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-