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 MARCH 31, 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)
385 Cooper Road, West Berlin, New Jersey, 08091
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(Address of principal executive offices)
(856) 767-4600
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(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
------ -----
Indicate by check mark whether the registrant is a shell company
Yes XX No
---- -----
The Company had 11,371,933 shares of common stock, par value $.0005 per
share, outstanding as of May 8, 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 MARCH 31, 2009
AND SEPTEMBER 30, 2008 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED MARCH 31, 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 14
Market Risk
Item 4T. Controls and Procedures 14
PART II. OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 2. Unregistered Sales of Equity Securities and Use 14
of Proceeds
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits 15
Signatures 16
2
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31 September 30
2009 2008
(Unaudited)
---------- ----------
Current assets
Cash and cash equivalents $ 1,439,157 $ 3,882,955
Accounts receivable, net of allowance for doubtful
accounts of $66,733 and $70,165 and sales
returns of $21,758 and $8,200 for
March 31, 2009 and
September 30, 2008, respectively 5,266,640 3,390,703
Inventories 2,472,545 2,909,730
Deferred tax asset 233,500 233,500
Prepaid expenses and other current assets 378,775 259,896
---------- ----------
Total current assets 9,790,617 10,676,784
Property, Plant and Equipment, net 2,701,044 2,694,290
Other Assets
Intangibles, net 7,499,645 7,767,258
Goodwill 11,054,396 11,054,396
Deferred financing costs, net 69,752 81,136
Other assets 3,091 8,360
---------- ----------
Total other assets 21,327,928 18,911,150
---------- ----------
Total Assets $31,118,545 $32,282,224
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short Term Note Payable $ 32,451 $ 490,117
Current portion of long term debt 1,695,296 1,649,101
Accounts payable 539,561 1,026,675
Billings in excess of cost 396,957 216,946
Accrued expenses and other current liabilities 1,299,563 1,440,222
---------- ----------
Total current liabilities 3,963,828 4,823,061
Long-term Liabilities
Long-term debt, net 7,264,698 8,178,420
Note payable to related party 2,000,000 2,000,000
---------- ----------
Total long-term liabilities 9,264,698 10,178,420
Stockholders' Equity
Common Stock, $.0005 par value, 40,000,000 shares
authorized, 12,177,655 and 12,142,849 shares issued,
11,367,495 and 11,332,689 shares outstanding 6,089 6,072
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 March 31, 2009 and
September 30, 2008, 10% cumulative,
convertible
Additional paid in capital 16,263,106 16,122,185
Retained earnings 2,601,200 2,132,862
---------- ----------
18,876,361 18,267,085
Less 810,160 shares in treasury - at cost (986,342) (986,342)
---------- ----------
Total stockholders' equity 17,890,019 17,280,743
---------- ----------
Total Liabilities and Stockholders' Equity $31,118,545 $32,282,224
========== ==========
4
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31 March 31
2009 2008 2009 2008
---------- -------- ---------- ---------
Net sales $8,602,885 $3,045,974 $17,370,161 $5,860,880
Cost of sales 4,901,999 2,070,418 10,579,537 3,971,438
---------- --------- ---------- ----------
Gross profit 3,700,886 975,556 6,790,624 1,889,442
Selling, general and administrative
expenses 2,945,625 777,348 5,377,993 1,456,756
---------- --------- ---------- ----------
Income from operations 755,261 198,208 1,412,631 432,686
Interest expense, net 219,861 42,062 406,658 75,584
---------- --------- ---------- ---------
Income before income taxes 535,400 156,146 1,005,973 357,102
Income taxes 131,266 10,170 246,198 20,840
---------- --------- ---------- ---------
Net income $404,134 $145,976 759,775 $336,262
========== ========= ========== ==========
Basic net income per common share $0.02 $0.02 $0.04 $0.05
Diluted net income per common share $0.02 $0.02 $0.04 $0.04
Weighted average shares outstanding
Basic 11,367,008 6,736,852 11,358,143 6,467,518
Diluted 12,345,107 7,789,233 12,336,162 7,519,899
5
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31
2009 2008
---------- -----------
Cash flows from operating activities:
Net income $ 759,775 $ 336,262
Adjustments to reconcile net income to net cash used
in operating activities:
Provision for doubtful accounts and sales returns (11,632) (12,300)
Depreciation and amortization 489,443 189,195
Stock Based Compensation 53,875 9,620
(Increase) decrease in:
Accounts receivable (1,864,300) (178,770)
Inventories 437,185 42,153
Prepaid expenses and other current assets (113,610) (93,638)
(Decrease) increase in:
Accounts payable and accrued expenses (445,475) (318,543)
----------- ----------
Net cash used in operating activities (694,739) (26,021)
----------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (218,678) (101,354)
Cash paid for acquisition of POC -0- (250,000)
Acquisition costs -0- (92,851)
----------- ----------
Net cash used in investing activities (218,678) (444,205)
----------- ----------
Cash flows from financing activities
Issuance of common stock 86,792 152,036
Proceeds (payments) short-term debt (431,044) 448,902
Payments on long-term debt (894,148) (73,195)
Deferred financing costs 6,139 -0-
Preferred stock dividends paid (298,300) (35,500)
----------- ----------
Net cash provided by (used in) financing activities (1,530,381) 492,243
----------- ----------
Net decrease in cash and cash equivalents (2,443,798) 22,017
Cash and cash equivalents, beginning 3,882,955 496,948
----------- ----------
Cash and cash equivalents, ending $1,439,157 $ 518,965
=========== ==========
6
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 March 31, 2009 and the consolidated
statements of operations for the three and six months ended March 31,
2009 and 2008 and cash flows for the six months ended March 31, 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
March 31, 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
6 months ended March 31, 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
6 months Ended March 31, 2008
Net Sales $17,042,777
Cost of Sales 9,550,834
----------
Gross Profit 7,491,943
Selling, general and administrative expenses 6,174,719
----------
Income from operations 1,317,224
Interest (expense), income net (392,877)
----------
Income before income taxes 924,347
Income tax (expense) (214,538)
----------
Net income 709,809
=========
Basic net income per common share 0.04
Diluted net income per common share 0.04
7
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:
March 31, 2008 September 30, 2008
----------------- ------------------
Raw Materials $1,717,240 $2,110,138
Work-in-Process 428,201 467,590
Finished Goods 327,104 332,002
----------------- ------------------
$2,472,545 $2,909,730
================= ==================
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.
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, 978,019 and
1,052,381 common share equivalents were assumed to be outstanding for the
periods ended March 31, 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
Mar 31, 2009 Mar 31, 2008
------------ ------------
Net income $ 759,775 $ 336,261
Less: Preferred stock dividends $(298,300) ( 35,500)
--------- -----------
Net Income allocable to common shareholders $ 461,475 $ 300,762
Calculation of Net Income for Diluted Earnings per Share
Mar 31, 2009 Mar 31, 2008
------------ ------------
Net income $ 759,775 $ 336,261
Less: Preferred stock dividends $(262,800) -0-
--------- -----------
Net Income for Dilutive Earnings per Share $ 496,975 $ 336,261
8
Mar 31, 2009 Mar 31, 2008
------------ ------------
Weighted average shares outstanding
Basic 11,358,143 6,467,518
Effect of dilutive securities
Stock Options 33,719 108,081
Stock Warrants -0- -0-
Convertible Preferred Stock 944,300 944,300
---------- ---------
Diluted average shares outstanding 12,336,162 7,519,899
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:
March 31, 2009
Expected term in years 3 years
Risk-free interest rate 3.93%
Expected volatility 45.21%
Expected dividend yield 0.00%
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 March 31, 2009, 290,246 stock options
were granted at $1.58 per share and no stock options were exercised. For
three months ended March 31, 2009, total stock-based compensation charged
to operations amounted to $25,625. At March 31, 2009, there was
approximately $30,125 of total unrecognized compensation expense related
to non-exercisable option-based compensation arrangements under the Plan.
During the six months ended March 31, 2009, 345,246 stock options were
granted at prices ranging from $1.54 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 options exercised had an exercise price of $0.85
per share with $11,050 paid in cash. For six months ended March 31, 2009,
total stock-based compensation charged to operations for option-based
arrangements amounted to $53,875. The Company cancelled 147,000 options
during the six months ended March 31, 2009.
Note 7 Material Subsequent Events
On September 30, 2008, Dynasil entered into a note payable to RMD
Instruments, LLC in which the former owners of RMD and current officers
of RMD have a financial interest. The loan is in the amount of
$2,000,000 and carried interest at the rate of 8.0% per annum. The loan
is for working capital. The loan has a balloon payment of all principal
which was originally scheduled for March 31, 2009 and on December 19,
2008 the maturity date was extended to October 1, 2009. On May 11, 2009,
the maturity date was further extended to October 1, 2010, and the
interest rate was increased to 9% per annum, effective October 1, 2009.
9
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 third 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 second quarter of fiscal year 2009
which ended March 31, 2009 were $8,602,885, an increase of 182% over
revenues of $3,045,974 for the quarter ended March 31, 2008. Income from
Operations for the quarter was $755,261, an increase of 281% over Income
from Operations of $198,208 for the quarter ended March 31, 2008. Net
income for the quarter was $404,134 or $0.02 per share, compared with a
net income of $145,976, or $0.02 per share, for the quarter ended March
31, 2008. Net Operating Loss carry forwards for federal taxes were
exhausted during fiscal year 2008 so second 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 $17.4 million are up 196% versus last year, year to date
income from operations of $1.4 million is 229% above last year's $432,685
and year to date net profit of $759,775 is up 126% versus the six months
ended March 31, 2008.
Results of Operations
Revenues for the three months ended March 31, 2009 were $8,602,885,
an increase of 182%, over revenues of $3,045,974 for the quarter ended
March 31, 2008. Revenues for the six months ended March 31, 2009 were
$17,370,161, an increase of 196% over revenues of $5,860,880 for the six
months ended March 31, 2008. The revenue increase 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
comparable quarter. Dynasil management believes that the revenue
reductions were primarily due to the worldwide economic slowdown. Dynasil
management expects that the third quarter will continue the second
quarter pattern of reduced commercial revenues and strong contract
research revenues. Management has increased new product and new customer
sales efforts with a view to offsetting the anticipated reduced level of
product shipments to existing customers.
Cost of sales for the three months ended March 31, 2009 was
$4,901,999 or 57.0% of sales, an improvement of 11 percentage points from
the three months ended March 31, 2008 of $2,070,418, or 68% of sales.
Cost of sales for the six months ended March 31, 2009 was $10,579,537 or
60.9% of sales, an improvement of 6.9 percentage points from the six
months ended March 31, 2008 of $3,971,438 or 67.8% of sales. The largest
driver of the cost of sales increase was the addition of RMD.
Gross profit for the three months ended March 31, 2009, was
$3,700,886, or 43.0% of sales, a 279% increase from $975,556 or 32% of
sales for the three months ended March 31, 2008. Gross profit for the
six months ended March 31, 2009 was $6,790,624, or 39.1% of sales, an
increase of 260% over the six months ended March 31, 2008 of $1,889,442
or 32.2% of sales. The improved margins were due primarily to the RMD
acquisition and also steps taken to reduce material costs and improve
productivity.
10
Selling, general and administrative ("SG&A") expenses for the three
months ended March 31, 2009, were $2,945,625 or 34.2% of sales, an
increase of 8.7 percentage points from the three months ended March 31,
2008 of $777,348 or 25.5% of sales. SG&A expenses for the six months
ended March 31, 2009 were $5,377,993 or 31.0% of sales, an increase of
6.1 percentage points from the six months ended March 31, 2008 of
$1,456,756 or 24.9% of sales. The changes in SG&A expenses and
percentages resulted primarily from the addition of RMD. Personnel
reductions were completed at several locations to reduce administrative
costs while maintaining or increasing selling activities.
Income from Operations for the three months ended March 31, 2009 was
$755,261, an increase of 281% over Income from Operations of $198,208 for
the quarter ended March 31, 2008. Income from Operations for the six
months ended March 31, 2009 was $1,412,631, an increase of 226% over
Income from Operations for the six months ended March 31, 2008 of
$432,686. Income from Operations increased at a lower rate than revenues
since the profitability of contract research is lower than our normal
commercial profitability.
Net interest expense for the three months ended March 31, 2009 was
$219,861, compared to $42,062 for the three months ended March 31, 2008.
Net interest expense for the six months ended March 31, 2009 was
$406,658, compared to $75,584 for the six months ended March 31, 2008.
The increase in combined interest expense is primarily related to the
additional interest payments resulting from the indebtedness incurred in
connection with the RMD acquisition.
Net income for the three months ended March 31, 2009, was $404,134
or $0.02 in basic earnings per share, which is up $258,158 from net
income for the three months ended March 31, 2008, of $145,976, or $.02 in
basic earnings per share. Net income for the six months ended March 31,
2009 was $759,775, or $.04 in basic earnings per share, which is up 126%
from net income for the six months ended March 31, 2008, of $336,262 or
$.05 in basic earnings per share. When compared to the quarter ended
March 31, 2008, net income was impacted primarily by increased revenue
from the RMD acquisition partly offset by increased federal taxation, and
higher interest costs related to the RMD acquisition.
The Company had a $131,266 provision for income taxes for the
quarter ended March 31, 2009 and a $10,170 provision for the quarter
ended March 31, 2008. The Company had a $246,198 provision for income
taxes for the six months ended March 31, 2009, and a $20,840 provision
for the six months ended March 31, 2008. Most federal and New Jersey
state taxes for the quarter and six months ending March 31, 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 $2,443,798 for the six months ended March 31,
2009. The primary sources of cash were net income of $759,775,
depreciation and amortization expenses that aggregated $489,443, and
reduced inventories of $437,185. The primary uses of cash were increased
accounts receivables of $1,864,300, payments on long term debt of
$894,148, payments aggregating $400,366 to pay down all lines of credit
down to a zero balance, and purchases of machinery and equipment of
$218,682. The accounts receivable increase came primarily from RMD where
additional resources are being deployed to quickly improve that process.
11
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 March 31, 2009, the
Company had cash of $1,439,157 and available bank line of credit
borrowings of $1,215,000. Improvements to the accounts receivable
processes for RMD are expected to recoup a portion of the cash used for
working capital during the first 2 quarters of fiscal year 2009 and
management has increased its focus on overall working capital. 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
3, 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.
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
13
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.
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
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 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
14
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 03-31-09 and therefore, management
excluded them from its assessment.
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
3.1 Amendment to the Certificate of Incorporation filed on March 3, 2009
10.1 Amendment to RMD Instruments' Note.
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 14, 2009 issued by Dynasil
Corporation of America
announcing its financial results for the second quarter ending
March 31, 2009.
(b) Reports on Form 8-K
None
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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 14, 2009
--------------------------------- --------------------
Craig T. Dunham,
President and CEO
/s/ Paul J. Weaver DATED: May 14, 2009
--------------------------------- --------------------
Paul J. Weaver,
Chief Financial Officer
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