UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
--- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
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 registrant as specified in its charter)
Delaware 22-1734088
-------------- -------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
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385 Cooper Road, West Berlin, New Jersey, 08091
(Address of principal executive offices)
(856) 767-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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) XX Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer Accelerated filer
------ -----
Non-accelerated filer Smaller reporting company XX
------ ------
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Indicate by check mark whether the registrant is a shell company
Yes XX No
The Company had 11,377,325 shares of common stock, par value $.0005 per share,
outstanding as of August 5, 2009.
1
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION 3
Item 1. Financial Statements
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2009
AND SEPTEMBER 30, 2008 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND NINE MONTHS ENDED JUNE 30, 2009 AND 2008 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED JUNE 30, 2009 AND 2008 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About 15
Market Risk
Item 4T. Controls and Procedures 15
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use 16
of Proceeds
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits 16
Signatures 17
2
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30 September 30
2009 2008
(Unaudited)
---------- ----------
Current assets
Cash and cash equivalents $ 3,196,064 $3,882,955
Accounts receivable, net of allowance for doubtful
accounts of $25,870 and $70,165 and sales
returns of $4,177 and $8,200 for
June 30, 2009 and
September 30, 2008, respectively 3,813,386 3,390,703
Inventories 2,503,135 2,909,730
Deferred tax asset 233,500 233,500
Prepaid expenses and other current assets 294,220 259,896
---------- ----------
Total current assets 10,040,305 10,676,784
Property, Plant and Equipment, net 2,669,597 2,694,290
Other Assets
Intangibles, net 7,365,840 7,767,258
Goodwill 11,054,396 11,054,396
Deferred financing costs, net 65,615 81,136
Other assets 3,091 8,360
---------- ----------
Total other assets 18,488,942 18,911,150
---------- ----------
Total Assets $31,198,844 $32,282,224
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short Term Note Payable $ -0- $ 490,117
Current portion of long term debt 1,706,605 1,649,101
Accounts payable 922,829 1,026,675
Billings in excess of costs -0- 216,946
Accrued expenses and other current liabilities 1,568,354 1,440,222
---------- ----------
Total current liabilities 4,197,788 4,823,061
Long-term Liabilities
Long-term debt, net 6,844,976 8,178,420
Note payable to related party 2,000,000 2,000,000
---------- ----------
Total long-term liabilities 8,844,976 10,178,420
Stockholders' Equity
Common Stock, $.0005 par value, 40,000,000 shares
authorized, 12,182,093 and 12,142,849 shares issued,
11,371,933 and 11,332,689 shares outstanding 6,091 6,072
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3
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (Continued)
Preferred Stock, $.001 par value, 15,000,000
Shares authorized, 5,966,000 shares 5,966 5,966
issued and outstanding for June 30, 2009 and
September 30, 2008, 10% cumulative,
convertible
Additional paid in capital 16,284,946 16,122,185
Retained earnings 2,845,419 2,132,862
---------- ----------
19,142,422 18,267,085
Less 810,160 shares in treasury - at cost (986,342) (986,342)
---------- ----------
Total stockholders' equity 18,156,080 17,280,743
---------- ----------
Total Liabilities and Stockholders' Equity $31,198,844 $32,282,224
========== ==========
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4
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
June 30 June 30
2009 2008 2009 2008
---------- -------- ---------- ---------
Net sales $8,512,892 $2,676,263 $25,883,053 $8,537,144
Cost of sales 4,860,590 1,972,006 15,440,128 6,097,322
---------- --------- ---------- ----------
Gross profit 3,652,302 704,257 10,442,925 2,439,822
Selling, general and administrative
expenses 2,957,111 598,483 8,335,105 1,901,361
---------- --------- ---------- ----------
Income from operations 695,191 105,774 2,107,820 538,461
Interest expense, net 160,367 39,191 567,025 114,774
---------- --------- ---------- ---------
Income before income taxes 534,824 66,583 1,540,795 423,687
Income taxes 141,456 13,581 387,654 34,421
---------- --------- ---------- ---------
Net income $393,368 $ 53,002 $1,153,141 $389,266
========== ========= ========== ==========
Basic net income per common share $0.02 $0.01 $0.06 $0.05
Diluted net income per common share $0.02 $0.00 $0.06 $0.05
Weighted average shares outstanding
Basic 11,371,933 6,743,853 11,362,745 6,559,629
Diluted 12,346,636 7,443,784 12,337,448 7,259,560
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5
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30
2009 2008
---------- -----------
Cash flows from operating activities:
Net income $1,153,141 $ 389,266
Adjustments to reconcile net income to net cash used
in operating activities:
Provision for doubtful accounts and sales returns (48,318) (25,461)
Depreciation and amortization 732,725
288,036
Stock Based Compensation 96,345 42,420
(Increase) decrease in:
Accounts receivable (374,360) (2,993)
Inventories 406,595 (204,129)
Prepaid expenses and other current assets (34,324) (72,342)
(Decrease) increase in:
Accounts payable and accrued expenses (190,367) (204,705)
----------- ----------
Net cash provided by operating activities 1,741,437 210,092
----------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (292,567) (192,904)
Cash paid for acquisition of POC -0- (250,000)
Acquisition costs -0- (164,953)
Decrease in other assets 5,269 -0-
----------- ----------
Net cash used in investing activities (287,298) (607,857)
----------- ----------
Cash flows from financing activities
Issuance of common stock 66,347 173,507
Proceeds (payments) short-term debt (490,117) 248,200
Payments on long-term debt (1,275,940) (95,736)
Deferred financing costs 6,130 -0-
Preferred stock dividends paid (447,450) (53,250)
----------- ----------
Net cash provided by (used in) financing activities (2,141,030) 272,721
----------- ----------
Net decrease in cash and cash equivalents (686,891) (125,044)
Cash and cash equivalents, beginning 3,882,955 496,948
----------- ----------
Cash and cash equivalents, ending $3,196,064 $ 371,904
=========== ==========
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DYNASIL CORPORATION OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The consolidated balance sheet as of September 30, 2008 was audited and
appears in the form 10-KSB previously filed by the company. The consolidated
balance sheet as of June 30, 2009 and the consolidated statements of
operations for the three months and nine months ended June 30, 2009 and 2008
and cash flows for the nine months ended June 30, 2009 and 2008, 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 June 30, 2009 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, 2008 Annual Report on Form 10-KSB previously filed by
the Company with the Securities and Exchange Commission.
Certain items between goodwill and intangibles in the 2008 balance sheet
have been reclassified to conform to 2009 financial statement presentation.
Note 2 - Business Acquisition
On July 1, 2008, the Company completed its acquisition of all the
outstanding capital stock of RMD Research and the specific assets and
liabilities of RMD Instruments in transactions that were accounted for as a
purchase. The following is the proforma statement of operations for the 9
months ended June 30, 2008, assuming the transaction had been consummated at
the beginning of the year ended September 30, 2007.
Dynasil Corporation of America and Subsidiaries
Pro Forma Statement of Operations
9 months Ended June 30, 2008
Net Sales $25,795,335
Cost of Sales 14,004,999
-----------
Gross Profit 11,790,336
Selling, general and administrative expenses 9,761,219
----------
Income from operations 2,029,117
Interest (expense), income net (590,714)
---------
Income before income taxes 1,438,403
Income tax (expense) (351,807)
----------
Net income 1,086,596
==========
Basic net income per common share 0.06
Diluted net income per common share 0.05
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Note 3 - 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
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:
June 30, 2009 September 30, 2008
----------------- ------------------
Raw Materials $1,814,525 $2,110,138
Work-in-Process 375,715 467,590
Finished Goods 312,893 332,002
----------------- ------------------
$2,503,133 $2,909,730
================= ==================
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Note 4 - Billings in Excess of Costs
Billings in Excess of Costs relates to research and development contracts
and consists of billings at provisional contract rates less actual costs plus
fees. The balance is zero at June 30, 2009 because actual costs are in line
with provisional contract rates at that date.
Note 5 - Net Income Per Share
Basic net income per common share is computed by dividing the net income
applicable to common shares after preferred dividend requirements, if
applicable, by the weighted average number of common shares outstanding during
each period. Diluted net income per common share adjusts basic earnings per
share for the effects of common stock options, common stock warrants,
convertible preferred stock and other potential dilutive common shares
outstanding during the periods.
For purposes of computing diluted earnings per share, 974,703 and 699,931
common share equivalents were assumed to be outstanding for the periods ended
June 30, 2009 and 2008 respectively. The effect of assumed conversion of the
Series C Preferred Stock into 2,102,400 common shares, as well as certain
stock options, was antidilutive and therefore excluded from the computations.
The computation of basic and diluted net income per common share is as
follows:
Calculation of Net Income for Basic Earnings per Share
June 30, 2009 June 30, 2008
------------ ------------
Net income $ 1,153,141 $ 389,266
Less: Preferred stock dividends $(447,450) ( 53,250)
--------- -----------
Net Income allocable to common shareholders $ 705,691 $ 336,016
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Calculation of Net Income for Diluted Earnings per Share
June 30, 2009 June 30, 2008
------------ ------------
Net income $ 1,153,141 $ 389,266
Less: Preferred stock dividends $(394,200) -0-
--------- -----------
Net Income for Dilutive Earnings per Share $ 758,941 $ 389,266
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June 30, 2009 June 30, 2008
------------ ------------
Weighted average shares outstanding
Basic 11,362,745 6,559,629
Effect of dilutive securities
Stock Options 30,403 97,854
Stock Warrants -0- -0-
Convertible Preferred Stock 944,300 602,077
---------- ---------
Diluted average shares outstanding 12,337,448 7,259,560
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Note 6 - Stock Based Compensation
The fair value of the stock options granted was estimated at the date of
grant using the Black-Scholes options pricing model. The list of assumptions
used for the Black-Scholes option pricing model is presented below with
numbers shown for the most recent grant:
June 30, 2009
Expected term in years 3 years
Risk-free interest rate 4.29%
Expected volatility 48.05%
Expected dividend yield 0.00%
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The expected volatility was determined with reference to the historical
volatility of the Company's stock. The expected term of options granted
represents the period of time for which the options have been granted. 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 June 30, 2009, 75,000 stock options were
granted at $1.50 per share (valued at $16,470) and no stock options were
exercised. For three months ended June 30, 2009, total stock-based
compensation charged to operations amounted to $42,470. At June 30, 2009,
there was approximately $30,125 of total unrecognized compensation expense
related to non-exercisable option-based compensation arrangements under the
Plan. During the nine months ended June 30, 2009, 420,246 stock options were
granted at prices ranging from $1.50 to $1.73 per share and 13,000 stock
options were exercised. Of the granted stock options, 55,000 cannot be
exercised until 2010, therefore the stock-based compensation expense totaling
$12,082 will be recognized at that time if they become exercisable. The 13,000
stock options exercised had an exercise price of $.85 per share with $11,050
paid in cash. For the nine months ended June 30, 2009, total stock-based
compensation charged to operations amounted to $96,345. The Company cancelled
147,000 options during the nine months ended June 30, 2009.
Note 7 Material Subsequent Events
During July 2009, the Dynasil Board of Directors (the "Board") engaged an
independent consulting firm to review Dynasil's directors' compensation
program to the programs offered by comparable companies. That firm's analysis
showed that Dynasil's overall directors' and committee chair compensation
levels were moderately lower than comparable companies. In view of current
economic conditions, the Board elected not to change its compensation programs
in those areas. However, the firm's analysis of Dynasil's board chair
compensation level indicated a significant shortfall relative to comparable
companies. The firm's analysis concluded that current Dynasil Chairman, Mr.
James Saltzman, provided services to Dynasil which warranted targeting the
75th percentile of market for similar sized public companies and that the
comparable compensation for that level of services was approximately $80,000
per year. As a result, effective August 1, 2009, the Board increased the
annual total directors' fees including fees for service as the board's chair
for Mr. Saltzman from $45,000 to $80,000.
9
Also, in recognition that past director compensation paid to Mr. Saltzman has
not adequately reflected the value to the Corporation of the services provided
and responsibilities handled by Mr. Saltzman as Chairman of the Corporation, a
one time equity grant of $85,000 was authorized. The $85,000 in equity has
been paid through: (a) the issuance of 22,772 shares of the Corporation's
common stock at a deemed issuance price of $1.16 (representing the average
market price of shares of the Corporation's common stock during the previous
ninety days) and (b) the grant of five year stock options to acquire an
aggregate of 200,000 shares of the Corporation's common stock at an exercise
price of $2.00 per share and which shall vest over a three year period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with our financial statements and the notes thereto in the
Company's Form 10-KSB for the fiscal year ending September 30, 2008.
General Business Overview
This is the fourth quarter of results after Dynasil Corporation of
America ("Dynasil", the "Company" or "we"), acquired the stock of Radiation
Monitoring Devices, Inc. ("RMD Research") and specific assets of RMD
Instruments, LLC ("RMD Instruments") on July 1, 2008, which are advanced
instruments and research companies located in Watertown, MA. RMD Instruments
and RMD Research are referred to, together, in this Report as "RMD". Revenues
for the third quarter of fiscal year 2009 which ended June 30, 2009 were
$8,512,892, an increase of 218% over revenues of $2,676,263 for the quarter
ended June 30, 2008. Income from Operations for the quarter was $695,191, an
increase of 557% over Income from Operations of $105,774 for the quarter ended
June 30, 2008. Net income for the quarter was $393,368 or $0.02 per share,
compared with a net income of $53,002, or $0.01 per share, for the quarter
ended June 30, 2008. Net Operating Loss carry forwards for federal taxes were
exhausted during fiscal year 2008 so third quarter net income was impacted by
increased federal taxation as well as higher interest costs which are
primarily related to the RMD acquisition. Year to date revenues of
$25,883,053 are up 203% versus last year's $8,537,144, year to date income
from operations of $2,107,820 is 291% above last year's $538,461 and year to
date net profit of $1,153,141 is up 196% versus $389,266 for the nine months
ended June 30, 2008.
Results of Operations
The revenue increases mentioned above came largely from the acquisition
of RMD. RMD Research's revenues were strong for the quarter while commercial
revenues at all locations were down from the prior year's comparable quarter.
Dynasil management believes that the revenue reductions were primarily due to
the worldwide economic slowdown. Dynasil management expects that the fourth
quarter will continue the third quarter pattern of reduced commercial revenues
and strong contract research revenues. Management has increased new product
and new customer sales efforts with the goal of offsetting the anticipated
reduced level of product shipments to existing customers. Management has also
focused more resources towards the commercialization of products from RMD
contract research.
Cost of sales for the three months ended June 30, 2009 was $4,860,590 or
57.1% of sales, an improvement of 16.6 percentage points from the three months
ended June 30, 2008 of $1,972,006, or 73.7% of sales. Cost of sales for the
nine months ended June 30, 2009 was $15,440,128 or 59.6% of sales, an
improvement of 11.8 percentage points from the nine months ended June 30, 2008
of $6,097,332 or 71.4% of sales. The largest driver of the cost of sales
change was the addition of RMD.
10
Gross profit for the three months ended June 30, 2009, was $3,652,302, or
42.9% of sales, a 419% increase from $704,257 or 26.3% of sales for the three
months ended June 30, 2008. Gross profit for the nine months ended June 30,
2009 was $10,442,925, or 40.3% of sales, an increase of 328% over the nine
months ended June 30, 2008 of $2,439,822 or 28.6% of sales. The improved
margins were due primarily to the RMD acquisition. Steps taken to reduce
material costs and improve productivity at all commercial units, along with
moving to a 4 day work week for production personnel at 3 of our commercial
units also contributed to improved margins.
Selling, general and administrative ("SG&A") expenses for the three
months ended June 30, 2009, were $2,957,111 or 34.7% of sales, an increase of
12.4 percentage points from the three months ended June 30, 2008 of $598,483
or 22.3% of sales. SG&A expenses for the nine months ended June 30, 2009 were
$8,335,105 or 32.2% of sales, an increase of 10 percentage points from the
nine months ended June 30, 2008 of $1,901,361 or 22.2% of sales. The changes
in SG&A expenses and percentages resulted primarily from the addition of RMD.
Personnel reductions at several locations and a 4 day work week for
administrative staff at two locations also contributed to reduced
administrative costs.
Income from Operations for the three months ended June 30, 2009 was
$695,191, an increase of 557% over Income from Operations of $105,774 for the
quarter ended June 30, 2008. Income from Operations for the nine months ended
June 30, 2009 was $2,107,820, an increase of 291% over Income from Operations
for the nine months ended June 30, 2008 of $538,461. Again, the major driver
behind the increase in income from operations was the RMD acquisition.
Net interest expense for the three months ended June 30, 2009 was
$160,367, compared to $39,191 for the three months ended June 30, 2008. Net
interest expense for the nine months ended June 30, 2009 was $567,025,
compared to $114,774 for the nine months ended June 30, 2008. The increase in
net interest expense is primarily related to the additional interest
resulting from the indebtedness incurred in connection with the RMD
acquisition.
Net income for the three months ended June 30, 2009, was $393,368 or
$0.02 in basic earnings per share, which is up $340,366 from net income for
the three months ended June 30, 2008, of $53,002, or $.01 in basic earnings
per share. Net income for the nine months ended June 30, 2009 was $1,153,141,
or $.07 in basic earnings per share, which is up 196% from net income for the
nine months ended June 30, 2008, of $389,266 or $.05 in basic earnings per
share. Compared to the quarter ended June 30, 2008, net income was impacted
primarily by increased income resulting from the RMD acquisition partly offset
by increased federal taxation, and higher interest costs related to the RMD
acquisition.
The Company had a $141,456 provision for income taxes for the quarter
ended June 30, 2009 and a $13,581 provision for the quarter ended June 30,
2008. The Company had a $387,654 provision for income taxes for the nine
months ended June 30, 2009, and a $34,421 provision for the nine months ended
June 30, 2008. Most federal and New Jersey state taxes for the quarter and
nine months ending June 30, 2008 were offset by utilization of net operating
loss carry-forwards. As of September 30, 2008, Dynasil had no further net
operating loss carry-forwards to offset future taxable income for federal tax
purposes. The Company had approximately $816,720 of net operating loss carry-
forwards as of September 30, 2008 available to offset certain future New
Jersey and New York state taxable income that expire in various years through
2013.
Liquidity and Capital Resources
Cash decreased by $686,891 for the nine months ended June 30, 2009. The
primary sources of cash were net income of $1,153,141, depreciation and
amortization expenses that aggregated $732,725, and reduced inventories of
$406,595. The primary uses of cash were increased accounts receivables of
$374,360, payments on long term debt of $1,275,940, payments
11
aggregating $490,117 to pay down all lines of credit down to a zero balance,
preferred stock dividends of $447,450, and purchases of machinery and
equipment of $292,567.
Management believes that its current cash and cash equivalent balances,
along with the net cash generated by operations and credit facilities, are
sufficient to meet its anticipated cash needs for working capital for at least
the next 12 months. As of June 30, 2009, the Company had cash of $3,196,064
and available bank line of credit borrowings of $1,215,000. There are
currently no plans for any major capital expenditures in the next six to nine
months, except for a $75,000 investment to complete upgrades to manufacturing
capabilities at Optometrics. Any major business expansions or acquisitions
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. The acquisition of RMD on July 1, 2008 had a transformational
impact on Dynasil with a tripling of revenues as well as significantly
increasing our technical capabilities and intellectual property. In the short
term, management's primary focus is to maximize value from RMD including
identifying RMD technology which can drive Dynasil's growth.
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies
or critical accounting estimates since September 30, 2008. We have not
adopted any accounting policies since September 30, 2008 that have or will
have a material impact on our consolidated financial statements. For further
discussion of our accounting policies see the "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, 2008 as
well as the Notes to Consolidated Financial Statements in this Form 10-Q.
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. Revenues from research and development
activities consist of up-front fees, research and development funding and
milestone payments. Periodic payments for research and development activities
and government grants are recognized over the period that the Company performs
the related activities under the terms of the agreements. Billings in Excess
of Costs relates to research and development contracts and consists of
billings at provisional contract rates less actual costs plus fees.
Research and Development Costs
Research and development ("R&D") costs are expensed as incurred.
Equipment purchased with alternative future benefit in R&D activities is
capitalized and resulting depreciation is recorded as R&D expense.
Additionally, R&D costs include employee salaries directly related to R&D
efforts and all other costs directly allocable to R&D efforts, including
equipment for which there is no alternative use.
12
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. Valuations contain certain
assumptions concerning estimated future revenues and future expenses. We have
determined there is no indication of impairment of any of our assets.
However, should our operating results deteriorate, we may determine that a
portion of the value 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 the applicable financial reporting 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
collectability 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 its remaining carry forwards will be realized.
Valuation of Intangible Assets
The SFAS 142 accounting standard requires the valuation of intangible
assets after an acquisition for financial statement purposes. Arriving at
these valuations can be a complicated and uncertain process which requires
significant judgments to be made. The Company now has significant goodwill
and other intangible assets from the RMD acquisition that have had a material
impact on our financial statements. These intangible assets will require
annual testing for impairment which will involve significant management
estimates. Due to recent economic conditions, management will test for
goodwill impairment during Quarter 4, but no impairment is anticipated.
Stock-Based Compensation
Effective October 1, 2006, we adopted SFAS 123(R), "Accounting for Stock
Based Compensation." As a result, compensation costs are now recognized for
stock options granted to employees and directors. Options and warrants
granted to employees and non-employees are recorded as an expense when vested
based on the estimated fair value, at grant date, determined using the Black-
Scholes option pricing model.
13
Recently Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 141 (revised) ("SFAS 141(R)"),
"Business Combinations." The standard changes the accounting for business
combinations, including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of capitalized in-process research and development, the
accounting for acquisition-related restructuring cost accruals, the treatment
of acquisition related transaction costs, and the recognition of changes in
the acquirer's income tax valuation allowance. SFAS 141(R) is effective for
the first annual reporting period beginning on or after December 15, 2008.
Thus, SFAS 141(R) will be effective for the Company on October 1, 2009, with
early adoption prohibited. The Company is evaluating the potential impact of
the implementation of Statement 141(R) on its financial position and results
of operations.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful
Life of Intangible Assets (FSB FAS 142-3). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset under SFAS No.
142, Goodwill and Other Intangible Assets. The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible
asset under FAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141(R) and other generally accepted
accounting principles. FSP FAS 142-3 is effective for fiscal years, and
interim periods within those fiscal years,
beginning after December 15, 2008. The Company does not expect the adoption
of FSP FAS 142-3 to have a material impact on our consolidated financial
statements.
In May 2009, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 165, "Subsequent Events," which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet
date but before the financial statements are issued or are available to be
issued. SFAS No. 165 provides guidance on the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. The Company adopted
SFAS No. 165 during the third quarter of 2009, and its application had no
impact on the Company's consolidated financial statements.
In June 2009, the FASB issued Statement No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles. Statement No. 168 replaces FASB Statement No. 162, The Hierarchy
of Generally Accepted Accounting Principles, and establishes the FASB
Accounting Standards Codification TM (the Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with generally accepted accounting principles (GAAP). Statement No.
168 is effective for interim and annual periods ending after September 15,
2009. The Company will begin to use the new Codification when referring to
GAAP in its annual report on Form 10-K for the fiscal period ending September
30, 2009. This will not have an impact on the consolidated results of the
Company.
Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q which are
not historical facts, including, but not limited to, certain statements found
under the captions "General Business Overview," "Results of Operations,"
"Acquisitions," and "Liquidity and Capital Resources" above, are forward-
looking statements that involve a number of risks and
14
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 the Annual
Report on Form 10-KSB and this 10-Q report, including, without limitation, the
portions of such reports under the captions referenced above, and the
uncertainties set forth from time to time in the Company's 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, consumer acceptance of new products, general economic
conditions, consumer trends, costs and availability of raw materials and
management information systems, competition, litigation and the effect of
governmental regulation. 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 Quantitative and Qualitative Disclosures About Market Risk.
Dynasil, as a smaller reporting company, is not required to complete this
item.
ITEM 4T Controls and Procedures
As required by Rule 13a-15(e) under the Exchange Act, our Chief Executive
Officer and Chief Financial Officer and Chief Accounting 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.
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. Because RMD Research
and RMD Instruments were acquired by the company on July 1, 2008, they were
not required to be included in management's assessment of internal control
over financial reporting for the quarter ending June 30, 2009 and therefore,
management excluded them from its assessment.
15
PART II
OTHER INFORMATION
ITEM 1 Legal Proceedings
NONE
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
NONE
ITEM 3 Defaults Upon Senior Securities
NONE
ITEM 4 Submission of Matters to a Vote of Security Holders
NONE
ITEM 5 Other Information
NONE
ITEM 6 Exhibits
(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 August 12, 2009 issued by Dynasil
Corporation of America announcing its financial results for
the quarter ending June 30, 2009.
(b) Reports on Form 8-K
On June 16, 2009, an 8-K report for Items 5.02 and 9.01 reporting
that Dynasil had named Dr. Gerald Entine, of Watertown, MA as a
Dynasil director. The Dynasil Board of Directors passed resolutions
to increase the number of Directors from four to five and
voted to appoint Dr. Entine to fill the newly created position.
16
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: August 12, 2009
--------------------------------- --------------------
Craig T. Dunham,
President and CEO
/s/ Paul J. Weaver DATED: August 12, 2009
--------------------------------- --------------------
Paul J. Weaver,
|
Chief Financial Officer and Chief Accounting Officer
17
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