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, 1997
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 (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1300 MARROWS ROAD, NEWARK, DE 19714-6077
(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 12, 1997 WAS:
1,325,598.
THIS FORM 10-QSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER ITEM 1. FINANCIAL STATEMENTS AND ITEM 2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. THESE
FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO
ASSURANCE CAN BE GIVEN THAT ANY SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES:
(I) COMPETITIVE CONDITIONS IN THE INDUSTRIES IN WHICH THE COMPANY OPERATES;
(II) INABILITY TO INCREASE MARKET ACCEPTANCE OF PRODUCTS CREATED BY ONE OR MORE
OF THE COMPANY'S TECHNOLOGIES; AND (III) GENERAL ECONOMIC CONDITIONS THAT ARE
LESS FAVORABLE THAN EXPECTED.
LANXIDE CORPORATION
TABLE OF CONTENTS
Page
Number
______
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet at
June 30, 1997 (Unaudited)...................................2
Consolidated Statement of Operations
for the Three Months and Nine Months Ended
June 30, 1997 and 1996 (Unaudited)..........................3
Consolidated Statement of Cash Flows
for the Nine Months Ended
June 30, 1997 and 1996 (Unaudited)..........................4
Notes to Consolidated Financial
Statements (Unaudited)..................................5 - 8
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition..............................................9 - 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...........................17
LANXIDE CORPORATION
____________________
CONSOLIDATED BALANCE SHEET
__________________________
(Dollars in thousands, except per share data)
(Unaudited)
JUNE 30,
ASSETS 1997
______ ____
Cash and cash equivalents, including amounts restricted for use
by majority-owned affiliate $ 4,701
Accounts receivable 1,402
Other receivable 1,017
Inventories 2,691
Other current assets 152
-----------
Total current assets 9,963
Property and equipment, net 9,902
Investment in affiliate 377
Other assets 397
-----------
$ 20,639
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
_____________________________________
Current portion of long-term debt $ 6,847
Accounts payable and accrued expenses 3,555
Deferred compensation 1,318
Deferred revenue 1,345
-----------
Total current liabilities 13,065
Long-term debt 14,410
Deferred credit 383
Deferred compensation 20
-----------
27,878
-----------
Minority interest in consolidated affiliates 2,232
Redeemable Series E preferred stock
(aggregate liquidation value, $261);
26,100 shares issued and outstanding 222
-----------
Shareholders' deficit
Preferred stock 15,000,000 shares authorized
Series A preferred stock
(aggregate liquidation value, $88,135) $.01 par value;
1,101,683 shares issued and outstanding 11
Common stock, $.01 par value, 25,000,000 shares authorized:
1,325,598 issued and outstanding 13
Additional paid-in capital 188,446
Accumulated deficit (199,263)
Cumulative translation adjustment 1,100
-----------
Shareholders' deficit (9,693)
-----------
$ 20,639
===========
See notes to consolidated financial statements.
<TABLE>
LANXIDE CORPORATION
___________________
CONSOLIDATED STATEMENT OF OPERATIONS
____________________________________
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
1997 1996 1997 1996
____ ____ ____ ____
Revenue:
<S> <C> <C> <C> <C>
Sales $ 1,817 $ 1,727 $ 6,451 $ 3,473
Licensing revenue 1,550 9,750 5,980
Research and development contract revenue 1,167 1,103 4,151 4,214
---------- ---------- ---------- ----------
4,534 2,830 20,352 13,667
---------- ---------- ---------- ----------
Operating costs:
Cost of sales 1,581 1,353 5,829 3,226
Research and development contract costs 820 841 3,587 3,048
Product development and engineering 1,983 1,847 4,986 4,467
Selling, general and administration 1,933 1,707 6,181 4,456
---------- ---------- ---------- ----------
6,317 5,748 20,583 15,197
---------- ---------- ---------- ----------
Loss from operations before minority allocation (1,783) (2,918) (231) (1,530)
Minority allocation of operating (income) loss 202 231 (944) 321
---------- ---------- ---------- ----------
Loss from operations (1,581) (2,687) (1,175) (1,209)
Equity in net loss of unconsolidated affiliates (352) (985)
Interest expense (471) (375) (1,328) (1,367)
Gain on sale of subsidiaries 7,513 7,513
Other income 1 14 995 921
---------- ---------- ---------- ----------
Income (loss) before income taxes (2,051) 4,113 (1,508) 4,873
Income tax expense 80 120 40
---------- ---------- ---------- ----------
Net income (loss) (2,131) 4,113 (1,628) 4,833
Dividends on mandatorily redeemable preferred stock (8) (7) (23) (38)
---------- ---------- ---------- ----------
Net income (loss) applicable to common shares $ (2,139) $ 4,106 $ (1,651) $ 4,795
========== ========== ========== ==========
Historical Income (Loss) Per Share
Primary $ (1.61) $ 2.05 $ (1.25) $ 0.90
Fully Diluted $ (1.61) $ 2.05 $ (1.25) $ 0.75
Proforma Income Per Share
Primary $ 2.47
Fully Diluted $ 2.43
Historical Average Common Shares Outstanding
Primary 1,326 1,999 1,326 5,323
Fully Diluted 1,326 1,999 1,326 6,434
Proforma Average Common Shares Outstanding
Primary 1,940
Fully Diluted 1,976
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
LANXIDE CORPORATION
___________________
CONSOLIDATED STATEMENT OF CASH FLOWS
_____________________________________
(Dollars in Thousands)
(Unaudited)
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
________
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ____ ____
<S> <C> <C>
Net income (loss) $ (1,628) $ 4,833
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,420 1,130
Minority allocation of operating income (loss) and equity in net loss of
unconsolidated affiliates 944 664
Gain on sale of subsidiaries (7,513)
Gain on the sale of equipment (81)
Changes in assets and liabilities, net of effects of acquisitions and changes in
consolidated affiliates:
Decrease (increase) in receivables 646 (492)
Increase in inventories (749) (715)
Decrease in other assets 361 649
Increase (decrease) in accounts payable and accrued expenses 688 (1,552)
Increase (decrease) in deferred revenue and deferred credit 960 (5,228)
Increase in other liabilities 108 79
---------- ----------
Net cash provided by (used in) operating activities 2,669 (8,145)
---------- ----------
CASH FROM INVESTING ACTIVITIES:
Capital additions (434) (588)
Proceeds from the sale of property and equipment 115 6,853
Proceeds from sale of investment in unconsolidated affiliate 1,250
Cash effect of change of ownership percentage of affiliates 864
---------- ----------
Net cash (used in) provided by investing activities (319) 8,379
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock, net 3,812
Proceeds from preferred stock, net 331
Retirement of preferred stock (70)
Retirement of a subsidiary's preferred stock (4,680)
Preferred stock dividends paid (1)
Proceeds from issuance of debt obligations 4,141 257
Repayment of debt obligations (371) (4,334)
---------- ----------
Net cash used in financing activities (910) (5)
---------- ----------
Effect of exchange rate translations (197) (160)
---------- ----------
Net increase 1,243 69
Cash and cash equivalents, beginning of period 3,458 5,212
---------- ----------
Cash and cash equivalents, end of period $ 4,701 $ 5,281
========== ==========
Cash paid for interest $ 1,173 $ 1,322
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
LANXIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
_________________________________
The consolidated balance sheet at June 30, 1997, the consolidated
statements of operations for the three and nine months ended June 30, 1997
and 1996 and the consolidated statement of cash flows for the nine months
ended June 30, 1997 and 1996 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) necessary to present fairly the financial position,
results of operations and cash flows at June 30, 1997 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, 1996,
filed with the Securities and Exchange Commission. The results of
operations for the period ended June 30, 1997 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, 1997 are $3,117,000 held by a subsidiary company which
amounts are not otherwise available to the Company.
3. INVENTORIES
___________
Inventories are valued at the lower of cost (primarily average cost) or
market and consist of the following:
(Amounts in thousands)
Raw materials and supplies $ 876
Work in process 1,290
Finished goods 525
--------
$ 2,691
========
4. PER SHARE DATA
______________
Historical net income 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, 1997, 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.
<TABLE>
FOR THE NINE MONTHS ENDED JUNE 30, 1996:
<CAPTION>
PRIMARY AVERAGE FULLY DILUTED AVERAGE
COMMON SHARES OUTSTANDING COMMON SHARES OUTSTANDING
_________________________ _________________________
HISTORICAL
<S> <C> <C>
PRIOR TO RECAPITALIZATION (16.67% of Weighted Average)
Common shares outstanding 10,584,444 10,584,444
Assuming the conversion of convertible preferred stock 11,651,014 18,135,452
---------- ----------
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
========== ==========
<CAPTION>
PRIMARY AVERAGE FULLY DILUTED AVERAGE
COMMON SHARES OUTSTANDING COMMON SHARES OUTSTANDING
_________________________ _________________________
PROFORMA
<S> <C> <C>
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
========== ==========
</TABLE>
<TABLE>
FOR THE THREE MONTHS ENDED JUNE 30, 1996:
<CAPTION>
PRIMARY AVERAGE FULLY DILUTED AVERAGE
COMMON SHARES OUTSTANDING COMMON SHARES OUTSTANDING
_________________________ _________________________
HISTORICAL
<S> <C> <C>
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
========== ==========
</TABLE>
5. SIGNIFICANT EVENTS
__________________
Stock Purchase by Commodore
Commodore Environmental Services, Inc. (Commodore) has obtained effective
control of the Company, pursuant to the Voting Agreement, dated July 3,
1997, among the Company and certain of its stockholders (the Voting
Agreement) which was executed in connection with the transactions
contemplated by the Securities Purchase Agreement, dated July 3, 1997,
between the Company and Commodore (the Securities Purchase Agreement)
described below. Pursuant to the Voting Agreement, stockholders who own
664,329 shares of the Company's common stock (the Common Stock), or 50.1%
of the outstanding Common Stock, granted proxies to the members of the
Board of Directors of Commodore, specifically: Messrs. Bentley J. Blum,
Paul E. Hannesson, David Mitchell, Herbert Cohen and Kenneth Adelman
(collectively, the Proxyholders) to vote all shares of Common Stock held by
each such stockholder until December 31, 1998.
Pursuant to the Securities Purchase Agreement, Commodore agreed to purchase
up to $25 million of the Company's capital stock. Under the terms of the
Securities Purchase Agreement, Commodore can acquire up to $10.5 million of
the Company's Series G Preferred Stock (the Series G Stock) as follows:
(i) on July 3, 1997, Commodore purchased 10,000 shares of Series G Stock
for a purchase price of $1.0 million in cash, (ii) on July 28, 1997,
Commodore purchased 10,000 shares of Series G Stock for a purchase price of
$1.0 million in cash, and (iii) if prior to August 27, 1997, Commodore
receives $10.5 million in financing, Commodore will purchase 85,000 shares
of Series G Stock for an aggregate purchase price of $8.5 million comprised
of (x) $4.0 million in cash and (y) the cancellation of the Company's
outstanding indebtedness to Commodore and its subsidiary, Commodore Applied
Technology, Inc., in the amount of $4.5 million. In addition, the Company
issued a Warrant (the Warrant) to Commodore for the purchase of 250,000
shares of the Company's Series F Preferred Stock (the Series F Stock) at an
exercise price of $100 per share. The Warrant may be exercised, in part,
by the exchange of the shares of Series G Stock acquired pursuant to the
Securities Purchase Agreement for a like number of shares of Series F
Stock. If Commodore elects to purchase all shares of Series F Stock
issuable upon exercise of the Warrant, the Company will receive an
aggregate consideration of $25 million.
The Series G Stock is not convertible and is not entitled to vote or to
receive dividends. The Series G Stock may be redeemed by the Company after
December 31, 1998 to the extent such shares have not been used to exercise
the Warrant.
The terms of the Series F Stock include, among other things, (a) the right
to convert into shares of Common Stock at a rate, subject to adjustment, of
13.5 shares of Common Stock for each share of Series F Stock; (b) a
mandatory conversion by the holders upon certain events, including the sale
by the Company of at least $10 million of Company securities in a public
offering or a private placement prior to the time that (x) Commodore
exercises at least $10 million of the Warrant or (y) Commodore purchases
all 105,000 shares of Series G Stock; and (c) the right to elect four of
the seven members of the Board of Directors of the Company.
The Company is entitled to terminate the Securities Purchase Agreement if
it receives alternative superior financing prior to the purchase by
Commodore of all 105,000 shares of Series G Stock. Upon such termination,
the Company must pay Commodore the greater of $300,000 or Commodore'
expenses incurred in connection with the transaction contemplated by the
Securities Purchase Agreement. If the Agreement is terminated prior to
August 27, 1997, as a result of a superior offer, Commodore shall be
entitled to retain and exercise the Warrant in accordance with its terms.
In addition, if after August 27, 1997, (x) Commodore has not purchased all
105,000 shares of Series G Stock, for any reason other than the Company's
prior receipt of a superior offer or the Company's breach of certain
covenants and agreements contained in the Securities Purchase Agreement,
(y) a Liquidity Event (as defined in the Certificate of Designations
relating to the Series F Stock) has occurred or (z) the Company has
received alternative superior financing, then the Company may redeem the
unexercised portion of the Warrant for $.001 per warrant share.
In accordance with the Securities Purchase Agreement, on July 7, 1997, the
Board of Directors of the Company expanded the number of Board members to
seven and elected Michael Fullwood, the Senior Vice President, Chief
Financial and Administrative Officer, Secretary and General Counsel of
Commodore, and William Toller, the retired Chairman and Chief Executive
Officer of Witco Corporation, and a Director of Commodore Separation
Technologies, Inc., to fill the newly created directorships. In addition,
the Board of Directors of the Company appointed Mr. Toller to the position
of Vice Chairman of the Company. The Board of Directors of the Company
also appointed Mr. Fullwood to the position of Senior Vice President, Chief
Financial and Administrative Officer and General Counsel of the Company.
As a result of this transaction, the merger discussions between the Company
and Commodore have been terminated.
6. UNAUDITED PROFORMA RESULTS OF OPERATIONS:
_________________________________________
The following summarizes the condensed proforma results of operations of
the Company for the nine months ended June 30, 1996 to give effect to the
purchase of E. I. Du Pont de Nemours & Company's interests in Lanxide Armor
Company, L.P. and Lanxide Electronic Components, Inc. 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.
(Amounts in thousands except per share data)
Revenue $ 17,478
Loss from operations $ (3,294)
Net loss $ (4,492)
Historical loss per share $ (1.63)
Proforma loss per share $ (3.78)
Historical Average Common Shares Outstanding 2,754
Proforma Average Common Shares Outstanding 1,188
The proforma loss per share and the proforma average number of common
shares outstanding reflect the Company's recapitalization that occurred on
November 14, 1995 as if the recapitalization had taken place on October 1,
1995. All potential dilutive securities have an antidilutive effect on the
loss per share and, therefore, have not been used in determining the total
historical or proforma 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 the Lanxide Corporation and its majority-owned
affiliates (the Company) for the three and nine months ended June 30, 1997 and
1996, 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.
OVERVIEW
Historically, the Company's revenues were derived primarily from research
contracts and development agreements with E.I. DuPont de Nemours & Company
(DuPont) and the U.S. Government, and a substantial portion of its research,
development and engineering and other operating costs were funded by Alcan
Aluminium Limited and its affiliates (Alcan), DuPont and Kanematsu Corporation
(Kanematsu) through the Company's consolidated affiliates. More recently, the
Company's revenues consist mainly of technology licensing revenue and sales to
outside customers and, to a lesser degree, contract funding. The Company
operates principally in the United States and to some degree in Japan through
its subsidiary, Lanxide K.K.
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), Brembo S.p.A. (Brembo) and AKN Corporation (AKN) which generated
initial license fees, as well as future license fees and royalties which are
subject to certain termination clauses. In addition, the Company entered into
two license agreements pursuant to the sale of two wholly-owned subsidiaries and
converted its joint venture with Nihon Cement Co., Ltd (Nihon) into a license
and royalty arrangement. On December 6, 1996, Waupaca notified the Company that
it would not exercise its right to extend its license beyond March 31, 1997.
In fiscal year 1997, the Company anticipates that its revenues will
continue to be derived primarily from technology licensing revenue, product
sales and research and development contract revenue.
RESULTS OF OPERATIONS
Results of operations may vary from period to period depending on several
factors including licensing transactions and the sale of subsidiaries. Revenues
from license agreements often do not occur evenly in each quarterly reporting
period, which can cause the results to fluctuate. Additionally, non-recurring
gains and losses on the sale of a subsidiary can significantly impact the
financial results.
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."
Product development and engineering (PD&E) costs represent costs incurred
for projects sponsored by the Company and/or its commercial venture partners
through the Company's consolidated affiliates. This includes PD&E costs
expended in support of the Company's patent portfolio. Operating income and
losses allocated to commercial venture partners through the Company's
consolidated affiliates are reported under "Minority allocation of operating
(income) loss."
The Company's significant revenue sources in the first nine months of
fiscal year 1997 consist primarily of (i) technology licensing revenues;
(ii) sales revenues of consolidated subsidiaries of the Company; (iii) revenues
from a brake component development program between the Company and AKN; and
(iv) U.S. Government contract funding.
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 DuPont's ownership interests in LAC
and LEC and sold a portion of its interest in DLC to DuPont (the Ownership
Change). LAC and LEC are now owned 100% by the Company while its ownership
interest in DLC has been reduced to 10%. Concomitant with the purchase, LAC was
merged into the company's wholly-owned subsidiary, Lanxide Armor Products, Inc.
(LAP), with LAP the surviving entity.
The ownership interests of these commercial ventures prior to and following the
Ownership Change are as follows:
Lanxide-Ownership DuPont-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 future funding obligations, its
respective ownership interest will be diluted if such funding obligations are
met by the other owner.
LAP, LEC and DLC sublease space from the Company primarily 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 $457,000 and $1,924,000 for the nine months ended
June 30, 1997 and 1996, respectively.
These three commercial ventures also contract R&D services from the
Company. Revenue received by the Company from unconsolidated affiliates are
recorded as contract revenue, which totaled $829,000 and $821,000 for the nine
months ended June 30, 1997 and 1996, 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 Statement of Operations for the
periods presented:
<TABLE>
<CAPTION>
Nine months ended Three months ended
June 30, June 30,
1997 1996 1997 1996
____ ____ ____ ____
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Operating costs:
Cost of sales (29) (24) (35) (48)
Research and development contract costs (18) (22) (18) (30)
Product development and engineering (24) (33) (44) (65)
Selling, general, and administrative (30) (33) (43) (60)
Minority allocation of operating (income) loss (5) 2 4 8
Equity in net loss of unconsolidated affiliates (7) (12)
Interest expense (7) (10) (11) (13)
Gain on sale of subsidiaries 55 265
Other income 5 7
Net income (loss) (8) 35 (47) 145
</TABLE>
Nine months ended June 30, 1997 compared to nine months ended June 30, 1996
The Company recorded net loss of $1,628,000 on revenues of $20,352,000 for
the nine months ended June 30, 1997, as compared to a $4,833,000 net income on
revenues of $13,667,000 during the nine months ended June 30, 1996. Significant
events occurring during these periods which impacted the results comparison
include the following:
1.) As a result of the 1996 Ownership Change (see Commercial Relationships
with DuPont previously discussed), the Company recorded a non-
recurring $6.4 million gain in June 1996 and began consolidating the
full operations of LAP and LEC.
2.) The completion of a $3.0 million government contract which began in
June 1995 and ended in December 1996.
3.) Fiscal year 1996 included revenue of $750,000 associated with the
amortization of equipment purchased under a brake component
development program with Nihon, which ended in April 1996.
4.) The completion of a brake components licensing agreement by the
Company and Lanxide K.K., the Company's subsidiary, with AKN
Corporation, in October 1996, the impact of which was partially
diluted by Kanematsu's 35% ownership in Lanxide K.K.
Net Sales and Cost of Sales
Consolidated sales increased by $2,978,000, from $3,473,000 to $6,451,000,
and cost of sales increased by $2,603,000, from $3,226,000 to $5,829,000,
compared to the prior period. These increases are primarily attributable to the
consolidation of LAP operations in fiscal 1997 due to the Ownership Change as
well as a significant increase in the commercial sales by Lanxide K.K. The
Lanxide K.K. increase is a result of electronic and ingot sales which are
beginning to gain market acceptance in Japan.
Licensing Revenue
Licensing revenue of $9,750,000 and $5,980,000 during the nine months ended
June 30, 1997 and 1996, respectively, relates to the following license
agreements:
(Dollars in thousands)
Nine months ended June 30,
1997 1996
____ ____
Waupaca $ 2,000
A.P. Green $ 750 500
Brembo 1,200 400
Sturm Ruger 1,000
Nihon Cement 2,080
AKN 7,800
--------- ---------
$ 9,750 $ 5,980
========= =========
The Waupaca license was in the area of automotive brake system components
and certain agricultural equipment wear components. On December 6, 1996,
Waupaca notified the Company that it would not exercise its right under the
agreement to extend its license beyond March 31, 1997. Waupaca indicated that
it viewed its rate of market penetration with the new technology as insufficient
in light of large demands for investment in Waupaca's expanding cast iron
business.
Pursuant to the A.P. Green license agreement signed in October 1995 and
amended in May 1997, A.P. Green has the exclusive and perpetual right to use
Lanxide technology to make, use and sell industrial refactories, other than
those employed in the ferrous metal industry, worldwide except for Japan.
Pursuant to the May 1997 amendment, A.P. Green paid its remaining obligations
under the amended license agreement during the third quarter of 1997.
Accordingly, as of June 30, 1997, no further license payments were required of
A.P. Green. However, A.P. Green will pay royalties to the Company on annual
sales of products manufactured and sold under the license.
In December 1995, the Company and Brembo signed a license agreement, which
was subsequently amended in May 1997. The amended agreement gives Brembo a
license in the area of automotive brake rotors, drums and certain brake caliper
components for motor vehicles. Pursuant to the May 1997 amendment, Brembo paid
its remaining obligations under the amended license agreement during the third
quarter of 1997. Accordingly, as of June 30, 1997, no further license payments
were required of Brembo. However, under the license agreement, Brembo will pay
royalty payments to the Company on the sale of licensed products, including but
not limited to a minimum annual royalty payment of $250,000 for the four years
following December 15, 1997.
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 $1,000,000 in April 1995. The
initial license agreement granted Sturm Ruger a one-year option to terminate the
license and be repaid the $1,000,000 by the Company in the form of either cash
or common stock at the Company's option. As a result, 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
additional product rights to certain sporting goods components outside of Japan.
At the same time, Sturm Ruger waived its one-year option to terminate the
license. Thus, the original deferred amount of $1,000,000 was recorded as
revenue during the second quarter of fiscal year 1996. The license agreement
includes a royalty to the Company on the sale of licensed products.
On March 28, 1996, Lanxide K.K. sold its remaining 50% ownership interest
in Celanx KK to Nihon, effectively giving Nihon sole ownership of the license to
manufacture, market and sell certain precision components in Japan. As
consideration for its interest in Celanx KK, Lanxide K.K. will receive ongoing
royalties from precision component sales generated by Celanx KK. Concurrent
with this sale, Lanxide K.K. reacquired its wear products license from Celanx
KK. As a result of this transaction, Lanxide K.K. recorded license revenue of
$2,080,000.
In October 1996, the Company signed a non-exclusive license agreement with
AKN for the manufacture, use and sale of brake components in Southeast Asia and
Oceania. AKN is a newly created joint venture of three global companies
headquartered in Japan: Akebono Brake Industry Co., Ltd (Akebono); Nihon; and
Kanematsu. The joint venture is also licensed exclusively by Lanxide K.K. for
the manufacture, use and sale of brake products in Japan. Under the agreement,
AKN made an initial payment of $4.0 million to the Company in November 1996. In
addition, AKN is required to make payments totaling $4.0 million to Lanxide
K.K., payable in four equal installments. The first three payments were
received in November 1996, January 1997 and June 1997. The remaining payment is
due on December 31, 1997. Of the $8.0 million to be received under the license
agreements, $7.8 million was recorded as licensing revenue in the first quarter
of fiscal 1997. The license also requires AKN to pay a royalty on all sales of
licensed products. The agreement grants AKN the option to execute an exclusive
manufacturing license in Southeast Asia and Oceania for an additional
$4.0 million. This option expires in September 1997 and, if the option is
exercised, payment of such $4.0 million is due no later than September 1998.
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(TM) 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., large up-front investment costs or the need
for an existing industry presence or where LANXIDE(TM) technology provides only
a portion of the necessary solution).
Research and Development Contract Revenue and Contract Costs
Research and development contract revenue decreased $63,000, from
$4,214,000 to $4,151,000, and contract costs increased $539,000, from $3,048,000
to $3,587,000, compared to the prior period. The more favorable gross margin in
1996 was the result of revenue recorded for the purchase of equipment funded by
the Nihon Cement brake program. The offsetting costs associated with such
equipment will be recorded as depreciation expense over a ten year period.
Product Development and Engineering
PD&E spending increased by $519,000, from $4,467,000 to $4,986,000, for the
periods presented. This increase was principally due to the consolidation of
LAP operations a result of the previously mentioned Ownership Change.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,725,000, from
$4,456,000 to $6,181,000, over the prior period. This increase was mainly
attributable to three factors:
1.) The consolidation of LAP operations in fiscal 1997 due to the
Ownership Change.
2.) An expansion of the operations of Lanxide Performance Materials, Inc.
(LPM) a wholly-owned subsidiary.
3.) Incursion by the Company of additional costs associated with (i) being
a publicly held company and (ii) the continued pursuit of the
licensing strategy.
Included in selling, general and administrative expenses are reimbursements
of $457,000 and $1,924,000 for 1997 and 1996, respectively, received from
unconsolidated affiliates for administrative and facilities costs and services.
Minority Allocation of Operating (Income) Loss
The Company recorded $944,000 in minority allocation of operating income
for the nine months ending June 30, 1997 as compared to $321,000 in minority
allocation of operating loss for the prior period. This change was primarily
attributable to $3.9 million in licensing revenue recorded by Lanxide K.K. from
AKN in October 1996, of which, 35% was allocated to the minority owner.
Equity in Net Loss of Unconsolidated Affiliates
In fiscal 1996, the equity in net loss of unconsolidated affiliates was
$985,000. These losses pertained to the following:
1.) The Company's 27% share of the losses of LAC. As a result of the
Ownership Change, LAC was consolidated into the Company's financials
starting in June 1996.
2.) The start-up losses associated with Celanx KK, a subsidiary of
Lanxide K.K., which was sold in March 1996.
Interest Expense
Interest expense decreased 3%, from $1,367,000 to $1,328,000, compared to
the prior period. This small decrease is the result of two offsetting
transactions. First, the Company prepaid a $4.1 million mortgage on the Marrows
Road facility when it consummated the sale and leaseback of the facility in the
second quarter of fiscal year 1996. Second, LPM borrowed $4.5 million from
Commodore needed to meet operating needs. For a further discussion of the
$4.5 million loans, see the Liquidity and Capital Resources section.
Gain on Sale of Subsidiaries
The $7,513,000 gain on the sale of subsidiaries for the period ended June
30, 1996, reflects the gain of $6,388,000 on the ownership change of the DuPont
commercial joint ventures as previously described, as well as a $1,125,000 gain
on the sale of Lanxide Precision, Inc. (LPI). Although the sale of LPI occurred
in May 1995, the gain was deferred until June 1996, when the final payment on
the sale was received.
Income Tax Expense
The $80,000 increase in income tax expense represents the additional taxes
withheld on the Brembo license payments.
Three months ended June 30, 1997 compared to three months ended
June 30,1996
The following table presents the results of operations for the three months
ended June 30, 1997 and 1996. 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
significant quarterly changes presented below.
<TABLE>
<CAPTION>
(Dollars in thousands)
For the three months ended June 30,
1997 1996 Difference % Difference
____ ____ __________ ____________
<S> <C> <C> <C> <C>
Sales $ 1,817 $ 1,727 $ 90 5%
Licensing revenue 1,550 1,550 --
Research and development contract revenue 1,167 1,103 64 6
Cost of sales 1,581 1,353 228 17
Research and development contract costs 820 841 (21) (3)
Product development and engineering 1,983 1,847 136 7
Selling, general and administrative 1,933 1,707 226 13
Minority allocation of operating (income) loss 202 231 (29) (13)
Equity in net loss of unconsolidated affiliate (352) 352 100
Interest expense (471) (375) (96) (26)
Gain on sale of subsidiaries 7,513 (7,513) (100)
Other income 1 $ 14 (13) (93)
Income tax expense $ 80 $ 80 --
</TABLE>
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's working capital was a
negative $3,102,000 at June 30, 1997, compared to $4,367,000 at September 30,
1996. The consolidated cash balance at June 30, 1997 was $4,701,000 (including
$3,117,000 held by a subsidiary company which is unavailable to the Company for
general corporate purposes).
At June 30, 1997, the Company had no significant commitments to purchase
capital equipment. However, the Company signed six leases during the second and
third quarters of fiscal 1997. These transactions were accounted for as capital
leases and amounted to $515,000. These transactions enabled the Company to
purchase needed equipment without utilizing valuable cash resources. The
payments required on the leases are reflected in the debt payout schedule
presented below.
In March 1995, the Company implemented a licensing strategy and has since
signed five technology licensing agreements which have provided funds for the
continuing operations of the Company. These licenses have helped form a
financial base to cover a portion of the Company's operating expenses in 1997.
Presently, a $1.0 million payment remains to be paid to Lanxide K.K. under the
current agreements.
The Company is presently 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. These discussions include the potential licensing of
automotive brake components in North America that Waupaca determined not to
renew. However, no assurance can be given that any of these discussions will
lead to the licensing of the Company's technology to any of these entities.
The Company has a $6.0 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 from March 1997 to March 2000. The Company also has a
$10.0 million secured revolving credit and term 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. During the latter part of 1996, LPM
established an aggregate line of credit of $4.5 million with Commodore
Environmental Services, Inc. and Commodore Applied Technologies, Inc. As of
June 30, 1997, LPM had drawn all available amounts under this line. The note
bears interest at Citibank N.A.'s prime rate of interest and matures on
February 28, 1998. See "Stock Purchase" below. Principal payments due on the
outstanding indebtedness are as follows:
Fiscal Year Ended Principal Payments
_________________ __________________
(Dollars in thousands)
Remainder of 1997 $ 383
1998 6,488
1999 12,097
2000 2,108
2001 117
2002 64
----------
Total $ 21,257
==========
No assurance can be given that the Company will be able to make these payments
when they become due.
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 restrict the Company's ability to incur additional indebtedness other
than in connection with the operation of its subsidiaries.
Stock Purchase
In July 1997, the Company and Commodore Environmental Services, Inc.
(Commodore) entered into a Securities Purchase Agreement (the Agreement) for the
purchase of up to $25.0 million of preferred stock, under which Commodore has
obtained effective control of the Company. The Agreement provides for an
initial investment of $2.0 million due in July 1997 and a subsequent investment
of $8.5 million in preferred stock of the Company if Commodore receives
$10.5 million in financing by August 27, 1997. The $8.5 million investment is
comprised of $4.0 million in cash and $4.5 million in cancellation of existing
Commodore debt mentioned previously. Commodore also received a warrant to
purchase up to $14.5 million of preferred stock of the Company by July 3, 2000.
As a result of this transaction, the merger discussions between the Company and
Commodore have been terminated.
The Company's immediate cash needs are being met through cash reserves,
$2.0 million in stock purchases by Commodore, and working capital from
operations. However, the Company remains critically dependent on generating
additional cash in the near term to sustain its current operations. Potential
sources of cash include Commodore's contingent purchase of an additional
$8.5 million in preferred stock including $4.5 million in debt cancellation, new
licensing arrangements and/or other alternative financing. No assurances can be
given, however, that the Company will be able to obtain any of these potential
sources of cash.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27 Financial Data Schedule
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, 1997 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, 1997 and Consolidated Statement
of Operations for the nine months ended June 30, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> JUN-30-1997
<CASH> 4,701
<SECURITIES> 0
<RECEIVABLES> 2,478
<ALLOWANCES> (59)
<INVENTORY> 2,691
<CURRENT-ASSETS> 9,963
<PP&E> 24,282
<DEPRECIATION> (14,380)
<TOTAL-ASSETS> 20,639
<CURRENT-LIABILITIES> 13,065
<BONDS> 22,575
222
11
<COMMON> 13
<OTHER-SE> 188,446
<TOTAL-LIABILITY-AND-EQUITY> 20,639
<SALES> 6,451
<TOTAL-REVENUES> 20,352
<CGS> 5,829
<TOTAL-COSTS> 9,416
<OTHER-EXPENSES> 11,167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,328
<INCOME-PRETAX> (1,508)
<INCOME-TAX> 120
<INCOME-CONTINUING> (1,628)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,628)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
