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, 2006
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 4,557,483 shares of common stock, par value
$.0005 per share, outstanding as of February 9, 2007.
1
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
PART 1. FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,2006
AND SEPTEMBER 30, 2006 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED DECEMBER 31,2006 AND 2005 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED DECEMBER 31, 2006 AND 2005 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 13
SIGNATURES 14
2
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
December 31 September 30
2006 2006
(Unaudited)
---------- ----------
Current assets
Cash and cash equivalents $ 442,081 $ 352,139
Accounts receivable, net of allowance for doubtful
accounts of $29,761 and $12,530 for December 31,
2006 and September 30, 2006, respectively 1,210,334 1,086,394
Inventory 1,479,335 1,131,648
Deferred tax asset 151,300 61,500
Prepaid expenses and other assets 141,998 128,957
---------- ----------
Total current assets 3,425,048 2,760,638
Property, Plant and Equipment, net 2,380,440 626,790
Other Assets 91,761 78,812
---------- ----------
Total Assets $5,897,249 $3,466,240
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank- Line of credit $297,766 $190,000
Current portion - long term debt 92,422 72,482
Accounts payable 718,347 390,110
Accrued expenses 435,800 368,977
---------- ----------
Total current liabilities 1,544,335 1,021,569
Long-term Debt, net 1,618,297 593,889
Deferred Income Taxes 63,900 -0-
Stockholders' Equity
Common Stock, $.0005 par value, 25,000,000 shares
authorized, 5,285,112 and 4,698,453 shares issued,
4,474,952 and 3,888,293 shares outstanding 2,643 2,350
Preferred Stock, $.001 par value, 10,000,000 Shares 1,410 700
authorized, 700,000 and 700,000 Series A shares and
710,000 and 0 shares Series B shares issued and
outstanding for 2006 and 2005 respectively, 10%
cumulative, convertible
Additional paid in capital 2,931,379 2,100,098
Retained earnings 721,627 733,976
---------- ----------
3,657,059 2,837,124
Less 810,160 shares in treasury - at cost (986,342) (986,342)
---------- ----------
Total stockholders' equity 2,670,717 1,850,782
---------- ----------
Total Liabilities and Stockholders' Equity $5,897,249 $3,466,240
========== ==========
3
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31
2006 2005
(Unaudited) (Unaudited)
---------- ----------
Sales $2,536,297 $1,548,040
Cost of Sales 1,883,862 1,069,896
---------- ----------
Gross profit 652,435 478,144
Selling, general and administrative 605,466 426,659
---------- ----------
Income from Operations 46,969 51,485
Interest expense - net (14,997) (20,535)
---------- ----------
Income before Income Taxes 31,972 30,950
Income Tax (9,070) (5,525)
---------- ----------
Net income $ 22,902 $ 25,425
========== ==========
Net income per share
Basic $0.00 $0.00
Diluted $0.00 $0.00
Weighted average shares outstanding 4,255,041 3,768,777
4
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months Ended
December 31,
2006 2005
----------- -----------
Cash flows from operating activities:
Net income $ 22,902 $ 25,425
Adjustments to reconcile net income
to net cash provided by (used in)operating activities:
Depreciation 75,363 51,000
Amortization expense 4,803 6,390
Gain on disposal of assets - (2,000)
Allowance for doubtful accounts 17,231 (7,982)
(Increase) decrease in:
Accounts receivable 141,404 151,494
Inventories (272,476) (37,770)
Prepaid expenses and other current assets 26,116 (43,227)
Accounts payable and accrued expenses (140,074) (63,289)
----------- -----------
Net cash provided by (used in) operating activities (124,731) 80,041
----------- -----------
Cash flows from investing activities:
Acquisition of property, plant and equipment (40,293) (38,941)
Proceeds from sale of assets -0- 2,000
Cash paid for acquisition of EMF (674,890) -0-
----------- -----------
Net cash used in investing activities (715,183) (36,941)
----------- -----------
Cash flows from financing activities:
Issuance of common stock 132,285 34,140
Issuance of preferred stock 700,000 -0-
Preferred stock dividends paid (17,500) (17,500)
Proceeds from (payments on) long-term debt 220,396 (43,242)
Payments on short-term debt (88,473) (38,099)
Deferred financing costs incurred (16,852) -0-
----------- -----------
Net cash provided by (used in) financing activities 929,856 (64,701)
----------- -----------
Net increase (decrease) in cash 89,942 (21,601)
Cash - beginning of period 352,139 308,210
----------- -----------
Cash - end of period $ 442,081 $ 286,609
=========== ===========
Supplemental Disclosure of cash flow information:
Non-cash investing and financing activities:
Acquisition of EMF Corporation
Fair market value of current assets acquired $ 468,300
Property, plant and equipment 1,789,621
Fair market value of liabilities assumed (1,063,031)
Cash paid to seller through proceeds from EMF debt (520,000)
---------
Net Cash paid for EMF Corporation $ 674,890
5
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(Continued)
Preferred stock dividends declared $35,250
Less dividends payable at December 31, 2006 (17,750)
------
Net cash paid for dividends $17,500
======
The Company issued 710,000 shares of Series B 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 $700,000 which was used primarily to fund the
acquisition of EMF.
In connection with the acquisition of EMF, EMF borrowed
$1,050,000 of which $497,937 was used to retire existing EMF
debt, $520,000 was paid to the seller, $17,023 was used to pay
transaction costs and the remaining funds were used for working
capital.
DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The consolidated balance sheet as of September 30, 2006 was
audited and appears in the Form 10-KSB previously filed by the
Company. The consolidated balance sheet as of December 31, 2006
and the consolidated statements of operations and cash flows for
the three months ended December 31, 2006 and 2005, 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, 2006 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 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.
On October 2, 2006, Dynasil acquired 100% of the stock of
Evaporated Metal Films Corporation ("EMF") of Ithaca, NY. EMF
provides optical thin-film coatings for a broad range of
application markets including display systems, optical
instruments, satellite communications and lighting. EMF
provides products and services to optics markets which are
related to those served by Dynasil. The Dynasil financial
statements at December 31, 2006 include the EMF results of
operations since October 2, 2006.
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, 2006 Annual Report on Form 10-KSB
previously filed by the Company with the Securities and Exchange
Commission.
6
DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2 - Business Acquisition
On October 2, 2006, the Company completed its acquisition
of all of the outstanding capital stock of EMF Corporation in a
transaction accounted for as a purchase. Total cash compensation
to the seller was $1.1 million. From the proceeds of the
issuance of 710,000 shares of Series B Preferred Stock, Dynasil
paid $580,000 in cash to the seller and incurred acquisition
related costs of approximately $104,890. In a contemporaneous
bank transaction, EMF borrowed $1,050,000 of which $497,937 was
used to retire existing EMF debt, $520,000 was paid to the
seller, $17,023 was used to pay transaction costs and the
remaining funds were used for working capital. The net purchase
price of approximately $674,890 has been allocated to the
tangible and identifiable intangible assets acquired and
liabilities assumed on the basis of their estimated fair values.
The results of operations of EMF have been included in the
consolidated financial statements from October 2, 2006, the
effective date of acquisition. The allocation of purchase price
is summarized below:
Purchase price:
Cash consideration at closing $1,100,000
Reimbursed through bank financing (520,000)
Estimated costs and expenses 94,890
---------
Total cash paid $674,890
=========
Purchase price allocation:
Cash and cash equivalents $ 45,457
Accounts receivable 282,575
Inventories 75,211
Prepaid expenses and other current assets 39,157
Deferred taxes, net 25,900
Property and equipment 1,789,621
Current Liabilities assumed (1,063,031)
---------
Net fair value of assets acquired $1,194,890
=========
Note 3 - Debt
On October 2, 2006, in conjunction with the EMF acquisition, EMF
entered into Mortgage Note and Line of Credit Note borrowing
transactions with Tompkins Trust Company ("TTC") which were
guaranteed by Dynasil. The guaranteed loans include (a) a
$1,050,000 principal amount commercial mortgage (the "mortgage")
and (b) a $215,000 principal amount line of credit facility (the
"line of credit"). Proceeds of the mortgage were used to repay
certain EMF debts, to pay for part of the acquisition of EMF and
for working capital purposes. Proceeds of the line of credit
will be used for general corporate purposes. The applicable
borrowing documents were entered into at arms-length between EMF
and Dynasil, on the one hand, and TTC, on the other hand, on
commercial lending terms and conditions, including acceleration
rights, events of default, TTC's rights and remedies and similar
provisions that Dynasil believes are customary for commercial
loans of this sort. In connection with the loan transactions,
EMF and Dynasil executed and delivered to TTC customary forms of
notes, mortgage, security agreement, assignment of leases and
rents, and similar documents. The mortgage provides for
repayment over a 20 year period at a fixed annual interest rate
of 7.80% for the first 5 years, reset to a fixed annual interest
rate of 2.80 percentage points over
7
DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the Federal Home Loan Bank of New York Advance Rate for five-
year maturities at five year intervals. The term loan is
secured by a first mortgage on EMF's real estate, equipment, and
fixtures, as well as Dynasil's guarantee. The line of credit
has a term running until December 22, 2010 and carries an annual
interest rate of one-half percent over The Wall Street Journal
Prime Rate of interest, which is adjusted monthly. It is secured
by EMF's real estate, equipment and fixtures, as well as
Dynasil's guarantee.
Note 4 - Convertible Preferred Stock
On October 2, 2006, the Company sold 710,000 shares of a Series
B 10% Cumulative Convertible Preferred Stock in a private
placement. The stock was sold at a price of $1.00 per share.
Total expenses for the stock placement were $10,000. No
underwriting discounts or commissions were paid in connection
with the sale. Each share of preferred stock carries a 10% per
annum dividend and is convertible to 1.33 shares of common stock
at any time by the holders and is callable after two years by
Dynasil at a redemption price of $1.00 per share. Proceeds of
the preferred stock sale were primarily used to acquire the
capital stock of EMF and for related acquisition costs.
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:
December 31, 2006 September 30, 2006
----------------- ------------------
Raw Materials $866,565 $600,451
Work-in-Process 312,815 259,425
Finished Goods 299,955 271,772
------- -------
$1,479,335 $1,131,648
======= =======
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.
Note 7 - Stock Based Compensation
Effective in fiscal year 2007, stock-based employee
compensation expenses will be included in reported income. Until
fiscal year 2007, the Company had adopted the disclosure
provisions of SFAS No. 148 and accounted for stock-based
compensation using the intrinsic value method. Accordingly, no
compensation cost was 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
8
DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 31,2006 December 31,2005
----------- -----------
Net income, as reported $22,902 $25,425
Add: Stock-based employee
compensation expense included
in reported net income -0- -0-
Less: Total stock-based employee
compensation expense determined
under fair value based method
for all options -0- (4,636)
----------- -----------
Pro forma net profit (loss) $ 22,902 $20,789
=========== ===========
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, 2006, no options
were granted and 40,000 options were exercised. The 40,000
options had an exercise price of $0.40 per share with $16,000
paid in cash. 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. The Company cancelled 0 and 90,000 options during
the three months ended December 31, 2006 and 2005, respectively.
Compensation expenses relating to non-employee stock options
granted during the three months ended December 31, 2006 and 2005
were $-0-. On February 1, 2007, 80,000 options were granted to
a newly elected board member at a price of $2.00 per share.
Accordingly, compensation expense will be recognized for the
quarter ending March 31, 2007.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Overview
This is the first quarter of results after Dynasil
Corporation of America ("Dynasil" or the "Company" or "we")
acquired 100% of the stock of Evaporated Metal Films Corporation
("EMF") in Ithaca, NY on October 2, 2006. EMF provides optical
thin-film coatings for a broad range of application markets
including display systems, optical instruments, satellite
communications and lighting. EMF provides products and services
to optics markets which are related to those served by Dynasil's
historical operations. The Dynasil financial statements include
the EMF results from October 2, 2006 through December 31, 2006.
The
results from time periods previous to October 2, 2006 do not
include EMF.
Revenues for the first quarter of fiscal year 2007 which
ended December 31, 2006 were $2,536,297, an increase of 63.8%
over revenues of $1,548,040 for the quarter ended December 31,
2005. Net income for the quarter ended December 31, 2006 was
$22,902 or $0.00 per share, compared with a net income of
$25,425,
9
or $0.00 per share, for the quarter ended December 31, 2005.
Excluding the impact of the EMF acquisition, revenues for our
historical businesses were up 22% and net income was up 411%,
from $25,425 to $130,000, compared to the three months ended
December 31, 2005. Strong revenue growth combined with
continued process improvements drove those significant gains. As
anticipated, transitional and process improvement costs resulted
in a loss at EMF for its first quarter with Dynasil. The EMF
loss offset the outstanding improvements in our historical
businesses. Management anticipates a reduced level of EMF
losses in Quarter 2 and is targeting profitable results for the
second half of fiscal year 2007. During quarter 1, we filled
key leadership positions, developed clear goals and initiated a
strong focus to develop the disciplined processes required for
EMF to consistently execute with excellent quality, service, and
cost performance.
Results of Operations
Revenues for the three months ended December 31, 2006 were
$2,536,297, an increase of 63.8% over revenues of $1,548,040 for
the quarter ended December 31, 2005. The revenue increase came
from 22% organic growth in our historical businesses as well as
the addition of EMF.
Cost of sales for the three months ended December 31, 2006
was $1,883,862 or 74.3% of sales, an increase of 5.2 percentage
points from the three months ended December 31, 2005 of
$1,069,896, or 69.1% of sales. The higher cost of sales
resulted primarily from the EMF costs. The cost of sales for our
historical businesses actually improved by 1.3 percentage
points. The Company continues to implement cost reductions such
as manufacturing yield improvements.
Gross profit for the three months ended December 31, 2006
was $652,435, or 25.7% of sales, an increase of $174,291 over
the three months ended December 31, 2005 of $478,144, or 30.9%
of sales. Operational improvements at EMF are key to increasing
our gross profit in the future.
Selling, general and administrative ("SG&A") expenses for
the three months ended December 31, 2006 were $605,466 or 23.9%
of sales, a decrease of 3.7 percentage points from the three
months ended December 31, 2005 of $426,659 or 27.6% of sales.
The changes in SG&A expenses and percentage resulted primarily
from the impact of adding EMF SG&A expenses.
Net interest expense for the three months ended December
31, 2006 was $14,997, a decrease of $5,538 from the three months
ended December 31, 2005 of $20,535.
There is additional EMF interest expense of $20,665 that
is allocated to cost of goods sold and SG&A expense so in total,
net interest expense was $35,662. The increase in combined
interest expense is primarily related to the additional interest
payments resulting from the indebtedness incurred in connection
with the EMF acquisition.
Net income for the three months ended December 31, 2006 was
$22,902, or $.00 in basic earnings per share, which is similar
to net income for the three months ended December 31, 2005 of
$25,425 or $.00 in basic profit per share. Organic revenue
growth of 22% in our historical businesses along with continued
process improvements drove a 411% net income increase for our
historical businesses. Losses at EMF offset this improvement and
are related to transition activities. We have a strong focus at
EMF to improve our processes and deliver profitability.
The Company had a $9,070 provision for Massachusetts income
taxes for the quarter ended December 31, 2006 and a $5,525
provision for the quarter ended
10
December 31, 2005. As of September 30, 2006, the Company had
approximately $900,000 of net operating loss carry forwards to
offset future income for federal tax purposes expiring in
various years through 2021. In addition, the Company had
approximately $550,000 of net operating loss carryforwards to
offset certain future New Jersey taxable income, expiring in
various years through 2013.
Liquidity and Capital Resources
Cash increased by $89,942 for the three months ended
December 31, 2006. The primary sources of cash were net income
of $22,902, depreciation and amortization expenses that
aggregated $80,166, net borrowings of $131,924, accounts
receivable collections of $141,404, the issuance of common stock
of $132,285 and preferred stock of $700,000. The primary uses
of cash were acquisition of property, plant and equipment of
$40,293, an inventory increase of $272,476, reductions in
accounts payable and accrued expenses of $140,074, dividend
payments of $17,500 on Preferred Stock and the acquisition of
EMF of $674,890. The increase in inventory was a result of
purchasing fused silica raw material that was previously
provided as consignment inventory by our supplier as well as the
addition of EMF inventory.
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, 2006, 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 the Notes to Consolidated Financial Statements in
our Annual Report on Form 10-KSB for the fiscal year ended
September 30, 2006.
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. However, should our
operating results deteriorate, we may determine that a portion
of our long-lived assets is impaired. Such a determination could
result in non-cash charges to income that could materially and
adversely affect the Company's financial position or results of
operations for that period.
11
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 from 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 Company's Annual Report on Form 10-KSB for
the fiscal year ended September 30, 2006.
Recent Accounting Pronouncements
There were no accounting pronouncements issued since the
date of the Company's most recent Form 10-KSB filing that would
require disclosure in the current 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 "Overview", "Results of
Operations" and "Liquidity and Capital Resources" above, are
forward-looking statements that involve a number of risks and
uncertainties. The actual results of the future events described
in such forward-looking statements could differ materially from
those stated in such forward-looking statements. Among the
factors that could cause actual results to differ materially are
the risks and uncertainties discussed in this Quarterly Report
on Form 10-QSB, including, without limitation, the portions of
such reports under the captions referenced above, and the
uncertainties set forth from time to time 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 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.
12
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 adequate 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
adequately 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,
2007, the Company issued a press release announcing its
financial results for its first quarter ending December 31,
2006. 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.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and index of Exhibits
10.1 Indemnification agreement with new Dynasil Director,
Cecil Ursprung, dated 2/1/07.
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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, 2007, issued by
Dynasil Corporation of America announcing its financial
results for the second quarter ending DECEMBER 31, 2006.
(b) Reports on Form 8-K
- On 10/6/06, a current report on Form 8-K Items 1, 2, 3 and
9 for the completion of the EMF acquisition and sale of
Preferred Stock.
- On 12/15/06, an amendment of the current report on Form 8-K
dated 10/6/06 for Items 1, 2, 3 and 9 for the completion of the
EMF acquisition and sale of Preferred Stock which includes EMF
financial statements.
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, 2007
--------------------------------- --------------------
Craig T. Dunham,
President and CEO
/s/ Laura Lunardo DATED: February 14, 2007
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Laura Lunardo
Chief Financial Officer
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