UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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
-------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
385 Cooper Road, West Berlin, New Jersey, 08091
----------------------------------------------------------
(Address of principal executive offices)
(856) 767-4600
--------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days)
Yes XX No
---- ----
The Company had 3,847,789 shares of common stock, par value
$.0005 per share, outstanding as of February 10, 2005.
1
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION
- ----
ITEM 1. FINANCIAL STATEMENTS
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005
AND SEPTEMBER 30, 2005 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED DECEMBER 31, 2005 AND 2004 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED DECEMBER 31, 2005 AND 2004 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8
ITEM 3. CONTROLS AND PROCEDURES 11
PART II. OTHER INFORMATION 11
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULTS ON SENIOR SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 5. OTHER INFORMATION 11
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 12
2
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31 September 30
2005 2005
---------- ----------
Current assets
Cash and cash equivalents $ 286,609 $ 308,210
Accounts receivable 733,862 877,375
Inventory 879,919 842,149
Other current assets 167,775 124,548
---------- ----------
Total current assets 2,068,165 2,152,282
Property, Plant and Equipment, net 730,004 744,764
Other Assets 84,046 87,735
---------- ----------
Total Assets $2,882,215 $2,984,781
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank-Line of credit $215,000 $250,000
Current portion - long-term debt 182,166 184,403
Accounts payable 270,809 322,094
Accrued expenses 220,473 232,476
---------- ----------
Total current liabilities 888,448 988,973
Long-term Debt, net 548,607 592,712
Stockholders' Equity
Common Stock, $.0005 par value,
25,000,000 shares authorized,
4,649,995 and 4,566,946 shares
issued, 3,839,835 and 3,756,786
shares outstanding 2,325 2,283
Preferred Stock, $.001 par value
per share, 10,000,000 700 700
Shares authorized, Series A
10% cumulative,convertible
700,000 shares authorized,
issued and outstanding
Additional paid in capital 2,076,732 2,042,635
Retained earnings 351,745 343,820
---------- ----------
2,431,502 2,389,438
Less 810,160 shares in
treasury - at cost (986,342) (986,342)
---------- ----------
Total stockholders' equity 1,445,160 1,403,096
---------- ----------
Total Liabilities and
Stockholders' Equity $2,882,215 $2,984,781
========== ==========
3
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31
2005 2004
---------- ---------
Sales $1,548,040 $ 781,186
Cost of Sales 1,069,896 580,689
---------- --------
Gross profit 478,144 200,497
Selling, general and administrative 426,659 186,720
---------- --------
Income from Operations 51,485 13,777
Interest expense - net (20,535) ( 7,703)
---------- --------
Income before Income Taxes 30,950 6,074
Income Tax 5,525 0
---------- --------
Net income $25,425 6,074
========= ========
Net income per share
Basic $0.00 $0.00
Diluted $0.00 $0.00
Weighted average shares outstanding 3,768,777 3,387,701
4
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months Ended
December 31
2005 2004
---------- -----------
Cash flows from operating activities:
Net income $ 25,425 $ 6,074
Adjustments to reconcile net income
to net cash provided by (used in)operating activities:
Depreciation 51,000 34,050
Amortization expense 6,390 852
Gain on disposal of assets (2,000) -0-
Stock Based Compensation Directors -0- 19,717
(Increase) decrease in:
Accounts receivable 143,512 (135,231)
Inventories (37,770) (40,532)
Prepaid expenses and other current assets (43,227) (5,615)
Other assets
Increase (decrease) in:
Accounts payable (51,285) 34,471
Accrued expenses (12,004) 5,113
---------- -----------
Net cash provided by (used in) operating activities 80,041 (81,101)
---------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (38,941) (17,353)
Proceeds from sale of assets 2,000
---------- -----------
Net cash provided by (used in) investing activities (36,941) (17,353)
---------- -----------
Cash flows from financing activities:
Issuance of common stock 34,140 10,130
Payments on long-term debt (43,242) (30,000)
Payments on short-term debt (38,099) -0-
Preferred stock dividends paid (17,500) -0-
---------- -----------
Net cash provided by (used in) financing activities (64,701) (19,870)
---------- -----------
Net (decrease) in cash (21,601) (118,324)
Cash - beginning of period 308,210 254,908
---------- -----------
Cash - end of period $ 286,609 $ 136,584
========== ===========
5
DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The consolidated balance sheet as of September 30, 2005 was
audited and appears in the Form 10-KSB previously filed by the
Company. The consolidated balance sheet as of December 31, 2005
and the consolidated statements of operations for the three
months ended December 31, 2005 and 2004, the consolidated
statements of cash flows for the three months ended December 31,
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
December 31, 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. Dynasil financial statements
include the Optometrics Corporation results of operations since
March 9, 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, 2005 Annual Report on Form 10-KSB
previously filed by the Company with the Securities and Exchange
Commission.
Note 2 - Inventories
Inventories are stated at the lower of average cost or
market. Cost is determined using the first-in, first-out (FIFO)
method. Inventories consist primarily of raw materials, work-in-
process and finished goods. The Company evaluates inventory
levels and expected usage on a periodic basis and records
adjustments for impairments as required.
Inventories consisted of the following:
December 31, 2005 September 30, 2005
----------------- ------------------
Raw Materials $327,552 $322,902
Work-in-Process 267,493 246,921
Finished Goods 284,874 272,326
------- -------
$879,919 $842,149
======= =======
Note 3 - Net Income Per Share
Basic net income per share is computed using the weighted
average number of common shares outstanding. The dilutive
effects of potential common shares outstanding are included in
diluted net earnings per share.
6
Note 4 - 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.
Three months ended
December 31, 2005 December 31, 2004
----------- -------------
Net income, as reported $24,425 $6,074
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 (4,636) (153)
----------- -------------
Pro forma net profit (loss) $ 19,789 $ 5,921
=========== =============
Actual net profit (loss)
per common share $ 0.00 $ 0.00
Pro forma net profit (loss)
per common share $ 0.00 $ 0.00
During the three months ended December 31, 2005, 130,000
stock options were granted at prices ranging from $0.85 to $1.50
per share and 80,000 options were exercised. The 80,000 options
had an exercise price of $0.40 per share with $23,857 paid in
cash and $8,143 relating to Mr. Dunham's 2005 fiscal year bonus.
During the three months ended December 31, 2004, 241,966 options
were granted at prices ranging from $0.40 to $0.60 and no
options were exercised. The Company cancelled 90,000 and 0
options during the three months ended December 31, 2005 and
2004, respectively. Compensation expenses relating to non-
employee stock options granted during the three months ended
December 31, 2005 and 2004 were $-0-.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Overview
This is the third 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 Dynasil financial
statements include the Optometrics results of operations for the
period from March 9, 2005 through December 31, 2005. The
results from time periods previous to March 9, 2005 do not
include Optometrics' results. Integration of Optometrics with
Dynasil is essentially completed and Optometrics is having a
major positive impact on the Company.
7
Revenues for the 1st quarter ended December 31, 2005 were
$1,548,040, an increase of 98% over revenues of $781,186 for the
quarter ended December 31, 2005. The net profit for the quarter
ended December 31, 2005 was $25,425, or $0.00 per share,
compared with a net profit of $6,074, or $0.00 per share, for
the quarter ended December 31, 2004. The addition of
Optometrics was the primary driver for revenue and profitability
increases from the quarter ended December 31, 2004.
Subcontractor problems on a fused silica order, completed in
November 2005, reduced net income by approximately $26,000. 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 December 31, 2005 were
$1,548,040, an increase of 98% over revenues of $781,186 for the
three months ended December 31, 2004. The addition of
Optometrics approximately doubled the Company's revenue for the
quarter ending December 31, 2005 over the same quarter in 2004.
Cost of sales for the three months ended December 31, 2005
was $1,069,896 or 69.1% of sales, a decrease of 5.2 percentage
points from the three months ended December 31, 2004 of
$580,689, or 74.3% of sales. The significant decrease in cost of
sales as a percentage of sales resulted from the higher margin
products coming from Optometrics. High costs relating to a
subcontractor on a major fused silica order completed in
November 2005 increased cost of sales about $26,000 above
normal. We were successful in meeting our customer commitments
on that job and do not plan to use that subcontractor in the
future.
Gross profit for the three months ended December 31, 2005
was $478,144, or 30.9% of sales, an increase of $277,647 over
the three months ended December 31, 2004 of $200,497, or 25.7%
of sales.
Selling, general and administrative ("SG&A") expenses for
the three months ended December 31, 2005 were $426,659 or 27.6%
of sales, an increase of 3.7 percentage points over the three
months ended December 31, 2004 of $186,720, or 23.9% of sales.
The increase in SG&A expenses and percentage resulted primarily
from the addition of Optometrics Corporation. Mr. Bruce
Leonetti replaced Mr. Francis Ciancarelli as Vice President of
Sales and Marketing in January 2006. Mr. Leonetti rejoined the
Company with 16 years of previous Dynasil leadership experience.
He held the same position when he left in 2002 and we are
pleased to have him return with his strong industry contacts and
knowledge of Dynasil.
Net interest expense for the three months ended December
31, 2005 was $20,535, an increase of $12,832 over the three
months ended December 31, 2004 of $7,703. 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 recent increases in the
prime commercial rate of interest which adversely impacts the
Company's variable interest rate payments. Previous loans
relating to Dynasil's New Jersey operations were refinanced with
a different lender on January 5, 2006. The refinancing reduced
Dynasil's interest rate on its New Jersey-based borrowings to a
fixed annual rate of 7.25% and also added a $200,000 line of
credit.
Net income for the three months ended December 31, 2005 was
$25,425, or $.00 in basic earnings per share, an increase of
$19,351 over the net profit for the three months ended December
31, 2004 of $6,074, or $.00 in basic profit per share.
Optometrics contributed significant additional
8
profitability to the Company and we experienced $26,000 of
unexpected costs relating to problems with a fused silica
contractor which are completely behind us.
The Company had a $5,525 provision for Massachusetts income
taxes for the quarter ended December 31, 2005 and no provision
for taxes for the quarter ended December 31, 2004. As of
September 30, 2005, the Company had approximately $1,300,000 of
net operating loss carryforwards to offset future income for
federal tax purposes expiring in various years through 2021. In
addition, the Company has approximately $760,000 of net
operating loss carryforwards to offset certain future New Jersey
taxable income, expiring in various years through 2013.
Liquidity and Capital Resources
Cash decreased by $21,601 for the three months ended
December 31, 2005. The primary sources of cash were cash from
operations of $80,041 and cash proceeds of $34,140 relating
primarily to the exercise of stock options. The primary uses of
cash were capital expenditures of $38,941, repayments of long
term debt of $43,242, reduced line of credit borrowings by
$38,099, and dividends payments of $17,500 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.
Critical Accounting Policies and Estimates
There have been no material changes in our critical
accounting policies or critical accounting estimates since
September 30, 2005, 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, 2005.
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:
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.
9
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 and adversely 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. Based on the
company's history of significant fluctuations in net earnings,
the Company established a full valuation allowance as of
September 30, 2004 and prior due to the uncertainty as to the
realization of certain net operating loss carryforwards. With
the asset acquisition of Optometrics LLC in March 2005, the
Company now believes that some of these carryforwards will be
realized, and has adjusted the valuation allowance accordingly
as outlined in the Companies 10-KSB for the fiscal year ended
September 30, 2005.
Recent Accounting Pronouncements
There were no accounting pronouncements issued since the
date of the Company's most recent Form 10-KSB 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 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
10
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 nor 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 February 14,
2006, the Company issued a press release announcing its
financial results for its first quarter ending December 31,
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 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.
11
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 February 14, 2006, issued by
Dynasil Corporation of America announcing its financial
results for the first quarter ending December 31, 2005.
(b) Reports on Form 8-K
None
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: February 14, 2006
--------------------------------- --------------------
Craig T. Dunham,
President and CEO
/s/ Laura Lunardo DATED: February 14, 2006
----------------------------- --------------------
Laura Lunardo
Chief Financial Officer
12