As filed with the Securities and Exchange Commission on November 2, 1999
Registration No. 0-27503
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Amendment No. 1 to
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
DYNASIL CORPORATION OF AMERICA
(Name of Small Business Issuer in Its Charter)
New Jersey 22-1734088
(State or Other Jurisdiction of (I.R.S. Identification
Incorporation or Organization) Number)
385 Cooper Road, West Berlin, New Jersey 08091
(Address of Principal Executive Offices) (Zip Code)
(856) 767-4600
(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock $.0005 Par Value
(Title of Class)
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TABLE OF CONTENTS
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Part I............................................................................1
Item 1. Description of Business..................................................1
Item 2. Management's Discussion and Analysis or Plan of Operation................6
Item 3. Description of Property..................................................9
Item 4. Security Ownership of Certain Beneficial Owners and Management..........10
Item 5. Directors, Executive Officers, Promoters and Control Persons............12
Item 6. Executive Compensation..................................................14
Item 7. Certain Relationships and Related Transactions..........................15
Item 8. Description of Securities...............................................15
Part II..........................................................................17
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters...............................................17
Item 2. Legal Proceedings.......................................................18
Item 3. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................18
Item 4. Recent Sales of Unregistered Securities.................................18
Item 5. Indemnification of Directors and Officers...............................19
Part F/S.........................................................................24
Part III.........................................................................25
Item 1. Index to Exhibits.......................................................25
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Dynasil Corporation of America ("Dynasil", "we", or the "Company") was
incorporated in the State of New Jersey on October 20, 1960.
On April 22, 1996, the Company's articles of incorporation were amended to
reflect an increase in the authorized shares of common stock from 1,500,000 to
25,000,000, and a reduction of the par value of the common stock from $.10 to
$.001. On June 1, 1996, the Board of Directors also declared a three-for-two
stock split, effected in the form of a 50% stock dividend payable to
stockholders of record on April 30, 1996.
On October 16, 1996, the Board of Directors declared a two-for-one stock
split payable on November 1, 1996 to stockholders of record on October 1, 1996.
On September 30, 1997, we sold substantially all of the assets of our
wholly-owned subsidiary, Hibshman Corporation, to Gary Edmonson and Patricia
Catron, who were employees of Hibshman Corporation. As consideration for the
sale, the Company received a note receivable of $200,000 which was collected
during fiscal year ended September 30, 1998. The sale resulted in a loss of
$194,453. The purchase price was based on 60% of the appraised value of the
assets that were acquired.
Hibshman Corporation had been acquired by us on October 1, 1993 in exchange
for 172,932 shares of our common stock. The business of Hibshman Corporation was
to polish the fused silica blanks supplied by manufacturers such as Dynasil,
into finished product. As such, Hibshman Corporation was acquired to extend our
business into the finished goods market. However after we acquired Hibshman
Corporation, it never generated sufficient sales to offset its cost of
operation. Furthermore, an infusion of capital was necessary to modernize the
equipment and processes of Hibshman Corporation. In the fall of 1997, we
commenced efforts to sell Hibshman Corporation by advertising it for sale
throughout the appropriate business community. Although there were several
interested buyers, none of these buyers made a sufficient offer. Subsequently,
Edmonson and Catron made an offer which was better than the previous offers, and
at least twice the liquidation value of the equipment. In view of the continual
losses, we believed that the decision to sell Hibshman Corporation, although at
a loss, was in our best long term interests.
Business
We are primarily engaged in the manufacturing and marketing of customized
synthetic fused silica products. We also distribute fused quartz material that
we obtain from a variety of sources. Our products are used primarily as
components of optical instruments, lasers, analytical instruments,
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semiconductor/electronic devices, spacecraft/aircraft components, and in devices
for the energy industry. These include:
o Optical components - lenses, prisms, reflectors, mirrors,
filters, optical flats
o Lasers - Beam Splitters, brewster windows, q-switches,
medical/industrial lasers, exciter systems
o Analytical Instruments - UV spectrophotometer cells, fire control
devices, reticle substrates, interferometer plates
o Energy - Laser/Tkamak fusion research isotope separation, solar
cell covers
o Semiconductor/Electronic - Microcircuit substrates, microwave
devices, photomasks, sputter plates, microlithography optics
o Spacecraft/Aircraft - Docking light covers, windows, re-entry
heat shields, ring laser gyros
We have a two person sales force comprised of Bruce Leonetti, our Vice
President, Sales and Marketing, and an administrative assistant, located in our
corporate headquarters West Berlin, New Jersey that handles all domestic sales.
We also use manufacture representatives in various foreign countries for
international sales. Marketing efforts include direct customer contact through
sales visits, advertising in trade publications and presentations at trade
shows. Our products are distributed through direct sales and delivered by
commercial carriers.
We compete for business in the optics industry primarily with two other
manufacturers of synthetic fused silica and several distributors of their
products. The manufacturers are Corning Incorporated, Canton, NY and Heraeus
Quarzglas, Germany. Our principal competitive distributors include United Lens
Company, Inc., Southbridge, MA, Advanced Glass Industries, Rochester, NY and
Glass Fab, Inc., Rochester NY.
Market share in the optics industry is largely determined by a combination
of quality, price and speed of delivery. We believe that we are competitive in
the mid to high level quality markets. We feel that we do not compete as
effectively for the lower quality markets because our price is not competitive,
or in the very highest quality market because our manufacturing process is not
currently able to produce product of sufficient quality.
All of the fused silica that we manufacture is produced using a single
manufacturing process. The product is then graded to determine its quality. We
have been able to sell the higher quality material at a higher price, and with
higher profit margins. With respect to speed of delivery, we believe that we
perform as well as or better than our competitors.
The primary raw material used in our manufacturing process is silicon
tetrachloride, which we obtain from Teledyne Wah Chang. In the event we are
unable to obtain silicon tetrachloride from our current supplier, it is
available from Dow Chemical or Hemlock, Inc. at comparable prices.
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We presently have over 150 customers, with 90% of our business being
concentrated in our top 40 customers. Our five largest customers, Heraeus
Amersil, Inc., Grimes Aerospace Company, Spectra Physics, VLOC, ESCO Products,
Inc., each accounted for approximately 6.9%, 5.5%, 5.5%, 5.3%, 5.1%,
respectively, of our total revenues during fiscal year 1998. Our four largest
customers, Grimes Aerospace Company, Mindrum Precision, Inc., Spectra Physics,
and Detector Electronics Corporation, each accounted for approximately 8.2%,
6.2%, 5.6% and 5.4%, respectively, of our revenues during the nine months ended
June 30, 1999. Generally, our customers provide purchase orders for a specific
quantity and quality of fused silica. These purchase orders generally are filled
with fused silica from inventory or manufacture to order. Orders are generally
filled over a period ranging from one month to one year. The loss of any of
these customers would likely have a material adverse effect on our business,
financial condition and results of operations.
Our business and financial condition would be materially adversely affected
if we do not attain substantial additional business from these customers, or if
we lose the business of any of these customers, and if we fail to attain
substantial additional business from other customers.
We rely on trade secret and copyright laws to protect the proprietary
technologies that we may develop, but there can be no assurance that those laws
will provide us with sufficient protection, that others will not develop
technologies that are similar or superior to ours, or that third parties will
not copy or otherwise obtain or use our technologies without our authorization.
We have no patents or patent applications filed or pending.
Other than federal, state and local environmental laws, our manufacturing
process is not subject to direct governmental regulation. Dynasil's
manufacturing process, which includes storage of hazardous materials, is subject
to a variety of federal, state and local environmental rules and regulations. We
make extensive use of engineering consultants to provide the technical expertise
to help ensure that our equipment is in compliance with the environmental laws.
Waste water and ground water testing is conducted quarterly by an engineering
consultant, and the results are submitted directly to the appropriate regulating
agencies. We are permitted to dispose of our waste water through the Camden
County Municipal Utilities Authority. We have a permit to use an air scrubber
system, which is tested periodically. The next test of the scrubber system is
scheduled for November 1999. We do not have a pending notice of violations and
are aware of no potential violations. We train our employees in the proper
handling of hazardous materials. There are no buried storage tanks on our
property. A Phase I environmental audit, completed approximately two years ago,
did not disclose any conditions requiring remediation. Our environmental
compliance costs approximately $600,000 per year.
Our research and development activities primarily have involved changes to
our manufacturing process and the introduction of equipment with newer
technology. Improvements to our manufacturing process involved developing larger
furnaces in order to produce larger fused silica boules, and replacing existing
furnaces with higher quality equipment. We have spent approximately $1,300,000
to develop the larger furnaces and upgrade existing furnaces. An additional
$400,000 was invested in additional glass processing equipment. Investigations
into use of purer raw material,
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alternative fuels and improved distribution systems have been the primary
emphasis of our research and development program.
Our total work force consist of 24 employees; 3 administrative, 2 sales,
and 19 shop personnel (including 2 part time employees).
The shop currently is non-union. The workforce had originally been members
of the Teamsters Union, but voluntarily decertified in the early 1980's. From
then until 1989 the workforce was represented by an "in-house" union. In 1989
this representation was voted out and the shop became non-union.
Employee Benefit Plans
We have adopted a Stock Incentive Plan which provides for, among other
incentives, granting to officers, directors, employees and consultants options
to purchase shares of our common stock up to a total of 900,000 shares. The
900,000 shares consist of two separate plan approvals. The 1st plan was approved
in February 1996 for 450,000 shares, restated to reflect the stock splits of
1996. The seconded plan approval was January 1999 for an additional 450,000
shares. At June 30,1999, 497,723 shares of common stock were reserved for
issuance under the Stock Incentive Plans. Options granted under the Plans are
generally exercisable over a five year period. To date, options have been
granted at exercise prices ranging from $1.00 to $3.52 per share. At June 30,
1999, 113,277 options were outstanding.
We have adopted an Employee Stock Purchase Plan which permits substantially
all employees to purchase common stock. Employees have an opportunity to acquire
common stock at a purchase price of 65% of the fair market value of the shares.
To date, shares issued to employees have been restricted shares subject to the
holding periods of Rule 144. Under the plan, a total of 150,000 shares had been
reserved for issuance. Of these, 34,917 shares have been purchased by the
employees at purchase prices ranging from $.49 to $2.68 per share. During any
twelve month period, employees are limited to a total of $5,000 of stock
purchases.
The Company has a 401K Plan for the benefit of its employees. The Company
did not make a contribution for the years ended September 30, 1999, 1998 and
1997.
YEAR 2000
Year 2000 Readiness Disclosure
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to
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comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
State of Readiness: We have made an assessment of our Year 2000 readiness
of our operating, financial and administrative systems, including the hardware
and software that support our systems. Our assessment consisted of testing and
correcting our internally developed material software and contacting key vendors
to ensure their readiness. We have confirmed our Year 2000 compliance by
specific testing of our systems and by obtaining representations by third party
vendors of their Year 2000 compliance.
Costs: We have not incurred significant costs to date complying with Year
2000 requirements and we do not believe that we will incur significant costs for
these purposes in the foreseeable future. However, should products or systems
maintained by third parties or our systems fail to be Year 2000 compliant,
despite the representations of third parties and the testing of our systems, we
could incur expenses to remedy any problems. Such expenses could, but are not
expected to, have a material adverse effect on our business, results of
operations and financial condition.
Risks: Our failure to identify and correct a Year 2000 problem could result
in an interruption of normal business activities and operations. Although there
is an inherent uncertainty in the Year 2000 issue, we believe the impact to our
business will not be material. Most of the equipment involved in delivering our
product to our clients does not make use of date information at all. We believe
our greatest risk to be suppliers and utilities whose Year 2000 programs are
outside of our control. A disruption caused by a utility or supplier whose
systems are not compliant may have a direct and negative effect on our business.
We will not be operating our furnaces or equipment from at least December 31,
1999 to January 3, 2000, and will not bring up our systems until we have
ascertained that we will have uninterrupted power and fuel sources. Our "worst
case scenario" would be that the power and fuel sources are interrupted, during
which interruption we will not be able to operate. We have tested all of our
computer systems which are responsible for the day to day administrative and
sales functions of our business, including a dry run, to ensure Year 2000
compliance. Based on such testing, all of our computer systems appear to be Year
2000 compliant. In the event that one or more of our computers has a Year 2000
malfunction, we would have a disruption in administrative or sales functions.
Contingency Plan: We have identified alternate sources for critical
supplies where alternate sources exist. To the best of our knowledge, our
internal systems are fully compliant. We have been advised by our principal
suppliers, particularly the utilities supplying electricity and gas, that they
believe their systems are also compliant.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following management's discussion and analysis should be read in
conjunction with our financial statements and the notes thereto appearing
elsewhere in this Form 10-SB.
Results of Operations
Comparison of Nine Months ended June 30, 1999 to Nine Months ended June 30, 1998
Revenues deceased to $2,021,887 for the nine months ended June 30, 1999
from $3,242,457 for the nine months ended June 30, 1998. The decrease of
$1,220,570 or 37.6% was primarily due to the slow down in both the semiconductor
and optics markets. The problems experienced by the Asian economy in late 1998
caused end users of our product to delay orders. This delay carried through most
of 1999. We just recently have begun seeing a reverse in that trend and quote
activity has increased.
Cost of sales consist primarily of facility and production costs, direct
labor, depreciation, waste management cost and supplies. Cost of sales decreased
to $1,735,582, or 85.8% of revenues, for the nine months ended June 30, 1999
from $2,152,336, or 66.4% of revenues, for the nine months ended June 30, 1998.
The decrease of $416,754 or 19.4% is directly related to the Company's response
to the decrease in revenues. We needed to reduce expenses in every area.
Manufacturing labor related expenses decreased $289,229 (33.7%), supplies
expenses decreased $71,707 (35.2%) and waste management expenses decreased
$145,128 (74%).
Gross Margin decreased to $286,305 for the nine months ended June 30, 1999
from $1,090,121 for the nine months ended June 30, 1998. As a percentage of
revenues, gross margin was 14.2% and 33.6% for the nine months ended June 30,
1999 and 1998 respectively. The decrease of $803,816 or 73.7% was a result of
the large revenue reduction and the Company's inability to reduce expenses
quickly, in response to the downturn in the market.
Selling, general and administrative expenses consist primarily of salaries,
insurance, outside professional fees, and advertising. Selling, general and
administrative expenses decreased to $479,216 for the nine months ended June 30,
1999 from $646,956 for the nine months ended June 30, 1998. As a percentage of
revenue, selling general and administrative expense for the nine months ended
June 30, 1999 and 1998 were 23.7% and 20.0% respectively. The decrease of
$167,740 or 25.9% was due primarily to a $72,958 reduction in advertising and a
$75,590 reduction in outside professional fees.
Interest expense includes interest related to our financing obligations
including bank loans, subordinated debentures and capital leases. Interest
expense increased to $146,729 for the nine months ended June 30, 1999 from
$142,783 for the nine months ended June 30, 1998. The increase is $3,946 or
2.8%.
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Net income decreased to a loss of $339,640 for the nine months ended June
30, 1999 from income of $308,382 for the nine months ended June 30, 1998. Basic
earnings per share decreased to a loss per share of $.15 for the nine months
ended June 30, 199 from an income per share of $.13 for the nine months ended
June 30, 1998. The decrease of $648,022, or $.28 per share, was primarily
related to the sharp decrease in revenues and the Company's initial slow
response to reduce expenses.
Comparison of Fiscal Year ended September 30, 1998 to Fiscal Year ended
September 30, 1997
Revenues increased to $3,981,395 for fiscal 1998 from $3,931,108 for fiscal
1997. The marginal increase of $50,287 or 1.3% reflects the beginning of the
slow down in the semiconductor and optics markets in mid 1998.
Cost of sales increased to $2,711,148, or 68.1% of revenues, for fiscal
1998 from $2,338,738, or 59.5% of revenues, for fiscal 1997. The increase of
$372,410, or 15.7% was primarily due to increases in manufacturing labor,
employee related expenses and depreciation. For fiscal 1998 manufacturing labor,
employee related expenses, and depreciation accounted for approximately 20.1%,
7.3% and 7.8% of revenues, respectively. For fiscal year 1997 manufacturing
labor, employee related expenses, and depreciation accounted for approximately
15.3%, 4.6% and 5.7%, respectively.
Gross margin decreased to $1,270,247, or 31.9% of revenues, for fiscal 1998
from $1,592,370, or 40.5% of revenue, for fiscal 1997. The decrease of $322,123,
or 20.2%, is related to increase in cost of sales, as discussed above.
Selling, general and administrative expenses decreased to $874,962, or
21.9% of revenue, for the fiscal 1998 from $952,977, or 24.2% of revenue, for
fiscal 1997. The decrease of $78,015, or 8.2%, was due primarily to decreases in
salary expense, outside professional fees, and travel expense aggregating
approximately $97,165, with an offsetting increase in amortization expense of
$23,052.
Interest Expense increased to $188,150, or 4.7% of revenue, for fiscal 1998
from $108,536, or 2.8% of revenue, for fiscal 1997. The increase of $79,614, or
73.3%, was due primarily to the additional debt we incurred in the later part of
fiscal 1997. See discussion of debt restructuring under Liquidity and Capital
Resources.
Net income from continuing operations decreased to $230,782, or 5.8% of
revenue, for fiscal 1998 from $529,684, or 13.5% of revenue, for fiscal 1997.
The decrease of $298,902, or 56.4% was primarily a result of increased cost of
sales.
The Company has no provisions for income taxes for either fiscal 1998 or
1997. As of September 30, 1998 we have approximately $598,000 of net operating
loss carryforwards to offset future taxable income for federal tax purposes
expiring in various years through 2009. In addition,
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the Company has approximately $391,000 of net operating loss carryforwards to
offset certain future states' taxable income, expiring in various years through
2001.
For fiscal 1997 we incurred a loss from discontinued operations of
$453,722. See note under Business Development concerning Hibshman Corporation.
In addition to the $224,453 loss on the sale of the assets, we incurred an
additional loss of $229,269 from operations of Hibshman Corporation.
Net income increased to $230,782, or 5.8% of revenue for fiscal 1998 from
$75,962, or 1.9% of revenue, for fiscal 1997.
Liquidity and Capital Resources
Net cash provided by operating activities decreased to $78,224 for the nine
months ended June 30, 1999 from $284,897 for the nine months ended June 30,
1998. The decrease was primarily due to the decrease in income before
depreciation offset by a decrease in Inventories. As mentioned earlier the loss
for the nine months was a direct result of a downturn in the semiconductor
market and our inability to respond quicker with cost reductions. For the year
ended September 30, 1998 our net cash provided from operating activities
decreased to $71,064 from $548,970 for the year ended September 30, 1997. The
decrease was primarily due to an increase in Inventories and a decrease in
Accounts Payable offset by an increase in cash provided from discontinued
operations. Management was projecting substantial growth through the year 1999
and was spending on capital improvements and inventory build-up.
Cash flows used in investing activities decreased to $5,333 for the nine
months ended June 30, 1999 from $307,839 for the nine months ended June 30,
1998. The decrease was due entirely because of reduced investments in property
and equipment. With the slow down in sales we were experiencing management made
the decision to reduce spending on our capital improvement projects. Cash flows
used in investing activities decreased to $101,596 for fiscal 1998 from
$1,391,283 for fiscal 1997. The decrease was primarily due to reduced
investments in property and equipment and collection of a note receivable from
disposal of discontinued operations. During fiscal 1997 the Company had a major
refurbishing project for all our furnaces that resulted in the high expenditures
for property and equipment. Mid-way through fiscal year 1998 it was apparent our
projections for sales were off therefor we reduced our spending on improvements.
Cash flows used in financing activities increased to $70,380 for the nine
months ended June 30,1999 from cash flows provided from financing activities of
$10,175 for the nine months ended June 30, 1998. The increase was primarily due
to reductions in obtaining outside financing. Cash flows provided from financing
activities decreased to $60,437 for fiscal 1998 from $754,021 for fiscal 1997.
The primary reason for the decrease was a reduction in proceeds from long term
debt.
In August 1997 the Company secured an additional $200,000 on an existing
mortgage. The funds were used for improvements to our furnaces. In August 1998
the Company consolidated all existing bank debt into a term loan of $1,300,000
and a Line of Credit of $300,000. In July 1999 the
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Line of Credit was revised to $150,000. As of August 31, 1999, the term loan has
an outstanding balance of $1,213,333 and the line has a zero balance. We have
various obligations under two capital leases, which aggregate $107,994 as of
August 31, 1999. The indebtedness outstanding under the term loan is
collateralized by all of our assets. The obligations under the capital leases
are collateralized by the underlying equipment for each loan.
During fiscal years 1998 and 1997 we generated $177,609 and $9,000,
respectively from the exercise of stock options owned by affiliates of the
Company. During fiscal years 1998 and 1997 we generated $11,694 and $2,753,
respectively, from shares purchased by employees through the Employee Stock
Purchase Plan.
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.
ITEM 3. DESCRIPTION OF PROPERTY
Facilities
We own a property consisting of a one-story, masonry and steel,
office/manufacturing building containing approximately 15,760 square feet,
located at 385 Cooper Road, West Berlin, New Jersey, 08091. The building is
situated on a 3.686 acre site. It contains eight furnaces with attendant
pollution control systems, glass processing equipment, quality control functions
and administrative office space. We have received site plan approval to
construct four additional furnaces.
Leases
We lease office equipment and four storage containers at an annual total
lease obligation of $7,542. We also have entered into lease purchase agreements
for a lift truck, a retro-fit of a glass saw, and an ID slicing saw, for a total
annual lease obligation of $74,540.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock
of the Company as of September 30, 1999 by each person who was known by the
Company to beneficially own more than 5% of the common stock, by each director
and executive officer who owns shares of common stock and by all directors and
executive officers as a group:
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Title Name and Address No. of Shares and nature of Percent of
of Class of Beneficial Owner Beneficial Ownership(1) Class
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Common James Saltzman(2) 580,865 24.63%
621 East Germantown Pike
Suite 105
Plymouth Valley PA 19401
Common Gen. Charles J. Searock, Jr. (USAF Ret)(3) 90,496 3.85%
39 Tee Pee Court
Medford, NJ 08055
Common Jan Melles(4) 56,500 2.40%
9 Riverside Road
Laguna Niguel, CA 92677
Common Nathan Schwartz(5) 48,394 2.03%
621 East Germantown Pike
Suite 105
Plymouth Valley, PA 19401
Common Dr. Peter P. Bihuniak(6) 16,000 0.68%
631 Scenic Circle
Holland, OH 43528
Common Robert Lear(7) 173,236 7.37%
520 South York Road
Hatboro, PA 19040
Common Robert E. Hibshman, Sr.(8) 59,000 2.51%
19689 7th Ave. NE, Suite 182
Poulsbo, WA 98370-7576
Common John Kane(9) 15,425 0.66%
149 Plowshare Road
Norristown, PA 19403
Common Bruce Leonetti 100 0.00%
200 Birdwood Avenue
Haddonfield, NJ 08033
All Officers and Directors as a Group 1,040,015 42.76%
</TABLE>
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(1) The numbers and percentages shown include shares of common stock issuable to
the identified person pursuant to stock options that may be exercised within 60
days. In calculating the percentage
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of ownership, such shares are deemed to be outstanding for the purpose of
computing the percentage of shares of common stock owned by such person, but are
not deemed to be outstanding for the purpose of computing the percentage of
share of common stock owned by any other stockholders. The number of shares
outstanding on September 30, 1999 was 2,344,944.
(2) Includes options to purchase 7,500 shares of the Company's common stock at
$1.00 per share, options to purchase 3,000 shares of the Company's common stock
at $3.52 per share, and options to purchase 3,000 shares of the Company's common
stock at $1.17 per share; also includes 567,365 shares owned by Saltzman
Partners.
(3) Includes options to purchase 3,000 shares of the Company's common stock at
$1.17 per share.
(4) Includes options to purchase 3,000 shares of the Company's common stock at
$3.52 per share, and options to purchase 3,000 shares of the Company's common
stock at $1.17 per share.
(5) Includes options to purchase 20,000 shares of the Company's common stock at
$1.50 per share, options to purchase 5,000 shares of the Company's common stock
at $1.50 per share, options to purchase 3,000 shares of the Company's common
stock at $4.25 per share, options to purchase 3,000 shares of the Company's
common stock at $3.52 per share, and options to purchase 3,000 shares of the
Company's common stock at $1.17 per share.
(6) Includes options to purchase 10,000 shares of the Company's common stock at
$3.00 per share, options to purchase 3,000 shares of the Company's common stock
at $3.52 per share, and options to purchase 3,000 shares of the Company's common
stock at $1.17 per share.
(7) Includes options to purchase 3,000 shares of the Company's common stock at
$3.52 per share, and options to purchase 3,000 shares of the Company's common
stock at $1.17 per share; also includes 167,236 shares owned by Penn Independent
Corporation.
(8) Includes options to purchase 3,000 shares of the Company's common stock at
$1.17 per share.
(9) Includes options to purchase 5,500 shares of the Company's common stock at
$2.65 per share.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
All seven of our directors were elected to serve for one year at our Annual
meeting of the shareholders held on January 26, 1999, and will hold office until
their successors are elected at the next annual meeting of the shareholders.
Our executive officers and directors, and their ages at September 15, 1999,
are as follows:
Name Age Position
- ---- --- --------
James Saltzman 55 Chairman of the Board
Gen. Charles J. Searock, Jr. 63 President, CEO, Director
Jan Melles 59 Director
Nathan Schwartz 38 Director
Dr. Peter P. Bihuniak 50 Director
Mr. Robert Lear 54 Director
Mr. Robert E. Hibshman, Sr. 72 Director
Mr. John Kane 48 CFO, Secretary, Treasurer
Mr. Bruce Leonetti 45 Vice President
Mr. James Saltzman, Chairman, 55, has been a member of the Board since
February 1998, and is a major shareholder in Dynasil Corporation. Mr. Saltzman,
has been the General Partner of Saltzman Partners, an investment firm, since
1982. Since January 1997, Mr. Saltzman has served as Vice Chairman of Madison
Monroe, Inc., a private company engaged in investments. He served as a director
of Xyvision, Inc., a publicly held company which develops, markets, integrates
and supports content management and publishing software, since 1992, and was
Chairman of the Board of such company from February 1994 to February 1995.
General Charles J. Searock, Jr. (USAF Ret), 63, has been a director of the
Corporation since February 1996 and currently serves as President and CEO.
General Searock retired from the United States Air Force having attained the
rank of Lieutenant General in 1993 after 36 years of active duty, having
received numerous military decorations. Prior to joining Dynasil, he was
executive Vice President of Aero Development Corporation from 1993 to 1996.
General Searock earned a BA in General Education from the University of Nebraska
in 1962, and a Masters degree in Management from Central Michigan University in
1975.
Jan Melles, 59, has been a member of the Board of Directors of the Company
since February 1996. Since 1993, Mr. Melles has been President and sole
shareholder of Photonics Investments, bv, which is engaged in investments in,
and mergers and acquisitions of, photonics companies. From 1988 to 1992, he
served as Chief Executive Officer of Melles Griot, Inc., a division of J. Bibby
& Sons, PLC. Mr. Melles co-founded Melles Griot, Inc. in 1969 and sold it to J.
Bibby & Sons, PLC in 1988. Mr. Melles also serves as a director of Excel
Technology, Inc., a publicly held company, and as a director of Gooch and
Housego, PLC, a publicly held company.
12
<PAGE>
Nathan Schwartz, 38, has been a member of the Board since February 1996. He
is an attorney and financial advisor, providing legal and financial advice to
numerous financial service clients since 1992. Mr. Schwartz earned a B.A. in
History from Kenyon College in 1982, an M.B.A. in Public/Private Management from
Columbia University in 1986, and a J.D. from the University of Pittsburgh in
1989.
Dr. Peter P. Bihuniak, 50, has been a member of the Board since February
1997. He has held his current position of Vice President of Technology for
SOLAREX since 1997. From 1995 to 1997, he served as Director of Research and
Development of Pilkington, Libbey-Owens-Ford in Toledo, Ohio, directing
invention and development efforts for high performance glass. From 1988 to 1995,
Mr. Bihuniak served in various positions with PPG Industries, Inc., one of the
major producers of flat glass, fabricated glass and continuous-strand fiber
glass in the world, serving most recently as General Manager, Flat Glass
Specialty Products Division.
Robert Lear, 54, has been a member of the Board since February 1998. He is
President of Penn Independent Corporation, a property and casualty insurance
enterprise. Mr. Lear has been President and Chief Executive Officer of Penn
Independent since September 1996 and previously served as Executive Vice
President-Finance and Chief Financial Officer of that company for more than
seven years. He was Vice President-Finance and Chief Financial Officer of
Penn-America Group, Inc. from its formation in July 1993 until March 1995, and
still serves Penn-America Group, Inc. as a director. Prior to joining Penn
Independent, Mr. Lear had over 15 years of public accounting experience,
specializing in the insurance industry. Mr. Lear is a certified public
accountant.
Robert E. Hibshman, Sr., 72, has been a member of the Board since January
1999. He founded Hibshman Optical Labs, Inc. which was purchased by his son,
Robert E. Hibshman Jr. and eventually sold to Dynasil Corporation as Hibshman
Corporation. Mr. Hibshman Sr. is currently retired and is occupied with property
development and investments.
John Kane, 48, Chief Financial Officer has been with Dynasil Corporation
since January 1997 and is a licensed Certified Public Accountant. For three
years prior to joining Dynasil Corporation he was an independent consultant,
designing accounting systems for the maritime industry.
Bruce Leonetti, 45, Vice President - Sales and Marketing has been with
Dynasil Corporation since January 1999. He was previously with the Company for
14 years prior to 1993 when he left for a position as a development officer with
the University of Pennsylvania.
13
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Securities Long-
Name and Annual Restricted Underlying Term All other
Principle Compen- Stock Options Incentive compen-
Position Year Salary ($) Bonus ($) sation ($) Awards ($) ($) Plans ($) sation ($)
- --------- ---- ---------- --------- ---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles J. 1999 122,703
Searock, 1998 124,797
President, 1997 88,054 16,250
CEO
John 1999 83,339 2,625
Kane, 1998 88,289 1,118 6,000
Secretary, 1997 57,212 624 13,500
Treasurer,
CFO
Bruce 1999 65,042
Leonetti,
VP
</TABLE>
Employment Agreements
We have entered into an employment agreement with Charles J. Searock, Jr.,
Chief Executive Officer and President, which commenced on December 1, 1996 and
will continue for a three-year period, after which the agreement will
automatically renew for one-year terms, unless terminated by either party upon
ninety days written notice prior to the end of any term, or for cause. Under the
employment agreement, Mr. Searock has agreed to work for us full time, and
receives an annual base salary of $125,000, to be adjusted upwards or downwards
based on our profit and loss. Mr. Searock's agreement also provides for an
annual bonus at the discretion of our Board of Directors. The agreement also
provides for a 401(k) pension plan, health insurance benefits and contains
three-year non-competition provisions that prohibit him from competing with us.
In addition, the agreement provides that if Mr. Searock is terminated without
cause, he will receive a severance consideration of one year's salary.
We have also entered into an employment agreement with John Kane, Chief
Financial Officer, Secretary and Treasurer, which commenced on January 20, 1997
and will continue for a three-year
14
<PAGE>
period, after which the agreement will automatically renew for one-year terms,
unless terminated by either party upon ninety days written notice prior to the
end of any term, or for cause. Under the employment agreement, Mr. Kane has
agreed to work for us full time, and receives an annual base salary of $85,000,
to be reviewed no less than annually. Mr. Kane's agreement also provides for an
annual bonus at the discretion of our Board of Directors. The agreement also
provides for a 401(k) pension plan, health insurance benefits and contains
eighteen month non-competition provisions that prohibit him from competing with
us.
We have also entered into an employment agreement with Bruce Leonetti, Vice
President of Marketing and Sales, which commenced on January 1, 1999 and will
continue for a three-year period, unless terminated for cause. Under the
employment agreement, Mr. Leonetti has agreed to work for us full time, and
receives an annual base salary of $89,000, with commissions based on the gross
dollar amount of product shipped. Mr. Leonetti's agreement also provides for an
annual bonus at the discretion of our Board of Directors. The agreements also
provide for a 401(k) pension plan, health insurance benefits and contain twenty
four month non-competition provisions that prohibit him from competing with us.
In addition, the agreement provides that if Mr. Leonetti is terminated without
cause, he will receive a severance consideration of three months' salary.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company paid consulting fees to Robert E. Hibshman, Jr. in the amount
of $38,140 during 1998 and $93,173 during 1997. Mr. Hibshman was President of
Dynasil until December 1, 1996, and Chief Executive Officer until January 1998
when he became Chairman of the Board of Directors of Dynasil, a position which
he maintained until January 1999. During 1997 and 1998, Mr. Hibshman was paid as
a consultant, advising the Company on marketing expansion activities. Mr.
Hibshman was active in the unsuccessful attempt to find an outside buyer for
Hibshman Corporation, but was not involved in the sale of Hibshman Corporation's
assets to Gary Edmonson and Patricia Catron, except to vouch for their technical
expertise and business acumen in connection with Dynasil's decision to accept a
promissory note from such individuals in payment of the purchase price.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 25,000,000 shares
of common stock, par value $.0005 per share ("Common Stock").
Common Stock
Holders of shares of Common Stock of the Company are entitled to cast one
vote for each share held at all shareholders meetings for all purposes,
including the election of directors, and to share equally on a per share basis
in such dividends as may be declared by the Board of Directors out of funds
legally available. Upon liquidation or dissolution, each outstanding share of
Common Stock
15
<PAGE>
will be entitled to share equally in the assets of the Company legally available
for distribution to shareholders after the payment of all debts and other
liabilities. Shares of Common Stock are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe to or purchase
additional shares in the event of a subsequent offering. All outstanding shares
of Common Stock are and will be fully paid and non-assessable, when issued.
Non-Cumulative Voting
The Common Stock does not have cumulative voting rights which means that
the holders of more than fifty percent of the Common Stock voting for election
of directors can elect one hundred percent of the directors of the Company if
they choose to do so.
Dividends
There are no limitations or restrictions upon the right of the Board of
Directors to declare dividends out of any funds legally available
Effect of anti-takeover effects of New Jersey Shareholders Protection Act
The Company is subject to the provisions of the New Jersey Shareholders
Protection Act. The New Jersey Shareholders Protection Act provides that "no
resident domestic corporation shall engage in any business combination with any
interested stockholder of that resident domestic corporation for a period of
five years following that interested stockholder's stock acquisition date unless
that business combination is approved by the board of directors of that resident
domestic corporation prior to that interested stockholder's stock acquisition
date."
16
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
The Registrant's Common Stock is traded on the Over the Counter Bulletin
Board (BBOTC:DYSL). The symbol for the Company's Common Stock is "DYSL". The
Company's Common Stock has been traded publicly since April 22, 1981. The "high"
and "low" bid quotations for the Company's Common Stock for each quarterly
period for the fiscal years ended September 30, 1997, September 30, 1998 and
September 30, 1999 were as follows:
Fiscal Quarter High Bid Price Low Bid Price
-------------- -------------- -------------
1997
First $5.50 $3.25
Second 5.50 3.75
Third 3.75 3.25
Fourth 4.25 3.25
1998
First $5.25 $2.875
Second 6.00 3.375
Third 4.00 2.00
Fourth 3.00 2.00
1999
First $2.00 $0.875
Second 1.50 1.00
Third 1.375 0.75
Fourth 1.125 0.625
The above listed quotes reflect inter-dealer prices without retail mark-up,
mark-down, or commissions and are not necessarily representations of actual
transactions or the true value of the Common Stock.
As of September 30, 1998, there were 2,947,649 shares of common stock
outstanding held by approximately 256 holders of record of the Common Stock of
the Company (plus a small number of additional shareholders whose stock is held
in street name and who have declined disclosure of such information).
At June 30,1999, 497,723 shares of common stock were reserved for issuance
under the Stock Incentive Plans. Options granted under the Plans are generally
exercisable over a five year period.
17
<PAGE>
To date, options have been granted at exercise prices ranging from $1.00 to
$3.52 per share. At June 30, 1999, 113,277 options were outstanding.
Of the 2,344,944 outstanding shares, there are 226,497 shares that could be
sold pursuant to Rule 144 of the Securities Act of 1933, as amended.
The Company has paid no cash dividends since its inception. The Company
presently intends to retain any future earnings for use in its business and does
not presently intend to pay cash dividends in the foreseeable future. Holders of
the Common stock are entitled to share ratably in dividends when and as declared
by the Board of Directors out of funds legally available therefor.
ITEM 2. LEGAL PROCEEDINGS
No material legal proceedings to which the Company or any of its property
is subject are pending, nor to the knowledge of the Company are any such legal
proceedings threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In May 1996, the Company granted to Robert E. Hibshman, Sr. (the father of
the then-President, CEO and Chairman of the Board of the Company), under a
Consulting Agreement in which Mr. Hibshman was engaged to provide financial
advisory services, including participation with Dynasil in the development of a
business plan, introduction to public relations firms, general advice in
assisting the Company to more effectively utilize its resources and liquid
assets, and other consulting services of similar nature, an option to purchase
shares of the Company's common stock up to a total of 20,000 shares. The option
was exercisable through May 1998 at an exercise price of $3.50 per share. In
September 1996, such option was exercised in its entirety for a total purchase
price of $70,000. In accordance with the option agreement, such shares were
issued pursuant to Rule 701 of the Securities Act of 1933, as amended, as
restricted securities. The Company's records indicate that Mr. Hibshman still
retains ownership of such shares.
In June 1996, the Company granted to Charles J. Searock, Jr. (who was at
that time a consultant to the Company prior to becoming its President and CEO),
under a Consulting Agreement in which Gen. Searock was engaged as a business
developer to provide advisory services, including participation with Dynasil in
the development of a business plan, introduction to public relations firms,
general advice in assisting the Company to obtain business contacts and long
term relations with the "military/industrial complex", an option to purchase
shares of the Company's common stock up to a total of 5,000 shares. The option
was exercisable through June 1997 at an exercise price of $3.00
18
<PAGE>
per share. In June 1996, such option was exercised in its entirety for a total
purchase price of $15,000. In accordance with the option agreement, such shares
were issued pursuant to Rule 701 of the Securities Act of 1933, as amended, as
restricted securities. The Company's records indicate that Gen. Searock still
retains ownership of such shares.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of the Company provide that every person who is or was a
director or officer, employee or agent of the Company, or any person who serves
or has served in any capacity with any other enterprise at the request of the
Company, shall be indemnified by the Company to the fullest extent permitted by
law. The Company shall indemnify the persons listed above against all expenses
and liabilities reasonably incurred by or imposed on them in connection with any
proceedings to which they have been or may be made parties, or any proceedings
in which they may have become involved by reason of being or having been a
director or officer of the Company, or by reason of serving or having served
another enterprise at the request of the Company, whether or not in the
capacities of directors or officers of the Company at the time the expenses or
liabilities are incurred.
New Jersey has enacted the following statutory indemnification provisions:
NJSA 14A:3-5. Indemnification of directors, officers and employees -
(1) As used in this section,
(a) "Corporate agent" means any person who is or was a director, officer,
employee or agent of the indemnifying corporation or of any constituent
corporation absorbed by the indemnifying corporation in a consolidation or
merger and any person who is or was a director, officer, trustee, employee or
agent of any other enterprise, serving as such at the request of the
indemnifying corporation, or of any such constituent corporation, or the legal
representative of any such director, officer, trustee, employee or agent;
(b) "Other enterprise" means any domestic or foreign corporation, other
than the indemnifying corporation, and any partnership, joint venture, sole
proprietorship, trust or other enterprise, whether or not for profit, served by
a corporate agent;
(c) "Expenses" means reasonable costs, disbursements and counsel fees;
(d) "Liabilities" means amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties;
(e) "Proceeding" means any pending, threatened or completed civil,
criminal, administrative or arbitrative action, suit or proceeding, and any
appeal therein and any inquiry or investigation which could lead to such action,
suit or proceeding; and
19
<PAGE>
(f) References to "other enterprises" include employee benefit plans;
references to "fines" include any excise taxes assessed on a person with respect
to an employee benefit plan; and references to "serving at the request of the
indemnifying corporation" include any service as a corporate agent which imposes
duties on, or involves services by, the corporate agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner the person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(2) Any corporation organized for any purpose under any general or special
law of this State shall have the power to indemnify a corporate agent against
his expenses and liabilities in connection with any proceeding involving the
corporate agent by reason of his being or having been such a corporate agent,
other than a proceeding by or in the right of the corporation, if
(a) such corporate agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation; and
(b) with respect to any criminal proceeding, such corporate agent had no
reasonable cause to believe his conduct was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not of itself create a presumption that such
corporate agent did not meet the applicable standards of conduct set forth in
paragraphs 14A:3-5(2)(a) and 14A:3-5(2)(b).
(3) Any corporation organized for any purpose under any general or special
law of this State shall have the power to indemnify a corporate agent against
his expenses in connection with any proceeding by or in the right of the
corporation to procure a judgment in its favor which involves the corporate
agent by reason of his being or having been such corporate agent, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation. However, in such proceeding no
indemnification shall be provided in respect of any claim, issue or matter as to
which such corporate agent shall have been adjudged to be liable to the
corporation, unless and only to the extent that the Superior Court or the court
in which such proceeding was brought shall determine upon application that
despite the adjudication of liability, but in view of all circumstances of the
case, such corporate agent is fairly and reasonably entitled to indemnity for
such expenses as the Superior Court or such other court shall deem proper.
(4) Any corporation organized for any purpose under any general or special
law of this State shall indemnify a corporate agent against expenses to the
extent that such corporate agent has been successful on the merits or otherwise
in any proceeding referred to in subsections 14A:3-5(2) and 14A:3-5(3) or in
defense of any claim, issue or matter therein.
(5) Any indemnification under subsection 14A:3-5(2) and, unless ordered by
a court, under subsection 14A:3-5(3) may be made by the corporation only as
authorized in a specific case upon a determination that indemnification is
proper in the circumstances because the corporate agent met
20
<PAGE>
the applicable standard of conduct set forth in subsection 14A:3-5(2) or
subsection 14A:3-5(3). Unless otherwise provided in the certificate of
incorporation or bylaws, such determination shall be made
(a) by the board of directors or a committee thereof, acting by a majority
vote of a quorum consisting of directors who were not parties to or otherwise
involved in the proceeding; or
(b) if such a quorum is not obtainable, or, even if obtainable and such
quorum of the board of directors or committee by a majority vote of the
disinterested directors so directs, by independent legal counsel, in a written
opinion, such counsel to be designated by the board of directors; or
(c) by the shareholders if the certificate of incorporation or bylaws or a
resolution of the board of directors or of the shareholders so directs.
(6) Expenses incurred by a corporate agent in connection with a proceeding
may be paid by the corporation in advance of the final disposition of the
proceeding as authorized by the board of directors upon receipt of an
undertaking by or on behalf of the corporate agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified as
provided in this section.
(7) (a) If a corporation upon application of a corporate agent has failed
or refused to provide indemnification as required under subsection 14A:3-5(4) or
permitted under subsections 14A:3-5(2), 14A:3-5(3) and 14A:3-5(6), a corporate
agent may apply to a court for an award of indemnification by the corporation,
and such court
(i) may award indemnification to the extent authorized under subsections
14A:3-5(2) and 14A:3-5(3) and shall award indemnification to the extent required
under subsection 14A:3-5(4), notwithstanding any contrary determination which
may have been made under subsection 14A:3-5(5); and
(ii) may allow reasonable expenses to the extent authorized by, and subject
to the provisions of, subsection 14A:3-5(6), if the court shall find that the
corporate agent has by his pleadings or during the course of the proceeding
raised genuine issues of fact or law.
(b) Application for such indemnification may be made
(i) in the civil action in which the expenses were or are to be incurred or
other amounts were or are to be paid; or
(ii) to the Superior Court in a separate proceeding. If the application is
for indemnification arising out of a civil action, it shall set forth reasonable
cause for the failure to make application for such relief in the action or
proceeding in which the expenses were or are to be incurred or other amounts
were or are to be paid.
21
<PAGE>
The application shall set forth the disposition of any previous application
for indemnification and shall be made in such manner and form as may be required
by the applicable rules of court or, in the absence thereof, by direction of the
court to which it is made. Such application shall be upon notice to the
corporation. The court may also direct that notice shall be given at the expense
of the corporation to the shareholders and such other persons as it may
designate in such manner as it may require.
(8) The indemnification and advancement of expenses provided by or granted
pursuant to the other subsections of this section shall not exclude any other
rights, including the right to be indemnified against liabilities and expenses
incurred in proceedings by or in the right of the corporation, to which a
corporate agent may be entitled under a certificate of incorporation, bylaw,
agreement, vote of shareholders, or otherwise; provided that no indemnification
shall be made to or on behalf of a corporate agent if a judgment or other final
adjudication adverse to the corporate agent establishes that his acts or
omissions (a) were in breach of his duty of loyalty to the corporation or its
shareholders, as defined in subsection (3) of > N.J.S.14A:2-7, (b) were not in
good faith or involved a knowing violation of law or (c) resulted in receipt by
the corporate agent of an improper personal benefit.
(9) Any corporation organized for any purpose under any general or special
law of this State shall have the power to purchase and maintain insurance on
behalf of any corporate agent against any expenses incurred in any proceeding
and any liabilities asserted against him by reason of his being or having been a
corporate agent, whether or not the corporation would have the power to
indemnify him against such expenses and liabilities under the provisions of this
section. The corporation may purchase such insurance from, or such insurance may
be reinsured in whole or in part by, an insurer owned by or otherwise affiliated
with the corporation, whether or not such insurer does business with other
insureds.
(10) The powers granted by this section may be exercised by the
corporation, notwithstanding the absence of any provision in its certificate of
incorporation or bylaws authorizing the exercise of such powers.
(11) Except as required by subsection 14A:3-5(4), no indemnification shall
be made or expenses advanced by a corporation under this section, and none shall
be ordered by a court, if such action would be inconsistent with a provision of
the certificate of incorporation, a bylaw, a resolution of the board of
directors or of the shareholders, an agreement or other proper corporate action,
in effect at the time of the accrual of the alleged cause of action asserted in
the proceeding, which prohibits, limits or otherwise conditions the exercise of
indemnification powers by the corporation or the rights of indemnification to
which a corporate agent may be entitled.
(12) This section does not limit a corporation's power to pay or reimburse
expenses incurred by a corporate agent in connection with the corporate agent's
appearance as a witness in a proceeding at a time when the corporate agent has
not been made a party to the proceeding.
22
<PAGE>
Forward-Looking Statements
Certain statements made in this Form 10-SB are "forward looking
statements". Without limiting the generality of the foregoing, such information
can be identified by the use of forward-looking terminology such as
"anticipate", "will", "would", "expect", "intend", "plans to" or "believes", or
other variations thereon, or comparable terminology. Actual results, performance
or developments may differ materially from those expressed or implied by such
forward-looking statements as a result of market uncertainties or industry
factors. Some important factors that may cause actual results that differ
materially from those in any forward-looking statements may include the
availability of financing in the time frame required, market acceptance of the
Company's products and services, competitive pressures, and the ability to
attract and retain key executive sales and management personnel. The Company
disclaims any obligation or responsibility to update any such forward-looking
statements.
23
<PAGE>
PART F/S
24
<PAGE>
DYNASIL CORPORATION OF
AMERICA AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
TABLE OF CONTENTS
Page
----
Independent Auditors' Report 1
Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 20
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Dynasil Corporation of America and Subsidiaries
Berlin, New Jersey
We have audited the accompanying consolidated balance sheets of DYNASIL
CORPORATION OF AMERICA AND SUBSIDIARIES as of September 30, 1998 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DYNASIL
CORPORATION OF AMERICA AND SUBSIDIARIES as of September 30, 1998 and 1997 and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
HAEFELE, FLANAGAN & CO., p.c.
Moorestown, New Jersey
November 16, 1998
1
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 45,980 $ 16,075
Accounts receivable, net of allowance for doubtful
accounts of $10,883 for 1998 and 1997 345,176 598,926
Note receivable 0 221,667
Inventories 1,278,334 873,889
Prepaid expenses and other current assets 42,160 41,015
Net current assets of discontinued operations 0 21,952
---------- ----------
Total current assets 1,711,650 1,773,524
Property, Plant and Equipment, net 2,390,988 2,261,968
Other Assets 25,947 50,058
---------- ----------
Total Assets $4,128,585 $4,085,550
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current Liabilities
Note payable to bank $ 0 $ 200,000
Current portion of long-term debt 137,414 432,773
Accounts payable 226,560 511,578
Accrued expenses 122,115 230,355
---------- ----------
Total current liabilities 486,089 1,374,706
Long-term Debt, net 1,882,515 1,384,908
Stockholders' Equity
Common Stock, $.0005 par value, 25,000,000 shares
authorized, 2,947,649 and 2,821,213 shares issued
for 1998 and 1997, respectively 1,474 1,411
Additional paid in capital 1,028,197 831,083
Retained earnings 1,689,613 1,458,831
---------- ----------
2,719,284 2,291,325
Less unearned compensation 0 (6,086)
Less 640,624 shares of treasury stock, at cost (959,303) (959,303)
---------- ----------
Total stockholders' equity 1,759,981 1,325,936
---------- ----------
Total Liabilities and Stockholders' Equity $4,128,585 $4,085,550
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net sales $3,981,395 $3,931,108
Cost of sales 2,711,148 2,338,738
---------- ----------
Gross profit 1,270,247 1,592,370
Selling, general and administrative 874,962 952,977
---------- ----------
Income from continuing operations 395,285 639,393
Other income (expense)
Interest expense (188,150) (108,536)
Other income (expense), net 23,647 (1,173)
---------- ----------
(164,503) (109,709)
---------- ----------
Income from continuing operations
before provision for income taxes 230,782 529,684
Provision for income taxes 0 0
---------- ----------
Income from continuing operations 230,782 529,684
---------- ----------
Discontinued operations
Loss from discontinued operations, net of tax 0 (229,269)
Loss on disposal of subsidiary, including provision of
$30,000 for operating losses during phase out
period in 1997, net of tax 0 (224,453)
---------- ----------
Net loss from discontinued operations 0 (453,722)
---------- ----------
Net income $ 230,782 $ 75,962
========== ==========
Basic net income per share
From continuing operations $ 0.10 $ 0.24
From discontinued operations 0 (0.11)
On disposal of discontinued operations 0 (0.10)
---------- ----------
Net income $ 0.10 $ 0.03
========== ==========
Diluted net income per share
From continuing operations $ 0.10 $ 0.23
From discontinued operations 0 (0.10)
On disposal of discontinued operations 0 (0.10)
---------- ----------
Net income $ 0.10 $ 0.03
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Additional
Paid-in Retained Unearned
Shares Amount Capital Earnings Compensation
--------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, October 1 , 1996 1,404,356 $1,404 $ 788,837 $1,382,869 $ 0
2 for 1 stock split 1,404,356 0 0 0 0
Issuance of shares of common stock upon
exercise of stock options 3,000 1 8,999 0 0
Issuance of shares of common stock upon
exercise of stock warrants 250 1 749 0 0
Issuance of shares of common stock under
employee stock purchase plan 1,251 1 2,752 0 0
Issuance of shares of common stock under
employee stock compensation 8,000 4 29,746 0 (29,750)
Compensation expense 0 0 0 0 23,664
Net income 0 0 0 75,962 0
--------- ----- ------- --------- ------
Balance, September 30, 1997 2,821,213 1,411 831,083 1,458,831 (6,086)
Issuance of shares of common stock upon
exercise of stock options 116,000 58 177,552 0 0
Issuance of shares of common stock under
employee stock purchase plan 6,936 3 11,691 0 0
Issuance of shares of common stock under
stock bonus 500 0 1,873 0 0
Issuance of shares of common stock under
employee stock compensation 3,000 2 5,998 0 0
Compensation expense 0 0 0 0 6,086
Net Income 0 0 0 230,782 0
Balance, September 30, 1998 2,947,649 $1,474 $1,028,197 $1,689,613 $ 0
========= ====== ========== ========== ========
<CAPTION>
Treasury Stock Total
----------------------- Stockholders'
Shares Amount Equity
------- ---------- -------------
<S> <C> <C> <C>
Balance, October 1 , 1996 320,312 $(959,303) $1,213,807
2 for 1 stock split 320,312 0 0
Issuance of shares of common stock upon
exercise of stock options 0 0 9,000
Issuance of shares of common stock upon
exercise of stock warrants 0 0 750
Issuance of shares of common stock under
employee stock purchase plan 0 0 2,753
Issuance of shares of common stock under
employee stock compensation 0 0 0
Compensation expense 0 0 23,664
Net income 0 0 75,962
------- -------- ---------
Balance, September 30, 1997 640,624 (959,303) 1,325,936
Issuance of shares of common stock upon
exercise of stock options 0 0 177,610
Issuance of shares of common stock under
employee stock purchase plan 0 0 11,694
Issuance of shares of common stock under
stock bonus 0 0 1,873
Issuance of shares of common stock under
employee stock compensation 0 0 6,000
Compensation expense 0 0 6,086
Net Income 0 0 230,782
Balance, September 30, 1998 640,624 $(959,303) $1,759,981
======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 230,782 $ 75,962
Adjustments to reconcile net income to net cash
provided by continuing operations
Loss from discontinued operations 0 453,722
Stock compensation expense 13,959 23,664
Depreciation and amortization 349,469 243,674
Allowance for doubtful accounts 0 (19,117)
(Increase) decrease in:
Accounts receivable 253,750 (160,041)
Inventories (404,445) (177,353)
Prepaid expenses and other current assets (1,145) (6,688)
Increase (decrease) in:
Accounts payable (285,018) 230,158
Accrued expenses (108,240) 119,366
--------- -----------
Net cash provided by continuing operations 49,112 783,347
--------- -----------
Net cash provided by (used) in discontinued operations 21,952 (234,377)
--------- -----------
Net cash provided by operating activities 71,064 548,970
--------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (317,857) (1,331,434)
Increase in other assets (5,406) (38,182)
(Increase) decrease in note receivable 221,667 (21,667)
--------- -----------
Net cash used in investing activities (101,596) (1,391,283)
--------- -----------
Cash flows from financing activities:
Proceeds from (repayment of) note payable
to bank, net (200,000) 175,000
Repayment of long term debt (214,583) (383,482)
Proceeds from long term debt 285,716 950,000
Issuance of common stock 189,304 12,503
--------- -----------
Net cash provided by financing activities 60,437 754,021
--------- -----------
Net increase (decrease) in cash and cash equivalents 29,905 (88,292)
Cash and cash equivalents, beginning 16,075 104,367
--------- -----------
Cash and cash equivalents, ending $ 45,980 $ 16,075
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 1 - Summary of Significant Accounting Policies
Nature of Continuing Operations
The Company is primarily engaged in the manufacturing and marketing of
customized fused silica products. The Company's products and services are used
in the optical lens and laser manufacturing industries, as well as in the
medical industry. Other applications include usage in the manufacturing of
analytical instruments and semi-conductors. The Company also serves as a
sub-contractor to the defense industry.
The Company's products and services are provided primarily in the United
States with some international activity.
Nature of Discontinued Operations
On September 30, 1997, the Company sold substantially all of the assets of
its wholly owned subsidiary, Hibshman Corporation. Hibshman Corporation provided
the value added service of shaping and super-polishing materials to customer
specifications through the use of miniature optics and custom micro-machining
primarily within the United States. The operating results of Hibshman
Corporation for the year ended September 30, 1997 have been treated as
discontinued operations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Dynasil Corporation of America and its wholly-owned subsidiaries, Dynasil
International Incorporated and Hibshman Corporation. All significant
intercompany transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenues as the product is shipped. Returns of
products shipped have historically been minimal.
6
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 1 - Summary of Significant Accounting Policies (continued)
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 impairment as required.
Property, Plant and Equipment and Depreciation and Amortization
Property, plant and equipment are recorded at cost. Depreciation is
provided using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes over the estimated useful lives of
the respective assets. The estimated useful lives of the assets for financial
reporting purposes are as follows: building and improvements, 10 to 25 years;
machinery and equipment, 5 to10 years; office furniture and fixtures, 5 to 7
years; transportation equipment, 5 years. Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized. When items
of property, plant and equipment are sold or retired, the related costs and
accumulated depreciation are removed from the accounts and any gain or loss is
included in income.
Other Assets
Other assets include deferred financing costs which are amortized using the
straight-line method over 7 years. Amortization expense for the years ended
September 30, 1998 and 1997 was $29,517 and $6,465.
Unearned Compensation
Compensation resulting from shares granted under the Company's employment
contracts is recognized based on the market value of the shares on the date of
grant. Initially the total market value of the shares is treated as unearned
compensation and then charged to expense over the respective term of the
contract. On December 1, 1996, 5000 shares were issued with a value of $3.25 per
share. On January 20, 1997, 3000 shares were issued with a value of $4.50 per
share. For the year ended September 30, 1997, $29,750 was initially recorded as
unearned compensation.
Advertising
The Company expenses all advertising as incurred. Advertising expense from
continuing operations for the years ended September 30, 1998 and 1997 was
$78,959 and $89,450.
7
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 1 - Summary of Significant Accounting Policies (continued)
Income Taxes
Dynasil Corporation of America and its wholly-owned subsidiaries file a
consolidated federal income tax return.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under the liability method prescribed by SFAS No. 109, a deferred tax asset or
liability is determined based on the differences between the financial statement
and tax basis of assets and liabilities as measured by the enacted tax rates
which will be in effect when these differences reverse. Tax credits are recorded
as a reduction in income taxes. Valuation allowances are provided if, it is more
likely than not, that some or all of the deferred tax assets will not be
realized.
Net Income Per Share
The Company has adopted SFAS No. 128, "Earnings per Share", effective
October 1, 1997. SFAS No. 128, which simplifies the standards for computing and
presenting earnings per share, replaces the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options and warrants. Diluted earnings per share is very
similar to the previously reported primary earnings per share. Accordingly, net
earnings per share for all periods presented have been restated to conform to
the new standard.
Basic net earnings per share is computed using the weighted average number
of common shares outstanding. The dilutive effect of potential common shares
outstanding are included in diluted net earnings per share. The computations of
basic and diluted net earnings per share are as follows:
1998 1997
---------- ----------
Net income from continuing operations $ 230,782 $ 529,684
========== ==========
Basic weighted average shares 2,240,005 2,175,624
Effect of dilutive securities:
Common stock options 113,556 130,157
Common stock warrants -0- 4,114
---------- ----------
Dilutive potential common shares 2,353,561 2,309,895
========== ==========
8
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 1 - Summary of Significant Accounting Policies (continued)
Net Income Per Share (continued)
1998 1997
---------- ----------
Net income per share from continuing operations
Basic $ .10 $ .24
Diluted $ .10 $ .23
Diluted net earnings per share excludes the impact of common stock warrants
of 1,892 for 1998 because the option's exercise prices were greater than the
average market price of the common shares and therefore, the effect would be
antidilutive.
Long-Lived Assets
On October 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" which establishes standards for the
impairment of long-lived assets and certain identifiable intangibles. The
Company's policy is to record long-lived assets at cost, amortizing these costs
over the expected useful lives of related assets. Measurement of an impairment
loss for long-lived assets and certain identifiable intangibles to be disposed
of are to be reported generally at the lower of the carrying cost amount or fair
value less cost to sell. Under the provisions of this statement, the Company has
evaluated its long-lived assets for financial impairment, and will continue to
evaluate them as events or changes in circumstances indicate that the carrying
amount of such assets may not be fully recoverable.
The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. At the time such
evaluations indicate that the future undiscounted cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their fair values. Based on these
evaluations, there were no adjustments to the carrying value of long-lived
assets for the year ended September 30, 1999 or 1998.
Stock Based Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees" to account for its stock options
using the intrinsic value method. Under APB No. 25, compensation cost for stock
options, if any, is measured as the excess of the quoted market price of the
Company's stock at the date of grant over the cost to acquire the stock.
9
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 1 - Summary of Significant Accounting Policies (continued)
Stock Based Compensation (continued)
Accordingly, no compensation cost has been recognized in the financial
statements since the options were granted at the quoted market price on the date
of grant. SFAS No. 123 requires companies using the intrinsic value method to
make certain proforma disclosures using the fair value method. Additional
disclosures are included in Note 9.
Fair Value
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable, and debt. The carrying
amounts of cash and cash equivalents, accounts receivable, and accounts payable
approximate fair value due to the short maturity of these instruments. Based on
borrowing rates currently available to the Company for bank loans with similar
terms and maturities, the Company's debt approximates its fair value.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company has not experienced any significant losses on
its cash and cash equivalents. The Company performs ongoing credit evaluations
of its customers and generally requires no collateral from its customers. The
Company maintains allowances for potential credit losses and has not experienced
any significant losses related to the collection of its accounts receivable.
New Accounting Pronouncement
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a balance
sheet, and is effective for fiscal years beginning after December 15, 1997.
Management does not believe this statement will have a material impact on the
Company's financial statements.
Statement of Cash Flows
For the purpose of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.
Reclassifications
Certain items in the 1997 financial statements have been reclassified to
conform with the 1998 financial statement presentation.
10
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 2 - Discontinued Operations
On September 30, 1997, the Company sold substantially all of the assets of
its wholly-owned subsidiary, Hibshman Corporation, to two individuals. As
consideration for the sale, the Company received a note receivable of $200,000
which was collected during the year ended September 30, 1998. The sale resulted
in a loss of $194,453. Hibshman Corporation recorded sales of $402,591 in 1997.
No income tax expense or benefits were recognized due to the Company's net
operating loss carryforwards.
The components of the net assets of discontinued operations included in the
consolidated balance sheet as of September 30, 1997 are as follows:
Current assets
Cash and cash equivalents $ 32,234
Accounts receivable 70,855
Prepaid expenses and other current assets 10,150
Less current liabilities
Accounts payable (49,697)
Accrued expenses 41,590)
--------
Net current assets Net current assets $ 21,952
========
Note 3 - Notes Receivable
Notes receivable as of September 30, 1998 and 1997 consists of the
following:
1998 1997
------ --------
Note receivable from officer with interest
at the prime rate plus 1%, (9.5% at
September 30, 1997), due on demand,
Unsecured, collected in 1998 $ -0- $ 21,667
Note receivable from two individuals,
non Interest bearing, secured by assets of
Discontinued operations sold, collected
In 1998 (See Note 2) -0- 200,000
------- --------
$ -0- $221,667
======= ========
Interest income of $1,667 for the year ended September 30, 1997 was added
to the balance of the note.
11
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 4 - Inventories
Inventories at September 30, 1998 and 1997 consisted of the following:
1998 1997
---------- --------
Raw Materials $ 43,658 $ 40,163
Work-in-Process 1,088,569 716,180
Finished Goods 146,107 117,546
---------- --------
$1,278,334 $873,889
========== ========
Note 5 - Property, Plant and Equipment
Property, plant and equipment at September 30, 1998 and 1997 consist of the
following:
1998 1997
---------- ----------
Land $ 261 $ 261
Building and improvements 2,449,751 1,985,821
Construction in progress 57,911 229,633
Machinery and equipment 2,762,167 2,607,539
Office furniture and fixtures 219,442 217,306
Transportation equipment 65,931 65,931
---------- ----------
5,555,463 5,106,491
Less accumulated depreciation 3,164,475 2,844,523
---------- ----------
$2,390,988 $2,261,968
========== ==========
Included in the cost of machinery and equipment is $190,744 and $54,629
at September 30, 1998 and 1997 representing the cost of assets under capitalized
lease obligations. Accumulated depreciation at September 30, 1998 and 1997 for
the capitalized leases was $14,561 and $6,829.
Depreciation expense charged to continuing operations for the years ended
September 30, 1998 and 1997 was $319,952 and $237,209.
The Company capitalized interest of $10,874 and $37,788 during the years
ended September 30, 1998 and 1997 related to qualifying assets under
construction. Total interest incurred, including amounts capitalized during the
same periods, were $199,024 in 1998 and $148,056 in 1997.
12
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 6 - Note Payable to Bank
During July 1998, management completed negotiations with Premier Bank to
consolidate all bank debt. In addition to the note described in Note 7 -
Long-term Debt for $1,292,778, the Company secured a $300,000 line of credit
agreement. The Note is due on demand with interest at the bank's base rate plus
1% (9.5% at September 30, 1998). At September 30, 1998, the Company has not
drawn on the line.
Note payable to bank at September 30, 1997 was provided under a $350,000
line of credit agreement with First Union National Bank and was due on demand
with interest at the bank's prime rate plus 1% (9.5% at September 30, 1997). The
note was secured by substantially all assets of the Company. The line of credit
agreement was repaid in 1998. The Agreements with First Union National Bank were
cross-collateralized and contained customary financial covenants. See Note 7.
Note 7 - Long-Term Debt
Long-term Debt at September 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Subordinated debentures bearing interest at 10%
per annum payable semiannually, due June 1,
1998, unsecured, repaid in 1998 $ -0- $ 72,400
Subordinated debenutures bearing interest at 10%
per annum payable semiannually, due June 1,
2002, unsecured 218,100 218,100
Subordinated debenuture bearing interest at 12%
per annum payable semiannually, due
December 1, 2001, unsecured 350,350 350,350
Note payable to bank in monthly
installments of $16,429 plus interest at the
bank's base rate plus 1.5% (10.00% at
September 30, 1997), due May 2000, secured
by accounts receivable, Inventory, equipment,
and general intangibles of the Company and
was cross-collateralized (See Note 6).
Refinanced in 1998 -0- 509,284
Mortgage note payable to bank in monthly
Installments of $6,667 plus interest at
the bank's prime rate (9.50% at
September 30, 1997), due July 2001,
secured by first mortgage on Berlin,
New Jersey property. Refinanced in 1998. -0- 306,667
</TABLE>
13
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 7 - Long-Term Debt (continued)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Mortgage note payable to bank in monthly
Installments of $1,667 plus interest at the
bank's prime rate (9.50% at September 30, 1997),
due August 2007, secured by second mortgage on
Berlin, New Jersey property. Refinanced in 1998. -0- 198,333
Note payable to bank in monthly installments of
$7,222 plus interest at the bank's base rate
plus 1.0% (9.50% at September 30, 1998), with
the final payment of $700,556 due August 2005,
secured by first mortgage on Berlin, New Jersey
property and all accounts receivable, inventory,
equipment, and general intangibles of the Company. 1,292,778 -0-
Note payable to bank in monthly installments of
$4,426 plus interest at the bank's base rate
plus 1.5% (10.00% at September 30, 1997), due
May 2000, secured by accounts receivable,
inventory, equipment, and general intangibles of
Hibshman Corporation and cross-Collateralized
by Dynasil Corporation (See Note 6). Repaid in
1998. -0- 119,496
Capital lease obligations payable in total monthly
Installments of $5,415 in 1998 and $1,215 in
1997, including interest rates of 9.5% and 12%,
Due July 2001, secured by equipment. 158,701 43,051
---------- ----------
2,019,929 1,817,681
Less current portion (137,414) (432,773)
---------- ----------
$1,882,515 $1,384,908
========== ==========
</TABLE>
The current portion includes $50,752 and $9,116 payable under capital lease
obligations at September 30, 1998 and 1997.
14
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 7 - Long-term Debt (continued)
The aggregate maturities of long-term debt, including capital lease
obligations, as of September 30, 1998 are as follows:
Capital lease Long-term
Total Obligations Debt
---------- ------------- ----------
September 30, 2000 $ 142,977 $ 56,310 $ 86,667
September 30, 2001 138,302 51,635 86,667
September 30, 2002 655,114 -0- 655,114
September 30, 2003 86,664 -0- 86,664
Thereafter 859,458 -0- 859,458
---------- -------- ----------
$1,882,515 $107,945 $1,774,570
========== ======== ==========
Subordinated Debenture Extension Agreement
On November 15, 1996, the maturity date of one Debenture in the amount of
$350,350 was extended to December 1, 2001. In consideration for the extension,
the Debenture holder is being paid an additional 2% interest on the unpaid
principal balance until December 1, 2001. In addition, the Debenture holder was
issued warrants to purchase 20,000 shares of the Company's common stock at an
exercise price of $4.00 per share, exercisable through June 1, 2002. See Note 9.
On April 15, 1997 the maturity date of certain Debentures in the amount of
$218,100 were extended to June 1, 2002. In consideration for the extension, the
Debenture holders were issued warrants to purchase 6,700 shares of the Company's
common stock at an exercise price of $3.00 per share, exercisable through June
1, 2002. See Note 9.
The value of the warrants were deemed immaterial at the date of issuance,
and therefore, did not require a reclassification from the value of the
debentures to stockholder's equity.
Note 8 - Income Taxes
The Company's provision for income taxes (benefit) for the years ended
September 30, 1998 and 1997 are as follows:
1998 1997
-------- --------
Current
Federal $ 39,300 $ 22,700
State 14,200 7,400
-------- --------
53,500 30,100
Deferred
Federal (39,300) (22,700)
State (14,200) (7,400)
-------- --------
$ -0- $ -0-
======== ========
15
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 8 - Income Taxes (continued)
The reasons for the difference between total tax expense and the amount
computed by applying the statutory federal income tax rates to income before
provision for income taxes at September 30, 1998 and 1997 are as follows:
1998 1997
-------- --------
Taxes at statutory rates applied to income
before provision for income taxes $ 63,100 $ 36,700
Increase (reduction) in tax resulting from:
Accounts receivable -0- (5,800)
Depreciation (22,600) (21,900)
Inventories 1,700 23,800
Vacation pay 1,000 (7,900)
State income taxes 10,300 5,200
Net operating loss carryforwards (53,500) (30,100)
-------- -------
$ -0- $ -0-
======== =======
Deferred income taxes (benefit) reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and the tax
effects of net operating losses that are available to offset future taxable
income. Significant components of the Company's deferred tax assets
(liabilities) at September 30, 1998 and 1997 are as follows:
1998 1997
--------- ---------
Inventories $ 70,100 $ 67,600
Vacation pay 8,500 7,200
Accounts receivable 4,300 4,300
Depreciation (141,600) (108,700)
Net operating loss carryforwards 211,600 292,500
Less valuation allowance (152,900) (262,900)
--------- ---------
$ -0- $ -0-
========= =========
A valuation allowance has been provided for those deferred tax assets which
management believes it is more likely than not that the tax benefit will not be
realized. At September 30, 1998, the Company has approximately $589,000 of net
operating loss carryforwards to offset future taxable income for federal tax
purposes expiring in various years through 2009. In addition, the Companies have
approximately $391,000 of net operating loss carryforwards to offset certain
future states' taxable income, expiring in various years through 2001.
16
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 9 - Stockholders' Equity
Common Stock
On October 16, 1996, the Board of Directors declared a two-for-one stock
split payable on November 1, 1996 to stockholders of record on October 1, 1996.
All share and per share data have been restated for all periods presented to
reflect the stock split.
Stock Option Plans
The Company has a Stock Incentive Plan which provides for, among other
incentives, granting to officers, directors, employees and consultants options
to purchase shares of the Company's common stock up to a total of 450,000
shares, restated to reflect the stock split. At September 30, 1998, 71,723
shares of common stock are available for future purchases under the plan.
Options are generally exercisable over a five year period and expire through
2002. During the years ended September 30, 1998 and 1997, 46,777 and 51,000
shares were granted with exercise prices ranging from $2.65 to $3.52 per share
and $3.00 to $4.00 per share, respectively. During the years ended September 30,
1998 and 1997, 116,000 shares and 3,000 shares were issued under the plan for
aggregate purchase prices of $117,552 and $9,000, respectively.
A summary of stock option activity for the years ended September 30, 1998
and 1997 is presented below:
Options outstanding at October 1, 1996 $ 105,000
2 for 1 stock split - October 1, 1996 105,000
Granted in 1997 51,000
Exercised in 1997 under consulting agreement at
$3.00 per share (3,000)
---------
Options outstanding at September 30, 1997 258,000
Granted in 1998 46,777
Exercised in 1998 at prices ranging from $1.00
to $3.52 (116,000)
---------
Options outstanding at September 30, 1998 $ 188,777
=========
Options exercisable at September 30, 1998 $ 188,777
=========
At September 30, 1998 and 1997, the Company had warrants outstanding to
purchase 20,000 shares and 6,450 shares of the Company's common stock at
exercise prices of $4.00 and $3.00 per share, exercisable through June 1, 2002.
17
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 9 - Stockholders' Equity (continued)
Stock Option Plans (continued)
During the year ended September 30, 1997, a warrant was exercised to
purchase 250 shares of the Company's common stock at $3.00 per share for a total
purchase price of $750.
Stock-Based Compensation Plans
The Company accounts for all plans under APB Opinion No. 25, under which no
compensation cost has been recognized since all options granted during 1998 and
1997 have been granted at the fair market value of the Company's common stock.
Had compensation cost for these plans been determined in accordance with SFAS
No. 123, the Company's net income and net income per common share would have
been reduced as follows:
1998 1997
-------- --------
Net income from continuing operations $169,504 $442,474
Net loss from discontinued operations -0- (453,722)
-------- --------
Net income (loss) $169,504 ($11,248)
======== ========
Basic net income (loss) per common share:
From continuing operations $ .07 $ .19
From discontinued operations -0- (.20)
-------- --------
Net income (loss) per common share $ .07 ($ .01)
======== ========
Under SFAS No. 123, the fair value of each option was estimated on the date
of grant using the Black Scholes option-pricing model. Based on the assumptions
presented below, the weighted average fair value of options granted was $1.31
and $1.71 per option in 1998 and 1997.
1998 1997
---- ----
Expected life of option in years 5.0 5.0
Risk-free interest rate 6.0% 6.5%
Expected volatility 87.5% 58.7%
Dividend yield 0.0% 0.0%
The effects of applying SFAS No. 123 for the purpose of providing pro forma
disclosures may not be indicative of the effects on reported net income and net
income per share for future years, as the pro forma disclosures include the
effects of only those awards granted after October 1, 1996.
18
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 9 - Stockholders' Equity (continued)
Employee Stock Purchase Plan
The Company also has an Employee Stock Purchase Plan which permits
substantially all employees to purchase common stock. Under the plan, a total of
150,000 shares have been reserved for issuance. Employees have the opportunity
to acquire common stock at a purchase price of 65% of the fair market value of
the shares. During any twelve month period, employees may not purchase more than
the number of shares for which the total purchase price exceeds $5,000. During
the years ended September 30, 1998 and 1997, 6,936 and 1,251 shares of common
stock were issued under the plan for aggregate purchase prices of $11,694 and
$2,753, respectively.
Note 10 - Profit Sharing Plan
The Company has a 401K Plan for the benefit of its employees. The Company
did not make a contribution for the years ended September 30, 1998 and 1997.
Note 11 - Related Party Transactions
The Company paid consulting fees to other stockholders/directors in the
amount of $38,140 and $103,077 during the years ended September 30, 1998 and
1997.
Note 12 - Supplemental Disclosure of Cash Flow Information
1998 1997
--------- ----------
Cash paid during the year for:
Interest $ 199,024 $ 148,056
========= ==========
Noncash investing and financing activities:
Acquisition of property, plant and equipment $ 448,972 $1,361,684
Equipment transferred from discontinued operations -0- (30,250)
Debt incurred (131,115) (-0-)
--------- ----------
Cash paid for property and equipment $ 317,857 $1,331,434
========= ==========
Proceeds from disposal of discontinued operations $ -0- $ 200,000
Increase in note receivable -0- (200,000)
--------- ----------
Cash received from proceeds $ -0- $ -0-
========= ==========
19
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
Note 12 - Supplemental Disclosure of Cash Flow Information (continued)
During the year ended September 30, 1998, the Company refinanced its debt
as follows:
Proceeds from long-term debt $ 1,900,000
Debt refinanced (1,614,284)
-----------
Cash proceeds from long-term debt $ 285,716
===========
20
<PAGE>
DYNASIL CORPORATION OF
AMERICA AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
FOR THE NINE MONTH PERIOD ENDED JUNE 30, 1999 AND 1998
<PAGE>
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
PAGE
----
Balance Sheet 1
Statement of Operations 2
Statement of Cash Flows 3
Notes to Financial Statements 4
<PAGE>
Dynasil Corporation of America and Subsidiaries
Consolidated Balance Sheet PAGE 1
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
ASSETS
<S> <C> <C>
Current Assets
Cash 48,491 35,542
Accounts Receivable 362,237 497,501
Inventory 993,994 1,224,549
Other Current Assets 31,507 81,607
Net Current Assets - Discontinued Operation 5,214
--------- ---------
Total Current Assets 1,436,229 1,844,413
Property, Plant & Equipment - Net 2,128,661 2,322,172
Other Assets 20,613 33,732
--------- ---------
TOTAL ASSETS 3,585,503 4,200,317
========= =========
</TABLE>
<TABLE>
LIABILITIES & STOCKHOLDERS EQUITY
<S> <C> <C>
Current Liabilities
Note payable to bank 10,000 350,000
Current Portion - Long Term Debt 137,412 257,628
Accounts Payable 94,440 394,591
Accrued Expenses 121,173 137,467
--------- ---------
Total Current Liabilities 363,025 1,139,686
Long Term Debt 1,775,256 1,296,923
Stockholders' Equity
Common Stock, 25,000,000 shares authorized
shares outstanding 2,341,760 and 2,256,190 1,491 1,448
Additional Paid in Capital 1,055,062 1,051,594
Retained Earnings 1,349,972 1,669,969
--------- ---------
2,406,525 2,723,011
Less: 640,624 Shares in Treasury - at Cost (959,303) (959,303)
--------- ---------
Total Stockholders' Equity 1,447,222 1,763,708
--------- ---------
TOTAL LIABILITIES & EQUITY 3,585,503 4,200,317
========= =========
</TABLE>
<PAGE>
Dynasil Corporation of America and Subsidiaries
Consolidated Statement Of Operations PAGE 2
(Unaudited)
For the nine months ended
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Sales 2,021,887 3,242,457
Cost of Sales 1,735,582 2,152,336
--------- ---------
Gross Profit 286,305 1,090,121
Selling & Administrative 479,216 646,956
--------- ---------
Income (Loss) from Operations (192,911) 443,165
Other Income (Expense)
Interest Expense (146,729) (142,783)
Other Income (Expense) 8,000
--------- ---------
Income (Loss) before Income Taxes (339,640) 308,382
Provision (Benefit) for Income Tax
--------- ---------
Net Income (Loss) (339,640) 308,382
========= =========
Earnings per share:
Basic $ (0.15) $ 0.13
Diluted $ (0.15) $ 0.13
Weighted average shares outstanding 2,315,676 2,223,306
</TABLE>
<PAGE>
Dynasil Corporation of America and Subsidiaries
Consolidated Statement of Cash Flows PAGE 3
(Unaudited)
For the nine months ended
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (339,640) 308,382
Adjustments to reconcile net income (loss) to net cash
Depreciation 267,660 247,635
Amortization Expense 2,556 10,008
Allowance for doubtful accounts
(Increase) Decrease in:
Receivables (17,061) 372,280
Inventories 284,340 (350,660)
Prepaid expenses and other current assets 10,653 5,086
Other assets 2,778 (6,673)
Increase (Decrease) in:
Accounts payable (132,120) (166,683)
Accrued expenses (942) (134,478)
--------- ---------
Net cash provided by (used in) operating activities 78,224 284,897
--------- ---------
Cash flows from investing activities:
Acquisition of PP&E (5,333) (307,839)
--------- ---------
Net cash provided by (used in) investing activities (5,333) (307,839)
--------- ---------
Cash flows from financing activities:
Proceeds (payments) - shareholders 26,881 123,305
Proceeds (payments) - Bank Line of Credit 10,000 150,000
Proceeds (Payments) - long term debt (107,261) (263,130)
--------- ---------
Net cash provided by (used in) financing activities (70,380) 10,175
--------- ---------
Net increase (Decrease) in cash 2,511 (12,767)
Cash - beginning of period 45,980 48,309
--------- ---------
Cash - end of period 48,491 35,542
========= =========
</TABLE>
<PAGE>
Dynasil Corporation of America and Subsidiaries
Notes to Financial Statements PAGE 4
(Unaudited)
Basis of Presentation
In the opinion of management, the accompanying balance sheets and related
interim statements of income and cash flows include all adjustments (consisting
only of normal recurring items) necessary for their fair presentation in
conformity with generally accepted accounting principles. Preparing financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses. Examples
include provisions for returns and bad debts and the length of product life
cycles and building lives. Actual results may differ from these estimates.
Interim results are not necessarily indicative of results for a full year. The
information included in these financial statements should be read in conjunction
with Management's Discussion and Analysis.
Inventories
Inventories consist of the following:
6/30/1999 6/30/1998
--------- ---------
Raw Materials 14,253 32,605
Work-in-Process 849,704 1,035,831
Finished Goods 130,037 156,113
--------- ---------
993,994 1,224,549
========= =========
Earnings Per Share
Earnings per share is computed on the basis of the weighted average number of
common shares outstanding plus the effect of outstanding stock options, using
the treasury stock method.
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit No. Description of Document
3.01* Restated Certificate of Incorporation of Registrant filed
April 1, 1969
3.02* Certificate of Amendment to the Certificate of Incorporation of
Registrant filed March 18, 1988
3.03* Certificate of Amendment to the Certificate of Incorporation of
Registrant filed April 7, 1989
3.04* Certificate of Amendment to the Certificate of Incorporation of
Registrant filed June 12, 1996
3.05* By-laws of Registrant
4.01* Form of Debenture
4.02* Subordinated Debenture Extension Agreement
4.03* Debenture Extension Warrant
10.01* Loan Agreement and associated documents dated July 10, 1998 with
Premier Bank, for a $300,000 line of credit
10.02* Loan Agreement and associated documents dated July 10, 1998 with
Premier Bank, for a $1,300,000 line of credit
10.03* 1996 Stock Incentive Plan
10.04* 1999 Stock Incentive Plan
10.05* Employee Stock Purchase Plan
21.01* List of Subsidiaries of Registrant
23.01* Consent of Haefele Flanagan & Co., P.C., Certified Public
Accountants
27.01 Financial Data Schedule
- -------------
* previously filed
25
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
DYNASIL CORPORATION OF AMERICA
----------------------------------------
By: Charles J. Searock, Jr., President
Date: November 1, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Dynasil
Corporation of America balance sheets as of September 30, 1998 and June 30, 1999
and statements of operations for the year ended September 30, 1998 and the nine
months ended June 30, 1999.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1999
<PERIOD-END> SEP-30-1998 JUN-30-1999
<CASH> 45,980 48,491
<SECURITIES> 0 0
<RECEIVABLES> 356,059 373,120
<ALLOWANCES> 10,883 10,883
<INVENTORY> 1,278,334 993,994
<CURRENT-ASSETS> 1,711,650 1,436,229
<PP&E> 5,555,463 5,560,796
<DEPRECIATION> 3,164,475 3,432,135
<TOTAL-ASSETS> 4,128,585 3,585,503
<CURRENT-LIABILITIES> 486,089 363,025
<BONDS> 1,882,515 1,775,256
0 0
0 0
<COMMON> 1,474 1,491
<OTHER-SE> 1,758,507 1,445,731
<TOTAL-LIABILITY-AND-EQUITY> 4,128,585 3,585,503
<SALES> 3,981,395 2,021,887
<TOTAL-REVENUES> 3,981,395 2,021,887
<CGS> 2,711,148 1,735,582
<TOTAL-COSTS> 3,562,463 2,214,798
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 188,150 146,729
<INCOME-PRETAX> 230,782 (339,640)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 230,782 (339,640)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 230,782 (339,640)
<EPS-BASIC> 0.10 (0.15)
<EPS-DILUTED> 0.10 (0.15)
</TABLE>
