IRI's Public Analyis & Review PAR Program Announces Analyst Initiates Coverage, Assigns ALYA Speculative Buy, Target $1.50
NEW YORK--(BUSINESS WIRE)--Sept. 23, 1998--Public Analysis & Review (PAR), the unique professional independent analyst program administered by the non-profit Investors Research Institute, Inc., announces that Gerald F. LaKarnafeaux, CFA, professional analyst qualified in the PAR program, has initiated coverage of ALYA International, Inc. (OTCBB:ALYA - news), and has assigned the company -- which is enrolled in the PAR program along with Mortgage Bankers Holding Corporation (OTCBB:MBHC - news), LifeOne, Inc. (OTCBB:LONE - news) Remington Hall Capital Corp. (OTCBB:REMH - news), American Pacific Financial Services (OTCBB:AMPA - news) and Planet City Software, Inc. OTCBB:PINC) -- a ''speculative buy'' rating, with a 12-month target of $1.50, assuming full dilution.
A summary of the report follows. PAR has authorized the company to post the full report, including disclaimers which should be read before investing, at 10:30 a.m. ET today at alya.com , and an e-mailed copy may be
obtained upon request from newsdesk@ewirenews.com .
Date of Report: 9/23/98 Shares Outstanding: 14,300,914 (fully diluted) Stock Price: $0.70 Estimated Float: 6,664,134 Price Range: (latest 12 months) $0.21 to $1.65 Recommendation: Speculative Buy Industry Sector: Building Control Systems Target Price: (12Mos): $1.50
ALYA International, Inc. develops and markets advanced building access control and security systems that are interoperable with other building control systems. The Company is partnering with Motorola in the development and marketing of interoperable systems that utilize LonWorks technology. LonWorks is a communication protocol that is dramatically changing the structure of the building and process control industries. ALYA's LonWorks base access control and security system has no competitors with interoperable capability.
ALYA has been in the development stage since its formation in September 1995 until January of this year when the Company introduced its first product, O.P.E.N.centrix. The product is an interoperable access control system that is bundled with Motorola's card reader. Motorola also makes the nueron chip that controls the LonWorks communication software as well as the ALYA software.
Since the introduction of the Centrix, the Company has been building a world wide distribution network of building control integrators. Twelve distributors have signed on and another eight are expected to be signed by calendar year end. It is estimated that these distributors will generate $10.0 million in sales in the fiscal year ending September 30, 1999. In twelve months, the fully diluted capital share structure could include approximately 16,5000,000 common shares. A market cap of $20.0 million (2.5 times sales of $10.0 million) results in a price of $1.50 per share. We conclude that the risk-reward relationship is a favorable one for speculators.
ALYA is assigned a ''speculative buy'' rating with a 12-month target of $1.50.
Gerald F. LaKarnafeaux, CFA, has held senior positions in international and regional investment banking firms as a securities analyst, portfolio manager and director of corporate finance during the past 30 years. He has been an active member and officer of regional chapters of The Financial Analyst Society, The Corporate Finance Council and The American Society of Appraisers.
Public Analysis & Review (PAR) is a program of the Investors Research Institute, Inc. (IRI), a non-profit membership organization for individual investors and others advocating higher standards of ''accessibility'', ''scrutiny'' and ''disclosure'' for public companies, administered by IRI, Inc. (IRIK), a public company in registration. Continuing quarterly coverage by an independent analyst is a requirement to meet the ''scrutiny'' requirements for the 'Elite' Seal of Best Practices in Investor Relations standard described on the organization's website at investorsresearch.org . If a company has no independent analyst following, this requirement may be satisfied by enrollment in PAR or any similar program. By policy,
analysts, directors, officers and administrative personnel associated with IRI and the PAR program are not permitted to own or trade in any of the equities under review.
Information, opinions or recommendations contained in this report or study are submitted solely for advisory and information purposes. This report or study is not intended as an offering or a solicitation of an offer to buy or sell the securities mentioned or discussed.
C. Partridge (212-484-4747)
iri@investorsresearch.org
Interested companies should write: parprogram@usa.net
investorsresearch.org
Dale Paruk (888-595-6444)
alya@alya.com ; stock@alya.com
alya.com
Gerald F. LaKarnafeaux, CFA (619-278-2392)
ratios@adnc.com
To view or receive the full report:
alya.com
newsdesk@ewirenews.com
Contact:
C. Partridge, 212-484-4747
iri@investorsresearch.org
or
Dale Paruk, 888-595-6444
alya@alya.com ; stock@alya.com
alya.com
or
Gerald F. LaKarnafeaux, CFA, 619-278-2392
ratios@adnc.com
biz.yahoo.com
There is a little redundancy here but also further information not included in the press release.
ALYA International, Inc.
(Symbol: OTCBB: ALYA)
Date of Report: 9/23/98
Shares Outstanding: 14,300,914* (fully diluted)
Stock Price: $0.70
Estimated Float: 6,664,134
Price Range: (latest 12 months) $0.21 to $1.65
Recommendation: Speculative Buy
Industry Sector: Building Control Systems
Target Price: (12Mos): $1.50
The Company
ALYA develops and markets Building Access Control and Security Systems that utilize advanced hardware and software technology. These systems are being developed, in part, under a Joint Development and Marketing Agreement with Indala, a division of Motorola that produces building access cards and card readers. From its formation in September 1995 until January of this year, ALYA has been in a development stage. With the introduction of its first product, O.P.E.N.centrixTM, the Company is now aggressively building a distribution network and has begun to generate product sales.
Industry Background
To fully appreciate ALYA's business opportunity, one must recognize the two major structural changes taking place in the Building Control Industry. The first change is the acceptance by many of the major industry participants of a communication protocol that enables all of a building's control systems to be interoperable. Historically, each building sub-system, i.e. lighting, air conditioning, fire alarm, elevators, access control and security, etc., was functionally, non-integrated. Each proprietary system was oblivious of the status of the other Building Control Systems.
In recent years, by incorporating a communication software protocol named LonWorksTM into each sub-system device ("node"), all devices can be wired together and be capable of communicating with all other devices on the Building Control System. For example, an employee arriving at the building parking lot at an off-hour swipes her card into the card reader to gain access. An elevator, recognizing her assigned parking location when she swiped her card, quickly arrives at the parking level without her having to wait alone in the empty parking lot. The elevator, knowing her authorized destination, lifts her to the proper floor where the lights and air conditioning have been activated in her local sector. The cost benefits in energy savings and enhanced security of an interoperable system are significant - perhaps as much as a fifty percent savings in the systems life cycle costs.
The second industry structural change is the emergence of large, well financed, and technologically sophisticated systems integrators. Many of these participants are subsidiaries of deregulated energy companies who are developing revenue sources "behind" the meter. Building control managers that adopt an interoperable control program need only deal with one integrator rather than each vendor or installer of non-integrated proprietary sub-systems. These large system integrators are committed, in general, to the interoperable concept, and, in particular, to the LonWorksTM communication protocol, which is regarded as the de facto industry standard. They will gain market share at the expense of the fragmented local vendor/installer who will be ineffective competitors in the market of medium to large building projects.
These two industry trends are important to ALYA. The Company was early in the development of an advanced LonWorksTM based access control and security system. In this, its core business, ALYA has no competitors. Therefore, the Company has been able to attract a number of leading integrators as distributors of its products. Of course, having Motorola as a joint development and marketing partner has helped to open doors that are not generally ajar for development stage companies such as ALYA. Another ALYA ally is Echelon Inc., the developer of the LonWorksTM communication protocol. Motorola, Toshiba and a sizeable group of respected institutional venture capitalist invested $140,000,000 in Echelon in the early nineties. In June of this year, the Echelon's IPO generated an additional $35.0 Million of equity capital. Echelon is aggressively promoting LonWorksTM based interoperable building control systems. Since ALYA's product is the only Building Access Control and Security System with LonWorksTM capability, Echelon is providing the Company with international exposure and sponsorship.
Products
The Company has one product offering and two other products in a late stage of development. O.P.E.N.centrixTM is a building access and security system that is interoperable by virtue of the embedded LonWorksTM communication protocol and the Motorola Neuron chipset. There is no other Building Access Control and Security System with an interoperable capability. The product consists of circuit boards that house the Motorola Neuron chips which host the ALYA software. The product is purchased as a bundled system that includes the Motorola card reader. The price to distributors for the ALYA components is approximately $2,000 per door. This price may vary depending
on the end users requirements and the scale of the project.
Large projects indirectly provide greater distributor discounts. The range of discounts of 30% to 50% is dependent on the annual volume performance of the distributor, the competitive environment and the negotiating skills of the end user.
In development is a scaled down entry level access and security system code-named Dragon. This product will be offered in late 1999. The rationale for the development and introduction of Dragon is ALYA's objective of having a full range of products available to the Company's distributors and their customers. The scope of the Company's products will range from a two-door access system to an international enterprise network comprised of numerous buildings controlled at a single location.
Also in development is O.P.E.N.cortexTM, a Rapid Application Development platform that provides building and process software developers with the means to efficiently and rapidly adapt their building control products and systems to the LonWorksTM protocol. O.P.E.N.cortexTM may have a greater long term potential for ALYA than the Company's access control and security products since the platform can be used in the development of all building control systems and also processing control systems. In addition, it provides the link between LonWorksTM based building control and process control systems to the Window NT operating system and to the Internet. The significance of this link is (a) building management system data is available on the enterprise network and is accessible to management and (b) with the Internet link, facilities managers can remotely monitor and control all of the enterprise's buildings from a single location anywhere in the world.
Marketing Strategy
While ALYA is a young company, its management team and key technical people have extensive experience and respect in the world of advanced automated building access control and security systems. The Company's solid reputation and, of course, the absence of a LonWorksTM based competitor, is resulting in the establishment of a strong distribution channel of LonWorksTM capable systems integrators.
While the association with Motorola and Echelon are certainly helpful to ALYA in meeting its marketing challenge, the Company's ultimate success will result from the development of distributor relationships built on ALYA's product efficacy and the Company's commitment to customer technical service. In the past nine months, the Company has entered into distributor agreements with twelve LonWorksTM based integrators of building control systems. Collectively, these distributors have the potential to provide ALYA with revenues of $6.5 million over the next twelve months. ALYA has targeted an additional eight distributors to be signed on by the end of the current calendar year. It is management's expectation that these twenty distributors will provide $10.0 million in revenues in the fiscal year ending September 30, 1999.
Competition
Currently, ALYA is the only company offering a LonWorksTM based Building Access Control and Security System. From the perspective of the end user, i.e. building owners, tenants and building managers, the selling proposition of interoperability is compelling. However, there are a number of vendors of security systems and other building control systems that regard LonWorksTM as a threat. These companies have a large installed base of proprietary, "last generation" systems. They derive revenue from a captive customer universe pursuant to service and maintenance contracts and from the sale of product upgrades and enhancements. It is not in their interest, at least over the intermediate term, for interoperability to succeed. They have a vested interest in the status quo. And it is unlikely that they will
spend the millions of dollars required to develop LonWorksTM compatibility. Ironically, this is an opportunity for ALYA. The Company can turn competitors into customers. These traditional participants who control a significant installed base could become licensees of the ALYA technology or they could become private label customers of the company.
Another motivating factor for the entrenched OEM vendors to enter into a relationship with ALYA is the Y2K issue. Not many Building Control Systems now in place are year 2000 compliant while ALYA's product offering is.
Financial Considerations
As with many, perhaps most, early stage companies, ALYA has been and still is undercapitalized. A recent Balance Sheet displayed current assets of $82,081 versus current liabilities of $250,082. However, this current border line insolvency not withstanding, management has in the past been resourceful in obtaining survival working capital from a variety of sources. There has been the placement of a variety of securities that includes common stock, non-convertible and convertible preferred stock, options, warrants, straight debt, convertible debt and related party loans. Additional cash was raised from the sale of product marketing rights. The proceeds of the placement of these investment vehicles and business transactions have covered the accumulated deficit of $4,200,000 million since inception. The following table displays the share structure and transactions that have generated cash.
Current Share Structure and Sources of Cash Since Inception
SHARES ISSUED
SHARE CATEGORY Restrtd Unrestr AVG. PRICE GROSS
PER SHARE PROCEEDS
Founders-Mngmnt 5,159,100 Nominal Nominal
Founders-Others 1,751,500 Nominal Nominal
Insiders/Relatives 655,330 $0.36 $ 239,777
Private Placement 818,585 $0.65 527,618
Cnvrted Debentrs 133,333 1,000,002 $0.63 722,266
Com Stk - Public 3,912,634 $0.41 1,588,924
TOTALS 6,766,348 6,664,134 N/A $3,078,585
Over the short term, ALYA needs a cash infusion. The monthly operating burn rate is approximately $160,000. The company is beginning to book orders but that does not necessarily mean orders will generate cash over the short term. The sales cycle in this industry is a long one. Therefore, additional sources of outside capital must be tapped. We have no specific knowledge of how working capital will be raised but we can speculate on the possibilities. The company has a number of options as delineated below.
In the first quarter of the current fiscal year, the Company raised $1,152,000 by selling the U.S. and Canadian rights to its O.P.E.N.cortexTM product. Cutting through the complexities of these transactions, essentially they provided Canadian investors with significant tax benefits and were non-dilutive financing vehicles for ALYA's shareholders. Selling the European and/or Asian rights to the software can generate additional cash. This is an opportunity being pursued by the company.
The Company's O.P.E.N.cortexTM technology is also a valuable asset that can be either sold or licensed to one of a number of corporate candidates who recognize the long-term potential of the interoperable building control and/or process control solution. It is likely that such a transaction would be consummated at the multi-million dollar level considering that the company would be compromising the potential for significant future revenues.
A third source of capital could be from a private label program. There are vendors and integrators in the building control market that would be very interested in entering into a private label arrangement whereby O.P.E.N.cortexTM could be packaged with their LonWorksTM building control system. ALYA's incentive to enter into such a transaction, in addition to future revenue, would be a front-end cash payment.
Now that the Company is out of its development stage, a conventional common stock or equity equivalent offering under the sponsorship of an investment banking firm is possible. The company has established industry creditability through its distributors and its joint development partner, Motorola and sponsor, Echelon. This creditability is transferable to Wall Street. The Company is actively pursuing relationships with underwriters with an appetite for speculative securities of early stage issuers. It is arguable whether this is the best course for the company and its shareholders. An equity or equivalent security offering at current price levels would be very dilutive. Raising $1.5 million at the current stock price level of $0.70 per share would result in an increase of fully diluted shares outstanding of 15%.
Valuation
For those speculators with a high-risk tolerance, we believe a position in the stock of ALYA International, Inc. represents an opportunity for capital appreciation over the next twelve to eighteen months. The facts that influence this conclusion include the following:
1. LonWorksTM based Building Control Systems with their interoperable
capability appear to be gaining market acceptance and will eventually gain market dominance. There are 2,500 companies developing applications that employ LonWorksTM technology. Over two million nodes have been installed. ALYA is the only company in the market with a LonWorksTM based Building Access Control and Security product offering and is said to have a considerable lead-time over potential competitors.
2. The Company's partner, Motorola, provides ALYA with marketing creditability and clout.
3. ALYA has made an impressive start in establishing a distribution network of system integrators.
While we believe ALYA's stock will trade at higher levels over the intermediate term, establishing a price target is precarious since there is little basis for arriving at an estimate of the fundamentals. There are no historical trends as the Company is only recently out of the development stage. Also, the sales cycle is long and subject to delays that are out of the Company's control. Further, the dollar value of individual orders is high relative to the current sales level. (For example, a recent order from a European distributor, the Corinex Group, of $500,000 is more than double the revenues of the first nine months of the current fiscal year). Until the Company has an established a base of business at a significantly higher level there will be wide percentage variations in revenues.
The current downside risk in the stock is a function of the timing and the level of externally generated cash. If the Company is unable to raise cash, a merger with a strong partner is likely. We believe the residual value of the technology and the assemblage value of the technologist would warrant a Company valuation not too far below the current market cap of $9.9 million.
The upside potential of the stock is a function of sales growth. The Company has publicly released a sales projection of $10.0 and $33.7 million for the fiscal years 1999 and 2000, respectively. Losses will continue next year but profitability is projected for fiscal year ending September 30, 2000. If the sales projection for fiscal 1999 is achieved, a market multiple of two times to three times sales is a reasonable expectation in twelve months. However, to reach this sales level an infusion of working capital will be needed. In all probability, the source of capital will include an offering of equity or its equivalent resulting in an increase in outstanding stock - perhaps as many as two million shares. In twelve months, the fully diluted capital share structure could include approximately 16,5000,000 common shares. A market cap of $20.0 million (2.5 times sales of $10.0 million) results in a price of $1.50 per share. We conclude that the risk-reward relationship is a favorable one for speculators.
ALYA is assigned a "speculative buy" rating with a 12-month target of $1.50.
--- Gerald F. LaKarnafeaux, CFA, Analyst
===============================================================
Public Analysis & Review (PAR) is a program of the Investors Research
Institute, Inc. (IRI), a non-profit membership organization for individual investors and others advocating higher standards of "accessibility", "scrutiny" and "disclosure" for public companies. Continuing quarterly coverage by an independent analyst is a requirement to meet the "scrutiny" requirements for the 'Elite' Seal of Best Practices in Investor Relations standard described on the organization's website at investorsresearch.org . If a company has no independent analyst following, this requirement may be satisfied by enrollment in PAR or any similar program.
*****
Gerald F. LaKarnafeaux, CFA, has held senior positions in international and regional investment banking firms as a securities analyst, portfolio manager and director of corporate finance during the past 30 years. He has been an active member and officer of regional chapters of The Financial Analyst Society, The Corporate Finance Council and The American Society of Appraisers.
Information, opinions or recommendations contained in this report or study are submitted solely for advisory and information purposes. The information used and statements of fact made have been obtained from sources considered reliable but neither guarantee or representation is made as to the completeness or accuracy. Such information and the opinions expressed are subject to change without notice. This report or study is not intended as an offering or a solicitation of an offer to buy or sell the securities mentioned or discussed. The author of this report was paid for preparing the report by IRI, Inc. (IRIK), administrators for the non-profit Investors Research Institute, Inc. The Institute has sole responsibility for the qualification of PAR analysts and their respective assignments to enrolled companies for coverage. c Copyright, 1998, by IR/j: Investors Research
Journal, div., IRI, Inc.
Gerald F. LaKarnafeaux, CFA, E-Mail: ratios@adnc.com .
Investors Research Institute, Inc., P.O. 750471, Forest Hills, NY 11375-0471 E-mail: iri@investorsresearch.org , parprogram@usa.net . Website: investorsresearch.org .
ALYA International, Inc., 111-17 Fawcett Road, Coquitlam, BC V3K 6V2 / Toll Free 888-528-9982, Fax 604-528-9983 / E-Mail: stock@alya.com . Website: alya.com .
Looking good Denise.
InvestRight
Regards, Jeff |
