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
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-1734088
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
385 Cooper Road, West Berlin, New Jersey, 08091
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(Address of principal executive offices)
(856) 767-4600
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(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
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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
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Total current assets 1,020,145 1,040,995
Property, Plant and Equipment, net 479,441 558,191
Other Assets 5,025 10,654
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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
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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
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1,404,689 1,477,334
Less 810,160 shares in treasury - at cost (986,342) (986,342)
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Total stockholders' equity 418,347 490,992
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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) ( $0.03)
Weighted average shares outstanding 2,238,830 2,302,905 2,238,542 2,345,633
4
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31
2004 2003
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Cash flows from operating activities:
Net loss ($ 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)
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Net cash provided by (used in) operating activities (6,466) 54,454
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Cash flows from investing activities:
Acquisition of property, plant and equipment 0 ( 7,505)
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Net cash used in investing activities 0 ( 7,505)
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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)
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Net cash used in financing activities ( 91,780) (128,916)
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Net(decrease) in cash (98,246) ( 81,967)
Cash - beginning of period 323,321 172,118
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Cash - end of period $ 225,075 $ 90,151
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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
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391,967 435,820
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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
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John Kane,
President, CEO, Treasurer, Chief Financial
Officer and Principal Accounting Officer
11