10QSB 1 dyn1206-10qsb.txt DYNASIL CORPORATION OF AMERICA FORM 10-QSB 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. 13 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 --------------------------------- -------------------- Laura Lunardo Chief Financial Officer 14