10QSB 1 dyn0304-10q.txt DYANSIL CORPORATION OF AMERICA 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, 2004 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 2,239,501 shares of common stock, par value $.0005 per share, outstanding as of April 30, 2004. 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, 2004 AND SEPTEMBER 30, 2003 1 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2004 AND 2003 2 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2004 AND 2003 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 7 ITEM 3. CONTROLS AND PROCEDURES 9 PART II. OTHER INFORMATION 10 ITEM 1. LEGAL PROCEDURES 10 ITEM 2. CHANGES IN SECURITIES 10 ITEM 3. DEFAULTS ON SENIOR SECURITIES 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 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 March 31 September 30 2004 2003 ---------- ---------- Current assets Cash and cash equivalents $ 225,075 $ 323,321 Accounts receivable 362,725 242,919 Inventory 391,967 435,820 Other current assets 40,378 38,935 ---------- ---------- Total current assets 1,020,145 1,040,995 Property, Plant and Equipment, net 479,441 558,191 Other Assets 5,025 10,654 ---------- ---------- Total Assets $1,504,611 $1,609,840 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion - long-term debt $ 92,219 $140,925 Accounts payable 197,689 131,518 Accrued expenses 66,909 73,624 ---------- ---------- Total current liabilities 356,817 346,067 Long-term Debt, net 729,447 772,781 Stockholders' Equity Common Stock, $.0005 par value, 25,000,000 shares authorized, 3,049,041 and 3,047,857 shares issued 2,238,881 and 2,237,697 shares outstanding 1,525 1,524 Additional paid in capital 1,089,977 1,089,718 Retained earnings 313,187 386,092 ---------- ---------- 1,404,689 1,477,334 Less 810,160 shares in treasury - at cost (986,342) (986,342) ---------- ---------- Total stockholders' equity 418,347 490,992 ---------- ---------- Total Liabilities and Stockholders' Equity $1,504,611 $1,609,840 ========== ==========
3 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended March 31 March 31 2004 2003 2004 2003 ---------- --------- ---------- ---------- Sales $ 594,469 $ 599,692 $1,216,963 $1,255,848 Cost of Sales 457,361 470,988 919,907 965,604 ---------- --------- ---------- ---------- Gross profit 137,108 128,704 297,056 290,244 Selling, general and administrative 175,923 168,330 354,502 348,850 ---------- --------- ---------- ---------- Loss from Operations ( 38,815) ( 39,626) ( 57,446) ( 58,606) Other income (expense) Interest expense net ( 8,058) ( 11,162) (15,459) (23,177) ---------- --------- ---------- ---------- Loss before Income Taxes (46,873) (50,788) ( 81,783) (119,252) Income Tax 0 0 0 0 ---------- --------- ---------- ---------- Net loss ( $46,873) ($50,788) ($72,905) ($ 81,783) =========== ========= ========== ========== Net loss per share Basic ( $0.02) ( $0.02) ( $0.03) ( $0.03) Diluted ( $0.02) ( $0.02) ( $0.03) ( $0.03) Weighted average shares outstanding 2,238,830 2,302,905 2,238,542 2,345,633
4 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended March 31 2004 2003 ---------- ----------- Cash flows from operating activities: Net loss ($ 72,905) ($ 81,783) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation 78,750 98,502 Amortization expense 1,704 1,704 (Increase) decrease in: Accounts receivable (119,806) 30,427 Inventories 43,853 40,039 Prepaid expenses and other current assets ( 1,443) (13,697) Other assets 3,925 0 Increase (decrease) in: Accounts payable 66,171 2,243 Accrued expenses ( 6,715) (22,981) --------- ---------- Net cash provided by (used in) operating activities (6,466) 54,454 --------- ---------- Cash flows from investing activities: Acquisition of property, plant and equipment 0 ( 7,505) --------- ----------- Net cash used in investing activities 0 ( 7,505) --------- ----------- Cash flows from financing activities: Issuance of common stock 260 260 Buyback of common stock (24,921) Repayments of long-term debt ( 92,040) (104,255) --------- ----------- Net cash used in financing activities ( 91,780) (128,916) --------- ----------- Net(decrease) in cash (98,246) ( 81,967) Cash - beginning of period 323,321 172,118 --------- ----------- Cash - end of period $ 225,075 $ 90,151 ========= ===========
5 DYNASIL CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The consolidated balance sheet as of September 30, 2003 was audited and appears in the Form 10-KSB previously filed by the Company. The consolidated balance sheet as of March 31, 2004 and the consolidated statements of operations and cash flows for the six months ended March 31, 2004 and 2003, 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, 2004 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, 2003 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, 2004 September 30, 2003 ----------------- ------------------ Raw Materials 163,219 182,666 Work-in-Process 106,485 118,836 Finished Goods 122,263 134,318 ------- ------- 391,967 435,820 ======= ======= 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 4. Stock Based Compensation The Company has adopted the disclosure provisions of SFAS No. 148 effective December 31, 2002 and continues to account for stock-based compensation using the intrinsic value method. Accordingly, no compensation cost has been recognized in the financial statements for stock options issued to employees since the options were granted at the quoted market price on the date of grant. Stock options granted to consultants and other non-employees are reported at fair value in accordance with SFAS No. 123. The pro forma disclosures of net loss and net loss per common share required by SFAS No. 123 are shown below. Six months ended March 31,2004 March 31,2003 ------------- --------------- Net loss, as reported ($ 72,905) ($ 81,783) Add: Stock-based employee compensation expense included in reported net income -0- -0- Less: Total stock-based employee compensation expense determined under fair value based method for all options -0- -0- ----------- ----------- Pro forma net loss ($ 72,905) ($ 81,783) =========== =========== Actual net loss per common share ($ 0.03) ($ 0.03) Pro forma net loss per common share ($ 0.03) ($ 0.03) During the six-months ended March 31, 2004 and 2003, no stock options were granted and no options were exercised. The Company cancelled 132,000 and 73,977 options during the six-months ended March 31, 2004 and 2003, respectively. Compensation expense relating to non-employee stock options granted during the six-months ended March 31, 2004 and 2003 were $-0-. 7 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Overview Low demand and competitive pricing continue to hinder our attempts to bring the Company into a positive financial operating position. Micromanaging our expenses and aggressive pricing continues to be our primary focus until demand improves. The near future picture does not appear to be any brighter based on customer feedback and quote activity. We have added other optical glasses to our existing product line but positive response from customers has been slower than anticipated. We had projected shipping $75,000 of new product this quarter but fell short by $48,000. Although this was disappointing we were encouraged by the ease in which our shop personnel adjusted to these new materials. We will be vigorously pursuing this area of opportunity. Results of Operations Revenues for the three months ended March 31, 2004 were $594,469, a decrease of 0.8% over revenues of $599,692 for the three months ended March 31,2003. Revenues for the six-months ended March 31, 2004 were $1,216,963 a decrease of 3.2% over revenues of $1,255,848 for the six-months ended March 31,2003. Demand continues to lag in our primary markets. The addition of new optical glasses to our product line has been slow to develop new sales. Cost of sales for the three months ended March 31, 2004 were $457,361, or 76.9% of sales, a decrease of $13,627 over the three months ended March 31, 2003 of $470,988, or 78.5% of sales. Cost of sales for the six-months ended March 31, 2004 were $919,907, or 75.6% of sales, a decrease of $45,697 over the six-months ended March 31, 2003 of $965,604 or 76.9% of sales. The slight decrease in cost of sales as a percentage of sales is directly related to continuing concentration on controlling expenses. Gross profit for the three months ended March 31, 2004 was $137,108, or 23.1% of sales, an increase of $8,404 over the three months ended March 31, 2003 of $128,704, or 21.5% of sales. Gross profit for the six months ended March 31, 2004 was $297,056, or 24.4% of sales, an increase of $6,812 over the six months ended March 31, 2003 of $290,244, or 23.1% of sales. Selling, general and administrative expenses for the three months ended March 31, 2004 were $175,923 or 29.6% of sales, an increase of $7,593 over the three months ended March 31, 2003 of $168,330, or 28.0% of sales. Selling, general and administrative expenses for the six months ended March 31, 2004 were $354,502, or 29.1% of sales, an increase of $5,652 over the six months ended March 31, 2003 of $348,850, or 27.8% of sales. The primary areas of increased spending were for selling and advertising expenses related to the addition of the new optical glasses. We have a new product brochure and placed several advertisements announcing the availability of new glasses. Interest expense for the three months ended March 31, 2004 was $8,058, a decrease of $3,104 over the three months ended March 31, 2003 of $11,162. Interest expense for the six months ended March 31, 2004 was $15,459, a decrease of $7,718 over the six months ended March 31, 2003 of $23,177. The decrease in interest expense is related to the reduction and restructuring of our debt as mentioned in previous filings. Total overall debt continues to decline and we have incurred no new debt over the past six months. (See Liquidity and Capital Resources section) Net loss for the three months ended March 31, 2004 was $46,873, or negative $.02 in basic loss per share, a decrease of $3,915 over the net loss for the three months ended March 31, 2003 of $50,788, or $.02 in basic loss per share. Net loss for the six months ended March 31, 2004 was $72,905, or negative $.03 in basic loss per share, a decrease of $8,878 over the six months ended March 31, 2003 of net loss of $81,783, or $.03 in basic loss per share. The Company has no provision for income taxes for either period in 2004 or 2003. As of September 30, 2003, we have approximately $1,200,000 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 $633,000 of net operating loss carryforwards to offset certain future states' taxable income, expiring in various years through 2012. 8 Liquidity and Capital Resources Cash decreased by $98,246 for the six months ended March 31,2004. The primary use of cash was to pay down long-term debt of $92,040. The Company believes that its current cash and cash equivalent balances, along with the net cash generated by operations, are 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. On April 15, 2004, to coincide with the final payment on a term note and the maturity of $200,000 of certificates of deposit ("CD's") used as corresponding collateral, the Company restructured a remaining mortgage note (the "Note") with a commercial bank. Under terms of the agreement, $100,000 of the funds from the CD's was used to reduce the balance of Note #1 and the principal payment was increased from $7,222 to $10,000 per month. The current maturity date of the Note, for the final payment, was extended from August 2005 to July 2007. The interest rate of the Bank's prime rate plus 0.5% remained the same under the new agreement. 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 The Company carried out an evaluation, under the supervision and the participation of its principal executive and financial officer, of the effectiveness of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the period covered by this report. Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective. It should be noted that design of any system controls is based in part upon certain assumptions, and there can be no assurance that any design will succeed in achieving its stated goal. 9 There were no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation, including any corrective actions with regard to significant deficiencies and material weakness. 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 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) 10.8 Loan Agreement and associated documents dated April 15, 2004 with Premier Bank, for a $708,889 mortgage. (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. DYNASIL CORPORATION OF AMERICA BY: /s/ John Kane DATED: May 14, 2004 --------------------------------- -------------------- John Kane, President, CEO, Treasurer, Chief Financial Officer and Principal Accounting Officer 11