SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO __________
COMMISSION FILE NO. 0-16293
LANXIDE CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 51-0270253
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1300 MARROWS ROAD, NEWARK, DE 19714
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(302) 456-6200
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED
BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 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.
[ X ] YES [ ] NO
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 14,
1996, WAS: 1,325,595.
LANXIDE CORPORATION
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet at
June 30, 1996 (Unaudited) . . . . . . . . . . . . 2
Consolidated Statement of Operations
for the Three Months and Nine Months Ended
June 30, 1996 and 1995 (Unaudited) . . . . . . . . 3
Consolidated Statement of Cash Flows
for the Nine Months Ended June 30, 1996
and 1995 (Unaudited) . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial
Statements (Unaudited) . . . . . . . . . . . . . . 5
Item 2. Management s Discussion and Analysis
of Results of Operations and Financial
Condition . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 18
Item 6. Exhibits and reports on Form 8-K . . . . . . . . 18
LANXIDE CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
(Unaudited)
JUNE 30,
1996
ASSETS
Cash and cash equivalents, including amounts
restricted for use by majority owned affiliate $ 5,281
Accounts receivable 2,116
Inventories 2,659
Other current assets 644
___________
Total current assets 10,700
Property and equipment, net 10,722
Investment in affiliates 566
Other assets 527
___________
$ 22,515
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current portion of longterm debt $ 80
Accounts payable and accrued expenses 2,826
Deferred revenue 370
___________
Total current liabilities 3,276
Longterm debt 15,900
Deferred credit 358
Deferred compensation 1,194
___________
20,728
Minority interest in consolidated affiliates 6,145
Redeemable Series E preferred stock (aggregate
liquidation value, $261); 26,100 shares issued
and outstanding 210
Shareholders' deficit
Preferred Stock 15,000,000 shares authorized
Series A preferred stock (aggregate liquidation
value, $88,733) $.01 par value; 1,109,161
shares issued and outstanding 11
Common stock $.01 par value, 25,000,000 shares
authorized: 1,325,595 issued and
outstanding 13
Additional paid-in capital 188,480
Accumulated deficit (194,363)
Cumulative translation adjustment 1,291
___________
Shareholders' deficit (4,568)
___________
$ 22,515
See notes to consolidated financial statements.
LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF
OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
1996 1995 1996 1995
Revenue:
Sales $ 1,727 $ 3,083 $ 3,473 $ 7,732
Licensing revenue 5,980 2,000
Research and development
contract revenue 1,103 1,077 4,214 5,126
2,830 4,160 13,667 14,858
Operating costs:
Cost of sales 1,353 2,996 3,226 7,394
Research and development
contract costs 841 809 3,048 4,713
Research and development 1,847 2,445 4,467 7,085
Selling, general and
administration 1,707 4,583 4,456 11,618
5,748 10,833 15,197 30,810
Loss from operations before
minority allocation (2,918) (6,673) (1,530) (15,952)
Minority allocation of operating
loss 231 763 321 2,018
Loss from operations (2,687) (5,910) (1,209) (13,934)
Equity in net loss of
unconsolidated affiliates (352) (448) (985) (2,247)
Interest expense (375) (557) (1,367) (1,472)
Gain on sale of subsidiaries 7,513 7,513
Loss on sale of assets of
subsidiary (3,058) (3,058)
Other income 14 270 921 723
Income (loss) before income taxes 4,113 (9,703) 4,873 (19,988)
Income tax expense (40)
Net income (loss) 4,113 (9,703) 4,833 (19,988)
Dividends on mandatorily
redeemable preferred stock (7) (38)
Net income (loss) applicable to
common shares $ 4,106 $(9,703) $ 4,795 $(19,988)
Historical Income (Loss) Per
Share
Primary $ 2.05 $ (0.92) $ 0.90 $ (1.92)
Fully diluted $ 2.05 $ (0.92) $ 0.75 $ (1.92)
Proforma Income Per Share
Primary $ 2.47
Fully Diluted $ 2.43
Historical Average Common Shares
Outstanding
Primary 1,999 10,523 5,323 10,391
Fully diluted 1,999 10,523 6,434 10,391
Proforma Average Common Shares
Outstanding
Primary 1,940
Fully Diluted 1,976
See notes to consolidated financial statements.
LANXIDE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED JUNE 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,833 $(19,988)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 1,130 2,065
Minority allocation of operating loss and equity
in net loss of unconsolidated affiliates 664 229
Gain on sale of subsidiaries (7,513)
Loss on sale of assets of subsidiary 3,058
Changes in assets and liabilities, net of effects
of acquisitions and changes in consolidated
affiliates:
(Increase) decrease in receivables (492) 1,751
Increase in inventories (715) (1,724)
Decrease in other assets 649 130
(Decrease) increase in accounts payable and
accrued expenses (1,552) 1,116
(Decrease) increase in deferred revenue and
deferred credit (5,228) 1,011
Increase in other liabilities 79 141
__________ ________
Net cash used in operating activities (8,145) (12,211)
__________ ________
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Capital additions (588) (3,276)
Proceeds from sale of property and equipment 6,853
Proceeds from sale of investment in unconsolidated
affiliate 1,250 750
Cash effect of change of ownership percentage of
affiliates 864 542
Investment in unconsolidated affiliate (1,634)
__________ ________
Net cash provided by (used in) investing
activities 8,379 (3,618)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock, net 3,812
Proceeds from preferred stock, net 331
Retirement of preferred stock (70)
Preferred stock dividends paid (1)
Capital contributions to consolidated affiliates
by commercial venture partners 4,880
Proceeds from issuance of debt obligations 257 8,000
Repayment of debt obligations (4,334) (1,253)
__________ ________
Net cash provided by (used in) financing
activities (5) 11,627
__________ ________
Effect of exchange rate translations (160) 194
__________ ________
Net increase (decrease) 69 (4,008)
Cash and cash equivalents, beginning of year 5,212 11,453
Cash and cash equivalents, end of period $ 5,281 $ 7,445
Cash paid for interest $ 1,322 $ 1,392
See notes to consolidated financial statements.
LANXIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per-share data)
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet at June 30, 1996, the consolidated
statement of operations for the three and nine months ended June
30, 1996 and 1995, and the consolidated statement of cash flows
for the nine months ended June 30, 1996 and 1995 have been
prepared by Lanxide Corporation (the Company) and have not been
audited by the Company s Independent Auditors. In the opinion of
management, all adjustments (which include only normal recurring
adjustments and the adjustments described in Note 5) necessary to
present fairly the financial position, results of operations and
cash flows at June 30, 1996 and for all periods presented have
been made.
These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto
included in the Company s Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1995, filed with the Securities
and Exchange Commission. The results of operations for the period
ended June 30, 1996, are not necessarily indicative of operating
results for the full year.
2. CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or
less when purchased are considered to be cash equivalents.
Included in the cash balances at June 30, 1996, are $2,730 held by
a subsidiary company which amounts are not directly available to
the Company.
3. INVENTORIES
Inventories are valued at the lower of cost (primarily average
cost) or market and consist of the following:
Raw materials and $ 984
Work in process 1,610
Finished goods 65
__________
$ 2,659
==========
4. PER SHARE DATA
Historical net income (loss) per share is computed using the
weighted average number of common shares and potentially dilutive
securities outstanding during the period. On November 14, 1995,
the Company completed its Recapitalization Plan and the number of
common shares outstanding was significantly reduced. Accordingly,
the computation of historical weighted average common shares
outstanding reflects this recapitalization.
Proforma net income per share is computed using the weighted
average number of common shares and potentially dilutive
securities outstanding from the completion of the Recapitalization
Plan (as if such recapitalization occurred at October 1, 1995).
During the three and nine months ended June 30, 1995, all
potential dilutive securities have an antidilutive effect on the
loss per share and, therefore, have not been used in determining
the total weighted average number of common shares outstanding.
For the nine months ended June 30, 1996:
Primary
Average Fully Diluted
Common Average
Shares Common Shares
Outstanding Outstanding
___________ _____________
Historical
__________
Prior to Recapitalization (16.67% of
Weighted Average)
Common Shares Outstanding 10,584,444 10,584,444
Assuming the conversion of 11,651,014 18,135,452
convertible preferred stock
22,235,458 28,719,896
========== ==========
After Recapitalization (83.33% of
Weighted Average)
Common Shares Outstanding 1,187,986 1,187,986
Assuming exercise of options and
warrants 523,882 523,882
Assuming purchase of shares with
proceeds of options and warrants (184,983) (149,009)
Assuming the conversion of
convertible preferred stock 413,466 413,466
_________ __________
1,940,351 1,976,325
========= ==========
Weighted average common shares 5,322,869 6,433,587
Primary
Average Fully Diluted
Common Average
Shares Common Shares
Outstanding Outstanding
___________ _____________
Proforma
Common Shares Outstanding 1,187,986 1,187,986
Assuming exercise of options and
warrants 523,882 523,882
Assuming purchase of shares with
proceeds of options and warrants (184,983) (149,009)
Assuming the conversion of
convertible preferred stock 413,466 413,466
_________ ___________
Weighted average common shares 1,940,351 1,976,325
========= ==========
For the three months ended June 30, 1996:
Historical Primary
Average Fully Diluted
Common Average
Shares Common Shares
Outstanding Outstanding
___________ _____________
Common Shares Outstanding 1,195,493 1,195,493
Assuming exercise of options and
warrants 549,998 549,998
Assuming purchase of shares with
proceeds of options and warrants (160,196) (160,196)
Assuming the conversion of
convertible preferred stock 413,449 413,449
_________ _________
Weighted average common shares 1,998,744 1,998,744
========= =========
5. SIGNIFICANT EVENTS
Change in Ownership Interest in Joint Ventures with DuPont
On June 28, 1996, the Company purchased additional ownership
interests in Lanxide Armor Company, L.P. (LAC) and Lanxide
Electronic Components, Inc. (LEC), both of which were joint
ventures with E. I. du Pont de Nemours & Co. (DuPont). Concurrent
with this transaction, DuPont acquired from the Company an
additional 20% interest in another joint venture, Du Pont Lanxide
Composites (DLC). The transaction increased the Company s
ownership percentage in LAC and LEC from 27% and 80%,
respectively, to 100% of both. DuPont will continue to own 100%
of the preferred stock of LEC. Concomitant with the purchase of
DuPont s interest in LAC, LAC was merged into the Company s
wholly-owned subsidiary, Lanxide Armor Products, Inc. (LAP). As a
result of this transaction, LAC (now LAP) will be included in the
Company s June 1996 consolidated financial statements. The sale
of interest in DLC decreases the Company s ownership percentage in
that venture from 30% to 10%. The Company recognized a net gain
of $6,388 on the above transactions.
6. UNAUDITED PROFORMA RESULTS OF OPERATIONS:
The following summarizes the unaudited and condensed proforma
results of operations of the Company for:
(1) the nine months ended June 30, 1995, to give effect to
the sale of Lanxide Precision, Inc. (LPI) on May 25,
1995; the sale of substantially all of the assets of
Alanx Products, Inc. (Alanx), on June 25, 1995, with
the exception of dividends on the Alanx preferred
stock which will continue to accrue; the purchase of
DuPont s interests in LAC and LEC on June 30, 1995,
and June 28, 1996 and the sale of the controlling
interest in Lanxide ThermoComposites on December 13,
1995, as if all had occurred on October 1, 1994. The
loss associated with the sale of the assets of Alanx
has been eliminated for proforma purposes.
(2) the nine months ended June 30, 1996, to give effect to
the purchase of DuPont s interests in LAC and LEC on
June 28, 1996, as if they had occurred on October 1,
1995. In addition, the gain associated with the sale
of subsidiaries has been eliminated for proforma
purposes.
NINE MONTHS ENDED:
JUNE 30, JUNE 30,
1996 1995
________ ________
Revenue $ 17,478 $ 9,507
Loss from operations $ (3,294) $ (11,233)
Net loss $ (4,492) $ (12,644)
Historical loss per share $ (1.63) $ (1.22)
Proforma loss per share $ (3.78)
Historical average number of
common shares outstanding 2,754 10,391
Proforma average number of common 1,188
shares outstanding
All potential dilutive securities have an antidilutive effect on
the loss per share and, therefore, have not been used in
determining the total weighted average number of common shares
outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following is a discussion of the consolidated financial condition
and results of operations of Lanxide Corporation and its majority
owned affiliates (the Company) for the three and nine months ended
June 30, 1996 and 1995, as well as certain factors that may affect
the Company's prospective financial condition. This section should
be read in conjunction with the Consolidated Financial Statements and
the Notes thereto included elsewhere in this 10-QSB. All dollar
amounts in this section, unless otherwise noted, are in thousands of
dollars, except per share data.
OVERVIEW
Historically, the Company's revenues have been derived primarily from
research contracts and development agreements with E.I. DuPont de
Nemours & Company (DuPont) and the U.S. Government and, more
recently, from technology licensing revenues and product sales to
outside customers. In addition, a substantial portion of the
Company's research and development (R&D) and other operating costs
have been funded by Alcan Aluminium Limited and its affiliates
(Alcan), DuPont and Kanematsu Corporation (Kanematsu) through the
Company's consolidated affiliates. The Company operates principally
in the United States and to some degree through its subsidiary in
Japan.
During fiscal year 1995, the Company embarked on a program to license
its technology in certain specific market sectors by product and
geography in order to generate immediate cash for the Company. Since
implementing this strategy, the Company consummated license
agreements with A.P. Green Industries, Inc. (A.P. Green), Waupaca
Foundry, Inc. (Waupaca), Sturm Ruger & Company, Inc. (Sturm Ruger)
and Brembo S.p.A. (Brembo) which generated initial license fees, as
well as future license fees and royalties which are subject to
certain termination clauses. Also, in 1995, the Company entered into
two license agreements pursuant to the sale of two of the Company s
wholly owned subsidiaries. Additionally, in March 1996, the Company
converted Celanx KK, its joint venture with Nihon Cement Co. Ltd.
(Nihon Cement), into a license and royalty arrangement.
In fiscal year 1996, the Company s revenues continue to be derived
primarily from research and development contracts, technology
licenses and product sales.
RESULTS OF OPERATIONS
Revenues from research and development contracts and commercial
development agreements (other than the Company's agreements with its
consolidated affiliates) are reported under "Research and development
contract revenue" in the Company's Consolidated Statement of
Operations. Expenses related to these contracts and agreements are
reported under operating costs as "Research and development contract
costs."
Research and development costs represent costs incurred for projects
sponsored by the Company and/or its commercial venture partners
through the Company's consolidated affiliates. This includes
research costs to develop and provide patent protection for the
Company's technology. Operating losses funded by minority owners of
the Company's consolidated affiliates are allocated to such owners as
"Minority allocation of operating loss."
Significant Customers; Commercial Relationships With the U.S. Government
The Company's significant revenue sources consist primarily of (i)
technology licensing revenues; (ii) U.S. Government contract funding;
(iii) revenues from a brake component development agreement between
the Company and Nihon Cement; (iv) product development revenues
received from unconsolidated commercial ventures; and (v) sales
revenues of consolidated subsidiaries of the Company.
The U.S. Government is a significant customer of the Company.
Contract and sales revenues received from the Government amounted to
$1,832 and $2,351 for the nine months ended June 30, 1996 and 1995,
respectively. Currently, the Company has six government contracts
totaling $4.4 million of which $2.5 million has been billed through
June 30, 1996. The Company anticipates revenues of $2.4 million in
1996 associated with these government contracts. These contracts may
be terminated at the convenience of the government upon written
notice to the Company. Termination of these contracts would
adversely affect the Company.
Commercial Relationships With DuPont
Since 1987, the Company and DuPont have formed three commercial joint
ventures -- Lanxide Electronic Components, Inc. (LEC), Lanxide Armor
Company, L.P. (LAC) and Du Pont Lanxide Composites, L.P. (DLC).
On June 28, 1996, the Company purchased additional ownership
interests in LAC and LEC and sold a portion of its interest in DLC
(the Ownership Change). LAC and LEC are now owned 100% by the
Company while its ownership interest in DLC has been reduced to 10%.
The Company recognized a net gain of $6,388 from this transaction.
The ownership interests of these commercial ventures prior to
and following the Ownership Change are as follows:
LANXIDE DUPONT OWNERSHIP
OWNERSHIP
Before After Before After
LEC 80% 100% 20% 0%
LAC 27% 100% 73% 0%
DLC 30% 10% 70% 90%
DuPont is required to provide 100% of the funding requirements of DLC
through 1999, after which funding will be based on ownership
interest. If either DuPont or the Company fails to meet these future
funding obligations, its respective ownership interest will be
diluted if such funding obligations are met by the other owner.
LAC, LEC and DLC sublease space from the Company in the Marrows Road
manufacturing facility. Also, the Company provides accounting,
purchasing, payroll and human resource services to these ventures.
Amounts received by the Company from unconsolidated affiliates for
administrative and facilities costs and services are reflected as a
reduction to selling, general and administrative expense, which
totaled $1,924 and $874 for the nine months ended June 30, 1996 and
1995, respectively. On March 28, 1996, the Company sold its Marrows
Road manufacturing facility to QRS-12, Inc. (the Buyer) as part of a
sale and leaseback transaction. See -- Liquidity and Capital
Resources.
These three commercial ventures also contract R&D services from the
Company. Revenue received by the Company from unconsolidated
affiliates (prior to the date LAC and LEC became consolidated
subsidiaries) is recorded as contract revenue, which totaled $821 and
$3,027 for the nine months ended June 30, 1996 and 1995,
respectively.
Percentage Relationship to Net Revenues
The following table sets forth the percentage relationship to net
revenues of certain items in the Company's Consolidated Statements of
Operations for the periods presented:
Nine months Three months
ended ended
June 30, June 30,
1996 1995 1996 1995
____ ____ ____ ____
Revenues 100% 100% 100% 100%
Operating costs:
Cost of sales (24) (50) (48) (72)
Research and development (22) (32) (30) (19)
contract costs
Research and development (33) (48) (65) (59)
Selling, general and (33) (78) (60) (110)
administrative
Minority allocation of operating 2 14 8 18
loss
Equity in net loss of (7) (15) (12) (11)
unconsolidated affiliates
Interest expense (10) (10) (13) (13)
Gain on sale of subsidiaries 55 265
Loss on sale of assets of (21) (73)
subsidiary
Other income 7 5 6
Net income (loss) 35 (135) 145 (233)
Nine months ended June 30, 1996 compared to nine months ended June
30, 1995
The Company recorded net income of $4,833 on revenues of $13,667
during the nine months ended June 30, 1996, as compared to a net loss
of $19,988 on revenues of $14,858 during the nine months ended June
30, 1995. The Company's revenue was generated primarily from
licensing revenues, product sales and research and development
contracts as discussed in greater detail below.
The Company s net income of $4,833 for the nine months ended June 30,
1996 as compared to a $19,988 loss for the prior period was primarily
a result of the following factors:
(1) 1996 license fees of $5,980 versus $2,000 in the first nine
months of 1995.
(2) a gain of $6,388 associated with the sale of a DuPont
commercial joint venture (DLC) on June 28, 1996.
(3) a gain of $1,125 associated with the sale of Lanxide
Precision, Inc. (LPI) on May 25, 1995 to LNX Acquisition
Company. The gain had been deferred until June 4, 1996, when
the final payment on the sale was received.
(4) a 20% reduction in the Company s work force during the
second quarter of fiscal year 1995.
(5) a reduction in losses attributable to its commercial
ventures because of the following events:
(A) During the second quarter of fiscal year 1995, the
Company discontinued the Lanxide Sports International,
Inc. and Lanxide Surgical Devices Company commercial
ventures.
(B) The sale of LPI as noted above.
(C) In June 1995, the Company sold 85% of the business of
Alanx Products, Inc. (Alanx) to Alanx Wear Solutions and
recorded a loss of $3,058 on the sale.
(D) In June 1995, the Company sold a 30% interest in LAC
to DuPont which reduced its ownership percentage to 27%.
(E) In December 1995, the Company sold its majority
ownership in Lanxide ThermoComposites, Inc. (Lanxide
Thermo) to A.P. Green.
However, partially offsetting the above favorable events is
the Company's consolidation of the full operations of LAC and
LEC in future periods as a result of the Ownership Change.
The Company believes these factors and the significant
restructuring of the Company in the past year will continue to
have a favorable impact on future operations.
Net Sales and Cost of Sales
Consolidated sales decreased 55% to $3,473 from $7,732, and cost
of sales decreased 56% to $3,226 from $7,394 compared to the prior
period. These decreases are primarily attributable to the fact that
the sales of the LPI, LAC and Alanx subsidiaries are not included in
the consolidated results of operations in fiscal 1996. This is due
to the sale of the entire or the majority interest in these entities
in fiscal 1995. Partially offsetting this decrease is the
consolidation of LEC during fiscal 1996, resulting from the purchase
of the majority interest in this entity in June 1995.
Licensing Revenue
Licensing revenue of $5,980 and $2,000 during the nine months
ended June 30, 1996 and 1995, respectively, relates to the following
license agreements:
Nine months ended June 30,
1996 1995
Waupaca . . . . . . . . $2,000 $2,000
A.P. Green . . . . . . 500
Brembo . . . . . . . . 400
Sturm Ruger . . . . . . 1,000
Nihon Cement . . . . . 2,080
$5,980 $2,000
The Waupaca license is in the area of automotive brake system
components and certain agricultural machine wear components. Subject
to its right to unilaterally terminate this license, Waupaca is
required to make additional license payments totaling $11,000 over
the next three years: $2,500 in March 1997; $4,000 in March 1998;
and $4,500 in March 1999. In addition, the license agreement
includes a royalty to the Company amounting to 1% of sales of
licensed products following the first $150 million in cumulative
sales.
Pursuant to the A.P. Green license agreement, A.P. Green has the
exclusive and perpetual right to use LANXIDE technology to make, use
and sell industrial refractories, other than those employed in the
ferrous metal industry, worldwide except for Japan. Subject to its
unilateral right to terminate this license, A.P. Green is required to
make the following additional payments totaling $1,300 over the next
two years: $250 in July 1996, which has been received; $250 in April
1997; $300 in July 1997; and $500 in January 1998. A.P. Green will
also pay to the Company royalties of 3% on the first $20 million in
annual sales of products manufactured and sold under the license and
4% on annual sales exceeding $20 million.
The Brembo license agreement is in the area of automotive brake
rotors and drums for motor vehicles. Subject to its unilateral right
to terminate the license, Brembo is required to make the following
additional payments totaling $1,200 over two years: $400 in December
1996; $400 in June 1997; and $400 in December 1997. The $400 which
was to be received in June 1996 was received in July 1996 and will be
recognized in the quarter ending September 30, 1996. In addition,
the license agreement includes a royalty to the Company amounting to
4% of sales of licensed products. A minimum royalty payment of $250
is applicable for years three through six of the license agreement.
Pursuant to the Sturm Ruger license agreement, which grants
Sturm Ruger the right to produce and sell certain sporting goods
components outside of Japan, the Company received an initial license
fee of $1,000 in April 1995. The initial license agreement granted
Sturm Ruger a one-year option to terminate the license and be repaid
the $1 million by the Company in the form of either cash or common
stock at the Company s option, therefore, the Company deferred
recognition of the license fee revenue in fiscal 1995. In January
1996, the Company and Sturm Ruger signed a new license agreement
which grants the licensee some additional product rights to certain
sporting goods components outside of Japan. In consideration for the
expanded license, Sturm Ruger waived its one-year option to terminate
the license. Thus, the original deferred amount of $1,000 was
recorded as revenue during the second quarter of fiscal year 1996.
The license agreement includes a royalty to the Company amounting to
3% of sales of licensed products following the first $33.3 million in
cumulative sales.
In May 1995, the Company sold all of its stock ownership in LPI,
a wholly owned subsidiary. The sale converted the existing license
agreement with LPI to a royalty bearing license of 3% on sales of
composite materials and components.
In June 1995, Alanx sold substantially all of its assets to
Alanx Wear Solutions (Alanx Wear). Under the terms of the sale,
Alanx received a 15% common stock interest in Alanx Wear and a 4%
royalty bearing license on sales exceeding $1,125 for any quarter
after the first 24 months from the sale date.
On March 28, 1996, the Company sold its remaining fifty percent
ownership interest in Celanx KK to Nihon Cement effectively giving
Nihon Cement sole ownership of the license to manufacture, market and
sell precision instruments in Japan. As consideration for its
interest in Celanx KK, Lanxide K.K., a subsidiary of the Company,
will receive ongoing royalties from precision instrument sales
generated by Nihon Cement. Concurrent with this sale, Lanxide K.K.
reacquired its wear products license from Celanx KK. As a result of
this transaction, Lanxide K.K. recognized the remaining $2,826
deferred gain (net of its investment in Celanx KK) associated with
the 1994 sale of its fifty percent ownership in Celanx KK to Nihon
Cement, of which, $2,080 is recorded as license revenue.
The Company expects to continue to license its technology in
certain specific market sectors by product and geography. Although
the Company will, subject to the availability of capital, continue to
commercialize products using the LANXIDE technology through its
wholly or partially owned ventures, the Company plans to seek
advantageous licensing arrangements with third parties which have the
ability to commercialize products in those areas where there are
significant barriers to entry (i.e., substantial up-front costs or
the need for a substantial industry presence or where LANXIDE
technology provides only a portion of the necessary solution).
Contract Revenue and Contract Costs
Research and development contract revenue decreased $912, from
$5,126 to $4,214, and contract costs decreased $1,665, from $4,713 to
$3,048, compared to the prior period. Beginning in July 1995,
product development, including both revenue and costs, performed by
the Company for LEC is eliminated in consolidation due to the Company
obtaining a majority ownership in LEC. Also, contract revenue work
performed by LAC was not included in the Company s consolidated
financial statements for the period July 1995 to June 1996, due to
the Company s minority ownership in LAC.
Partially offsetting these decreases was the work performed in
support of a brake component development agreement with Nihon Cement,
including the amortization of equipment purchased under the contract.
Under this agreement, Nihon Cement and the Company funded $3,000 and
$1,000, respectively, of development costs. In addition, government
contract revenue increased during fiscal year 1996.
Research and Development Costs
R&D spending decreased by $2,618, from $7,085 to $4,467, for the
periods presented. This decrease is primarily attributable to the
Company s emphasis on reducing its expenses associated with the
parent company and its subsidiaries. Such expense reductions include
the previously mentioned 20% work force reduction in March 1995, the
discontinuance of two of its commercial ventures, the sale of one of
its subsidiaries and the sale of a majority interest in two of its
other subsidiaries. The decrease also reflects the fact that LAC was
not consolidated for the period July 1995 through June 1996 due to
the Company s 27% ownership interest during that period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $7,162,
from $11,618 to $4,456, over the prior period, principally for the
same reasons cited above for the R&D cost reduction.
Included in selling, general and administrative expenses are
reimbursements of $1,924 and $874 for 1996 and 1995, respectively,
received from unconsolidated affiliates for administrative and
facilities costs and services.
Minority Allocation of Operating Loss
Minority allocation of operating loss decreased 84% from $2,018
to $321. The decrease is mainly attributable to two factors:
(A) Lanxide K.K. recorded a $3.4 million operating loss
improvement of which 35%, or 1.2 million, was allocated to
the minority owner.
(B) Due to a decrease in the Company s ownership in LAC to
27%, LAC was not consolidated into the Company s
operations through June 1996. In fiscal year 1995,
$0.8 million in operating loss was allocated to LAC s
minority owner.
Equity in Net Loss of Unconsolidated Affiliates
The equity in net loss of unconsolidated affiliates decreased
$1,262 from $2,247 to $985. This decrease was mainly due to
consolidation of LEC and deconsolidation of LAC for the period July
1995 to June 1996. Also, the 1995 period included significant costs
associated with the start up of the Celanx KK commercialization
venture as well as a $428 charge associated with the cost of acquired
licensing rights for LEC.
Interest Expense
Interest expense decreased 7%, from $1,472 to $1,367, compared
to the prior period. This decrease was principally attributable to
the prepayment of the $4.1 million mortgage associated with the sale
of the Marrows Road facility in March 1996. The decrease was
partially offset by the draw-down of the remaining $6,000 of the
$10,000 Kanematsu line of credit during the first half of fiscal year
1995.
Gain on Sale of Subsidiaries
The $7,513 gain on the sale of subsidiaries for the period ended
June 30, 1996, reflects the gain of $6,388 on the sale of a DuPont
commercial joint ventures as previously described, as well as a
$1,125 gain on the sale of LPI.
Loss on Sale of Assets of Subsidiary
The loss of $3,058 recorded in the period ended June 30, 1995,
is a result of the sale of substantially all of the assets of Alanx
Products, Inc., a wholly owned subsidiary of the Company, to Alanx
Wear Solutions.
Other Income
Other income increased $198 from $723 to $921 compared to the
prior period. The Company recorded a $200 charge in 1995 associated
with previously accrued dividends on the preferred stock of a
subsidiary company.
Income Tax Expense
In 1996, the $40 in income tax expense is a result of taxes
withheld on foreign income relating to the Brembo license agreement.
No provision for current or deferred federal or state income taxes
has been provided as the Company has substantial net operating loss
carryforwards available to offset future income. The carryforwards
expire in varying amounts through the year 2010.
Three months ended June 30, 1996 compared to three months ended June
30, 1995
The following table presents the results of operations for the
three months ended June 30, 1996 and 1995. Additionally, the table
presents the differences between the quarters in terms of dollars and
percentages. The analysis of the nine month changes presented on the
previous pages also serves to explain the quarterly changes presented
below.
For the three months ended June 30,
1996 1995 Difference % Difference
____ ____ __________ ____________
Sales $ 1,727 $ 3,083 $ (1,356) (44)%
Research and development contract
revenue 1,103 1,077 26 2
Cost of sales 1,353 2,996 (1,643) (55)
Research and development
contract costs 841 809 32 4
Research and development 1,847 2,445 (598) (24)
Selling, general and
administrative 1,707 4,583 (2,876) (63)
Minority allocation of
operating loss 231 763 (532) (70)
Equity in net loss of
unconsolidated affiliates (352) (448) 96 21
Interest expense (375) (557) 182 33
Gain on sale of subsidiaries 7,513 0 7,513 --
Loss on sale of assets of
subsidiary 0 (3,058) 3,058 100
Other income $ 14 $ 270 $ (256) (95)%
Liquidity and Capital Resources
Since its inception, the Company has financed its working
capital and capital expenditure requirements with the proceeds from
the sale of stock, borrowings, product sales, research and
development contracts and, more recently, technology licensing
revenues. The Company had working capital of $7.4 million at June
30, 1996, as compared to $0.5 million at September 30, 1995. The
consolidated cash balance at June 30, 1996 was $5.3 million
(including $2.7 million held by a subsidiary company which is
unavailable to the Company).
At June 30, 1996, the Company had no significant commitments to
purchase capital equipment. However, the Company has a $132
obligation on previously purchased capital equipment that contains
deferred payment terms of approximately $33 per quarter.
During fiscal 1996, the Company has completed two significant
financing transactions:
(A) November 14, 1995, the Company completed its
Recapitalization Plan. Pursuant to the Recapitalization
Plan, stockholders subscribed for 850,117 shares of the
Company s Common Stock at $4.50 per share, providing
aggregate gross proceeds of $3,800.
(B) On March 28, 1996, the Company consummated the sale
and leaseback of its facility located on Marrows Road.
This transaction generated $3.3 million after
prepayment of a $4.1 million mortgage on the facility
and payment of associated fees and closing costs.
Concurrent with the sale, the Company entered into a
noncancelable twenty-year operating lease with the
Buyer with renewal options for another 20 years. The
lease terms require prepaid quarterly payments of $244
with inflation adjustments every five years.
In March 1995, the Company implemented a licensing strategy and
has since signed four technology licensing agreements which provide
funds for the continuing operations of the Company. These license
agreements form a financial base to cover a portion of the Company's
operating expenses in 1996 and beyond. License agreements which are
in place but subject to cancellation by the licensee provide the
following funds in addition to various royalty provisions (Dollars in
Millions)
1995 1996 1997 1998 1999
1. Waupaca 2.00 2.00 2.50 4.00 4.50
2. A.P. Green -- 0.75 0.55 0.50 --
3. Brembo -- 0.80 0.80 0.40 .25
4. Sturm Ruger 1.00 -- -- -- --
The Company has been engaged in discussions with a number of
industrial entities in the United States, Europe and Asia regarding
the potential licensing of the Company s technology to such entities
for up-front fees and ongoing royalty payments. However, no
assurance can be given that any of these discussions will actually
lead to the licensing of the Company s technology to any of these
entities.
In addition to funding its own operations, the Company has
funding responsibility for its wholly owned subsidiaries, LEC, LAP
and Lanxide Performance Materials, Inc. The Company anticipates the
funding requirements for these commercial ventures to be
approximately $1,800 over the next year.
The Company has a $6 million revolving credit and term note with
PNC Bank, Delaware guaranteed by DuPont, under which all available
amounts have been drawn. The note bears interest at the prime rate
and is payable in installments beginning in March 1997 and maturing
in March 2000. The Company also has a $10 million secured revolving
credit and time note with Kanematsu under which all available amounts
have been drawn. This note bears interest at 2% above LIBOR and
matures in full in December 1998. Principal payments due on the
outstanding indebtedness are as follows:
PERIOD ENDED PRINCIPAL PAYMENT
4th Quarter Fiscal Year 1996 $ 7
Fiscal Year 1997 273
Fiscal Year 1998 2,000
Fiscal Year 1999 12,100
Fiscal Year 2000 1,600
___________
TOTAL $ 15,980
==========
No assurances can be given that the Company will be able to make
these payments when they become due.
The Company currently has no availability under its lines of
credit. Moreover, the terms of the agreements relating to (i) the
loan from Kanematsu and (ii) the lease with QRS 12-16, Inc. as
Landlord for the Marrows Road facility currently prohibit the Company
from incurring additional indebtedness other than in connection with
the operation of its subsidiaries.
The Company has entered into discussions with Commodore
Environmental Services, Inc. (Commodore) regarding a possible
business combination. The largest stockholder of Commodore is also
the largest stockholder and a director of Lanxide. As currently
proposed, the Company and Commodore would each merge into newly
formed subsidiaries of a holding company to be formed to accomplish
this transaction, with the stockholders of the Company and Commodore
each receiving 50% of the shares of the holding company. It is
currently contemplated that the transaction would be subject to
certain conditions, including an equity financing of approximately
$150 million for the new holding company and the approval of the
stockholders of both the Company and Commodore. The Company and
Commodore have targeted completion of the merger for November 1996.
The Company s cash needs for its continuing operations are
expected to be met through: (i) existing cash reserves; (ii)
projected licensing revenues; (iii) cash flows from operations; and
(iv) additional financing. The Company is currently negotiating
additional license agreements and discussing additional financing
alternatives, but there can be no assurance that additional licenses
will be executed or that additional financing will be available on
terms acceptable to the Company, or at all. The Company remains
critically dependent on the success of ongoing licensing and
financing negotiations for its continuing operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 17, 1996, certain stockholders of Lanxide, which
purportedly owned an aggregate of 149,529 shares of Old Common Stock
prior to the consummation of the Company s 1995 Recapitalization,
filed a lawsuit in the United States District Court for the District
of Colorado against the Company.
The allegations in the Complaint arise from a settlement
agreement (the Settlement Agreement ) entered into by the plaintiffs
and the Company in March 1996 relating to the Company s 1995
Recapitalization. Pursuant to the Settlement Agreement, the
plaintiffs agreed to relinquish all claims against the Company
relating to the 1995 Recapitalization, including their demand for
appraisal rights under Section 262 of the Delaware General
Corporation Law, in exchange for Units of the Company plus the right
to purchase shares of the Company s new common stock and to receive
warrants for additional shares of the Company s new common stock.
In the Complaint, the plaintiffs alleged that the Company has
breached the Settlement Agreement by substituting for the new common
stock , a class of restricted stock of a lesser value that was not
contemplated by the Settlement Agreement. The plaintiffs seek, among
other things, monetary damages, the reinstitution of their appraisal
claim, and the award of the costs and disbursements of the action,
including reasonable attorneys and experts fees.
The Company believes that the plaintiffs claims are without
merit and intends to defend vigorously against such claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
4.14.1 Amendment to Warrant Agreement, dated June 26,
1996 among the Company and the Warrantholders.
10.59.10 Sale of Interest Agreement, dated June 28, 1996,
among DuPont, Lanxide Armor Products, Inc. and Lanxide
Armor Company, Inc. Incorporated by reference to
Exhibit 2.0 of the Company s current report on Form 8-K
filed on July 17, 1996.
10.59.20 Sale of Interest Agreement, dated June 28, 1996,
between DuPont and the Company. Incorporated by
reference to Exhibit 2.1 to the Company s current
report on Form 8-K filed on July 17, 1996.
10.59.30 Sale of Interest Agreement, dated June 28, 1996,
among DuPont, Lanxide Technology Company, L.P. and Du
Pont Lanxide Composites, Inc. Incorporated by
reference to Exhibit 2.2 to the Company s current
report on Form 8-K filed on July 17, 1996.
10.59.40 Letter Agreement, dated June 28, 1996, between
the Company and DuPont relating to the Guaranty
Agreement, dated February 11, 1993. Incorporated by
reference to Exhibit 10.59 to the Company's current
report on Form 8-K filed on July 17, 1996.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on July 17,
1996, reporting the restructuring of its commercial ventures
with E. I. Du Pont de Nemours under Item 2 of Form 8-K.
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LANXIDE CORPORATION
Date: August 14, 1996 By: /s/ Robert J. Ferris
Robert J. Ferris
Vice President - Administration
Secretary and Treasurer
(Duly Authorized Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted
from the Company's Consolidated Balance Sheet at June 30, 1996
(unaudited) and Consolidated Statement of Operations for the nine
months ended June 30, 1996 (unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 5,281
<SECURITIES> 0
<RECEIVABLES> 2,184
<ALLOWANCES> (68)
<INVENTORY> 2,659
<CURRENT-ASSETS> 10,700
<PP&E> 28,287
<DEPRECIATION> (17,565)
<TOTAL-ASSETS> 22,515
<CURRENT-LIABILITIES> 3,276
<BONDS> 17,174
<COMMON> 13
210
11
<OTHER-SE> 188,480
<TOTAL-LIABILITY-AND-EQUITY> 22,515
<SALES> 3,473
<TOTAL-REVENUES> 13,667
<CGS> 3,226
<TOTAL-COSTS> 6,274
<OTHER-EXPENSES> 8,923
<LOSS-PROVISION> 68
<INTEREST-EXPENSE> (1,367)
<INCOME-PRETAX> 4,873
<INCOME-TAX> 40
<INCOME-CONTINUING> 4,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,833
<EPS-PRIMARY> .90
<EPS-DILUTED> .75
</TABLE>
AMENDMENT
TO
WARRANT AGREEMENT
WHEREAS, Lanxide Corporation, a Delaware
corporation (the "Company"), and the individuals listed
on the signature page hereto (collectively, the
"Warrantholders") are parties to the Warrant Agreement,
dated December 22, 1995 (the "Warrant Agreement");
WHEREAS, the Company and the Warrantholders
have agreed to amend Section 8.0 of the Warrant
Agreement;
NOW, THEREFORE, in consideration of the
representations, warranties, covenants, agreements and
conditions herein, and in the Warrant Agreement, and
intending to be legally bound hereby, the parties agree
as follows:
1. Section 8.0 of the Warrant Agreement is
hereby amended, and as restated it hereby reads in its
entirety:
SECTION 8. ADJUSTMENTS.
In the event of any increase in the number
of outstanding shares of Common Stock occurring
through stock splits or stock dividends after
the date hereof, the number of shares covered
by the Warrant shall be proportionately
increased and the Exercise Price per share
shall be proportionately decreased to reflect
such increase in the number of shares
outstanding. If changes in the capitalization
of the Company other than those considered
above shall occur, the Board shall make such
adjustments in the number of shares covered by
the Warrant and in the per share Exercise Price
as the Board in its discretion may consider
appropriate, and all such adjustments shall be
conclusive. Any fractional shares resulting
from any of the adjustments referred to in this
Section 8 shall be eliminated as long as the
elimination of such fractional shares does not
materially adversely affect the rights of the
Warrantholder.
2. Except as specifically provided herein,
the terms and conditions of the Warrant Agreement are
hereby confirmed and continue in full force and effect.
3. The terms of this Amendment shall be
governed by and construed in accordance with the laws of
the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be duly executed.
LANXIDE CORPORATION
By:/s/ Marc S. Newkirk
_________________________
Marc S. Newkirk
President
ATTEST:
/s/ Robert J. Ferris
______________________
Robert J. Ferris
WARRANTHOLDERS
/s/ Marc S. Newkirk
_____________________________
Marc S. Newkirk
/s/ Michael J. Hollins
_____________________________
Michael J. Hollins
/s/ Mark G. Mortenson
_____________________________
Mark G. Mortenson
/s/ Christopher R. Kennedy
_____________________________
Christopher R. Kennedy
/s/ Robert J. Ferris
_____________________________
Robert J. Ferris
/s/ R. Michael Rice
_____________________________
R. Michael Rice
DATED AS OF: June 26, 1996
