10QSB 1 dyn0302-10q.txt FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE --- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______. Commission file number 000-27503 ____________________ DYNASIL CORPORATION OF AMERICA ------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) New Jersey 22-1734088 -------------- ------------------------------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation) 385 Cooper Road, West Berlin, New Jersey, 08091 ---------------------------------------------------------- (Address of principal executive offices) (856) 767-4600 -------------------------------------------------- (Registrant'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) Yes XX No ---- ---- The Company had 2,395,207 shares of common stock, par value $.0005 per share, outstanding as of April 30, 2002. 1 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES INDEX PAGE PART 1. FINANCIAL INFORMATION ---- ITEM 1. FINANCIAL STATEMENTS DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES ----------------------------------------------- CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2002 AND SEPTEMBER 30, 2001 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2002 AND 2001 4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 7 PART II. OTHER INFORMATION 9 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 9 SIGNATURES 10 2 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS UNAUDITED) ASSETS March 31 September 30 2002 2001 ---------- ---------- Current assets Cash and cash equivalents $ 335,672 $ 473,385 Accounts receivable 397,277 469,030 Inventory 714,471 768,707 Other current assets 50,071 26,577 ---------- ---------- Total current assets 1,497,491 1,737,699 Property, Plant and Equipment, net 1,684,228 1,701,730 Other Assets Restricted cash 200,000 200,000 Other Assets 17,169 18,873 ---------- ---------- Total Assets $3,398,888 $3,658,302 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion - long-term debt $410,046 $419,493 Accounts payable 142,288 139,736 Accrued expenses 84,252 120,527 ---------- ---------- Total current liabilities 636,586 679,756 Long-term Debt, net 1,014,015 1,116,187 Stockholders' Equity Common Stock, $.0005 par value, 25,000,000 shares authorized, 3,035,831 and 3,018,383 shares issued 2,395,207 and 2,377,759 shares outstanding 1,518 1,509 Additional paid in capital 1,087,713 1,082,542 Retained earnings 1,618,359 1,737,611 ---------- ---------- 2,707,590 2,821,662 Less 640,624 shares in treasury - at cost (959,303) (959,303) ---------- ---------- Total stockholders' equity 1,748,287 1,862,359 ---------- ---------- Total Liabilities and Stockholders' Equity $3,398,888 $3,658,302 ========== ==========
3 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended March 31 March 31 2002 2001 2002 2001 ---------- --------- ---------- ---------- Sales $ 767,627 $1,386,744 $1,406,209 $2,704,361 Cost of Sales 604,233 956,296 1,149,262 1,874,832 ---------- -------- ---------- ---------- Gross profit 163,394 430,448 256,947 829,529 Selling, general and administrative 179,399 222,371 336,926 415,346 ---------- --------- ---------- ---------- Income (loss) from Operations ( 16,005) 208,077 ( 79,979) 414,183 Other income (expense) Interest expense - net ( 18,189) ( 41,410) (39,273) (85,726) Other Income (Expense) 0 0 0 0 ---------- --------- ---------- ---------- Income (loss) before Income Taxes ( 34,194) 166,667 ( 119,252) 328,457 Income Tax 0 0 0 0 ---------- --------- ---------- ---------- Net income (loss) ( $34,194) $166,667 ($119,252) $ 328,457 ========= ======== =========== ========== Net income (loss) per share Basic ( $0.01) $ 0.07 ( $0.05) $ 0.14 Diluted ( $0.01) $ 0.07 ( $0.05) $ 0.14 Weighted average shares outstanding 2,392,415 2,369,368 2,390,136 2,363,053
4 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended March 31 2002 2001 ---------- ----------- Cash flows from operating activities: Net income (loss) ($ 119,252) $ 328,457 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 166,198 167,490 Amortization expense 1,704 1,704 Allowance for doubtful accounts (Increase) decrease in: Accounts receivable 71,753 (218,185) Inventories 54,236 (22,115) Prepaid expenses and other current assets (23,494) (13,424) Other assets 0 (3,925) Increase (decrease) in: Accounts payable 2,552 211,235 Accrued expenses (36,276) (43,217) --------- ----------- Net cash provided by operating activities 117,421 408,020 --------- ----------- Cash flows from investing activities: Acquisition of property, plant and equipment (148,698) (71,657) Increase in restricted cash 0 (200,000) --------- ----------- Net cash used in investing activities (148,698) (271,657) --------- ----------- Cash flows from financing activities: Issuance of common stock 5,182 16,952 Proceeds from Bank Debt 0 200,000 Repayments of long-term debt (111,619) (331,159) --------- ----------- Net cash used in financing activities (106,437) (114,207) --------- ----------- Net increase (decrease) in cash (137,714) 22,156 Cash - beginning of period 473,386 249,695 --------- ----------- Cash - end of period $ 335,672 $ 271,851 ========= ===========
5 DYNASIL CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The consolidated balance sheet as of September 30, 2001 was audited and appears in the Form 10-KSB previously filed by the Company. The consolidated balance sheet as of March 31, 2002 and the consolidated statements of operations and cash flows for the six months ended March 31, 2002 and 2001, and the related information contained in these notes have been prepared by management without audit. In the opinion of management, all adjustments (which include only normal recurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles as of March 31, 2002 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2001 Annual Report on Form 10-KSB previously filed by the Company. 2. Inventories Inventories are stated at the lower of average cost or market. Cost is determined using the first-in, first-out (FIFO) method. Inventories consist primarily of raw materials, work-in-process and finished goods. The Company evaluates inventory levels and expected usage on a periodic basis and records adjustments for impairments as required. Inventories consisted of the following: March 31, 2002 September 30, 2001 ----------------- ------------------ Raw Materials 267,943 379,899 Work-in-Process 282,330 224,739 Finished Goods 164,198 164,069 ------- ------- 714,471 768,707 ======= ======= 3. Net Income Per Share Basic net income per share is computed using the weighted average number of common shares outstanding. The dilutive effects of potential common shares outstanding are included in diluted net earnings per share. Diluted net earnings per share exclude the impact of potential common shares since they would have resulted in an antidilutive effect. 6 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations Revenues for the three months ended March 31, 2002 were $767,627, a decrease of 44.7% over revenues of $1,386,744 for the three months ended March 31,2001. Revenues for the six-months ended March 31, 2002 were $1,406,209 a decrease of 48.0% over revenues of $2,704,361 for the six-months ended March 31,2001. The continued slowdown in the semi-conductor and telecommunications industries has had a strong adverse effect on demand for synthetic fused silica. We do not anticipate any significant improvement in demand at least through the next quarter. Cost of sales for the three months ended March 31, 2002 were $604,233, or 78.7% of sales, a decrease of $352,063 over the three months ended March 31, 2001 of $956,296, or 68.9% of sales. Cost of sales for the six-months ended March 31, 2002 were $1,149,262, or 81.7% of sales, a decrease of $725,570 over the six-months ended March 31, 2001 of $1,874,832 or 69.3% of sales. The increase in cost of sales as a percentage of sales is directly related to the low sales volume coupled with our high fixed cost. Management has been and will continue to concentrate on reducing these cost to bring them in line with the reduced sales volumes. Gross profit for the three months ended March 31, 2002 was $163,394, or 21.3% of sales, a decrease of $267,054 over the three months ended March 31, 2001 of $430,448, or 31.1% of sales. Gross profit for the six months ended March 31, 2002 was $256,947, or 18.3% of sales, a decrease of $572,582 over the six months ended March 31, 2001 of $829,529, or 30.7% of sales. Selling, general and administrative expenses for the three months ended March 31, 2002 were $179,399 or 23.4% of sales, a decrease of $42,972 over the three months ended March 31, 2001 of $222,371, or 16.0% of sales. Selling, general and administrative expenses for the six months ended March 31, 2002 were $336,926, or 23.9% of sales, a decrease of $78,420 over the six months ended March 31, 2001 of $415,346, or 15.4% of sales. Reductions of $80,536 in employee cost were the major component of the year-to-date drop in selling, general and administrative expenses. Interest expense for the three months ended March 31, 2002 was $18,189, a decrease of $23,221 over the three months ended March 31, 2001 of $41,410. Interest expense for the six months ended March 31, 2002 was $39,273, a decrease of $46,453 over the six months ended March 31, 2001 of $85,726. The decrease in interest expense is related to the reduction and restructuring of our debt as mentioned in previous filings. Since March 31, 2001 total debt has been reduced by $335,824, in addition to the restructuring of $200,000 at lower rates. (See and Liquidity and Capital Resources section) Net loss for the three months ended March 31, 2002 was $34,194, or negative $.01 in basic loss per share, a decrease of $200,861 over the net income for the three months ended March 31, 2001 of $166,667, or $.07 in basic earnings per share. Net loss for the six months ended March 31, 2002 was $119,252, or negative $.05 in basic loss per share, a decrease of $447,711 over the six months ended March 31, 2001 of net income of $328,457, or $.14 in basic earnings per share. The Company has no provision for income taxes for either period in 2002 or 2001. As of September 30, 2001, we have approximately $585,000 of net operating loss carryforwards to offset future income for federal tax purposes expiring in various years through 2019. In addition, the Company has approximately $17,000 of net operating loss carryforwards to offset certain future states' taxable income, expiring in various years through 2007. <7> Liquidity and Capital Resources Cash decreased by $137,714 for the six months ended March 31,2002. Cash provided from operations of $117,421 was primarily used to reduce debt by $111,619 and acquire property plant and equipment for $148,698. In March 2001 management negotiated a $200,000 three-year term note with Premier Bank at 7.25% interest, collateralized by $200,000 of certificates of deposit earning 5.12% interest. The funds were used to pay off $200,000 of subordinated debt at 12% interest that was due in December 2001. The Company believes that its current cash and cash equivalent balances, along with the net cash generated by operations, is sufficient to meet its anticipated cash needs for working capital for at least the next 12 months. There are currently no plans for any major capital expenditures in the next six to nine months. Any business expansion will require the Company to seek additional debt or equity financing. Forward-Looking Statements The statements contained in this Quarterly Report on Form 10-QSB which are not historical facts, including, but not limited to, certain statements found under the captions "Results of Operations" and "Liquidity and Capital Resources" above, are forward-looking statements that involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in this Quarterly Report on Form 10-QSB, including, without limitation, the portions of such reports under the captions referenced above, and the uncertainties set forth from time to time in the Company's filings with the Securities and Exchange Commission, and other public statements. Such risks and uncertainties include, without limitation, seasonality, interest in the Company's products, consumer acceptance of new products, general economic conditions, consumer trends, costs and availability of raw materials and management information systems, competition, litigation and the effect of governmental regulation. The Company disclaims any intention or obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. 8 PART II OTHER INFORMATION ------------------ ITEM 1 LEGAL PROCEEDINGS NONE ITEM 2 CHANGES IN SECURITIES NONE ITEM 3 DEFAULTS ON SENIOR SECURITIES NONE ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5 OTHER INFORMATION NONE ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K None 9 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DYNASIL CORPORATION OF AMERICA BY: /s/ John Kane DATED: May , 2002 --------------------------------- -------------------- John Kane, President, CEO, Treasurer, Chief Financial Officer and Principal Accounting Officer 10