10QSB 1 dyn1202-10q.txt FORM 10QSB 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 DECEMBER 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 2,316,098 shares of common stock, par value $.0005 per share, outstanding as of January 31, 2003. 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 DECEMBER 31, 2002 AND SEPTEMBER 30, 2002 1 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001 2 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 7 ITEM 3. CONTROLS AND PROCEDURES 8 PART II. OTHER INFORMATION 9 ITEM 1 LEGAL PROCEEDINGS 9 ITEM 2 CHANGES IN SECURITIES 9 ITEM 3 DEFAULTS ON SENIOR SECURITIES 9 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 ITEM 5 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 PAGE 1 (UNAUDITED) ASSETS December 31 September 30 2002 2002 ---------- ---------- Current assets Cash and cash equivalents $ 127,226 $ 172,118 Accounts receivable, Net 275,762 343,227 Inventory 517,310 581,104 Other current assets 44,366 40,567 ---------- ---------- Total current assets 964,664 1,137,016 Property, Plant and Equipment, net 849,514 891,261 Other assets Restricted Cash 200,000 200,000 Other assets 14,613 15,465 ---------- ---------- Total Assets $2,028,791 $2,243,742 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion - long-term debt $198,398 $202,477 Accounts payable 76,573 163,903 Accrued expenses 47,265 77,460 ---------- ---------- Total current liabilities 322,236 443,840 Long-term Debt, net 864,598 913,710 Stockholders' Equity Common Stock, $.0005 par value, 25,000,000 shares authorized, 3,044,745 and 3,043,563 shares issued 2,315,015 and 2,402,939 shares outstanding 1,522 1,522 Additional paid in capital 1,089,329 1,089,200 Retained earnings 723,775 754,773 ---------- ---------- 1,814,626 1,845,495 Less 729,730 and 640,624 shares in treasury - at cost (972,669) (959,303) ---------- ---------- Total stockholders' equity 841,957 886,192 ---------- ---------- Total Liabilities and Stockholders' Equity $2,028,791 $2,243,742 ========== ==========
3 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS PAGE 2 (UNAUDITED) Three Months Ended December 31 2002 2001 -------- --------- Sales $ 656,156 $ 638,581 Cost of Sales 494,620 545,029 -------- -------- Gross profit 161,536 93,552 Selling, general and administrative 180,521 157,524 -------- -------- Loss from Operations (18,895) (63,972) Interest expense - net ( 12,015) ( 21,086) -------- -------- Loss before Income Taxes ( 31,000) ( 85,058) Income Taxes 0 0 -------- -------- Net Loss $ ( 31,000) $( 85,058) ======== ======== Net loss per share Basic $ ( 0.01) $ ( 0.04) Diluted $ ( 0.01) $ ( 0.04) Weighted average shares outstanding 2,388,361 2,387,856
4 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS PAGE 3 (UNAUDITED) Three Months Ended December 31 2002 2001 ---------- ----------- Cash flows from operating activities: Net loss $( 31,000) $ ( 85,058) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 49,251 83,100 Amortization expense 852 852 Allowance for doubtful accounts (Increase) decrease in: Accounts receivable 67,465 50,816 Inventories 63,794 20,049 Prepaid expenses and other current assets ( 3,799) ( 15,271) Other assets Increase (decrease) in: Accounts payable (87,330) 61,615 Accrued expenses (30,196) (66,107) --------- ----------- Net cash provided by operating activities 29,037 49,996 --------- ----------- Cash flows from investing activities: Acquisition of property, plant and equipment ( 7,505) ( 60,983) --------- ----------- Net cash (used in) investing activities ( 7,505) ( 60,983) --------- ----------- Cash flows from financing activities: Issuance (buyback) of common stock ( 13,236) 3,900 Repayments of long-term debt ( 53,188) ( 59,809) --------- ----------- Net cash (used in) financing activities ( 66,424) ( 55,909) --------- ----------- Net decrease in cash ( 44,892) ( 66,896) Cash - beginning of period 172,118 473,385 --------- ----------- Cash - end of period $ 127,226 $ 406,489 ========= ===========
5 DYNASIL CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The consolidated balance sheet as of September 30, 2002 was audited and appears in the Form 10-KSB previously filed by the Company. The consolidated balance sheet as of December 31, 2002 and the consolidated statements of operations and cash flows for the three months ended December 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 December 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, 2002 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: December 31, 2002 September 30, 2002 ----------------- ------------------ Raw Materials $ 231,254 $ 255,901 Work-in-Process 143,116 176,303 Finished Goods 142,940 148,900 ------- ------- $ 517,310 $ 581,104 ======= ======= 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 Sales were $656,156 for the three months ended December 31, 2002, an increase of 2.8% over sales of $638,581, for the three months ended December 31, 2001. Even though we have shown a slight increase in sales, demand continues to be down for synthetic fused silica. Our traditional optics markets, including the semiconductor and telecommunications industries, continue to struggle. Cost of sales were $494,620, or 75.3% of sales, for the three months ended December 31, 2002 and $545,029, or 85.3% of sales, for the three months ended December 31, 2001. The 10.0% improvement in cost of sales is related to the continuing monitoring of our expenses. We are starting to see the results of our efforts over the last year of reducing our cost to be more in line with the reduced levels of demand. Gross profit increased to $161,536, or 24.7% of sales, for the three months ended December 31, 2002. This is a increase of $67,984, or 72.7%, over the $93,552 gross profit for the three months ended December 31, 2001. See above discussion for explanation of increase. Selling, general and administrative expenses were $180,521, or 27.5% of sales, for the three months ended December 31, 2002. This is an increase of $22,997, over the three months ended December 31, 2001 when expenses were $157,524, or 24.7% of sales. The increase is primarily related to increased insurance expense, legal and audit fees, investor relations expense and sales commissions, as a result of increased international sales. Interest expense decreased to $12,015 for the three months ended December 31, 2002, from $21,086 for the three months ended December 31, 2001. The lower interest expense is a direct result of reducing our debt during fiscal year 2002, as discussed in previous filings, and lower overall interest rates. The net loss of $31,000 for the three months ended December 31, 2002, compared to a net loss of $85,058, for the three months ended December 31, 2001, generated a loss per share of $0.01, for the three months ended December 31, 2002 compared to a loss per share of $0.04 for the three months ended December 31, 2001. 7 The Company has no provision for income taxes for either period in 2002 or 2001. As of September 30, 2002, we have approximately $880,000 of net operating loss carryforwards to offset future income for federal tax purposes expiring in various years through 2020. In addition, the Company has approximately $337,000 of net operating loss carryforwards to offset certain future states' taxable income, expiring in various years through 2008. Liquidity and Capital Resources Cash decreased by $44,892 for the three months ended December 31,2002. Cash provided from operations of $29,037 was primarily used to reduce debt by $53,188 and acquire property plant and equipment for $7,505. In addition $13,236 was used to buy back outstanding shares as part of our stock repurchase program announced earlier. The Company believes that its current cash and cash equivalent balances, and net cash generated by operations, will be sufficient to meet its anticipated cash needs for working capital for at least the next 12 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. ITEM 3 CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. The Company's principal executive officer/principal financial officer, based on his evaluation of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to the filing of this Annual Report on Form 10KSB, concluded that the Company's disclosure controls and procedures are adequate and effective for the purposes set forth in the definition in the Exchange Act rules. (b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date of the evaluation. 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 At the annual meeting of directors on January 28, 2003, the Company adopted the Dynasil Corporation of America Senior Financial Officer Code of Ethics, in the form which is attached hereto as Exhibit 99.1. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 99.1 - Dynasil Corporation of America Senior Financial Officer Code of Ethics (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: February 13,2003 --------------------------------- -------------------- John Kane, President, CEO, Treasurer, Chief Financial Officer and Principal Accounting Officer 10 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DYNASIL CORPORATION OF AMERICA (the "Company") on Form 10QSB for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Kane, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ' 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. John Kane Chief Executive Officer and Chief Financial Officer February 13, 2003 11 CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT I, John Kane, the Chief Executive Officer and the Chief Financial Officer of Dynasil Corporation of America, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Dynasil Corporation of America; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 13, 2003 /s/ John Kane ----------------------------- John Kane, Chief Executive Officer, Chief Financial Officer -12-