10QSB 1 dyn0603-10qsb.txt DYNASIL CORPORATION OF AMERICA 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 JUNE 30, 2003 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 2,237,697 shares of common stock, par value $.0005 per share, outstanding as of July 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 JUNE 30, 2003 AND SEPTEMBER 30, 2002 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2003 AND 2002 4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2003 AND 2002 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7 ITEM 3. CONTROLS AND PROCEDURES 9 PART II. OTHER INFORMATION 10 ITEM 5 OTHER INFORMATION 10 ITEM 6 EXHIBITS AND REPORTS ON FORM 8 K 10 SIGNATURES 11 2 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS June 30 September 30 2003 2002 Current assets Cash and cash equivalents $ 93,597 $ 172,118 Accounts receivable 331,652 343,227 Inventory 465,745 581,104 Other current assets 50,707 40,567 Total current assets 941,701 1,137,016 Property, Plant and Equipment, net 751,012 891,261 Other Assets Restricted cash 200,000 200,000 Other Assets 12,909 15,465 Total Assets $1,905,622 $2,243,742 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion - long term debt $168,372 $202,477 Accounts payable 116,014 163,903 Accrued expenses 82,843 77,460 Total current liabilities 367,229 443,840 Long term Debt, net 794,447 913,710 Stockholders' Equity Common Stock, $.0005 par value, 25,000,000 shares authorized, 3,047,357 and 3,043,563 shares issued 2,237,197 and 2,402,939 shares outstanding 1,524 1,522 Additional paid in capital 1,089,588 1,089,200 Retained earnings 639,174 754,773 1,730,286 1,845,495 Less 810,160 and 640,624 shares in treasury - at cost (986,340) (959,303) Total stockholders' equity 743,946 886,192 Total Liabilities and Stockholders' Equity $1,905,622 $2,243,742 ========== ==========
3 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended June 30 June 30 2003 2002 2003 2002 ---------- --------- ---------- ---------- Sales $ 618,394 $ 651,281 $1,874,242 $2,057,490 Cost of Sales 492,506 623,289 1,458,114 1,772,553 ---------- --------- ---------- ---------- Gross profit 125,888 27,992 416,128 284,937 Selling, general and administrative 149,694 174,223 498,544 511,146 Asset impairment ( 677,676) ( 677,676) ---------- --------- ---------- ---------- Loss from Operations ( 23,806) ( 823,907) ( 82,416) ( 903,885) Other income (expense) Interest expense net ( 10,006) ( 15,102) ( 33,183) ( 54,377) ---------- --------- ---------- ---------- Loss before Income Taxes ( 33,812) ( 839,009) ( 115,599) ( 958,262) Income Taxes 0 0 0 0 ---------- --------- ---------- ---------- Net Loss ( $33,812) ($839,009) ($115,599) ($958,262) ========== ========= =========== =========== Net loss per share Basic ( $0.02) ( $0.35) ( $0.05) ( $0.40) Diluted ( $0.02) ( $0.35) ( $0.05) ( $0.40) Weighted average shares outstanding 2,238,160 2,395,514 2,309,809 2,391,928
4 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended June 30 2003 2002 - Cash flows from operating activities: Net loss ($ 115,599) ($ 958,262) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 147,753 249,300 Amortization expense 2,556 2,556 Asset impairment 677,676 (Increase) decrease in: Accounts receivable 11,575 168,862 Inventories 115,359 144,329 Prepaid expenses and other current assets (10,140) ( 12,610) Increase (decrease) in: Accounts payable (47,889) ( 37,942) Accrued expenses 5,382 ( 36,151) Net cash provided by operating activities 108,997 197,758 Cash flows from investing activities: Acquisition of property, plant and equipment ( 7,505) (151,917) Net cash used in investing activities ( 7,505) (151,917) Cash flows from financing activities: Issuance of common stock 389 5,182 Buyback of common stock (27,037) 0 Repayments of long-term debt (153,365) (367,529) Net cash used in financing activities (180,013) (362,347) Net decrease in cash ( 78,521) (316,506) Cash - beginning of period 172,118 473,386 Cash - end of period $ 93,597 $ 156,880 ========= ===========
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 June 30, 2003 and the consolidated statements of operations and cash flows for the nine months ended June 30, 2003 and 2002, 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 June 30, 2003 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: June 30, 2003 September 30, 2002 ----------------- ------------------ Raw Materials $182,326 $255,901 Work-in-Process 140,887 176,303 Finished Goods 142,532 148,900 ------- ------- $465,745 $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 Revenues for the three months ended June 30, 2003 were $618,394, a decrease of 5.0% from revenues of $651,281 for the three months ended June 30, 2002. Revenues for the nine-months ended June 30, 2003 were $1,874,242 a decrease of 8.9% from revenues of $2,057,490 for the nine-months ended June 30, 2002. The Company continues to feel the effect of the weak demand in the semi-conductor and telecommunications industries, two of the Company's primary sources of revenue. It is difficult to determine when the Company will experience a turn around, as most customers are unwilling to commit to any major purchases. Cost of sales for the three months ended June 30, 2003 was $492,506, or 80.0% of sales, a decrease of $130,783 from the amount for the three months ended June 30, 2002 of $623,289, or 95.7% of sales. Cost of sales for the nine-months ended June 30, 2003 was $1,458,114, or 77.8% of sales, a decrease of $314,439 from the amount for the nine-months ended June 30, 2002 of $1,772,553 or 86.1% of sales. The improvement in cost of sales is primarily due to reduced man-hours and manufacturing expenses related to production. Gross profit for the three months ended June 30, 2003 was $125,888, or 20.0% of sales, an increase of $97,896 over the three months ended June 30, 2002 of $27,992, or 4.3% of sales. Gross profit for the nine months ended June 30, 2003 was $416,128, or 22.2% of sales, an increase of $131,191 over the nine months ended June 30, 2002 of $284,937, or 13.9% of sales. Selling, general and administrative expenses for the three months ended June 30, 2003 were $149,694 or 24.2% of sales, a decrease of $24,529 over the three months ended June 30, 2002 of $174,223, or 26.8% of sales. Selling, general and administrative expenses for the nine months ended June 30, 2003 were $498,544, or 26.7% of sales, a decrease of $12,602 over the nine months ended June 30, 2002 of $511,146, or 24.8% of sales. Reductions of $16,000 and $19,000 in salaries and travel expenses, respectively, were offset by a $9,000 increase in legal and audit and $8,000 in insurance expenses. During the quarter ended June 30, 2002, asset impairment charges of $677,676 were required to bring the carrying value of the Company's production furnaces in line with their market value. The combination of reduced demand and substantially reduced market pricing for synthetic fused silica required management to recognize the impairment. Interest expense, net, for the three months ended June 30, 2003 was $10,006, a decrease of $5,096 from the three months ended June 30, 2002 of $15,102. Interest expense, net, for the nine months ended June 30, 2003 was $33,183, a decrease of $21,194 from the nine months ended June 30, 2002 of $54,377. The decrease in interest expense is related to the reduction and restructuring of our debt as mentioned in previous filings. Since June 30, 2002 total debt has been reduced by $205,332(See Liquidity and Capital Resources section). The net loss for the quarter ended June 30, 2003 was $33,812, a decrease of 79.0% from the net loss of $161,333 ($839,009 including the loss on asset impairment of $677,676) for the quarter ended June 30, 2002. The loss for the nine-month period ended June 30, 2003 was $115,599, a decrease of 58.8% from the loss of $280,586 ($958,262 including the loss on impairment of asset of $677,676) for the nine-month period ended June 30, 2002. The net loss per share for the quarter ended June 30, 2003 was $0.02 compared to a net loss per share of $0.35 for the quarter ended June 30, 2002. The net loss per share for the nine-month period ended June 30, 2003 was $0.05 compared to a net loss per share of $0.40 for the nine-month period ended June 30, 2002. 7 The Company has no provision for income taxes for either period in 2003 or 2002. As of September 30, 2002, the Company had approximately $880,000 of net operating loss carryforwards to offset future taxable 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 state taxable income, expiring in various years through 2008. Liquidity and Capital Resources Cash decreased by $78,521 for the nine months ended June 30,2003. Cash provided from operations of $108,997 was primarily used to reduce debt by $153,365 and acquire shares of the Company stock for $27,037. 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 major capital expenditures in the next six to nine months. Any business expansion will require the Company to seek additional debt or equity financing. New Accounting Pronouncements In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 148 " Accounting for Stock-Based Compensation Transition and Disclosure an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123; Accounting for Stock-Based Compensation, to provide alternate methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of SFAS 148 is not expected to have a material effect on the Company's financial position or results of its operations. In May 2003 FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", which requires that certain financial instruments previously presented as equity or temporary equity be presented as liabilities. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS 150 is effective for financial instruments issued, entered into or modified after May 31, 2003 and is generally effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 is not expected to have a material effect on the Company's financial position or results of its operations. 8 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 risks and uncertainties described 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 or demand for 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 The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 (the "1934 Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the "SEC"). Those disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon the evaluation of those controls and procedures performed as of June 30, 2003, the Company's management, with the participation of its chief executive officer and chief financial officer, concluded that the Company's disclosure controls and procedures were adequate. The Company has implemented a process designed by, or under the supervision of, its principal executive and principal financial officers, or persons performing similar functions, and effected by the Company's board of directors, management or other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. The Company's management, with the participation of its chief executive officer and chief financial officer, has determined that there has been no change in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 9 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 Mr. Robert Lear resigned from his position as a member of the Board of Directors of the Company. Time constraints caused by the demands of his position as President and CEO of Penn Independent Corporation were cited as the reason. The resignation is effective June 30, 2003. ITEM 6 EXHIBITS AND REPORTS ON FORM 8 K (a) Exhibits and index of Exhibits 31.1(a) and (b) Rule 13a-14(a)/15d-14(a) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Section 1350 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed for purposes of the Securities Exchange Act of 1934) (b) Reports on Form 8 K None 10 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. Date: August 14, 2003 DYNASIL CORPORATION OF AMERICA BY: /s/ John Kane John Kane, President, CEO, Treasurer, Chief Financial Officer and Chief Accounting Officer 11 EXHIBIT 31.1 (a) CERTIFICATION PURSUANT TO RULE 13a 14(a)/15D-14(a) and SECTION 302 OF THE SARBANES-OXLEY ACT I, John Kane, the President and Chief Executive 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and -12- 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 14, 2003 /s/ John Kane ----------------------------- President and Chief Executive Officer -13- EXHIBIT 31.1 (b) CERTIFICATION PURSUANT TO RULE 13a 14(a)/15D-14(a) and SECTION 302 OF THE SARBANES-OXLEY ACT I, John Kane, the President and 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: e) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; f) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; g) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and h) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and -14- 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): c) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and d) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 14, 2003 /s/ John Kane ----------------------------- President and Chief Financial Officer -15- EXHIBIT 32.1 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 ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Kane, President, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 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. /s/ John Kane ------------------- John Kane President, Chief Executive Officer and Chief Financial Officer August 14, 2003 16