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 ______.
Delaware 22-1734088
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
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Large accelerated filer Accelerated filer
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Non-accelerated filer Smaller reporting company XX
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The Company had 11,371,933 shares of common stock, par value $.0005 per
share, outstanding as of May 8, 2009.
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
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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
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
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Total other assets 21,327,928 18,911,150
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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
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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
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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
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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
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18,876,361 18,267,085
Less 810,160 shares in treasury - at cost (986,342) (986,342)
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Total stockholders' equity 17,890,019 17,280,743
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Total Liabilities and Stockholders' Equity $31,118,545 $32,282,224
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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
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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
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DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
March 31
2009 2008
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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)
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Net cash used in operating activities (694,739) (26,021)
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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)
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Net cash used in investing activities (218,678) (444,205)
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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)
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Net cash provided by (used in) financing activities (1,530,381) 492,243
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Net decrease in cash and cash equivalents (2,443,798) 22,017
Cash and cash equivalents, beginning 3,882,955 496,948
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Cash and cash equivalents, ending $1,439,157 $ 518,965
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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 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
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Gross Profit 7,491,943
Selling, general and administrative expenses 6,174,719
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Income from operations 1,317,224
Interest (expense), income net (392,877)
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Income before income taxes 924,347
Income tax (expense) (214,538)
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Net income 709,809
=========
Basic net income per common share 0.04
Diluted net income per common share 0.04
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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:
March 31, 2008 September 30, 2008
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Raw Materials $1,717,240 $2,110,138
Work-in-Process 428,201 467,590
Finished Goods 327,104 332,002
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$2,472,545 $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.
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
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Net income $ 759,775 $ 336,261
Less: Preferred stock dividends $(298,300) ( 35,500)
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Net Income allocable to common shareholders $ 461,475 $ 300,762
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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-
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Net Income for Dilutive Earnings per Share $ 496,975 $ 336,261
8
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Mar 31, 2009 Mar 31, 2008
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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
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Diluted average shares outstanding 12,336,162 7,519,899
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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:
March 31, 2009
Expected term in years 3 years
Risk-free interest rate 3.93%
Expected volatility 45.21%
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 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.
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.
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.
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.
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
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
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
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
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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STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
DYNASIL CORPORATION OF AMERICA, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:
FIRST: That at a meeting of the Board of Directors of DYNASIL CORPORATION OF AMERICA a resolution was duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling for consideration thereof at the next annual meeting of the stockholders of said corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered "FOURTH" so that, as amended, said Article shall be and read as follows:
FOURTH: The total number of shares of stock which this corporation is authorized to issue consists of an. aggregate of 55,000,000 shares, consisting of two classes, as follows: One class of stock shall be 40,000,000 authorized shares of Common Stock, par value $0.0005 per share. The other class of stock shall be 15,000,000 authorized shares of Preferred Stock, par value $0.001 per share. The Preferred Stock, or any series thereof shall have such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as shall be expressed in the certificate of incorporation or of any amendment thereto, or in the resolution or resolutions providing for the issue of such stock adopted by the board of directors and may be made dependent upon facts ascertainable outside the certificate of incorporation or of any amendment thereto, or in the resolution or resolution of the board of directors, provided that the matter in which such facts shall operate upon such designations, preferences, rights and qualifications, limitations or restrictions of such class or series of stock is clearly and expressly set forth in the certificate of incorporation or in the resolution or resolutions providing for the issuance of such stock by the board of directors. As used herein, the term "facts" includes, but is not limited to, the occurrence of any event, including a determination or action by any person or body, including the corporation.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, an annual meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment.
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 26th day of February, 2009.
DYNASIL CORPORATION OF AMERICA
By /s/ Gerald Chalphin Gerald Chalphin Assistant Secretary |
EXHIBIT 31.1 (a)
EXHIBIT 31.1 (a)
CERTIFICATION PURSUANT TO RULE 13a 14(a)/15D-14(a) and
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Craig Dunham, certify that:
1. I have reviewed this Form 10-Q of Dynasil Corporation of America;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
DYNASIL CORPORATION OF AMERICA
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 15, 2009 /s/ Craig T Dunham
------------4----- ------------------------------------
Craig T Dunham
President and Chief Executive Officer
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EXHIBIT 31.1 (b)
CERTIFICATION PURSUANT TO RULE 13a 14(a)/15D-14(a) and
SECTION 302 OF THE SARBANES-OXLEY ACT
I, Paul Weaver, certify that:
1. I have reviewed this Form 10-Q of Dynasil Corporation of America;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant', including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 14, 2009 /s/ Paul J. Weaver
-----------------------------
Paul J. Weaver
Chief Financial Officer
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of DYNASIL CORPORATION OF AMERICA (the "Company") on Form 10Q for the period ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Craig T Dunham, President and Chief Executive Officer of the Company and Paul J. Weaver, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ Craig T Dunham
-------------------
Craig T Dunham
President and Chief Executive
Officer
/s/ Paul J. Weaver
-------------------
Paul J. Weaver
Chief Financial Officer
May 14, 2009
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AMENDMENT TO SUBORDINATED TERM LOAN NOTE BETWEEN RMD INSTRUMENTS,
LLC AND DYNASIL CORPORATION OF AMERICA:
MAY 11, 2009
The $2 million Subordinated Term Loan Note dated September 30, 2008 as amended December 19, 2008 between RMD Instruments, LLC and Dynasil Corporation of America is hereby amended as follows:
The Maturity Date in paragraph one is changed from October 1, 2009 to October 1, 2010.
The interest rate in paragraph one is changed from 8% to 9% per annum for the period from October 1, 2009 to October 1, 2010.
All other terms remain unchanged.
RMD INSTRUMENTS, LLC
/s/ Gerald Entine
------------------
Gerald Entine
President
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DYNASIL CORPORATION OF AMERICA
/s/ Craig T Dunham
------------------
Craig T. Dunham
President
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Contact:
Patty Kehe
Dynasil Corporation of America
Phone: (607) 272-3320, ext. 26
Email: cdunham@dynasil.com
Dynasil Announces Second Quarter 2009 Results WEST BERLIN, N.J. May 14, 2009 Dynasil Corporation of America (OTCBB: DYSL.OB), announced the results of operations for its second quarter of fiscal year 2009 ended March 31, 2009. Dynasil is a manufacturer of specialized instruments and photonic products including optical materials, components and coatings as well as currently deriving more than fifty percent of its revenue from government funded research. The Company serves a broad range of applications markets in the medical, industrial, and homeland security/defense sectors.
Revenues for the quarter ended March 31, 2009 nearly tripled to $8.6 million compared to revenues of $3.0 million for the quarter ended March 31, 2008. Income from Operations for the quarter nearly quadrupled to $755,261 compared to $198,208 for the quarter ended March 31, 2008. Net income for the quarter was $404,134, or $0.02 per share, compared with net income of $145,976, or $0.02 per share, for the quarter ended March 31, 2008. For the six months ended March 31, 2009, revenues tripled to $17.4 million, Income from Operations tripled to $1.4 million and Net Income more than doubled to $759,775 as compared to the six months ended March 31, 2008. This is the third quarter since the acquisition of Radiation Monitoring Devices, Inc. and certain assets of RMD Instruments, LLC (together, "RMD") on July 1, 2008, which was the key driver for the large revenue and profitability increases. Net Operating Loss carry-forwards for federal taxes were exhausted during fiscal year 2008 so fiscal year 2009 net income was impacted by increased federal tax provisions as well as the higher interest costs related to the RMD acquisition.
"Given current economic conditions, we are pleased that we were able to triple revenues and nearly quadruple Income from Operations for the quarter," said Craig T. Dunham, President and CEO. "The acquisition of RMD has significantly increased Dynasil's technical capabilities and intellectual property. During the quarter, we made substantial progress in identifying potential products for commercialization and developing additional government funding for those projects. Those potential new products include improved sensors for: medical imaging, non- destructive testing for cracks in metal parts and Homeland Security's detection of nuclear threats. We are seeing unprecedented levels of government contracting opportunities which appear to be driven by the economic stimulus package. We continue to execute our strategy of significant and profitable growth through organic growth, commercialization of our broad research portfolio and acquisitions."
About Dynasil: Founded in 1960, Dynasil is a manufacturer of photonic products including optical materials, components, coatings and instruments for a broad range of applications markets in the medical, industrial and defense sectors. Its wholly owned subsidiaries are located in New Jersey, New York and Massachusetts.
This news release may contain forward-looking statements usually containing the words "believe," "expect," "plan", "target", "intend" or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act. Future results of operations, projections, and expectations, which may relate to this release, involve certain risks and uncertainties that could cause actual results to differ materially from the forward- looking statements. Factors that would cause or contribute to such differences include, but are not limited to, the factors detailed in the Company's Annual Report or Form 10-KSB and in the Company's other Securities and Exchange Commission filings, continuation of existing market conditions and demand for our products.
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 31, 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
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Total other assets 21,327,928 18,911,150
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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
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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
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 31, 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
========== ==========
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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 11,367,008 6,736,852 11,358,143 6,467,518
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