarter of 1998 include $525,000 of
depreciation and amortization compared to $63,000 for the same period in 1997.
Liquidity and Capital Resources
At March 31, 1998, the Company had cash of $8,696,000 and working capital
of $6,635,000. 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 $6.5 million completed in December 1997. The Company
intends to utilize an additional $4 million of debt financing under an existing
credit facility in the second quarter of 1998. 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 finance for some of
its existing and future capital needs. The Company anticipates, based on its
currently proposed plans and assumptions relating to its operations, that its
existing cash resources and anticipated future financing will be sufficient to
satisfy its contemplated cash requirements for at least the next twelve 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 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
None.
<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/ Steven S. Price
------------------------------
Steven S. Price
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: May 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 8696000
<SECURITIES> 0
<RECEIVABLES> 83000
<ALLOWANCES> 25000
<INVENTORY> 377000
<CURRENT-ASSETS> 9292000
<PP&E> 15535000
<DEPRECIATION> 1327000
<TOTAL-ASSETS> 28922000
<CURRENT-LIABILITIES> 2657000
<BONDS> 0
0
0
<COMMON> 11000
<OTHER-SE> 26745000
<TOTAL-LIABILITY-AND-EQUITY> 28922000
<SALES> 28000
<TOTAL-REVENUES> 634000
<CGS> 634000
<TOTAL-COSTS> 2073000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 36000
<INCOME-PRETAX> (2715000)
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