8-K/A 1 dyn8k-121106.txt DYNASIL CORPORATION OF AMERICA - FORM 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K/A Current Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934 Date of Report (Date of earliest event reported) October 2, 2006 -------------------------- Dynasil Corporation of America ----------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 000-27503 22-1734088 --------------------------- ---------- ----------- (State or other (Commission (IRS Employer jurisdiction of incorporation) File Number) Identification No.) 385 Cooper Road, West Berlin, New Jersey 08091 ----------------------------------------------------------------------- (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code: (856)-767-4600 Not Applicable ----------------------------------------------------------------------- (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below): [] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 1 ITEM 1.01. ENTRY INTO A DEFINITIVE MATERIAL AGREEMENT As previously announced, on October 2, 2006, Dynasil Corporation of America, a New Jersey corporation ("Dynasil") consummated the acquisition of all of the outstanding shares of capital stock of Evaporated Metal Films Corp., a New York corporation ("EMF"), from Ms. Megan Shay for a purchase price of $1,100,000. In conjunction with that transaction and on the same day, 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 $215,000.00 principal amount line of credit facility (the "line of credit"). Proceeds of the mortgage were used to pay for 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 the rate of 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. The information set forth under Items 2.01, 3.02, and 9.01 is incorporated by reference thereto. ITEM 2.01. COMPLETION OF ACQUISITION The information set forth under Items 1.01, 3.02, and 9.01 is incorporated herein by reference. In accordance with the previously announced execution and delivery of a definitive stock purchase agreement, Dynasil acquired all the outstanding capital EMF 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's products and services are sold to optics markets that are related to those currently served by Dynasil and its Optometrics Corporation subsidiary ("Optometrics"). Dynasil purchased 100% of EMF's stock from its current owner and CEO, Ms. Megan Shay, for the payment of $1.1 million in cash at closing. Ms. Shay had no previous relationship with Dynasil, its affiliates or directors other than through EMF as an independent third party purchaser of fused silica parts from, and provider of optical coatings to, Dynasil. As part of the acquisition transaction, Ms. Shay entered into a one year employment agreement which may be extended on mutual agreement for an additional six months. Copies of the form of Stock Purchase Agreement and Megan Shay's employment agreement were attached to the Form 8-K filing dated August 22, 2006. The acquisition was funded by (a) the proceeds of a private placement by Dynasil of 710,000 shares of a new Series B Preferred Stock at a sale price of $1.00 per share to existing and new shareholders and (b) the loans described under Item 1.01 above. Mr. Craig T. Dunham, Dynasil President and CEO, purchased 173,500 shares of the new series of preferred stock for an aggregate purchase price of $173,500. Ms. Shay purchased 60,000 shares for an aggregate purchase price of $60,000 and Mr. James Saltzman, Dynasil's Chairman, purchased 15,000 shares for an aggregate purchase price of $15,000. 2 Item 3.02 UNREGISTERED SALES OF EQUITY SECURITIES The information set forth under Items 1.01, 2.01, and 9.01 is incorporated herein by reference. On October 2, 2006, Dynasil 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. No underwriting discounts or commissions were paid in connection with the sale. The securities were offered and sold only to accredited investors within the meaning of Rule 501(a) under the Securities Act of 1933, as amended (the "Act"), in a transaction conducted pursuant to section 4(2) of the Act and Regulation D thereunder. 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, subject to adjustment for certain subsequent sales of common stock or securities convertible into or exchangeable for common stock, and is callable after two years by Dynasil at a redemption price of $1.00 per share. As set forth under Item 2.01 above, the proceeds of the preferred stock sale were used to acquire the stock of EMF. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of businesses acquired - Independent's Auditor's report - EMF Corporation - Balance sheets - EMF Corporation - Statements of Operations - EMF Corporation - Statements of Retained Earnings - EMF Corporation - Statements of Cash Flow - EMF Corporation - Notes to Financial Statements - EMF Corporation (b) Pro Forma financial information - Unaudited Pro Forma Condensed Consolidated Balance Sheet of Dynasil Corporation of America, as of September 30, 2006 - Unaudited Pro Forma Condensed Consolidated Statement of Operations of Dynasil Corporation of America for the twelve months ending September 30, 2006 and the twelve months ending September 30, 2005. - Notes to the Unaudited Pro Forma Consolidated Financial Information. (c) Exhibits 2.1* Stock purchase agreement dated August 21, 2006, between Dynasil, Megan Shay, and Evaporated Metal Films Corporation, filed on Form 8-K on August 22, 2006. 3.1* Restated Certificate of Incorporation of Dynasil Corporation of America dated October 13, 2006, filed on Form 8-K dated October 19, 2006. 10.1* Loan documents for loan entered into with Tompkins Trust Company on October 2, 2006 by Evaporated Metals Film Corporation and guaranteed by Dynasil Corporation of America, filed on Form 8-K dated October 6, 2006.. * Incorporated herein by reference. (a) Financial Statements of businesses acquired 3 Report and Financial Statements for the Years Ended September 30, 2006 and 2005 Independent Auditor's Report To the Board of Directors and Stockholders Evaporated Metal Films Corporation Ithaca, New York We have audited the accompanying balance sheets of EVAPORATED METAL FILMS CORP. (a New York Corporation) as of September 30, 2006 and 2005, and the related statements of operations, changes in retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EVAPORATED METAL FILMS CORP. as of September 30, 2006 and 2005 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Haefele, Flanagan & Co., p.c. Moorestown, New Jersey December 12, 2006 F-1 Evaporated Metal Films Corporation Balance Sheets September 30,2006 and 2005 ASSETS 2006 2005 ----------- ----------- CURRENT ASSETS: Cash and equivalents $ 30,387 $ 20,362 Accounts receivable net of allowance for doubtful accounts of $65,508 for 2006 and $46,978 for 2005 370,823 320,891 Inventories 80,478 57,087 Deferred tax asset 89,800 74,900 Prepaid expenses and other current assets 42,345 57,392 ----------- ----------- Total current assets 613,833 530,632 PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment , net 958,052 938,072 ----------- ----------- TOTAL ASSETS $ 1,571,885 $ 1,468,704 =========== =========== LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: Note payable to bank 159,775 46,000 Current portion of long-term debt 62,548 175,507 Accounts payable 185,996 170,543 Accrued expenses and other current liabilities 210,219 170,826 ----------- ----------- Total current liabilities 618,538 562,876 Deferred income tax liability 63,900 83,200 Long-term debt, net 323,323 190,312 Deferred compensation 74,227 74,227 Stockholder's Equity Common stock, $.01 par value, 990,000 shares authorized, 660,000 shares issued and 110,822 shares outstanding 6,660 6,660 Additional paid-in capital 73,291 73,291 Retained earnings 835,946 902,138 ----------- ----------- 915,897 982,089 Less 551,178 shares of treasury stock (424,000) (424,000) ----------- ----------- Total stockholder's equity 491,897 558,089 ----------- ----------- Total Liabilities and Stockholder's Equity $ 1,571,885 $ 1,468,704 =========== ===========
The accompanying notes are an integral part of these financial statements. F-2 Evaporated Metal Films Corp Statements of Operations For the Years Ended September 30, 2006 and 2005 2006 2005 -------- -------- Net Sales $ 2,844,957 $ 2,515,836 Cost of Sales 2,228,156 1,999,682 -------- -------- Gross Profit 616,801 516,154 Selling, general and administrative expenses 674,477 636,147 -------- -------- Loss from operations (57,676) (119,993) Interest expense, net (42,416) (30,933) -------- -------- Loss before income taxes (100,092) (150,926) Income tax benefit 33,900 49,700 -------- -------- Net Loss $ (66,192) $ (101,226) ========= ======== See accompanying notes which are an integral part of these financial statements. Evaporated Metal Films Corporation Statements of Changes in Retained Earnings For the Years Ended September 30, 2006 and 2005 Balance, October 1, 2004 $ 1,003,364 Net loss (101,226) Balance, September 30, 2005 $ 902,138 Net loss (66,192) ----------- Balance, September 30, 2006 $ 835,946 =========== See accompanying notes which are an integral part of these financial statements. F-3 Evaporated Metal Films Corp Statements of Cash Flows For the Years Ended September 30, 2006 and 2005 2006 2005 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (66,192) $(101,226) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Provision for doubtful accounts 18,530 22,489 Deferred compensation -0- 74,227 Deferred taxes (34,200) (49,700) Depreciation and amortization 130,488 129,712 (Increase) decrease in: Accounts receivable (68,462) 17,593 Inventories (23,391) (15,603) Prepaid expenses and other current assets 15,047 21,528 Increase (decrease) in: Accounts payable 15,453 (39,554) Accrued expenses and other liabilities 39,393 ( 65,335) -------- -------- Net cash provided by (used in) operating activities 26,666 (5,869) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (150,468) (50,157) -------- -------- Net cash used for investing activities (150,468) (50,157) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 320,000 -0- Repayment of long-term debt (299,948) (48,444) Proceeds from note payable to bank, net 113,775 46,000 -------- -------- Net cash provided by (used in) financing activities 133,827 (2,444) -------- -------- Increase (decrease) in cash and equivalents 10,025 (58,470) Cash and cash equivalents, beginning 20,362 78,832 -------- -------- Cash and cash equivalents, end $ 30,387 $ 20,362 ======== ======== The accompanying notes are an integral part of these financial statements. F-4 Evaporated Metal Films Corporation Notes to Financial Statements For the Years Ended September 30, 2006 and 2005 Note 1 - Summary of Significant Accounting Policies Nature of Operations Evaporated Metal Films Corp. (the "Company") , a New York State corporation located in Ithaca, New York is a manufacturer of precision optical products. The Company's primary revenue sources are from the fabrication and coating of optical devices, and its customer base is dispersed throughout the continental United States. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company records sales revenue upon shipment to customers as the terms are generally FOB shipping point at which time title and risk of loss have been transferred to the customer, pricing is fixed or determinable and collection of the resulting receivable is reasonably assured. Returns of products shipped are and have historically not been material. The Company also provides an allowance for doubtful accounts based on historical experience and a review of its receivables. Financial Instruments The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount for long-term debt approximates fair value because the underlying instruments are primarily at current market rates. Financial instruments that potentially subject the Company to concentrations of credit risk consist of accounts receivable. In the normal course of business, the Company extends credit to certain customers. Management performs initial and ongoing credit evaluations of their customers and generally does not require collateral. Concentration of Credit Risk The Company maintains cash and cash equivalents at various financial institutions in New York. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At September 30, 2006, the Company had no uninsured bank balances. The Company has not experienced any significant losses on its cash and cash equivalents F-5 Property, Plant and Equipment and Depreciation and Amortization Property, plant and equipment are recorded at cost. Depreciation is provided using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes over the estimated useful lives of the respective assets. The estimated useful lives of assets for financial reporting purposes are as follows: building and improvements, 15 to 39 years; machinery and equipment, 5 to 10 years; office furniture and fixtures, 10 years. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property, plant and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows to be generated by the assets. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Based on these reviews, no asset impairment charges were made to the carrying value of long-lived assets during the years ended September 30, 2006 and 2005. Advertising The Company expenses all advertising as incurred. Advertising expense for the years ended September 30, 2006 and 2005 was $48,238 and $32,177. Income Taxes The Company uses the asset and liability approach to account for income taxes. Under this approach, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax credit carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates, and tax laws, in the respective tax jurisdiction then in effect. Valuation allowances are provided if it is more likely than not that some or all of the deferred tax assets will not be realized. The provision for income taxes includes taxes currently payable, if any, plus the net change during the year in deferred tax assets and liabilities recorded by the Company. Shipping and Handling Costs The Company includes some shipping and handling fees billed to customers in sales and shipping and handling costs incurred in cost of sales. F-6 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. Statement of Cash Flows For purposes of the statement of cash flows, the Company generally considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Note 2 - Inventories Inventories at September 30, 2006 and 2005 consisted of the following: 2006 2005 ------ ------ Raw materials $ 38,377 $ 14,604 Work-in-process 30,785 24,639 Finished goods 11,316 17,844 ------ ------ Total $ 80,478 $ 57,087 ====== ====== Note 3 - Property, Plant and Equipment Property, plant and equipment at September 30, 2006 and 2005 consisted of the following: 2006 2005 ------ ------ Land $ 62,646 $ 62,646 Building improvements 1,227,648 1,227,648 Machinery and equipment 3,347,072 3,205,363 Office furniture and fixtures 8,759 -0- --------- --------- 4,646,125 4,495,657 Less accumulated depreciation 3,688,073 3,557,585 --------- --------- Total $ 958,052 $ 938,072 ========= ========= Included in the cost of machinery and equipment at September 30, 2006 and 2005 are costs of $215,657 and $217,657 representing assets under capitalized lease obligations. Accumulated depreciation at September 30, 2006 and 2005 for the capitalized leases was $104,953 and $73,064. Land also represents a capital lease obligation. Depreciation expense for the years ended September 30, 2006 and 2005 was $130,488 and $129,712 of which $31,889 and $29,645 represents depreciation of assets under capitalized lease obligations. F-7 Note 4 - Debt Notes Payable to Bank As of September 30, 2006, the Company has a note payable to the bank that represents borrowings under a line of credit agreement, which bears interest at a variable rate equal to Wall Street Journal Prime Rate plus 1.5% (9.75% at September 30, 2006). The amount available under this agreement was $215,000. As of September 30, 2006, the outstanding balance was $159,775. This note is secured by the operating assets of the company and was repaid October 2, 2006. (See Note 8) At September 30, 2005, the Company had a working capital line of credit agreement with a bank which provided for a maximum borrowing of $100,000 until December 2009 at the bank's prime rate plus one percent. (7.75% at September 30, 2005). The borrowings under the line of credit required payments of interest only and were collateralized by substantially all of the Company's assets, including a mortgage on the Company's property. As of September 30, 2005, the outstanding balance was $46,000. This line of credit was refinanced in the year ended September 30, 2006. Long-term Debt Long-term debt at September 30, 2006 and 2005 consisted of the following: 2006 2005 -------- -------- Notes payable to bank in monthly installments of $3,665 including interest of 9.00%, through August 2018, secured by equipment, leasehold improvements, inventory and other assets, repaid October 2, 2006 $318,814 $ -0- Note payable to bank in monthly installments of $2,318 including interest of 5.00%, through may 2007, secured by a piece of equipment, repaid October 2, 2006 19,347 41,328 Capital equipment lease obligations payable in total monthly installments of $5,591 including interest at rates ranging from 7.65% to 20.07% due and payable through July 2007, secured by related equipment. These capital leases were repaid in 2006. -0- 82,619 Capital 99-year land lease obligation payable in total annual installments of $2,604 (installment is reduced to $238 in May of 2008) including interest of 9.23% due and payable through September 2085. Secured by land. 4,741 6,725 Capital 99-year land lease obligation payable in total annual installments of $3,300 (installment is reduced to $301 in September of 2014) including interest of 7.71% due and payable through September 2092. Secured by land. 19,667 21,323 Notes payable to two former shareholders in monthly installments of $7,338 including interest of 6.33%, through September 2008, unsecured. Repaid in 2006. -0- 190,522
F-8 2006 2005 -------- -------- Note payable to shareholder, no scheduled repayments, non-interest bearing, unsecured. 23,302 23,302 -------- -------- 385,871 365,819 Less current portion 62,548 175,507 -------- -------- $323,323 $190,312 ======== ========
As of September 30, 2006, the current portion includes $3,950 payable under capital lease obligations. The aggregate maturities of long-term debt, as of September 30, 2006 are as follows: Amount ________ September 30, 2008 $ 17,446 September 30, 2009 19,079 September 30, 2010 20,873 September 30, 2011 22,777 September 30, 2012 24,302 September 30, 2013 and thereafter 218,846 ________ Total $323,323 ======== Note 5 - Retirement Plans Defined Benefit Pension Plan The Company has a defined benefit pension plan covering hourly employees. The plan provides defined benefits based on years of service and final average salary. As of September 30, 2006, the plan was frozen. The following relates to the Company's defined benefit pension plan as of September 30, 2006 and 2005: 2006 2005 Pension benefit obligation as of September 30 $ 378,241 * $ 354,770 Fair value of plan assets as of September 30 (303,594) (298,491) ------- ------- Excess of benefit obligation over plan assets $ 74,647 $ 56,279 ======= ======= Amounts recognized on the balance sheet as: Accrued benefit costs (in accrued expenses) $ 74,647 $ 56,279 ======= ======= * The current liability was used since the plan was frozen as of September 30, 2006 F-9 Discount rate on the benefit obligation 5.81% 6.00% Rate of expected return on plan assets 5.50% 6.00% Pension expense $27,868 $ 9,579 Company contributions $ 9,500 $ 28,172 401(k) Plan The Company also has a 401(k) plan which allows all employees who meet certain requirements to defer a percentage of their wages. The plan requires the Company to match 25% of employee deferrals up to 8% of eligible compensation. The Company's contributions to the plan, including administrative expenses, for the years ended September 30, 2006 and 2005 were $7,598 and $7,872. Note 6 - Income Taxes The income tax expense (benefit) for the years ended September 30, 2006 and 2005 consists of the following: 2006 2005 ------ ------ Current State $ 300 $ -0- Deferred Federal (27,600) (40,200) State ( 6,600) ( 9,500) ------ ------ (34,200) (49,700) ------ ------ ($33,900) ($49,700) The tax provision differs from amounts that would be calculated by applying federal statutory rates to income before provision for income taxes primarily due to different tax bases of certain assets and liabilities and because the Company uses different depreciation methods for income tax purposes. Significant components of the Company's deferred tax asset (liability) at September 30, 2006 and 2005 consisted of the following: 2006 2005 ------ ------ Deferred tax asset - Current Accounts receivable $ 25,500 $ 18,300 Inventory 5,800 5,800 Unfunded pension liability 29,600 21,900 Deferred compensation 28,900 28,900 ------- ------- 89,800 74,900 Deferred tax liability - Non-current Depreciation ( 63,900) ( 83,200) ------- ------- Deferred tax asset (liability), net $ 25,900 ($ 8,300) ======= ======= F-10 Note 7 - Supplemental Disclosure of Cash Flow Information 2006 2005 Cash paid during the year for: Interest $40,823 $31,692 Taxes $ 300 $ -0- Note 8 - Subsequent Events On October 2, 2006, 100% of the common stock of Evaporated Metal Films Corp. was acquired by Dynasil Corporation of America, Inc. for $1,100,000. F-11 (b) Unaudited Pro Forma Condensed Consolidated Financial Information Introduction On October 2, 2006, Dynasil completed its acquisition of 100% of the common stock of Evaporated Metal Films Corp. (EMF) in a transaction accounted for as a purchase business combination. As consideration for the acquisition, 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 $498,936 was used to retire existing EMF debt, $520,000 was paid to the seller, $16,994 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 unaudited pro forma condensed consolidated statements of operations for the years ended September 30, 2006 and 2005 have been prepared to give effect to the acquisition as if it had occurred on October 1, 2004. The unaudited pro forma condensed consolidated balance sheet as of October 2, 2006 has been prepared to give effect to the acquisition as if it had occurred as of September 30, 2006. The historical consolidated financial statements of EMF have been prepared in accordance with U.S. generally accepted accounting principles. The unaudited pro forma adjustments are based on preliminary estimates, available information and certain assumptions and may be revised as additional information becomes available. The unaudited pro forma condensed consolidated financial information is not intended to represent Dynasil's financial position or results of operations for any future period. Since Dynasil and EMF were not under common control or management for any period presented, the unaudited pro forma condensed consolidated financial results may not be comparable to, or indicative of, future performance. This unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements of Dynasil as well as the EVAPORATED METAL FILMS CORP statements included in this report. Dynasil's historical consolidated financial statements can be found in its Annual Report on Form 10-K filed on December 13, 2006. 4 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 2, 2006 ASSETS Consolidated Dynasil EMF Eliminations Dynasil --------- --------- ------------ --------- Current assets Cash and equivalents $472,139 $ 45,457 $ $ 517,596 Accounts receivable, net 1,086,394 369,725 1,456,119 Intercompany receivable 6,843 (6,843) (0) Inventory 1,131,648 80,478 1,212,126 Deferred tax asset 89,800 89,800 Other current assets 93,067 43,443 136,510 --------- --------- ------------ --------- Total current assets 2,790,091 628,903 (6,843) 3,412,151 Property, Plant and Equipment, net 626,790 1,661,046 2,287,836 Investment in Subsidiaries 674,890 (674,890) (0) Other Assets Deferred financing costs 0 17,023 17,023 Intangibles 78,812 78,812 --------- --------- ------------ --------- Total other Assets 78,812 17,023 95,835 --------- --------- ------------ --------- TOTAL ASSETS $4,170,583 $2,306,972 (681,733) $5,795,822 LIABILITIES Consolidated Dynasil EMF Eliminations Dynasil --------- --------- ------------ --------- Current Liabilities Note payable to bank $ 190,000 $ 0 $ $ 190,000 Current portion of long-term debt 72,482 22,730 95,212 Accounts payable 390,110 185,996 576,106 Intercompany payable 4,343 2,500 (6,843) (0) Accrued expenses 368,977 207,749 576,726 --------- --------- ------------ --------- Total current liabilities 1,025,912 418,975 (6,843) 1,438,044 Long-term Debt, net 593,889 1,074,980 1,668,869 Deferred tax liability 63,900 63,900 Deferred compensation 74,227 74,227 Stockholders' Equity Common Stock 2,350 2,350 Preferred Stock 1,410 1,410 Additional paid in capital 2,799,388 674,890 (674,890) 2,799,388 Retained earnings 733,976 733,976 --------- --------- ------------ --------- 3,537,124 674,890 (674,890) 3,537,124 Less treasury stock at cost (986,342) 0 (986,342) --------- --------- ------------ --------- Total Stockholders' Equity 2,550,782 674,890 (674,890) 2,550,782 TOTAL LIABILITIES AND STOCK- HOLDERS' EQUITY $4,170,583 $2,306,972 ($681,733) $5,795,822 ========= ========= ============= =========
See accompanying notes to the unaudited pro forma condensed consolidated financial statements. 5 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006 ProForma Acquisition Pro Forma Dynasil EMF Adjustments Dynasil ---------- ---------- ------------ ---------- Sales $ 6,936,631 $ 2,844,957 $ $9,781,588 Cost of sales 4,500,791 2,228,156 (4,868)b 6,724,079 ---------- ---------- ------------ ---------- Gross profit 2,435,840 616,801 4,868 3,057,509 Selling, general and administrative expense 1,911,283 681,227 2,592,510 Income (loss) from Operations 524,557 ( 64,426) 4,868 464,999 Interest and other expense (64,376) (42,416) (40,560)a (147,352) Income (loss) before income taxes 460,181 (106,842) (35,692) 317,647 Income tax (expense) benefit (25) 30,737 30,712 ---------- ---------- ------------ ---------- Net income (loss) $460,156 $ (76,105) $(35,692) $348,359 ========== ========== ============ ========== Basic net income per share $0.09 Diluted net income per share $0.06
See accompanying notes to the unaudited pro forma condensed consolidated financial statements. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2005 ProForma Acquisition Pro Forma Dynasil EMF Adjustments Dynasil ---------- ---------- ------------ ---------- Sales $ 5,078,436 $ 2,515,836 $7,594,272 Cost of sales 3,519,845 1,999,682 (4,092)b 5,515,435 ---------- ---------- ------------ ---------- Gross profit 1,558,591 516,154 4,092 2,078,837 Selling, general and administrative expense 1,341,834 636,147 1,977,981 ---------- ---------- ------------ ---------- Income (loss) from Operations 216,757 (119,993) 4,092 100,856 Interest and other expense, net (54,488) (30,933) (40,560) (125,981) ---------- ---------- ------------ ---------- Income (loss) before income taxes 162,269 (150,926) (36,468) (25,125) Income tax benefit 10,750 49,700 0 60,450 ---------- ---------- ------------ ---------- Net income $ 173,019 $(101,226) $(36,468) $35,325 ========== ========== ============ ========== Basic net income per share $0.01 Diluted net income per share $0.01
See accompanying notes to the unaudited pro forma condensed consolidated financial statements. 6 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information Note 1 - Pro Forma Adjustments and Assumptions The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial information: The EMF acquisition has been accounted for under the purchase method pursuant to the provisions of SFAS No. 141, Business Combinations. Accordingly, the identifiable net tangible and separately identifiable intangible assets acquired and liabilities assumed were recognized at their estimated fair values as of the date of combination. The unaudited pro forma adjustments herein are based on preliminary estimates of fair value by an independent appraiser. The final allocation of the purchase price, when completed, may differ materially from the preliminary purchase price allocation herein. The total consideration paid and preliminary purchase price allocation are as follows: Purchase price: Cash consideration paid at closing $1,100,000 Reimbursed through bank financing (520,000) Estimated costs and expenses 94,890 --------- Total consideration $ 674,890 Purchase price allocation: Fair market value of net tangible assets $ 674,890 of EMF Total consideration $ 674,890 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information a) To reflect the additional interest expense that would have been incurred as a result of increased borrowings that were partly used to fund the acquisition of EMF. 7 b) To reflect the difference in depreciation of property, plant and equipment based upon the fair market valuation placed on those assets at acquisition date. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DYNASIL CORPORATION OF AMERICA Date: December 15, 2006 By: /s/ Craig Dunham -------------------------- Craig Dunham President and Chief Executive Officer 8