7
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, 1999.
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 July 26, 1999 .
<PAGE>
<TABLE>
ALYN CORPORATION
INDEX
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Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
June 30, 1999 (unaudited) and December 31, 1998 3
Condensed Statements of Operations -
Three months ended June 30, 1999 (unaudited) and June
30, 1998 (unaudited) and six months ended
June 30, 1999 (unaudited) and June 30, 1998 (unaudited) 4
Condensed Statements of Stockholders' Equity -
Six months ended June 30, 1999 (unaudited) 5
CondensedStatements of Cash Flows Six months ended June 30,
1999 (unaudited) and
June 30, 1998 (unaudited) 6
Notes to Condensed Financial Statements
(unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION 18
SIGNATURES 19
</TABLE>
<PAGE>
Alyn Corporation
Condensed Balance Sheet
(Unaudited)
<TABLE>
June 30, December 31,
1999 1998
-------------------- ----------------------
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Assets
Current assets:
Cash and cash equivalents $ 745,000 $ 1,232,000
Restricted cash - 2,062,000
Accounts receivable, net 634,000 781,000
Inventories 1,077,000 401,000
Other current assets 242,000 424,000
---------------------- ---------------------
Total current assets 2,698,000 4,900,000
---------------------- ---------------------
Equipment, furniture and fixtures, net 19,674,000 20,703,000
Other assets, net 790,000 626,000
Intangibles, net 746,000 732,000
---------------------- ---------------------
$ 23,908,000 $ 26,961,000
====================== =====================
====================== =====================
Liabilities, Mandatory Redeemable Preferred Stock and Stockholders' Equity
Current liabilities:
Accounts payable $ 684,000 $ 663,000
Current portion of long term debt 1,249,000 1,842,000
Accrued and other current liabilities 449,000 956,000
---------------------- ---------------------
Total current liabilities 2,382,000 3,461,000
---------------------- ---------------------
Long term debt
Convertible debt 2,500,000 -
Long term debt 5,449,000 7,316,000
---------------------- ---------------------
Total long term debt 7,949,000 7,316,000
---------------------- ---------------------
Mandatory redeemable preferred stock 1,559,000 -
---------------------- ---------------------
Stockholders' equity:
Preferred stock -
4,000
Common stock 12,000 12,000
Additional paid-in capital 39,827,000 37,796,000
Warrants to purchase common stock 293,000 -
Accumulated deficit (28,118,000) (21,624,000)
---------------------- ---------------------
Total stockholders' equity 12,018,000 16,184,000
---------------------- ---------------------
$ 23,908,000 $ 26,961,000
====================== =====================
====================== =====================
See Notes to Condensed Financial Statements
</TABLE>
<PAGE>
Alyn Corporation
Condensed Statement of Operations
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------------------------- ------------------------------
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Net sales $ 339,000 $ 32,000 $ 1,165,000 $ 61,000
Costs and expenses:
Cost of goods sold 1,924,000 1,322,000 3,976,000 1,910,000
General and administrative expenses 877,000 1,005,000 1,447,000 1,667,000
Selling and marketing 294,000 298,000 575,000 599,000
Research and development 390,000 797,000 796,000 1,953,000
----------------------------- ------------------------------
Total costs and expenses 3,485,000 3,422,000 6,794,000 6,129,000
----------------------------- ------------------------------
Operating loss (3,146,000) (3,390,000) (5,629,000) (6,068,000)
Other expense (338,000) (148,000) (576,000) (185,000)
----------------------------- ------------------------------
Loss before provision for income taxes (3,484,000) (3,538,000) (6,206,000) (6,253,000)
Provision for income taxes - - 1,000 1,000
----------------------------- ------------------------------
Net loss (3,484,000) (3,538,000) (6,206,000) (6,254,000)
Deductions for preferred stock dividends 211,000 - 289,000 -
----------------------------- ------------------------------
Net loss attributable to
common stockholders ($3,695,000) ($3,538,000) ($6,495,000) ($6,254,000)
============================ ==============================
Basic and diluted net loss per share ($0.33) ($0.33) ($0.58) ($0.58)
============================ ==============================
Common shares used in computing
basic and diluted net loss per share 11,107,878 10,750,000 11,107,878 10,750,000
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Alyn Corporation
Condensed Statement of Stockholders' Equity
(Unaudited)
Preferred Stock -
Series A Common Stock Additional
----------------------- -------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Warrants Deficit
----------- ----------- ------------- ------------ -------------- ------------ --------------
----------- ----------- ------------- ------------ -------------- ------------ --------------
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Balance at December 31, 1998 11,107,878 $12,000 $37,796,000 ($21,624,000)
Issuance of Series A convertible
Preferred Stock 375,000 $4,000 1,456,000
Accretion of Series A convertible
Preferred stock dividends 20,000 (20,000)
Beneficial conversion feature of the
Convertible debt 555,000
Accretion of Series B redeemable
Convertible preferred stock dividends (256,000)
Accrual of Series B redeemable convertible
Preferred stock cash dividends (13,000)
Issuance of warrants in conjunction with
Issuance of Series B redeemable
Convertible preferred stock and
Convertible debt 293,000
Net Loss (6,205,000)
----------- ----------- ------------- ------------ -------------- ------------ --------------
Balance at June 30, 1999 375,000 $4,000 11,107,878 $12,000 $39,827,000 $293,000 ($28,118,000)
=========== =========== ============= ============ ============== ============ ==============
See Notes to Condensed Financial Statements.
</TABLE>
<PAGE>
Alyn Corporation
Condensed Statement of Cash Flows
<TABLE>
Six Months Ended
June 30,
1999 1998
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---------------- ---------------
Cash flows used in operating activities: $ (5,485,000) $ (4,645,000)
---------------- ---------------
Cash flows used in investing activities:
Capital expenditures (291,000) (6,004,000)
Decrease in restricted cash 2,062,000 -
---------------- ----------------
Total cash flows from investing activities 1,771,000 (6,004,000)
---------------- ----------------
Cash flows from financing activities:
Dividends paid (4,000) -
Net payments on debt (2,459,000) -
Proceeds from long term debt, net of issuance costs - 3,541,000
Proceeds from common stock subscription, net of issuance costs - 2,000,000
Proceeds from convertible debt, net of issuance costs 2,634,000 -
Proceeds from warrants, net of issuance costs 293,000 -
Proceeds from Series A convertible preferred stock, net of issuance costs 1,460,000 -
Proceeds from Series B redeemable convertible preferred stock, net of
issuance costs 1,303,000 -
---------------- ----------------
Total cash flows from financing activities 3,227,000 5,541,000
---------------- ----------------
Net decrease in cash (487,000) (5,108,000)
Cash and cash equivalents at beginning of period 1,232,000 13,126,000
---------------- ----------------
Cash and cash equivalents at end of period $ 745,000 $ 8,018,000
================ ================
Non cash financing activities:
Beneficial conversion feature of
the convertible debt $ 555,000
================
See Notes to Condensed Financial Statements
</TABLE>
<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,
1998, included in the Company's Annual Report on Form 10-K, which is on file
with the Securities and Exchange Commission. Operating results for the six
months ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
2. Inventories
<TABLE>
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June 30, December 31,
1999 1998
-------------- ------------
Raw materials $ 511,000 $ 237,000
Work in process 508,000 133,000
Finished goods 58,000 31,000
-------------- ------------
$1,077,000 $ 401,000
</TABLE>
3. Issuance of Convertible Debt, Redeemable Convertible Preferred Stock
and Convertible Preferred Stock
During the first quarter of 1999, the Company issued 375,000 shares of
Series A Preferred Stock ("Series A convertible preferred stock") for $1,460,000
cash, net of expenses; 1,500 shares of Series B Exchangeable Preferred Stock
("Series B redeemable convertible preferred stock") for $1,303,000 cash, net of
expenses; and a Senior Exchangeable Promissory Note ("convertible note") for
$2,634,000 cash, net of expenses. The Series A convertible preferred stock is
convertible into common stock beginning in January 2000 at a set price of $4.00,
while the Series B redeemable convertible preferred stock and the convertible
note are currently convertible into common stock at set prices of $3.57 and
$3.65, respectively. Additionally, each of these convertible securities has a
conversion rate that is based on the lesser of the set price or the market
price, as defined, at the time the securities are converted and, therefore, have
beneficial conversion features in accordance with EITF Topic No. D-60. The
Series B convertible preferred stock and the convertible note are each
convertible at as much as a 15% discount to the market price, as defined, if the
market price, as defined, at the time the securities are converted is less than
the set price.
The Series B redeemable convertible preferred stock must be redeemed by
the Company at 115% of its original issue price per share plus accrued and
unpaid dividends in the event the Company's common stock ceases to be listed or
quoted on a national securities exchange, the Nasdaq Stock Market or the OTC
Bulletin Board.
Each of the holders of these securities received registration rights
for the common stock underlying their securities. The Company is required to
register the common stock underlying the Series A convertible preferred stock
within one year of issuance and the Series B redeemable convertible preferred
stock and the convertible note are required to be registered in June 1999,
subject to the timing of SEC review, if any. The Company has filed a
registration statement with the SEC covering these securities, which
registration statement is currently being reviewed by the SEC.
In January 2000, the holders of the Series A convertible preferred
stock may receive a warrant to purchase up to 120,000 shares of common stock at
the then market price, as defined, of the underlying common stock if the market
price is less than $5.80 per share. Upon issuance, the holders of the Series B
redeemable convertible preferred stock received a warrant to purchase 65,000
shares of common stock at a price of $3.82, and the holder of the convertible
debt received a warrant to purchase 135,000 shares of common stock at a price of
$3.04. The common stock warrant attached to the Series B redeemable convertible
preferred stock, which was valued by the Company at $77,000, was reflected as a
reduction to the redeemable preferred stock and accreted as a preferred stock
dividend. The common stock warrant attached to the convertible debt, which was
valued by the Company at $216,000, was reflected as debt discount and amortized
as additional interest expense. The value of the beneficial conversion feature
of the convertible debt was also reflected as debt discount and amortized as
additional interest expense based upon the rate at which the debt becomes
convertible.
Dividends on the Series A convertible preferred stock and Series B
redeemable convertible preferred stock are reflected as an adjustment to the net
loss attributable to common stockholders. This adjustment for the six-month
period ended June 30, 1999 reflects the accrual of a cash dividend of $9,000
based on the annual dividend of $30 (3%) per share on the Series B redeemable
convertible preferred stock and the accretion dividends of $10,000 and $192,000
related to the beneficial conversion features of the Series A convertible
preferred stock and the Series B redeemable convertible preferred stock,
respectively, based upon the rate at which the preferred stock becomes
convertible.
4. Net loss per share
Net loss per share includes the deductions for preferred stock
dividends. However, the Company did not include potential common stock
equivalents from the exercise of common stock options, the conversion of
preferred stock or debt and the exercise of common stock warrants in the
calculation of net loss per share as such inclusion would have an anti-dilutive
effect.
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. The forward-looking
statements within this Form 10-Q are identified by words such as "believes,"
"anticipates," "expects," "intends," "may" and other similar expressions and
include, but are not limited to, statements concerning our projected revenue,
the market acceptance of our products, the outcome of current evaluations of our
products by potential customers, our ability to achieve manufacturing
efficiencies, our ability to reduce our costs and expenses, our need for capital
and ability to raise additional funding, the impact of the Year 2000 issue on
our business and the cost of our Year 2000 compliance. 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. These
forward-looking statements are subject to significant risks and uncertainties,
including without limitation our ability to raise additional funds, the market
acceptance of our product, our ability to expand the applications for our
product, our ability to successfully expand our sales and marketing staff and
activities, our ability to manufacture products in sufficient quantities and
quality for current and future applications, and those other risks identified in
the section of this Form 10-Q entitled "Risk Factors" and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 as filed with
the SEC. Such risks and uncertainties may cause actual results to differ
materially and adversely from those discussed in such forward-looking
statements. The Company disclaims any obligation to publicly revise these
forward-looking statements 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 Annual Report on
Form 10-K for the year ended December 31, 1998, that attempt to advise
interested parties of certain risks, uncertainties and other factors that may
affect the Company's business.
<PAGE>
Overview
From the Company's inception in 1990 through the second quarter of
1998, the Company was 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). In the third quarter of 1998, the
Company made the initial transition from prototype development to production.
The Company's extrusion facility was completed in late 1998 and became fully
operational in the first quarter of 1999. The Company's first major Boralyn
production order was received from Transnuclear in the fourth quarter of 1998
and was for use as shielding material in dry storage casks for spent nuclear
fuel rods. Shipments began in the first quarter of 1999 and continued through
the second quarter, with completion scheduled for the third quarter. The Boralyn
shielding has been well received by Transnuclear and has generated a high level
of interest in the Company's nuclear shielding for both the dry and wet storage
markets. During the first quarter of 1999, the Company received initial orders
for Boralyn for use in components for Formula One cars. The successful
production of these components led to a cooperation and development agreement
being executed with Ferrari SpA during the second quarter of 1999. This
agreement provides for the development of specialized custom Boralyn alloys for
the production of components for Ferrari Formula One and GT cars. The work with
Formula One teams has resulted in an interest from several leading automotive
companies. These companies have started testing Boralyn for use in engines and
other automotive components for high-performance production automobiles. The
Company has expanded its manufacture of non-Boralyn components for the aerospace
industry to gain acceptance by the industry and to generate near-term revenues.
Other application areas of Boralyn are in evaluation by different customers and
trial orders have been executed. The Company is anticipating positive results
from these evaluations during the second half of the year. While the Company
expects to achieve increasing sales levels of Boralyn -based products during the
second half of 1999, there can be no assurance that such increases will be
achieved. The Company was unprofitable through June 30, 1999 and incurred a loss
for the full year 1998 as a result of start-up costs and the ongoing costs of
maintaining significant production capacity in anticipation of sales growth, 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, 1999 are compared to the results of operations
for the three-month period ended June 30, 1998 and the results of operations for
the six-month period ended June 30, 1999 are compared to the six-month period
ended June 30, 1998.
Net Sales. Net sales for the second quarter of 1999 increased 959% to
$339,000 from $32,000 in the second quarter of 1998. Net sales for the six-month
period ended June 30, 1999 increased 1,810% to $1,165,000 from $61,000 in the
six-month period ended June 30, 1998. Net sales for the second quarter were
reduced by $178,000 for the return of certain casting material, which is
expected to be replaced by another grade of casting material more appropriate to
the applications being sold. The substantial increase in sales resulted from the
Company's transition in the third quarter of 1998 from prototyping to
production. Shipments in the second quarter of 1999 were to companies in the
nuclear, automotive and aerospace industries.
Cost of Goods Sold. Cost of goods sold for the second quarter of 1999
increased 46% to $1,924,000 from $1,322,000 in the second quarter of 1998. Cost
of goods sold for the six-month period ended June 30, 1999 increased 108% to
$3,976,000 from $1,910,000 in the six-month period ended June 30, 1998. This
increase was attributable to the Company's transition from product development
in the first half of 1998 to production in the third quarter of 1998. In
absolute terms, the Company anticipates cost of goods sold will continue to
increase as revenues rise. As a percentage of sales, the Company expects cost of
good sold to decline as the manufacturing facilities are more fully utilized.
General and Administrative Expenses. General and administrative
expenses for the second quarter of 1999 decreased 13% to $877,000 from
$1,005,000 in the second quarter of 1998. General and administrative expenses
for the six-month period ended June 30, 1999 decreased 13% to $1,447,000 from
$1,667,000 in the six-month period ended June 30, 1998. This continued decrease
represents the Company's focus on reducing general and administrative expenses
as a percent of sales. Overall, the general and administrative expense level
incurred in the second quarter of 1999, excluding severance, should be
maintained through the end of the year.
Selling and Marketing Expenses. Selling and marketing expenses for the
second quarter of 1999 decreased 1% to $294,000 from $298,000 in the second
quarter of 1998. Selling and marketing expenses for the six-month period ended
June 30, 1999 decreased 4% to $575,000 from $599,000 in the six-month period
ended June 30, 1998. Although 1999 selling and marketing expense have been
relatively unchanged from 1998 levels, the Company expects an increase in sales
and marketing spending in the second half of 1999 relative to increases in
sales.
Research and Development Expenses. Research and development expenses
for the second quarter of 1999 decreased 51% to $390,000 from $797,000 in the
second quarter of 1998. Research and development expenses for the six-month
period ended June 30, 1999 decreased 59% to $796,000 from $1,953,000 in the
six-month period ended June 30, 1998. This decrease was primarily attributable
to the Company's transition from a primary focus of product development to
production in the third quarter of 1998. The Company still expects to continue
investing in research and development for new Boralyn materials and improvements
in existing materials and processes.
Liquidity and Capital Resources
At June 30, 1999, the Company had working capital of $316,000. In March
1999, the Company completed an equity offering of $1.4 million, net of expenses,
and an exchangeable debt offering of $2.8 million, net of expenses. In January
1999, the Company completed an equity offering of $1.45 million, net of
expenses. The Company received $4.5 million, net of expenses, from its common
stock rights offering completed in August 1998. Prior to August 1998, the
Company 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, of which $6.5 million was completed in December 1997 and $4.0
million was completed 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 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 materials, 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's working capital needs will
rise as the Company increases production. On August 10, 1999, the Company raised
$570,000, net of expenses, from an existing shareholder in a private placement
of 200,000 shares of common stock at $3.00 per share. The Company is currently
in negotiations with a large investment fund to place an additional $10 million
in convertible preferred stock in a private placement to fund existing and
future working capital needs. The Company is also in negotiations with two
non-bank financial institutions to provide accounts receivable and inventory
working capital financing. The Company's ability to obtain future working
capital financing will be dependent in part on the quality and amount of the
Company's trade receivables, inventory and unsecured capital equipment. If the
Company achieves its operating plan for 1999 and 2000 and completes its equity
funding program, it believes that internally generated funds, cash on hand, and
equipment, inventory and accounts receivable financing should satisfy the
Company's anticipated capital needs for the next 12 months. However, if the
Company fails to complete its planned equity funding program, inadequate working
capital to finance operations will result. If the Company fails to complete its
debt financing or its planned inventory and accounts receivable financing,
inadequate capital to execute it business plan may result. Also, if the Company
fails to reach its planned revenue levels, additional funding may be required.
It is possible that the Company may not be able to ever achieve a significant
level of sales or profitability or that such additional funding would be
available or available upon terms acceptable to the Company.
Year 2000 Compliance
The Company is currently evaluating our Year 2000 readiness, both in
terms of the compliance of our internal information systems and compliance of
applications which monitor all aspects of our business, including financial
systems, manufacturing equipment, customer services, marketing information,
infrastructure and telecommunications equipment. We have tested and evaluated
our internal information systems and, based upon these tests, believe that they
are substantially Year 2000 compliant. The Company is in the process of testing
and evaluating the computerized elements of our manufacturing equipment and
expects to complete this evaluation in sufficient time to make necessary
upgrades, if any. At this point, based in part upon the timing of purchase of
much of the Company's equipment, the Company believes that its manufacturing
equipment will be Year 2000 compliant on a timely basis. The Company believes 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 such 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 any such
party's noncompliance by September 1999. At that time, any necessary contingency
plans will be developed to address any material consequences the Company could
suffer if such party is not Year 2000 compliant. However, the failure of other
companies to adequately address their own Year 2000 issues could have a material
adverse effect on the Company. The Company expects to complete its Year 2000
compliance efforts in 1999. We believe that the total estimated project cost is
not material and includes the estimated costs and time associated with the
impact of third party compliance. However, it is possible that the actual cost
of compliance and the impact of Year 2000 issues could differ materially from
those plannned.
Risk Factors
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:
Our future success depends upon our ability to gain market acceptance of our
products in commercial quantities.
Our products have yet to attain significant commercial acceptance.
Other products, such as aluminum, and to a lesser extent, titanium, magnesium
and beryllium, have become the standard materials in the automotive and other
target industries for our materials. Boral and borated stainless steel have been
the standard materials in the nuclear industry. We may not be able to
demonstrate the price-performance advantages of our materials over existing,
more traditional materials, which could make it difficult for us to win
substantial contracts in various industries. If we are not able to market our
products in commercial quantities, our business and results of operations will
suffer dramatically. Initially, we directed our resources to the manufacture of
final products, particularly golf club heads. We have recently changed our focus
to marketing our advanced materials as raw materials to be used in products
manufactured by others. The principal use of our products for the six months
ended June 30, 1999 was for various applications in the nuclear, aerospace and
automobile industries, but our materials have not yet achieved market acceptance
in these industries on a broad scale. Market acceptance of our products in
commercial quantities will also depend upon the pricing of our products and our
ability to manufacture and deliver products on a timely basis. Because our
products typically entail long sales cycles, lengthy customer product design
times and, in nuclear applications, certification requirements prior to
production orders, we may not realize the benefits of our marketing and
development costs, if at all, until subsequent periods. We must address each of
these factors effectively in order to achieve market acceptance in commercial
quantities of Boralyn or our other current or future products.
We have insufficient cash on hand to sustain our operations without raising
additional debt or equity capital.
We had cash on hand of $745,000 at June 30, 1999. On August 10, 1999,
the Company raised $570,000, net of expenses, from an existing shareholder in a
private placement of 200,000 shares of common stock at $3.00 per share. We are
currently in negotiations with a large investment fund to place an additional
$10 million in convertible preferred stock in a private placement to fund
existing and future working capital needs. We are also currently in negotiations
with two non-bank financial institutions to provide accounts receivable and
inventory working capital financing. If we are not successful in raising this
additional equity capital, we will not have sufficient working capital to
finance our operations. If we are unable to raise the debt or planned accounts
receivable and inventory working capital financing, we may not be able to
execute our business plan.
We have a history of losses which we expect will continue, and we may not be
able to achieve profitability.
We incurred net losses of $7.3 million in 1997, $12.1 million in 1998
and $6.5 million for the six months ended June 30, 1999. We expect to expect to
continue to incur losses in 1999 and may never generate sufficient revenues to
achieve profitability in the future. Even if we do achieve profitability, we may
not sustain or increase profitability on a quarterly or annual basis in the
future. While we commenced our materials development activities in 1990, we only
completed our manufacturing facilities at the end of 1998. Accordingly, we have
had a limited operating history and only generated revenues of $364,000 in 1997,
$1.3 million in 1998 and $1.2 million for the six months ended June 30, 1999. If
we continue to be unable to generate significant revenues and continue to incur
losses , we could impair our ability to continue as a going concern. Our
auditors have included a going concern modification in their report for the year
ended December 31, 1998. We cannot assure you that this modification will be
removed from any future reports, and any going concern modification may preclude
us from completing any additional debt or equity financings.
The terms of our preferred stock, exchangeable promissory note and warrants
could adversely affect our stock price.
We may be required to issue a large number of additional shares of
common stock upon conversion of our preferred stock and exchangeable promissory
note that will be immediately available for resale. During the first quarter of
1999, we issued shares of Series B preferred stock, an exchangeable promissory
note and related warrants that are currently convertible, exchangeable or
exercisable into a large number of shares of our common stock. Beginning in
January 2000, our Series A preferred stock will also be convertible into shares
of our common stock. All of the holders of these securities have registration
rights, and we have filed a registration statement to register the common stock
issuable upon exchange or conversion of the Series B preferred stock and
exchangeable promissory note. As a result, all of these shares, when converted,
exchanged or exercised, will be immediately available for resale and could cause
the price of our common stock to decline. The sale by these holders of a
significant amount of common stock, could also encourage short selling, which
could cause our stock price to decline further. Furthermore, any negative impact
to our stock price caused by these securities could impair our ability to raise
additional equity capital
While the conversion prices for these securities provide a fixed price,
the terms also contain price protection provisions that require us to issue
additional shares of common stock to these holders without additional
consideration if the price of our common stock declines below the fixed
conversion prices. The following table sets forth the aggregate number of shares
of our common stock that we would be required to issue assuming that all of the
securities are immediately exchanged for common stock:
<TABLE>
<S> <C> <C> <C>
Number of Shares of Common % of Outstanding
Conversion Stock Issuable Upon Full Common Stock
Type of Security Price Conversion Assuming Full Conversion
- - ---------------- ----- ---------- ------------------------
Series A preferred stock $2.00 750,000 shares 6.8%
Series B preferred stock $3.125 480,000 shares 4.3%
Exchangeable note $3.125 960,000 shares 8.6%
Warrants Various 320,000 shares 3.0%
Total 2,510,000 shares 22.7%
</TABLE>
Because we cannot determine the exact conversion price of the foregoing
securities, due to the price protection provisions, which are based on the
market price of our common stock for a number of trading days prior to the
actual conversion, we have made the following assumptions in computing the
calculations in this table:
o The conversion prices for the Series B preferred
stock and the exchangeable note have no floor, and
accordingly, for the purposes of this table, we have used the closing price
of our common stock as of June 30, 1999 as the conversion price.
o The conversion price for the Series A preferred stock cannot be less than
$2.00 per share (i.e., 50% of its fixed conversion price), the foregoing
table reflects the maximum number of shares of common stock that we would
be required to issue to this holder using this minimum conversion price.
o The warrants associated with the Series B preferred stock and the
exchangeable note each have set conversion prices, and do not provide for a
variable number or price protection. Accordingly, the warrants provided by
the agreements have been included in the table. The number of warrants
associated with the Series A preferred stock varies depending upon the
stock price on January 10, 2000. For purposes of this table, we have
assumed the maximum number must be issued. The Series A preferred stock
does not provide exercise price protection.
o The percentage calculation has been derived using the total number of
shares of our common stock outstanding as of June 30, 1999 (11,107,878
shares).
It is possible that the holders of our convertible preferred stock,
exchangeable note and warrants would be able to gain control of Alyn Corporation
upon full conversion of these securities. In the event that the price of our
common stock declines below $0.45 per share, the issuance of additional shares
of common stock to the holders of our preferred stock, exchangeable note and
warrants would enable these holders to elect the majority of our directors and
control many corporate decisions and transactions. As such, these holders could
prevent or delay a change in control that might otherwise be in the best
interests of our other stockholders.
We may be required to make significant cash payments to holders of our
preferred stock and exchangeable note. We may be required to make cash payments
to holders of our preferred stock and exchangeable note if we do not timely
deliver common stock upon exchange or conversion of these securities or if we
fail to keep a registration statement effective for the underlying shares of
common stock. These cash payments could be as much as $52,500 per week for
failure to register or keep a registration statement effective and could reach
as high as $330,000 per day for failure to timely deliver common stock upon
exchange. A delay to timely deliver would be the result of our failure to direct
our stock transfer agent to issue the shares or our stock transfer agent's
failure to act in accordance with their instructions from us. Accordingly, if we
are required to make these cash payments, even for a short period of time, it
would adversely affect our financial condition and our ability to implement our
business plans. In addition, because the rules of the National Association of
Securities Dealers, Inc. require stockholder approval for issuances of 20% or
more of a company's outstanding securities, the terms of our preferred stock and
exchange note limit the number of shares that we may be required to issue
without stockholder approval to 19.9% of our outstanding common stock. We plan
to seek this stockholder approval in accordance with NASD Rule 4460 at our 1999
Annual Meeting. However, if we do not obtain stockholder approval to remove the
19.9% limit, we will be required to make cash payments in the event the holders
of the exchangeable securities attempted to convert over the 19.9% limit. The
cash payments would be equal to the number of shares of common stock that we
could not issue because of the 19.9% limit multiplied by the market price of our
common stock at the time of the attempted conversion. For example, if the
Company's stock price was $1.00 per share at the time of receipt of the
conversion notices for all of the preferred stock and the exchangeable note and
all warrants were exercised at the same time, the 5,570,000 shares that we would
be required to be issued would be limited to 2,210,000 by the 19.9% limit.
Accordingly, if this event were to occur, the Company would be required to make
a cash payment of $3,360,000. In this event, we would likely have to raise funds
to finance these payments elsewhere, which funds may not be available on
acceptable terms, if at all.
Our limited manufacturing history and the significant manufacturing risks
associated with our products may make it difficult for us to establish or
maintain profitable manufacturing operations.
Our limited experience in manufacturing our products in commercial
quantities has led to delays in the release of new products or applications for
our products, and has resulted in increased costs that we have not been able to
offset to date with significant product sales. The manufacturing processes for
Boralyn, for example, utilize high temperature and high pressure and may be
subject to volatile chemical reactions. We initially experienced improper
temperature settings, difficulties in dealing with inconsistent materials and
problems establishing standard and repeatable manufacturing procedures. If we
fail to effectively manage and maintain our manufacturing capabilities, our
business will suffer and we may never generate significant revenues or achieve
profitability. In addition, natural disasters such as earthquakes, which are
characteristic of Southern California, the location of our manufacturing
facilities, could result in the interruption of our manufacturing activities or
could significantly impact our manufacturing operations or capacity. We
currently do not maintain earthquake insurance and any significant earthquake
could suspend our manufacturing capabilities. Our manufacturing operations
currently use specially-designed equipment that, if damaged, inoperable or
unavailable, could disrupt our manufacturing operations and may not be able to
be repaired or replaced on a timely basis or at reasonable costs.
If we do not increase our product sales, we may not be able to offset our
substantial lease commitments and operating cost commitments, which could lead
to continued losses.
Unless and until we achieve a significant level of sales of our
products, we will have substantial production over-capacity and under-absorbed
costs that will continue to cause us to incur substantial operating losses. In
order to establish manufacturing capacity, we entered into long-term leases for
our two facilities located in Irvine, California. The lease for our headquarters
in Irvine, California expires in 2008 and requires monthly lease payments of
approximately $25,000. We also have a ten-year lease expiring in 2008 for our
second Irvine facility, with monthly lease payments of $45,000. Through June 30,
1999, we have invested more than $20 million to equip and implement our
manufacturing operations in these facilities. If we fail to generate significant
revenues from these manufacturing facilities, we will not be able to offset the
costs of those facilities and our business and operating results will suffer.
If we do not generate significant working capital from our operations, we will
need additional capital which may not be available on terms favorable to us.
Our ability to grow our business is highly dependent upon our ability
to generate capital from our operations and to raise needed debt or equity
financing. Without additional financing within the next twelve months, we will
not be able to achieve our market objectives. Our ability to obtain debt
financing will be dependent in part on the quality and amount of our revenues,
trade receivables, inventory and unsecured capital equipment. If we are unable
to receive adequate debt financing, we may have to seek additional equity
financing which may not be available on favorable terms, if at all. Our ability
to achieve future liquidity and capital funding requirements through our
operations will depend on numerous factors, including:
o results of marketing
our metal matrix composite capabilities;
o market acceptance of our products;
o the timing of production orders and our ability to make delivery of products;
o our costs of sales and timing of growth in sales; and
o our ability to effectively manage our marketing and manufacturing activities.
We expect fluctuations in our operating results to continue, which could cause
our stock price to decline.
Fluctuations caused by variations in quarterly operating results or our
failure to meet market analysts' projections or public expectations could cause
the market price of our common stock to decline and perhaps decline
significantly. Due to the nature of our business, we have 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 our ability to forecast accurately time-to-market schedules or short-term
results of operations. We cannot predict our operating results due to the
uncertainty of these factors and our limited operating history. Our operating
results may vary significantly from quarter to quarter, in part because of the
costs associated with changes in our products, personnel and the size and actual
delivery dates of orders for our products. As a result, our operating results
for any particular quarter should not be considered indicative of any future
results and period-to-period comparisons of our operating results will not
necessarily be meaningful.
If we lose any of our key managers, our business could be seriously harmed.
We rely on a relatively new management team and need additional
personnel to expand our business. Our future success and profitability is
substantially dependent upon the personal efforts and abilities of our key
executives, Arne Van Roon (our President and Chief Executive Officer who joined
Alyn in April 1999), Robin A. Carden (our founder) and Richard L. Little (our
Chief Financial Officer and Secretary). None our key managers has a long-term
employment agreement with Alyn, and accordingly, they may terminate their
association with us with little or no notice. We also do not maintain key man
life insurance on Messrs. Van Roon or Little. If any of these individuals or any
other key employees were to leave Alyn Corporation, their departure could
significantly diminish our level of management, technical, marketing and sales
expertise, and we would have the difficult task of finding and hiring
replacements who have these skills. Furthermore, the departure of any of our
manufacturing personnel may interrupt our manufacturing operations and lengthen
the time necessary to deliver products to market.
We believe that our future growth will be dependent in large part on
our ability to attract or retain qualified management, technical, manufacturing,
administrative and other personnel. Due to our location in Irvine, California
and the nature of our business, we believe that we will experience significant
competition for qualified personnel.
We must keep pace with rapid technological changes in the advanced materials
industry in order to remain competitive.
In the advanced materials market, new materials are frequently
introduced to address a variety of existing applications. If competing materials
become available to address these applications, our materials may become
obsolete for key applications and our sales could decline dramatically. Due to
our lengthy product development cycle, it may be difficult for us to quickly
change our development plans in response to the introduction of new materials by
our competitors. Our ability to anticipate and address changes in technologies,
markets and industry trends, and to develop and introduce new and enhanced
materials on a timely basis will be important factors in our ability to grow and
remain competitive. We cannot be sure that we will be able to develop new
materials or that any new materials can be marketed successfully. In addition,
development schedules for new or improved materials are inherently difficult to
predict and are subject to change as a result of shifting priorities in response
to customers' requirements and competitors' new material introductions. If we
fail to timely develop and introduce new materials or to enhance our current
materials, our business, operating results and financial condition could be
materially adversely affected in the future. Moreover, we expect to devote
substantial resources to technology 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 our technology
development efforts (in the form of increased revenues or decreased product
costs) may not be reflected, if at all, until subsequent periods. As a result,
our period-to-period operating results could be adversely impacted and difficult
to predict.
Because we depend on a few significant customers for a substantial portion of
our revenues, the loss of a key customer could seriously harm our operating
results.
Since inception, we have derived a substantial portion of our revenues
from sales to a relatively small number of customers. As a result, the loss of
any significant customer could materially and adversely affect our financial
condition and results of operations. Sales to our largest three customers for
the six months ended June 30, 1999 and their respective percentage of our net
sales for this period were:
o Transnuclear (38%)
o Marvin Engineering (12%)
o Quantum Technologies (9%)
Sales to our largest three customers for the year ended December 31,
1998 and their respective percentage of our net sales for this period were:
o General Motors (22%)
o Taylor Made Golf (15%)
o MacGregor Golf (12%)
It is possible that one or more key customers could suffer business or
financial setbacks resulting in the reduction or cancellation of product orders
or our being unable to obtain payment from such customers at any time or from
time to time. We expect that our key customers will continue to account for a
substantial portion of our revenues for 1999 and in the future. Accordingly, our
future operating results will continue to depend on the success of our largest
customers and on our ability to sell products to these customers in significant
quantities.
We depend on two suppliers for one of our principal raw materials. Any failure
to obtain these raw materials could result in significant delays in our ability
to ship product and could adversely affect our revenues and our relationships
with our customers.
We presently purchase one our principal raw materials, boron carbide,
primarily from two suppliers, ESK Engineered Ceramics Division of Wacker
Chemicals (USA), Inc. and P&W International Tech. We currently do not have any
long-term supply agreements with either of these suppliers. Our business would
be materially and adversely affected if we were unable to continue to purchase
our required quantities of boron carbide at prices and on terms comparable to
those presently available from our principal suppliers.
In the event we are not able to enforce our patents, our competitors could
introduce similar materials or technologies, which could seriously harm our
business.
We believe our United States patent that contains claims covering the
manufacture of our Boralyn material is critical to our success and our ability
to prevent competitors from introducing similar materials. We have been granted
additional patents and have other patent applications pending, including
divisional (extension) patents and continuation-in-part patents, many of which
stem from our originally issued patent. We cannot be sure that any additional
patents will be granted or that our existing or future patents will be valid and
enforceable, or will provide us with meaningful protection from our competitors.
If our present or future patent rights are ineffective in protecting us against
infringement, our marketing efforts and future revenues could be materially and
adversely affected. Moreover, if a competitor were to infringe any of our
patents, the costs of enforcing our patent rights may be substantial or even
prohibitive. We also cannot be sure that our future materials will not infringe
the patent rights of others or that we will not be forced to expend substantial
funds to defend against infringement claims of, or to obtain licenses from,
third parties. We currently have only limited patent protection for our
technology outside the United States, and we may be unable to obtain even
limited protection for our proprietary technology in certain foreign countries.
We may not able to adequately protect or enforce our trademarks or trade names,
which could harm our goodwill and dilute our brand recognition.
The market for our products is and will remain dependent in part upon
the goodwill engendered by our trademarks and trade names. Trademark protection
is therefore material to our business. Although Boralyn is a registered
trademark in the United States, we cannot be certain that we can successfully
assert trademark or trade name protection for our significant marks and names in
the United States or other markets, and the costs of such efforts could be
substantial.
We face intense competition in the advanced materials market with less expensive
materials and with competitors who have greater resources and manufacturing
experience than we have.
The advanced materials industry is highly competitive, and other
materials such as specialized aluminum alloys, borated stainless steel for
nuclear shielding applications, and to a much lesser extent, titanium, magnesium
and beryllium, are readily available for similar applications generally at lower
prices than our materials. We believe additional competitive pressures could
require us to reduce our product prices to remain competitive, and accordingly,
could adversely affect our results of operations.
We compete in our target markets with several larger domestic and
multinational companies, all of which are well established in their respective
markets and have substantially more manufacturing experience and substantially
greater financial and other resources than us. We compete with material
producers, i.e. companies that produce and market a choice of materials for
specific applications. In this area, the Company competes with: (i) titanium,
supplied by companies such as RMI Titanium Company, Tremont Industries, Inc.,
and Titanium Metals Corporation of America (Timet); (ii) aluminum alloys,
supplied by companies such as the Aluminum Corporation of America (Alcoa),
Reynolds Metals Co., and Oregon Metallurgical Corporation; and (iii) other metal
matrix composites, such as those supplied by Duralcan Inc. For nuclear
containment, current storage containers often use Boral(R), a boron carbide and
aluminum material supplied by AAR Brook & Perkins and borated aluminum supplied
by Eagle Pitcher. Certain of our competitors who provide competing materials for
the nuclear industry have already obtained quality certification (similar to ISO
certification) from the Nuclear Regulatory Commission, which can enable them to
qualify for certain nuclear projects much quicker and cheaper than we can. We
are in the process of qualifying for this quality certification, but we cannot
be sure that we will ever be able to obtain this certification.
The principal applications for our products could subject us to significant
product liability actions, in excess of our insurance coverage limits.
The principal uses of our products currently include automotive
applications, including engines and structural members, as well as products used
to store nuclear waste. Both the automotive and nuclear industries involve
significant risks of personal injury and have historically been the subject of
many product liability actions. We cannot be sure that our product liability
insurance will be sufficient to adequately cover any potential claims, or that
this insurance will continue to be available on acceptable terms in the future.
If our common stock is delisted from the Nasdaq National Market, our common
stock will become less easily tradeable and our stock price could decline.
Holders of our common stock currently enjoy the substantial benefit of
being able to easily buy or sell our common stock because our common stock is
listed on the Nasdaq National Market. For continued listing of our common stock
on the Nasdaq National Market, we must, among other things, maintain a minimum
bid price of at least $1.00 per share. In February 1998, our stock price
declined to $1.50 per share. In addition, in April 1999, we received a letter
from the Nasdaq National Market requesting that we provide further information
concerning our recent losses and the going concern qualification included in the
report of our independent auditors. If our stock price declines or if we
continue to experience losses from our operations, we may not be able to
maintain the standards for continued listing on the Nasdaq National Market. In
the event our common stock is removed from the Nasdaq National Market, any
trading in our common stock might then be conducted on the Nasdaq SmallCap
Market, which is a significantly less active market than the Nasdaq National
Market. As a result, you could find it more difficult to dispose of our common
stock. Furthermore, if we did not qualify for listing on the Nasdaq SmallCap
Market or if our common stock was subsequently delisted from the Nasdaq SmallCap
Market, our common stock could be subject to what are known as the penny stock
rules, which place additional requirements on broker-dealers who sell or make a
market in such securities. Consequently, if we fail to qualify for listing on,
or if we were removed from, the Nasdaq SmallCap Market, the ability or
willingness of broker-dealers to sell or make a market in our common stock could
decline.
If our internal systems and the systems of the third parties with whom we
interact are not Year 2000 compliant, we may suffer business interruptions and
our business could be seriously harmed.
Many existing computer systems and applications and other control
devices use only two digits to identify a year in the date field. These systems
and software applications will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, these systems and
applications will need to be upgraded to comply with the Year 2000 requirements
or risk system failure, miscalculations or other disruptions to normal business
activities.
We are currently evaluating our Year 2000 readiness, both in terms of
the compliance of our internal information systems and compliance of
applications which monitor all aspects of our business, including financial
systems, manufacturing equipment, customer services, marketing information,
infrastructure and telecommunications equipment. While we believe our internal
information systems will adequately function in the Year 2000, we cannot be
certain of the effect of the Year 2000 until it ultimately arrives. We are in
the process of testing and evaluating the computerized elements of our
manufacturing equipment and expect to complete this evaluation in sufficient
time to make necessary upgrades, but we may not be able to complete these
upgrades in a timely manner or at reasonable costs. We also may not be able to
anticipate the extent of the Year 2000 impact until the Year 2000 arrives due to
the interaction between our own systems and products and the systems and
products of third parties. We believe our greatest exposure to Year 2000 risks
relates to the readiness of our third party suppliers who provide us with raw
materials, our customers who incorporate our products into their own products
and other parties who provide services for us. Any failure of these third
parties to resolve their own Year 2000 issues in a timely manner could cause a
material disruption in our business. We have not yet developed any contingency
plans to address any material consequences that we could suffer if we are not
able to resolve our Year 2000 issues or those issues faced by the key third
parties with whom we regularly interact. We also cannot be sure that our present
estimates of the cost to remedy the Year 2000 problem are not understated.
Our principal stockholders control Alyn Corporation and could prevent a change
in control or financing that might otherwise be in the best interests of the
stockholders.
As of June 30, 1999, Kingdon Capital Management Corp. and its
affiliates, Robin A. Carden and Harry Edelson beneficially owned an aggregate of
57.2% of our outstanding common stock. Accordingly, these stockholders have the
ability to elect a majority of our directors and to control the outcome of all
other issues submitted to our stockholders. The terms of our Series A preferred
stock and Series B preferred stock also prohibit us from amending our charter
documents, liquidating, merging, selling substantially all of our assets, or
issuing additional securities without the consent of these stockholders. As a
result, this concentration of ownership and our contractual consent rights may
discourage a potential acquirer from making an offer to buy Alyn Corporation or
may prohibit us from completing a major corporate transaction or raising
additional capital, which might otherwise be in the best interest of our
stockholders.
In addition, the following provisions of our exchangeable note could
also discourage some potential purchasers from making an acquisition of Alyn
Corporation or make an asset sale more difficult and expensive:
o the requirement that upon a change of control, we must offer to buy the
exchangeable note at the greater of 150% of the principal plus accrued and
unpaid interest and penalties or the product of the number of shares into
which the exchangeable note can be exchanged and the market price on the
applicable date and
o the prohibition against selling or transferring all or substantially all of
our assets to any subsidiary or affiliate except for cash or cash
equivalent consideration, unless with their approval; and
We have also agreed to grant the holder of the exchangeable note a
right of first offer with respect to certain issuances of equity or debt
securities, and we are prohibited from obtaining additional senior indebtedness
for borrowed money without written consent of the holder of the exchangeable
note, unless the indebtedness is not on par with or senior or superior to the
exchangeable note or that the borrowed money is for equipment financing or
customary working capital lines of credit.
Our stock price has been, and may continue to be volatile.
Trading volume and prices for our common stock could be subject to wide
fluctuations in response to quarterly variations in our operations and results,
announcements with respect to sales and earnings, as well as technological
innovations, and new product developments and other events or factors, which
cannot be foreseen or predicted by us. Since January 1, 1999, the price of our
common stock has declined from a high of $10 in February 1998 to $1.50 in
February 1999 and to $3.125 at June 30, 1999. The factors causing these
variations include the low average daily trading volume of our common stock, the
sale or attempted sale of a relatively large amount of securities in the public
market, the registration for resale of any shares of common stock, the
antidilution provisions in our preferred stock, exchangeable note and warrants,
manufacturing and product development delays and our earnings to date. The
market price of our common stock could also be influenced by developments or
matters not related to our performance, such as the general volatility of the
stock market.
Our charter documents and Delaware law could adversely affect the rights of
common stock and could prohibit certain changes in control that may otherwise be
beneficial to our stockholders.
Under our Certificate of Incorporation, our Board of Directors has the
authority to issue shares of preferred stock and to determine the price, rights,
preferences and privileges of those shares without any further vote of, or
action by, our stockholders. The rights of holders of common stock will be
subject to, and may be adversely affected by, the rights of holders of any
preferred stock that has been issued or may be issued in the future. Issuance of
preferred stock, while potentially providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have an effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock. Certain provisions of Delaware law applicable to us
may also discourage third-party attempts to acquire control.
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 AND USE OF PROCEEDS
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 exhibit is filed as part of this report:
EXHIBIT
NO. DESCRIPTION
----- ------------------------
27.1 Financial Data Schedule
(b) 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/Arne van Roon
--------------------------
Arne van Roon
President and
Chief Executive Officer
By: /s/ Richard L. Little
--------------------------
Richard L. Little
Vice President, Finance and Administration
and Chief Accounting and Financial Officer
Dated: August 16, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF ALYN
CORPORATION FOR THE 6 MONTH PEROD ENDED JUNE 30, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FINANCIAL
STATEMENTS.
</LEGEND>
</TABLE>
