UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ______.
Commission file number 000-27503
____________________
DYNASIL CORPORATION OF AMERICA
- -------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New Jersey 22-1734088
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
385 Cooper Road, West Berlin, New Jersey, 08091
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(Address of principal executive offices)
(856) 767-4600
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days)
Yes XX No
---- ----
The Company had 3,756,784 shares of common stock, par value
$.0005 per share, outstanding as of July 26, 2005.
1
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION
- ----
ITEM 1. FINANCIAL STATEMENTS PAGE
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2005 AND SEPTEMBER 30, 2004 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS AND THE NINE MONTHS ENDED JUNE 30, 2005 AND 2004 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED JUNE 30, 2005 AND 2004 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 9
ITEM 3. CONTROLS AND PROCEDURES 13
PART II. OTHER INFORMATION 13
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 3. DEFAULTS ON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 14
2
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED)
ASSETS
June 30 September 30
2005 2004
---------- ----------
Current assets
Cash and cash equivalents $ 351,578 $ 254,908
Accounts receivable 732,670 309,276
Inventory 867,300 369,813
Other current assets 114,446 16,656
---------- ----------
Total current assets 2,065,994 950,653
Property, Plant and Equipment, net 769,414 419,718
Other Assets
Deferred financing costs 14,988 3,321
Intangibles 78,414 0
---------- ----------
Total Other Assets 93,402 3,321
---------- ----------
Total Assets $2,928,810 $1,373,692
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank
- Line of credit $250,000 $ 0
Current portion - long-term debt 186,881 120,000
Accounts payable 333,042 184,214
Accrued expenses 208,876 114,959
---------- ----------
Total current liabilities 978,799 419,173
Long-term Debt, net 637,467 488,889
Stockholders' Equity
Common Stock, $.0005 par value,
25,000,000 shares authorized,
4,559,058 and 4,050,180 shares
issued, 3,748,898 and 3,240,020
shares outstanding 2,277 2,025
Preferred Stock, $.001 par
value per share, 10,000,000 700 0
Shares authorized, Series A
10% cumulative, convertible
700,000 shares authorized,
issued and outstanding
Additional paid in capital 2,032,721 1,239,736
Retained earnings 263,188 210,211
---------- ----------
2,298,886 1,451,972
Less 810,160 shares in treasury -
at cost (986,342) (986,342)
---------- ----------
Total stockholders' equity 1,312,544 465,630
---------- ----------
Total Liabilities and
Stockholders' Equity $2,928,810 $1,373,692
========== ==========
3
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30 June 30
2005 2004 2005 2004
---------- --------- ---------- ----------
Sales $1,619,128 $ 505,504 $3,497,340 $1,722,467
Cost of Sales 1,103,318 417,299 2,500,119 1,337,204
---------- --------- ---------- ----------
Gross profit 515,810 88,205 997,221 385,263
Selling, general and administrative 434,966 173,740 877,540 528,243
---------- --------- ---------- ----------
Income (Loss) from Operations 80,844 ( 85,535) 119,681 (142,980)
Other income (expense)
Interest expense - net (20,610) ( 12,391) (39,572) (27,851)
---------- --------- ---------- ----------
Income (Loss) before Income Taxes 60,234 (97,926) 80,109 (170,831)
Income Tax 4,100 0 5,224 0
---------- --------- ---------- ----------
Net income (loss) $56,134 ($97,926) 74,885 ($170,831)
========== ========= ========== ==========
Net income (loss) per share
Basic $0.01 ( $0.04) $0.02 ( $0.08)
Diluted $0.01 ( $0.04) $0.02 ( $0.08)
Weighted average shares outstanding 3,748,313 2,239,412 3,552,359 2,238,542
4
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30
2005 2004
---------- -----------
Cash flows from operating activities:
Net income (loss) $ 74,885 ($ 170,831)
Adjustments to reconcile net income (loss)
to net cash provided by (used
in)operating activities:
Depreciation 126,610 118,125
Amortization expense 5,606 2,566
Allowance for doubtful accounts (10,547) -0-
(Increase) decrease in:
Accounts receivable (103,043) ( 1,418)
Inventories (68,616) 59,922
Prepaid expenses and other current assets (16,891) 16,417
Other assets 3,925
Increase (decrease) in:
Accounts payable 73,302 (15,776)
Accrued expenses (32,705) 33,400
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Net cash provided by (used in) operating activities 48,601 46,320
---------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (49,108) (5,838)
Cash paid for acquisition of Optometrics LLC assets (700,000) (50,000)
Cash for acquisition costs to date (67,976) -0-
---------- -----------
Net cash provided by (used in)investing activities (817,084) (55,838)
---------- -----------
Cash flows from financing activities:
Issuance of common stock 35,538 390
Issuance of preferred stock 690,000 -0-
Proceeds from short-term debt 102,143 -0-
Proceeds from long-term debt 183,106 -0-
Payments on long-term debt (106,451) (224,817)
Deferred financing costs incurred (17,273) -0-
Dividends paid (21,910)
---------- -----------
Net cash provided by (used in) financing activities 865,153 (224,427)
---------- -----------
Net increase(decrease) in cash 96,670 (233,945)
Cash - beginning of period 254,908 323,321
---------- -----------
Cash - end of period $ 351,578 $ 89,376
========== ===========
Supplemental Disclosure of cash flow information:
Non-cash investing and financing activities:
Acquisition of Optometrics LLC
Fair market value of current assets acquired $ 918,067
Property, plant and equipment 410,575
Intangibles 78,414
Fair market value of liabilities assumed (529,110)
Acquisition costs incurred (109,546)
Issuance of 300,000 common stock shares to sellers (68,400)
----------
Net Cash paid for Optometrics LLC $ 700,000
----------
5
Supplemental Disclosures of Cash Flow Information (continued):
The Company issued 700,000 shares of preferred stock, valued at
$1.00 per share, and received cash of $700,000. The Company
incurred stock issuance costs of $10,000 for net proceeds of
$690,000, of which $600,000 was used to fund the acquisition of
Optometrics, LLC.
In connection with the acquisition of Optometrics, LLC, the
Company also obtained total debt proceeds of $550,000, of which
$100,000 funded the balance of the cash payment to the sellers,
$67,976 funded the acquisition costs, $264,751 paid off the
debt of Optometrics, LLC, $17,273 paid the deferred financing
fees, and $100,000 was used for general working capital
purposes.
DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The consolidated balance sheet as of September 30, 2004 was
audited and appears in the Form 10-KSB previously filed by the
Company. The consolidated balance sheet as of June 30, 2005 and
the consolidated statements of operations for the three months
and nine months ended June 30, 2005 and 2004, the consolidated
statements of cash flows for the nine months ended June 30, 2005
and 2004,and the related information contained in these notes
have been prepared by management without audit. In the opinion
of management, all adjustments (which include only normal
recurring items) necessary to present fairly the financial
position, results of operations and cash flows in conformity
with generally accepted accounting principles as of June 30,
2005 and for all periods presented have been made. Interim
operating results are not necessarily indicative of operating
results for a full year.
On March 8, 2005, Dynasil Corporation of America acquired
the operating assets and assumed certain liabilities of
Optometrics LLC, a worldwide supplier of optical components.
The assets acquired from Optometrics LLC are operated under the
Optometrics Corporation name. The financial statements in this
report include the Optometrics Corporation results of operations
from March 9, 2005 through June 30, 2005.
Certain information and note disclosures normally included
in the Company's annual financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the
Company's September 30, 2004 Annual Report on Form 10-KSB
previously filed by the Company with the Securities and Exchange
Commission.
Note 2 - Business Acquisition
On March 8, 2005, the Company, through its newly formed wholly
owned subsidiary, Optometrics Corporation, completed its
acquisition of substantially all of the assets of Optometrics,
LLC, a worldwide supplier of optical components for a total
purchase price of $877,946. Cash of $700,000 was paid by the
Company and 300,000 shares of the Company's common stock were
issued to the former owners of Optometrics, LLC, valued at $0.23
per share, or $68,400. Acquisition costs of $109,546 were
incurred. The business acquisition was recorded under the
purchase method of accounting which requires that the total
consideration be allocated to the assets acquired and
liabilities assumed based on their fair values.
6
The fair value of tangible and intangible assets acquired and
liabilities assumed were established based on the unaudited
March 8, 2005 balance sheet of Optometrics, LLC, as well as
certain assumptions made regarding fair values.
The excess of the purchase price over the fair value of the net
tangible assets acquired of $78,414 was allocated to
intangibles, specifically to Acquired Customer Base. The
results of operations of Optometrics Corporation have been
included in the consolidated financial statements from March 9,
2005, the effective date of acquisition. The allocation of
purchase price is summarized below:
Cash and cash equivalents $ 50,585
Accounts receivable 310,461
Inventories 428,871
Prepaid expenses and other current assets 128,150
Property and equipment 410,575
Intangibles- Acquired Customer Base ( 78,414)
Current liabilities assumed (242,449)
Long-term debt liabilities assumed (286,661)
---------
Total purchase price $877,946
The following unaudited pro forma results of operations assume
that Optometrics Corporation had been acquired at the beginning
of fiscal year 2005.
Nine Months Ended
Ended June 30, 2005
Sales $4,840,187
Net income $149,894
Net income per share $.04
Weighted average shares 3,727,359
Note 3 - Debt
On March 8, 2005, the Company entered into loan agreements
permitting borrowings up to a total of $700,000 with Citizens
Bank of Massachusetts ("Citizens Bank") in connection with the
acquisition of Optometrics, LLC of which the initial borrowing
was $550,000. The terms of the Loan Agreements provide the
Company with a $300,000 term loan (the "Term Loan") and a
$400,000 revolving credit facility (the "Line of Credit"). The
proceeds have been used to payoff the debt of the former
Optometrics LLC, to fund the acquisition, and for general
working capital purposes. Borrowings under the Line of Credit
bear interest at a variable rate equal to Citizens Bank's prime
rate plus 0.5%. Initial borrowing on the Line of Credit was
$250,000. Outstanding borrowings under the Term Loan require
monthly payments of $5,834.78 over a five year term which
started March 9, 2005 and ends in March 2011 at a fixed interest
rate of 6.25%. As part of the credit agreement, the Company is
required to comply with certain financial covenants measured
annually regarding the liabilities to equity ratio and debt
service coverage ratio for Optometrics Corporation. The
performance of these obligations is secured by the assets of
Optometrics Corporation with a corporate guarantee by the
Company and a second lien on the Company's New Jersey assets
other than real estate.
Note 4 - Convertible Preferred Stock
On March 8, 2005, the Company completed a private placement of
700,000 shares of Series A 10% Cumulative Convertible preferred
stock for cash proceeds of $700,000. The stock was sold at a
price of $1.00 per share. Total expenses for the stock placement
were $10,000. Each share of preferred stock carries a 10% per
annum cumulative dividend payable quarterly and is convertible
to 2.2222 shares of common stock at any time by holders, subject
to adjustment for certain subsequent sales of common stock or
securities convertible into or exchangeable for common stock,
and is callable starting March 9, 2007 by the Company at a
redemption price of $1.00 per share. Proceeds from the stock
sale were used to acquire the assets of Optometrics LLC and for
working capital.
7
Note 5 - Inventories
Inventories are stated at the lower of average cost or
market. Cost is determined using the first-in, first-out (FIFO)
method. Inventories consist primarily of raw materials, work-in-
process and finished goods. The Company evaluates inventory
levels and expected usage on a periodic basis and records
adjustments for impairments as required.
Inventories consisted of the following:
June 30, 2005 September 30, 2004
----------------- ------------------
Raw Materials $268,625 $148,278
Work-in-Process 334,888 114,170
Finished Goods 263,787 107,365
------- -------
$867,300 $369,813
======= =======
Note 6 - Net Income Per Share
Basic net income per share is computed using the weighted
average number of common shares outstanding. The dilutive
effects of potential common shares outstanding are included in
diluted net earnings per share. For periods with a net loss,
diluted net earnings per share exclude the impact of potential
common shares since they would have resulted in an antidilutive
effect.
Note 7 - Stock Based Compensation
The Company has adopted the disclosure provisions of SFAS
No. 148 and continues to account for stock-based compensation
using the intrinsic value method. Accordingly, no compensation
cost has been recognized in the financial statements for stock
options issued to employees since the options were granted at
the most recent market price or higher on the date of grant.
Stock options granted to consultants and other non-employees are
reported at fair value in accordance with SFAS No. 123. The pro
forma disclosures of net loss and net loss per common share
required by SFAS No. 123 are shown below.
Nine months ended
June 30, 2005 June 30, 2004
----------- -------------
Net income (loss), as reported $74,885 ($170,831)
Add: Stock-based employee
compensation expense included
in reported net income -0- -0-
Less: Total stock-based employee
compensation expense determined
under fair value based method
for all options (22,365) -0-
----------- -------------
Pro forma net profit (loss) $ 52,520 ( $170,831)
=========== ===========
Actual net profit (loss)
per common share $ 0.02 ($0.08)
Pro forma net profit (loss)
per common share $ 0.01 ($0.08)
8
During the nine months ended June 30, 2005, 436,459 stock
options were granted at prices ranging from $0.40 to $0.65 per
share and no options were exercised. During the nine months
ended June 30, 2004, no stock options were granted or exercised.
The Company cancelled 45,000 and 132,000 options during the nine
months ended June 30, 2005 and 2004, respectively. Compensation
expenses relating to non-employee stock options granted during
the nine months ended June 30, 2005 and 2004 were $-0-. During
the nine months ended June 30, 2005, The Company issued 158,360
shares of common stock valued at $0.14 to $0.66 per share to the
Board of Directors in satisfaction of accrued and 2005
directors' fees totaling $28,717.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
This is the first full quarter of results after the
combination of Optometrics with Dynasil. On March 8, 2005,
Dynasil Corporation of America acquired the operating assets and
assumed certain liabilities of Optometrics LLC, a worldwide
supplier of optical components including diffraction gratings,
lenses, thin film filters, laser optics, monochromators, and
specialized optical systems. The assets acquired from
Optometrics LLC are being operated under the Optometrics
Corporation ("Optometrics")name. The financial statements in
this report include the Optometrics results of operations for
the period from March 9, 2005 through June 30, 2005. The
results from time periods previous to March 9, 2005 do not
include Optometrics results. Integration of Optometrics with
Dynasil is going very well and Optometrics is having a major
positive impact on the Company.
Revenues for the 3rd quarter ended June 30, 2005 were
$1,619,128, an increase of 220% over revenues of $505,504 for
the quarter ended June 30, 2004. Revenues for the nine months
ended June 30, 2005 were $3,497,340, an increase of 103% over
revenues of $1,722,467 for the nine months ended June 30, 2004.
The net profit for the quarter ended June 30, 2005 was $56,134,
or $0.01 per share, compared with a net loss of $97,926, or a
negative $.04 per share, for the quarter ended June 30, 2004.
The net profit for the nine months ended June 30, 2005 was
$74,885, or $0.02 per share, compared with a net loss of
$170,831, or a loss of $0.08 per share for the nine months ended
June 30, 2004. The Company continues to focus on management's
strategy of profitable growth from its optical components
business and by pursuing acquisitions and strategic alliances.
Results of Operations
Revenues for the three months ended June 30, 2005 were
$1,619,128, an increase of 220% over revenues of $505,504 for
the three months ended June 30, 2004. Revenues for the nine-
months ended June 30, 2005 were $3,497,340 an increase of 103%
over revenues of $1,722,467 for the nine-months ended June 30,
2004. The addition of Optometrics more than doubled the
Company's revenue for the quarter ending June 30, 2005.
Excluding Optometrics results, revenues for the Company's
historical New Jersey operations were up 62% for the quarter
ended June 30, 2005 versus the same quarter in 2004. Management
believes that the New Jersey revenue improvement comes from
improved economic conditions in the Company's markets combined
with aggressive pricing to win several high volume jobs and
active pursuit of new business.
Cost of sales for the three months ended June 30, 2005 was
$1,103,318 or 68.1% of sales, a decrease of 14.5 percentage
points from the three months ended June 30, 2004 of $417,299, or
82.6% of sales. Cost of sales for the nine-months ended June 30,
2005 was $2,500,119, or 71.5% of sales, a decrease of 6.1
percentage points from the nine-months ended June 30, 2004 of
$1,337,204 or 77.6% of sales. The significant decrease in cost
of sales as a percentage of sales resulted from the higher
margin products coming from Optometrics as well as improved
sales volume for the Company's New Jersey operations.
9
Gross profit for the three months ended June 30, 2005 was
$515,810, or 31.9% of sales, an increase of $427,605 over the
three months ended June 30, 2004 of $88,205, or 17.4% of sales.
Gross profit for the nine months ended June 30, 2005 was
$997,221, or 28.5% of sales, an increase of $611,958 over the
nine months ended June 30, 2004 of $385,263, or 22.4% of sales.
Selling, general and administrative ("SG&A") expenses for
the three months ended June 30, 2005 were $434,966 or 26.8% of
sales, a decrease of 7.6 percentage points over the three months
ended June 30, 2004 of $173,740, or 34.4% of sales. SG&A
expenses for the nine months ended June 30, 2005 were $877,540,
or 25.1% of sales, a decrease of 5.6 percentage points over the
nine months ended June 30, 2004 of $528,243, or 30.6% of sales.
The increase in SG&A dollars resulted primarily from the
addition of Optometrics Corporation. SG&A costs as a percentage
of sales decreased significantly with the addition of
Optometrics and significantly higher volumes for New Jersey
operations. The combination of Dynasil and Optometrics selling
efforts is expected to further improve the sales and marketing
efficiency for both companies. Mr. Craig T. Dunham joined The
Company to replace Mr. John Kane as President and CEO effective
October 1, 2004. Mr. Kane left the Company in early December
and the management transition added costs estimated at $32,400
for the nine month period. Mr. Francis Ciancarelli replaced Mr.
Paul Roehrenbeck as Vice President of Sales and Marketing late
in the second fiscal quarter and the transition added
approximately $29,000 of extra cost. Mr. Ciancarelli joined the
Company with 17 years of sales and marketing leadership
experience from Precision Electronic Glass which serves a
similar customer base.
Net interest expense for the three months ended June 30,
2005 was $20,610, an increase of $8,219 over the three months
ended June 30, 2004 of $12,391. Interest expense for the nine
months ended June 30, 2005 was $39,572, an increase of $11,721
over the nine months ended June 30, 2004 of $27,851. The
increase in interest expense is primarily related to the
additional interest payments resulting from the indebtedness
incurred in connection with the Optometrics acquisition and the
higher prime rate which impacts the Company's variable interest
rate payments.
Net income for the three months ended June 30, 2005 was
$56,134, or $.01 in basic earnings per share, an increase of
$154,060 over the net loss for the three months ended June 30,
2004 of ($97,926), or $.04 in basic loss per share. Net income
for the nine months ended June 30, 2005 was $74,885, or $.02 in
basic earnings per share, an increase of $245,716 over the nine
months ended June 30, 2004 of net loss of $170,831, or $.08 in
basic loss per share. Optometrics contributed significant
additional profitability to the Company. Management is also
pleased to complete a third consecutive profitable quarter for
the Dynasil, New Jersey Operations (excluding Optometrics) after
several challenging years.
The Company had a $4,100 provision for Massachusetts income
taxes for the quarter ended June 30, 2005 and zero tax provision
for the quarter ended June 30, 2004. For the nine months ended
June 30, 2005, the Company had a $5,224 provision for
Massachusetts income taxes and zero tax provision for the nine
months ending June 30, 2004. As of September 30, 2004, the
Company had approximately $1,200,000 of net operating loss carry
forwards to offset future income for federal tax purposes
expiring in various years through 2020. In addition, the Company
has approximately $620,000 of net operating loss carryforwards
to offset certain future New Jersey taxable income, expiring in
various years through 2012.
10
Liquidity and Capital Resources
Cash increased by $96,670 for the nine months ended June
30, 2005. The primary sources of cash were cash from operations
of $48,601, the net proceeds from the preferred stock issuance
of $690,000 plus new bank debt financing obtained in connection
with the Optometrics acquisition. The primary use of cash was
for the Optometrics acquisition. On March 8, 2005, the Company
entered into two loan agreements with Citizens Bank which were
completed as part of the Optometrics acquisition. Both loans
are secured by the assets of Optometrics Corporation and
guaranteed by the Company, which guaranty is itself secured by a
second lien on the Company's assets excluding real estate. The
financing included a $300,000 Term Loan for five years at a
6.25% fixed interest rate. A Line of Credit with maximum
borrowing of $400,000 was completed with initial borrowing of
$250,000 at Citizens Bank's prime rate plus 0.5%. Increased
revenues for New Jersey operations have increased working
capital usage for accounts receivables and inventory. In
addition, the Company had capital expenditures of $49,108,
repaid long term debt of $106,451, and had dividends of $21,910
on Preferred Stock.
The Company believes that its current cash and cash
equivalent balances, along with the net cash generated by
operations, are sufficient to meet its anticipated cash needs
for working capital for at least the next 12 months. There are
currently no plans for any major capital expenditures in the
next six to nine months. Any major business expansion or
acquisition likely will require the Company to seek additional
debt or equity financing.
Optometrics Integration
Management is pleased with progress of Optometrics'
integration since the acquisition of Optometrics LLC assets was
closed on March 8, 2005. As planned, Ms. Laura Lunardo became
Chief Financial Officer of the Company and Chief Operating
Officer of Optometrics Corporation effective March 9, 2005. Mr.
Dunham typically travels to Optometrics bi-monthly to lead the
integration process. Our primary focus areas have been
coordination of sales and marketing programs as well as
manufacturing process improvement assistance. By working
together, we have been able to use the contacts of one business
to get access for the other business to key customer decision
makers. Ms. Lunardo has reorganized Optometrics as well as
improving the manufacturing layout for greater efficiencies.
Mr. Dunham has been assisting Optometrics with project
management and process improvement using his Six Sigma Green
Belt and process improvement experience.
Critical Accounting Policies and Estimates
There have been no material changes in our critical
accounting policies or critical accounting estimates since
September 30, 2004, nor have we adopted an accounting policy
that has or will have a material impact on our consolidated
financial statements. For further discussion of our accounting
policies see Footnote 1 " Summary of Significant Accounting
Policies" in this Quarterly Report on Form 10-QSB and the Notes
to Consolidated Financial Statements in our Annual Report on
Form 10-KSB for the fiscal year ended September 30, 2004.
The accounting policies that reflect our more significant
estimates, judgments and assumptions and which we believe are
the most critical to aid in fully understanding and evaluating
our reported financial results include the following:
11
Revenue Recognition
Revenue from sales of products is recognized at the time
title and the risks and rewards of ownership pass. This is when
the products are shipped per customers' instructions, the sales
price is fixed and determinable, and collections are reasonably
assured.
Valuation of Long-Lived Assets
We assess the recoverability of long-lived assets whenever
we determine that events or changes in circumstances indicate
that their carrying amount may not be recoverable. Our
assessment is primarily based upon our estimate of future cash
flows associated with these assets. These valuations contain
certain assumptions concerning estimated future revenues and
future expenses. We have determined that there is no indication
of impairment of any of our assets. However, should our
operating results deteriorate; we may determine that some
portion of our long-lived assets are impaired. Such
determination could result in non-cash charges to income that
could materially affect our financial position or results of
operations for that period.
Estimating Allowances for Doubtful Accounts Receivable
We perform ongoing credit evaluations of our customers and
adjust credit limits based upon payment history and the
customer's current credit worthiness, as determined by our
review of their current credit information. We continuously
monitor collections and payments from our customers and maintain
a provision for estimated credit losses based upon our
historical experience and any specific customer collection
issues that we have identified. While such credit losses have
historically been minimal, within our expectations and the
provisions established, we cannot guarantee that we will
continue to experience the same credit loss rates that we have
in the past. A significant change in the liquidity or financial
position of any of our significant customers could have a
material adverse effect on the collectibility of our accounts
receivable and our future operating results.
Valuation of Deferred Tax Assets
We regularly evaluate our ability to recover the reported
amount of our deferred income taxes considering several factors,
including our estimate of the likelihood of The Company
generating sufficient taxable income in future years during the
period over which temporary differences reverse. The Company's
deferred tax assets are currently fully reserved.
Recent Accounting Pronouncements
There were no accounting pronouncements issued since the
date of the Company's most recent Form 10-QSB filing.
Forward-Looking Statements
The statements contained in this Quarterly Report on Form
10-QSB which are not historical facts, including, but not
limited to, certain statements found under the captions "Results
of Operations", "Liquidity and Capital Resources" and
"Optometrics Acquisition" above, are forward-looking statements
that involve a number of risks and uncertainties. The actual
results of the future events described in such forward-looking
statements could differ materially from those stated in such
forward-looking statements. Among the factors that could cause
actual results to differ materially are the risks and
uncertainties discussed in this Quarterly Report on Form 10-QSB,
including, without limitation, the portions of such reports
under the captions referenced above, and the uncertainties set
forth from time to time described in this and the Company's
other filings with the Securities and
12
Exchange Commission, and other public statements. Such risks and
uncertainties include, without limitation, seasonality, interest
in the Company's products, customer acceptance of new products,
general economic conditions, market trends, costs and
availability of raw materials and management information
systems, competition, litigation, need for additional financing,
the effect of governmental regulation and other matters. The
Company disclaims any intention or obligation to update any
forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3 CONTROLS AND PROCEDURES
Based on their most recent informal evaluation, which was
completed during the period covered within this Form 10-QSB, the
Company's President/Chief Executive Officer and Chief Financial
Officer believe that the Company's disclosure controls and
procedures (as defined in Exchange Act Rule 13a-14 and 15d-14)
are effective. There were not any significant changes in the
Company's internal controls or no other facts that could
significantly affect these controls subsequent to the date of
this evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses. The Company is
presently unable to provide segregation of duties within itself
as a means of internal control. As a result, the Company is
presently relying on overriding management reviews, and
assistance from its board of directors and Audit Committee in
providing short-term review procedures until such time as
additional funding is provided to hire additional executives to
segregate duties within the Company.
PART II
OTHER INFORMATION
- ------------------
ITEM 1 LEGAL PROCEEDINGS
NONE
ITEM 2 CHANGES IN SECURITIES
NONE
ITEM 3 DEFAULTS ON SENIOR SECURITIES
NONE
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5 OTHER INFORMATION
The information presented in Items 1 and 2 of Part I of
this Report is incorporated herein by reference. On July 27,
2005, the Company issued a press release announcing its
financial results for its third quarter ending June 30, 2005. A
copy of this press release is attached as Exhibit 99 to this
Report on Form 10-QSB. This information is being furnished
pursuant to Item 5 of Part II of Form 10-QSB and shall not be
deemed to be "filed" for the purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise subject to the liabilities of that
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Section, nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as shall be expressly set forth by specific
reference in such a filing.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and index of Exhibits
31.1(a) and (b) Rule 13a-14(a)/15d-14(a) Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Section 1350 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished but not filed for
purposes of the Securities Exchange Act of 1934)
99.1 Press release, dated July 27, 2005, issued by Dynasil
Corporation of America announcing its financial results for
the third quarter ending June 30, 2005.
(b) Reports on Form 8-K
- On 5/24/05, an amendment of the current report dated
3/14/05 for Items 2 and 3 for the completion of the Optometrics
acquisition and sale of Preferred Stock.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DYNASIL CORPORATION OF AMERICA
BY: /s/ Craig T. Dunham DATED: July 27, 2005
--------------------------------- --------------------
Craig T. Dunham,
President and CEO
/s/ Laura Lunardo DATED: July 27, 2005
----------------------------- --------------------
Laura Lunardo
Chief Financial Officer
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