10QSB 1 dyn10qsb0308.txt DYNASIL CORPORATION OF AMERICA FORM 10QSB 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 MARCH 31, 2008. 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 6,740,488 shares of common stock, par value $.0005 per share, outstanding as of May 10, 2008. 1 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES INDEX PAGE PART 1. FINANCIAL INFORMATION ---- ITEM 1. FINANCIAL STATEMENTS DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES ----------------------------------------------- CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2008 AND SEPTEMBER 30, 2007 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2008 AND 2007 4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8 ITEM 3. CONTROLS AND PROCEDURES 12 PART II. OTHER INFORMATION 13 ITEM 1. LEGAL PROCEEDINGS 13 ITEM 2. CHANGES IN SECURITIES 13 ITEM 3. DEFAULTS ON SENIOR SECURITIES 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13 ITEM 5. OTHER INFORMATION 13 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 14 SIGNATURES 14 2 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31 September 30 2008 2007 (Unaudited) ---------- ---------- Current assets Cash and cash equivalents $ 518,965 $ 496,948 Accounts receivable, net of allowance for doubtful accounts of $88,990 and $98,863 and sales returns of $28,363 and $30,790 for March 31, 2008 and September 30, 2007, respectively 1,489,203 1,284,844 Inventories 1,790,567 1,832,720 Deferred tax asset 216,100 216,100 Prepaid expenses and other current assets 219,950 130,548 ---------- ---------- Total current assets 4,234,785 3,961,160 Property, Plant and Equipment, net 2,606,824 2,436,517 Other Assets 164,346 88,698 ---------- ---------- Total Assets $7,005,955 $6,486,375 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Note payable to bank- Line of credit $760,070 $311,870 Current portion long term debt 170,874 99,237 Accounts payable 393,115 684,208 Accrued expenses 560,414 587,872 ---------- ---------- Total current liabilities 1,884,473 1,683,187 Long-term Debt, net 1,482,850 1,626,980 Stockholders' Equity Common Stock, $.0005 par value, 25,000,000 shares authorized, 7,547,458 and 6,926,683 shares issued, 6,737,298 and 6,116,523 shares outstanding 3,775 3,464 Preferred Stock, $.001 par value, 10,000,000 shares 710 710 authorized, 710,000 and 710,000 shares Series B shares issued and outstanding for March 31, 2008 and September 30, 2007 respectively, 10% cumulative, convertible Additional paid in capital 3,145,416 2,983,980 Retained earnings 1,475,073 1,174,396 ---------- ---------- 4,624,974 4,162,550 Less 810,160 shares in treasury - at cost (986,342) (986,342) ---------- ---------- Total stockholders' equity 3,638,632 3,176,208 ---------- ---------- Total Liabilities and Stockholders' Equity $7,005,955 $6,486,375 ========== ==========
3 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended March 31 March 31 2008 2007 2008 2007 ---------- --------- ---------- --------- Net sales $3,045,974 $3,003,216 $5,860,880 $5,539,512 Cost of sales 2,070,418 2,144,767 3,971,438 4,028,630 ---------- --------- ---------- -------- Gross profit 975,556 858,449 1,889,442 1,510,882 Selling, general and administrative 777,348 695,633 1,456,756 1,280,435 expenses ---------- -------- ---------- -------- Income from operations 198,208 162,816 432,686 230,447 Interest expense net 42,062 39,001 75,584 74,664 ---------- --------- ---------- -------- Income before income taxes 156,146 123,815 357,102 155,783 Income taxes 10,170 11,586 20,840 20,655 ---------- --------- ---------- -------- Net income $145,976 $112,229 $336,262 $135,128 ========= ======== ========= ======== Net income per common share Basic $0.02 $0.02 $0.05 $0.02 Diluted $0.02 $0.02 $0.04 $0.01 Weighted average shares outstanding 7,461,992 4,943,093 7,192,658 4,599,067
4 DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended March 31 2008 2007 ---------- ----------- Cash flows from operating activities: Net income $ 336,262 $ 135,128 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 181,047 165,392 Amortization expense 8,148 7,806 Allowance for doubtful accounts and sales returns (12,300) 21,637 Stock based compensation 9,620 11,366 (Increase) decrease in: Accounts receivable (178,770) (127,501) Inventories 42,153 (210,195) Prepaid expenses and other current assets (93,638) (19,065) Increase (decrease) in: Accounts payable and accrued expenses (318,543) (250,803) ----------- ---------- Net cash used in operating activities ( 26,021) (266,235) ----------- ---------- Cash flows from investing activities: Acquisition of property, plant and equipment (101,354) (123,206) Cash paid for acquisition of EMF -0- (674,890) Cash paid for acquisition of POC (250,000) -0- Acquisition costs (92,851) -0- ----------- ---------- Net cash used in investing activities (444,205) (798,096) ----------- ---------- Cash flows from financing activities: Issuance of common stock 152,036 168,461 Issuance of preferred stock -0- 700,000 Payments on long-term debt (73,195) (47,778) Proceeds from short-term debt 448,902 251,870 Deferred financing costs incurred -0- 174,816 Payments on short-term debt -0- (227,278) Preferred stock dividends paid (35,500) (48,340) --------- ----------- Net cash provided by financing activities 492,243 971,751 --------- ----------- Net increase(decrease) in cash 22,017 (92,580) Cash - beginning of period 496,948 352,139 --------- ----------- Cash - end of period $ 518,965 $ 259,559 ========== =========== Supplemental Disclosure of cash flow information: Preferred stock dividends declared $35,500 $66,090 Less dividends payable at March 31 -0- (17,750) Net cash paid for dividends $35,500 $48,340
5 DYNASIL CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - Basis of Presentation The consolidated balance sheet as of September 30, 2007 was audited and appears in the Form 10-KSB previously filed by the Company. The consolidated balance sheet as of March 31, 2008 and the consolidated statements of operations for the three and six months ended March 31, 2008 and 2007 and cash flows for the six months ended March 31, 2008 and 2007, 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 March 31, 2008 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year. 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, 2007 Annual Report on Form 10-KSB previously filed by the Company with the Securities and Exchange Commission. Certain items in the 2007 statement of operations have been restated to conform with the 2008 financial statement presentation. Note 2 Business Acquisition On January 18, 2008, the company, through its wholly owned subsidiary Optometrics Corporation, entered into an Asset Purchase Agreement with Precision Optics Corporation, Inc., a Massachusetts corporation and manufacturer of optical products. Pursuant to the agreement, the Company acquired certain equipment used to create optical filters, certain inventory, intellectual property and a customer list for a cash purchase price of $250,000. The asset purchase was recorded under the purchase method of accounting which requires the total consideration be allocated to the assets acquired and liabilities assumed based on their fair values. The total purchase price of $250,000 was allocated to fair value of the equipment. In addition, for a period of three years after the closing, the Company agreed to pay Precision Optics Corporation, Inc. a royalty of 25% of revenues from products sold to those customers on the customer list to the extent such revenues exceed $300,000 during a calendar year. The financial statements in this report include the results of operations from the asset purchase from January 18, 2008 through March 31, 2008. Note 3 - Debt On December 13, 2007, Dynasil's available line of credit with Susquehanna Bank was increased from $200,000 to $475,000. The interest rate was reduced to Susquehanna Bank's prime rate. All other terms remained unchanged. Note 4 - 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 6 DYNASIL CORPORATION OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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: March 31, 2008 September 30, 2007 ----------------- ------------------ Raw Materials $1,090,372 $1,145,249 Work-in-Process 198,728 336,203 Finished Goods 501,467 351,268 ------- --------- $1,790,567 $1,832,720 ========= ========= Note 5 - 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 6 - Stock Based Compensation The fair value of stock options granted was estimated at the date of grant using the Black-Scholes options pricing model. The Company used the following assumptions for determining the fair value of options granted under the Black-Scholes option pricing model: Expected term in years 3 years Risk-free interest rate 4.79% Expected volatility 6.76% Expected dividend yield 0.00% The expected volatility was determined with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. During the three months ended March 31, 2008, -0- stock options were granted and -0- options were exercised. For three months ended March 31, 2008, total stock-based compensation charged to operations for option-based arrangements amounted to $9,620 for options granted one year ago which became exercisable. During the six months ended March 31, 2008, 50,000 stock options were granted at a price of $2.00 per share and -0- options were exercised. The granted stock options cannot be exercised until 2009 and therefore stock-based compensation expense totaling $1,418 will be recognized at that time if they become exercisable. At March 31, 2008, there was approximately $1,418 of total unrecognized compensation expense related to non-exercisable option-based compensation arrangements under the Plan. The Company cancelled -0- options during the six months ended March 31, 2008. Compensation expense relating to non-employee stock options granted during the six months ended March 31, 2008 were $-0-. 7 DYNASIL CORPORATION OF AMERICA Note 7 Subsequent Event At Dynasil's annual meeting on February 5, 2008, shareholders approved a proposal to reincorporate the Company as a Delaware corporation. That reincorporation process was completed on or about May 13, 2008. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Overview Dynasil Corporation of America ("Dynasil", the "Company" or "we") revenues for the second quarter of fiscal year 2008 which ended March 31, 2008, were $3,045,974, an increase of 1.4% over revenues of $3,003,216 for the quarter ended March 31, 2007. Net income for the quarter ended March 31, 2008 was $145,976 or $0.02 per share, an increase of 30% over net income of $112,229, or $0.02 per share, for the quarter ended March 31, 2007. Our EMF Corporation ("EMF") subsidiary had its third consecutive profitable quarter which was the primary driver for the net income increase. Year to date revenues of $5.9 million are up 5.6% versus last year and net profit of $336,262 is up 149% versus $135,128 for the six months ended March 31, 2007. On December 20, 2007, we announced our entry into a letter of intent to acquire an advanced instrument company that, if completed, is expected to more than triple our revenues and profitability. As of the date of this Report, we have completed the majority of due diligence, are working on definitive agreements, have obtained non-binding term sheets for bank financing on favorable terms and are engaged in arranging necessary equity financing. We are currently targeting a July 1, 2008 closing date to coincide with the end of the instruments company fiscal year. On January 18, 2008, we completed the acquisition of the optical filter product line from Precision Optics Corporation which is being fully integrated into our Optometrics Corporation ("Optometrics") subsidiary location and is expected to add about $500,000 of additional revenues per year. We continue to execute our strategy of profitable growth through organic growth and acquisitions. Results of Operations Revenues for the three months ended March 31, 2008 were $3,045,974, an increase of 1.4% over revenues of $3,003,216 for the quarter ended March 31, 2007. Revenues for the six months ended March 31, 2008 were $5,860,880, an increase of 5.6% over revenues of $5,539,512 for the quarter ended March 31, 2007. The revenue increases came from organic growth and the Precision Optics acquisition. Year to date revenues for EMF are up 15% and for Optometrics are up 19%. We are managing our New Jersey optical materials business to maximize cash and revenues are down 10% year to date, primarily due to the loss of a high volume, low margin business in the quarter ending March 31, 2008, which was expected to occur. Cost of sales for the three months ended March 31, 2008 was $2,070,418 or 67.9% of sales, a decrease of 3.5 percentage points from the three months ended March 31, 2007 of $2,144,767, or 71.4% of sales. Cost of sales for the six months ended March 31, 2008 was $3,971,438 or 67.7% of sales, a decrease of 5.0 percentage points from the six months ended March 31, 2007 of $4,028,630, or 72.7% of sales. The largest driver in the cost of sales improvement was the productivity improvements at EMF. 8 DYNASIL CORPORATION OF AMERICA Gross profit for the three months ended March 31, 2008, was $975,556, or 32.1% of sales, an increase of $117,107 over the three months ended March 31, 2007 of $858,449, or 28.5% of sales. Gross profit for the six months ended March 31, 2008, was $1,889,442, or 32.3% of sales, an increase of $378,560 over the six months ended March 31, 2007 of $1,510,882, or 27.3% of sales. Operational improvements at EMF and increased revenues are the key factors for the significant gross profit increase. Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2008, were $777,348 or 25.5% of sales, an increase of 2.4 percentage points from the three months ended March 31, 2007 of $695,633 or 23.1% of sales. SG&A expenses for the six months ended March 31, 2008, were $1,456,756 or 24.8% of sales, an increase of 1.7 percentage points from the six months ended March 31, 2007 of $1,280,435 or 23.1% of sales. The changes in SG&A expenses and percentages resulted primarily from the addition of staffing to prepare for anticipated future growth and Sarbanes Oxley section 404 implementation costs, for which the majority of our estimated out of pocket expenses occurred during the quarter ended March 31, 2008. We are in the process of recruiting a full time CFO in conjunction with the expected advanced instrument company acquisition. Net interest expense for the three months ended March 31, 2008, was $42,062, compared to $39,001 for the three months ended March 31 2007. Net interest expense for the six months ended March 31, 2008, was $75,584, compared to $74,664 for the three months ended March 31 2007. Net income for the three months ended March 31, 2008, was $145,976 or $0.02 in basic earnings per share, which is up 30% from net income for the three months ended March 31, 2007, of $112,229, or $0.02 in basic profit per share. Net income for the six months ended March 31, 2008, was $336,262 or $0.05 in basic earnings per share, which is up 149% from net income for the six months ended March 31, 2007, of $135,128, or $0.02 in basic profit per share. The turn-around of EMF results was the largest factor for the large net income increase. The Company had a $10,170 provision for income taxes for the quarter ended March 31, 2008, and an $11,586 provision for the quarter ended March 31, 2007. The Company had a $20,840 provision for income taxes for the six months ended March 31, 2008, and a $20,655 provision for the six months ended March 31, 2007. The income taxes were primarily for Massachusetts. As of September 30, 2007, the Company had approximately $674,200 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 $585,800 of net operating loss carry forwards to offset certain future New Jersey taxable income, expiring in various years through 2013. Liquidity and Capital Resources Cash increased by $22,017 for the six months ended March 31, 2008. The primary sources of cash were net income of $336,262, depreciation and amortization expenses that aggregated $189,195, net borrowings of $375,707, and the issuance of common stock of $152,036. The primary uses of cash were acquisition of property, plant and equipment of $101,354, acquisition of Precision Optics assets of $250,000, increases in accounts receivable of $178,770, acquisition costs for the advanced instrument company of $92,851 and decreases in accounts payable and accrued expenses of $318,543. The Company believes that its current cash and cash equivalent balances, along with the net cash generated by operations and credit lines, are 9 DYNASIL CORPORATION OF AMERICA 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, greater than $100,000, in the next six to nine months. Any major business expansions or acquisitions, including the planned acquisition of an advanced instrument company discussed elsewhere in this Report, likely will require the Company to seek additional debt and/or equity financing. Acquisitions We continue to execute our strategy of significant growth through acquisitions as well as organic growth and effective execution in our businesses. On December 20, 2007, we announced that we had entered into a Letter of Intent to acquire a privately-owned advanced instruments company which, if completed, is expected to more than triple our revenues and profitability. The targeted company makes high growth potential instruments which are sold into the medical, environmental sensing and quality instrumentation markets. It also has a significant research and development team performing a number of government contracts for the Department of Homeland Security and other government agencies. Management expects that the acquisition would be transformational for Dynasil in that it would move us from a predominantly component-based supply company to an instrumentation company with a considerable intellectual property portfolio and extensive technology capability as well as more than tripling expected revenues and profitability. Consummation of the transaction is contingent on completion of definitive acquisition agreements, due diligence, and obtaining financing. The majority of due diligence has been completed and definitive agreements are in-process. Non-binding bank term sheets have been obtained for at least $10 million of senior loan financing on favorable terms. We also are in the process of arranging required equity financing. Dynasil has acquired two other companies and one product line during the last three years and has delivered significant performance improvements at all of its business units. On January 18, 2008, we closed the acquisition of an optical filter product line from Precision Optics Corporation, Inc. ("POC") located in Gardner, MA. The purchase included the intellectual property, customer base and equipment to produce a variety of high performance optical filters that extend the market offerings of Optometrics in Ayer, MA. In addition to a $250,000 up-front cash payment, there is a royalty agreement on existing business for three years. This purchase fits our strategy of add-on acquisitions to grow our existing businesses. We are in the process of fully integrating the additional optical filter business into our Ayer, MA location and anticipate incremental revenues of at least $500,000 per year which we expect to be immediately accretive to earnings. The intellectual property and know-how adds a significant capability set to the Company. Critical Accounting Policies and Estimates There have been no material changes in our critical accounting policies or critical accounting estimates since September 30, 2007. We have not adopted any 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, 2007. 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: 10 DYNASIL CORPORATION OF AMERICA 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. Estimating Allowances for Doubtful Accounts Receivable We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been minimal, within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectibility of our accounts receivable and our future operating results. Valuation of Deferred Tax Assets We regularly evaluate our ability to recover the reported amount of our deferred income taxes considering several factors, including our estimate of the likelihood of the Company generating sufficient taxable income in future years during the period over which temporary differences reverse. The Company believes that some of these carry forwards 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, 2007. Stock-Based Compensation Compensation costs are recognized for stock options granted to employees and directors. Options and warrants granted to employees and non- employees are recorded as an expense at the date that the grant becomes exercisable based on the estimated fair value of the security in question as of the grant date, determined using the Black Scholes option pricing model. Recently Issued Accounting Standards In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141 (revised 2007), Business Combinations, which replaces SFAS No 141. The statement retains the 11 DYNASIL CORPORATION OF AMERICA purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for us beginning October 1, 2009 and will apply prospectively to business combinations completed on or after that date. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51,or SFAS No.160. SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. We believe that SFAS 160 should not have a material impact on our financial position or results of operations. In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement is not expected to have a material effect on the Company's future financial position or results of operations. 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", "Liquidity and Capital Resources" and "Acquisitions" 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. ITEM 3 CONTROLS AND PROCEDURES As required by Rule 13a-15(e) under the Exchange Act, our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of the end of the period covered by the report and have determined that such disclosure controls and procedures are effective. 12 DYNASIL CORPORATION OF AMERICA There has been no change in our internal control over financial reporting in connection with this evaluation that occurred during our last fiscal quarter that materially affected, or it is reasonably likely to materially affect, our internal control over financial reporting. PART II OTHER INFORMATION ------------------ ITEM 1 LEGAL PROCEEDINGS The information set forth under Item 5 with respect to the Summons with Notice received by EMF is incorporated herein by reference. 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 May 15, 2008, the Company issued a press release announcing its financial results for its first quarter ending March 31, 2008. 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 ("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. On or about May 6, 2008, EMF received a copy of Summons with Notice (the "Summons") filed on January 18, 2008 in the Supreme Court of the State of New York, County of Albany, by the New York State Attorney General on behalf of the State of New York Workers' Compensation Board, as plaintiff. The Summons requires EMF, which is one of a large number of defendants, to appear in the action commenced by the plaintiff alleging its entitlement to recover previously billed and unpaid assessments aggregating approximately $1 million and other, but as yet undetermined, assessments which could aggregate to more than $25 million from the defendants based upon their participation on a joint and several liability basis in a Manufacturing Self Insurance Trust that closed on or about August 31, 2007. EMF has engaged counsel to appear for it in this action. Although the action is in an early state, EMF believes that its ultimate liability, if any, in this matter will not have a material adverse effect on its financial condition. 13 DYNASIL CORPORATION OF AMERICA ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits and index of Exhibits 31.1(a) and (b) Rule 13a-14(a)/15d-14(a) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Section 1350 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished but not filed for purposes of the Securities Exchange Act of 1934) 99.1 Press release, dated May 15, 2008 issued by Dynasil Corporation of America announcing its financial results for the second quarter ending March 31, 2008. (b) Reports on Form 8-K On January 22, 2008, a current report on Form 8-K Items 1, 2, and 9 for entering into a definitive agreement and completing the acquisition of a product line from Precision Optics Corporation on January 18, 2008. 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: May 15, 2008 --------------------------------- ------------------ Craig T. Dunham, President and CEO /s/ Laura S. Lunardo DATED: May 15, 2008 ---------------------------- -------------------- Laura S. Lunardo Chief Financial Officer 14