U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934 for the fiscal year ended September 30, 2009.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT 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 of (I.R.S.Employer
incorporation or organization) Identification No.)
385 Cooper Road, West Berlin, New Jersey 08091
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (856) 767-4600
Securities registered under Section 12(b) of the Act: none
Securities registered under Section 12(g) of the Act: Common
Stock, $.0005 par value
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [ ]No [x]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes[ ] No [x]
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 of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for shorter period that the registrant was required to
submit and post such files.) Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers in
response to item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
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 [X]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act.) Yes [ ] No[x]
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As of December 18, 2009, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was approximately
$13,203,781.
As of December 18, 2009 there were 12,474,237 shares of common
stock, par value $.0005 per share, outstanding.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Dynasil Corporation of America ("Dynasil", "we" or the
"Company") is a rapidly growing manufacturer of specialized
instruments and products for a broad range of applications
markets in the medical, industrial, and homeland security/
defense sectors. In addition, we have been able to obtain
substantial revenues from government-funded contract research
from which we usually may retain the commercial rights to the
technology. The resulting technology developments, along with
organic growth and our acquisitions strategy, are targeted to
continue our track record of significant and profitable growth.
Overall, our emerging theme is to provide sensors and
instruments to enable intelligent decision making.
Founded in 1960 to provide synthetic fused silica for military
radar applications, Dynasil, a Delaware corporation, entered an
era of high growth in 2004 by adopting a new strategy to grow
profitably through acquisitions, as well as with organic growth
in the technical optics/photonics products and instruments
segment. During the last five years, Dynasil has acquired four
companies plus one product line and has demonstrated a
consistent track record of improving the performance of
acquisitions through clear focus and effective execution.
The 2008 acquisition of Radiation Monitoring Devices ("RMD")
increased our technical capabilities and intellectual property,
and added high potential optical instruments to our
optics/photonics products and instruments segment. With the new
opportunities emerging from the RMD research work, our growth
strategy was expanded to include the development of new
technology for commercialization through government funded
research. Dynasil is currently exploring commercialization
opportunities in the scintillator, photodiode, dosimeter and
micro-crack detection areas. During 2009, Dynasil hired a
Corporate Vice President with responsibility over this area and
established a Commercialization Advisory Committee to further
assist in the process. 2009 was a developmental year in this
area intended to position the company to take advantage of these
opportunities in 2010 and beyond.
Dynasil is currently comprised of five business units in two
business segments, four of which manufacture commercial products
in the optics/photonics products and instruments segment,
including the original optical materials business, optical
components, optical coatings, and optical instruments. The
fifth business unit is involved in the contract research
segment. See note 13 to the Consolidated Financial Statements
for segment information.
History
Dynasil was founded as a manufacturer of synthetic fused silica,
a high purity, optical material used for applications such as
laser systems and optical instruments. For nearly five decades,
Dynasil has provided synthetic fused silica and fused quartz
products to customers for a wide range of optics applications.
During October 2004, Mr. Craig Dunham purchased a large
ownership interest in Dynasil and became its President and CEO.
With new leadership, Dynasil's strategy changed to one designed
for significant profitable growth through increasing the
revenues of the existing business and strategic acquisitions.
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During the last five years, Dynasil has implemented clear focus,
professional
management tools, process improvements, and has realized
improved execution across its companies with the following
results:
- Revenue has grown from $2 million to $34.4 million, a 72%
compound annual growth rate.
- Operating income has been increased from a $0.1 million loss
for FY 2004 to a $2.8 million profit for FY 2009.
- Net income has been increased from a $0.2 million loss for FY
2004 to a $1.6 million profit for FY 2009.
- The stock price has increased from $0.07 per share in
September 2004 to around $3 per share as of December 18, 2009 -
an increase of more than 40 times.
On March 8, 2005, Dynasil acquired the operating assets and
assumed certain liabilities of Optometrics LLC, a worldwide
supplier of optical components and instruments including
diffraction gratings, interference filters, laser optics,
monochromators and specialized optical systems. This
acquisition approximately doubled our revenues and added
significant profitability. We conduct this business through our
Optometrics Corporation subsidiary ("Optometrics") which is
located in Ayer, Massachusetts.
On October 2, 2006, Dynasil acquired 100% of the stock of
Evaporated Metal Films Corporation ("EMF") in Ithaca, NY. EMF
provides optical thin-film coatings for a broad range of
application markets including solar energy, display systems,
optical instruments, satellite communications and lighting. This
acquisition increased our fiscal year 2007 revenues by
approximately 37%.
On January 18, 2008, Optometrics acquired the optical filter
equipment and customer list of Precision Optics Corporation,
Inc. of Gardener, MA which have been relocated to Optometrics'
Ayer, MA location.
On July 1, 2008, Dynasil acquired the stock of Radiation
Monitoring Devices, Inc. ("RMD Research"), a contract research
company, and certain assets of RMD Instruments, LLC ("RMD
Instruments"), an advanced instruments company, located in
Watertown, MA. RMD Instruments and RMD Research are referred to,
together, in this Annual Report as "RMD". RMD Instruments
manufactures and sells instruments and components that
management believes have high growth potential. These are sold
into the medical imaging, environmental sensing and quality
control markets and include hand-held analyzers for lead paint
and medical probes for cancer surgery with the potential to
significantly improve surgical outcomes. RMD Research is one of
the largest small business participants for U.S. government
funded research. The RMD acquisition more than tripled our
revenues starting quarter four of fiscal year 2008.
Optics/ Photonics Products and Instruments Segment
The company manufacturers optics/photonics products and
instruments including optical materials, components, coatings
and specialized instruments for a broad range of applications
markets in the medical, industrial, and homeland security/
defense sectors. Our products include optical instruments as
well as components that are used for optical instruments,
lasers, analytical instruments, semiconductor/ electronic
devices, automotive components, spacecraft/aircraft components,
and in devices for the solar energy industry.
We also produce several analytical instruments including
instruments designed to measure the "Sun Protection Factor"
("SPF") of sunscreens, handheld instruments to determine whether
there is lead in the paint of buildings and whether electronics
are in compliance with the Reduction of Hazardous Substances
("ROHS") regulations, and medical probes which reduce the scope
of cancer surgery.
Our products are distributed through direct sales as well as
other channels and delivered by commercial carriers. We have
nineteen sales and marketing people who handle sales. We also
use manufacturer's representatives and
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distributors in various foreign countries for international
sales and U.S. manufacturer's representatives for some of the
RMD Instruments' product lines. Marketing efforts include
direct customer contact through sales visits, advertising in
trade publications and presentations at trade shows.
We compete for business in the optics and instrument industries
primarily with fabricators of industrial optical materials,
other optical components manufacturers and other optical coaters
as well as other analytical instruments manufacturers. Market
share in the optics and analytical instrument industries is
largely a function of quality, price and speed of delivery. We
believe that we compete effectively in all three areas.
Contract Research Segment
RMD Research has been conducting government research under the
Small Business Innovation Research ("SBIR") program for more
than 25 years as well as, more recently, non-SBIR projects. The
current contract backlog is approximately two years. Management
believes that prior and current research projects are a source
for new commercial products in areas like medical imaging,
industrial sensors and homeland security.
We compete for contract research work with a variety of small
and some large businesses which submit contract proposals based
on government solicitations. We believe that the quality of our
research and development work as well as our proposal quality
are key competitive factors and that we compete very well in
both of these areas.
Commercialization Activities
For most of our contract research activities, our U.S.
Government customers allow us to earn a small profit on the work
and to retain commercial rights to the technology that we
develop. As a result, we have 26 patents granted, an additional
4 patents approved awaiting issuance and 30 patents in the
application process which are assigned or co-assigned to RMD.
Commercialization of new technology is a major focus area for
the Company. In June 2009, Mr. Paul Tyra was hired as Vice
President - Commercialization to accelerate this process. In
September 2009, Mr. Ken Morse, founding Managing Director of the
MIT Entrepreneurship Center agreed to assist us in the
commercialization of our extensive research and technology
portfolio. We also established a Commercialization Advisory
Board to further assist in the process. The following areas are
under active consideration for commercial expansion, possible
licensing or possible joint venture activities.
During January 2009, we announced that RMD Research was awarded
three research and development contracts from the Domestic
Nuclear Detection Office of the Department of Homeland Security
("Homeland Security") totaling more than $5.6 million to develop
new, high performance nuclear radiation detector materials
targeted to protect the nation from nuclear and radiological
threats. Excellent progress on those contracts has led to
additional funding from Homeland Security. One of the most
serious threats faced by the United States is the possibility of
terrorists smuggling a nuclear weapon into the country and,
consequently, the Department of Homeland Security is seeking
improved detection equipment. Existing detectors tend to be
expensive, too small, or are plagued by false alarms from
naturally occurring radioactive materials, such as kitty litter
and bananas. In addition, current border protection technology
for nuclear materials utilizes a crucial ingredient called
helium-3 which was a by-product of the nuclear weapons program
and is increasingly in short supply. Dynasil's proprietary
crystals show great promise as a replacement for helium-3 and
this opportunity has been assigned a very high priority by the
Company.
Another area of high commercialization activity is new thin film
coatings for medical imaging applications. RMD Research has
developed coatings which enable x-ray movies rather than just
still pictures as well as highly
sensitive PET sensors used for medical diagnostic procedures. We
currently
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sell low volume quantities of these coatings and sensors and are
in the final stages of determining a possible approach to this
market which could include direct manufacturing of the crystal
and crystal packaging, partial manufacturing or joint venturing.
Other active projects include sensors for non-destructive
testing and low cost, compact radiation sensors for military
personnel. The crack detection sensors can detect very small
cracks for applications such as aircraft wings, turbine blades
and other metals requiring regular testing. This is a large
world-wide industry for which RMD Research is working to develop
a product with a greatly enhanced capability to detect cracks at
the micro level. While not yet fully developed, if perfected,
this technology could dramatically improve the outcomes in this
industry. This technology again represents another possible
instrumentation product for the Company or joint
venture/licensing opportunity. The radiation dosimeter
technology also has breakthrough potential. The Company is
researching the marketability and market size for this potential
product.
Additional Background Information
We currently have more than 940 customers with approximately 57%
of our business concentrated in our top 10 customers. Our five
largest customers accounted for approximately 17.4%, 15.3%,
9.8%, 3.7% and 2.5%, respectively, of our revenues during fiscal
year 2009. The loss of any of these top five customers would
likely have a material adverse effect on our business, financial
condition and results of operations.
Generally, our customers provide purchase orders for a specific
part, quantity and quality or they provide a contract for
research projects. Product orders are normally filled over a
period ranging from one to six weeks. We have blanket orders
that call for monthly deliveries of predetermined amounts.
Contract research projects generally run for a one to two year
period.
Our largest supplier for materials and components is Corning
Incorporated, which is a primary supplier of the fused silica
material that is fabricated and sold by our New Jersey facility.
Our research and development ("R&D") activities include
government funded research which totaled $20.0 million for
fiscal year 2009 and $4.1 million for the final quarter of
fiscal year 2008. R&D for our historical businesses has
primarily involved new product development, changes to our
manufacturing processes and the introduction of improved methods
and equipment. Improvements to our processes are ongoing and
related costs are incorporated into our manufacturing expenses.
Other than federal, state and local environmental and safety
laws as well as International Traffic in Arms Regulation
("ITAR") and FDA requirements, our operations are not subject to
direct governmental regulation, although RMD Research must
comply with the government contracting rules contained in the
federal acquisitions register. We do not have any pending
notices of environmental or government contract violations and
are aware of no potential violations. There are no known buried
storage tanks on our properties. Environmental costs for fiscal
year 2009 did not exceed $50,000.
Our total work force consists of 191 total employees: 28
administrative, 19 sales, 76 research and/or engineering, and 68
manufacturing personnel. Of these employees, 178 are full-time.
Thirty-nine members of the research and development staff hold
Ph.D.s. The operations are non-union.
Reports to Security Holders
As a publicly traded company, we annually file this 10-K Report
and Proxy Statement with the SEC. Additionally, we file 10-Q
Reports for the quarters
ending in December, March, and June each year. Our Registration
Statement is
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recorded with the SEC and we file amendments when appropriate.
We file 8-K Reports and relevant correspondence as required.
The public may read and copy any materials we have filed with
the Commission at the SEC's Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549 on official business days
during the hours of 10 a.m. to 3 p.m. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an
internet site that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC. The address of the internet site is
http://www.sec.gov. The public can also contact Ms. Patty Kehe
at Dynasil Corporation of America, 385 Cooper Road, West Berlin,
NJ 08091 or through the internet web address
http://www.DynasilCorp.com.
ITEM 2. PROPERTIES
We own a manufacturing and office facility consisting of a
one-story, masonry and steel building containing approximately
15,760 square feet, located at 385 Cooper Road, West Berlin, New
Jersey 08091. We lease a 10,000 square foot manufacturing and
office building in Ayer, MA from a related party with a lease
that expires in March 2013. We own a two-story, 44,000 square
foot manufacturing and office facility in Ithaca, New York. We
also lease a 40,000 square foot manufacturing, research, and
office building in Watertown, MA for RMD from a related party
with leases that expire in June 2013. The Watertown location is
the primary location for our contract research segment and
optics/photonics products and instruments operations are
conducted at all four locations. We believe the properties are
in satisfactory condition and suitable for our purposes. The
New Jersey and New York properties are mortgaged as collateral
against notes payable to banks.
ITEM 3. LEGAL PROCEEDINGS
On or about May 6, 2008, the Company's EMF subsidiary received a
copy of Summons with Notice (the "Summons") filed on January 18,
2008 in the Supreme Court of the State of New York, County of
Albany, by the New York State Attorney General on behalf of the
State of New York Workers' Compensation Board, as plaintiff. The
Summons required EMF, which is one of a large number of
defendants, to appear in the action commenced by the plaintiff
alleging its entitlement to recover previously billed and unpaid
assessments aggregating approximately $1 million and other, but
as yet undetermined, assessments which in the aggregate may
exceed $19 million from the defendants based upon their
participation on a joint and several liability basis in a
Manufacturing Self Insurance Trust that terminated on or about
August 31, 2007. Although EMF believes that its proportionate
share of the joint and several liability is less than $21,000,
it has received a settlement tender offer from the State of New
York that calls for EMF to pay $23,899 which EMF is currently
evaluating. Although the action is not fully resolved, EMF
believes that its ultimate liability, if any, in this matter
will not have a material adverse effect on its financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Fourth Quarter of the Fiscal Year covered by this
report, no matter was submitted to a vote of security holders
through solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The Registrant's Common Stock is quoted on the NASD-OTC Bulletin
Board under the symbol "DYSL.OB". The Company's Common Stock has
been traded publicly since April 22, 1981. The "high" and "low"
bid quotations for the Company's
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Common Stock as reported by the OTC Bulletin Board for each
quarterly period for the fiscal years ended September 30, 2008
and September 30, 2009 were as follows:
Fiscal Quarter High Bid Price Low Bid Price
-------------- -------------- -------------
2008
First $2.40 $1.36
Second 2.25 1.60
Third 2.25 1.61
Fourth 2.50 1.05
2009
First $1.40 $0.51
Second 1.55 0.55
Third 1.06 0.64
Fourth 2.35 0.85
The above listed quotes reflect inter-dealer prices without
retail mark-up, mark-down, or commissions, and may not represent
actual transactions.
The "high" and "low" sale prices for trades of the Company's
Common stock on the OTC bulletin board were as follows for each
quarterly period:
Fiscal Quarter High Sale Price Low Sale Price
-------------- -------------- -------------
2008
First $2.50 $1.36
Second 2.25 1.60
Third 2.30 1.65
Fourth 2.53 1.05
2009
First $1.50 $0.70
Second 1.55 0.55
Third 1.35 0.80
Fourth 2.45 0.85
As of the December 7, 2009 Annual Meeting record date there were
12,378,018 shares of common stock outstanding held by
approximately 885 holders of record of the Common Stock of the
Company (including stockholders whose stock is held in street
name and who have declined disclosure of such information.)
The Company has paid no cash dividends on its common stock since
its inception. The Company intends to retain any future earnings
for use in its business and does not intend to pay cash
dividends on its common stock in the foreseeable future.
Holders of the Common stock are entitled to share ratably in
dividends when and as declared by the Board of Directors out of
funds legally available therefore. Preferred Stock dividends of
$589,740 and $203,501 were paid during the years ended September
30, 2009 and 2008 respectively.
In order to increase shareholder returns and liquidity, Dynasil
hopes to move from the OTC Bulletin Board to the NASDAQ exchange
within the next one to two years.
Equity Compensation Plan Information
The Company adopted Stock Incentive Plans in 1996 and 1999 that
permit, among other incentives, grants and options to officers,
directors, employees and consultants to purchase up to 3,750,000
shares of the Company's common stock. At September 30, 2009,
1,400,729 shares of common stock are available for issuance
under the Plans in addition to the number of stock options
outstanding. Options are generally exercisable at the fair
market value or
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higher on the date of grant over a three to five-year period.
To date, options have been granted at exercise prices ranging
from $.40 to $4.25 per share. On September 30, 2009, 1,350,841
options were outstanding.
As of September 30, 2009, the 1999 Stock Incentive Plan still
includes 1,400,729 shares authorized for issuance by
shareholders, but due to an administrative oversight, the plan
technically expired on January 25, 2009 and a new Stock
Incentive Plan will be submitted for approval at the February 3,
2010 Annual Stockholders Meeting which will cover the Stock
Incentive Plan activity since the expiration of the 1999 Stock
Incentive Plan as well as future years.
Number of
securities to be Number of securities
issued upon Weighted-average remaining available for
exercise of exercise price of future issuance under
outstanding outstanding equity compensation plans
options, warrants options, warrants (excluding securities
Plan Category and rights and rights reflected in column (a))
(a) (b) (c)
------------- ------------- ------------- -------------------
Equity 1,350,841 $2.32 1,400,729
compensation
plans approved by
security holders
Equity none none none
compensation
plans not approved
by security holders
Additional information regarding the securities authorized for
issuance under equity compensation plans are set forth in Note 7
to the Consolidated Financial Statements of this 10-K document
and are hereby incorporated by reference.
The Company adopted an Employee Stock Purchase Plan that permits
substantially all employees to purchase common stock. Employees
have an opportunity to acquire common stock at a purchase price
of 85% of the fair market value of the shares. Under the plan, a
total of 450,000 shares have been reserved for issuance. Of
these, 159,492 shares have been purchased by employees at
purchase prices ranging from $.06 to $2.68 per share. During any
twelve-month calendar period, employees are limited to a total
of $5,000 of stock purchases.
On September 19, 2000 the Company filed a Form S-8 with the
United States Securities and Exchange Commission to register the
shares associated with the Stock Incentive Plans and the
Employee Stock Purchase Plan. Prior to that date the shares
were restricted and subject to the holding periods of Rule 144.
ITEM 6. SELECTED FINANCIAL DATA
Dynasil, a smaller reporting company, is not required to
complete this item.
ITEM 7. 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 appearing
elsewhere in this Form 10-K.
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General Business Overview
Fiscal year 2009 was a year of significant growth in revenues
and profits for Dynasil following the acquisition of RMD on July
1, 2008. When compared to fiscal year 2008, fiscal year 2009
revenues doubled from $17.1 to $34.4 million, income from
operations doubled from $1.45 million to $2.84 million and net
income increased by 33.5% from $1.16 to $1.55 million. Fiscal
year 2009 revenues for our optics/ photonics products and
instruments segment were significantly impacted by the worldwide
economic recession, but all of our business units remained
profitable. Our contract research segment revenues showed a
significant revenue increase for the year, offsetting the
revenue losses in our commercial products area. Net Operating
Loss carry-forwards for federal taxes were exhausted during
fiscal year 2008 so fiscal year 2009 net income was impacted by
provisions for increased federal taxes as well as higher
interest costs primarily related to the RMD acquisition. For
the first two months of fiscal year 2010, we have experienced a
moderate improvement in optics/photonics products and
instruments revenue and our contract research business continues
to be strong. Our revenue backlog for contract research is more
than 2 years. During fiscal year 2009, the Company paid down
debt by $2.2 million and maintained liquidity with a cash
balance of $3.1 million and $1.2 million available from lines of
credit as of September 30, 2009. We remain focused on
continuing to execute internal growth as well as growing through
further acquisitions and commercialization of technology from
RMD.
Results of Operations
Revenues for the fiscal year ended September 30, 2009 were
$34,363,674. This represents an increase of 100.8% over revenues
for the fiscal year ended September 30, 2008 of $17,116,341.
The revenue increases were driven by the acquisition of RMD.
Cost of revenues for the fiscal year ended September 30, 2009
was $20,629,501, or 60.0% of revenues, versus $11,307,034, or
66.1% of revenues for fiscal year ended September 30, 2008.
Gross profit increased to $13,734,173, or 40.0% of sales, for
fiscal year 2009 from $5,809,307, or 33.9% of sales for fiscal
year 2008. The increase in gross margin dollars and percentage
came primarily from the impact of the RMD acquisition.
Selling, general and administrative ("SG&A") expenses increased
to $10,891,096 or 31.7% of sales for fiscal year 2009 from
$4,359,493 or 25.5% of sales for fiscal year 2008. The changes
in SG&A expenses resulted primarily from the impact of the
acquisition of RMD.
Net Interest Expense increased to $735,317 or 2.1% of sales for
fiscal year 2009 from $214,090 or 1.25% of sales for fiscal year
2008. The increase in net interest expense is primarily related
to the additional interest payments resulting from the
indebtedness incurred in connection with the RMD acquisition.
For fiscal year 2009, the Company had income tax expense of
$556,462 as compared to only $73,757 for fiscal year 2008. The
increase in tax expense in 2009 as compared to 2008, in addition
to the increase in pre-tax income, was mainly due to the full
utilization of all remaining federal net operating
loss carry-forwards in 2008. Some New Jersey state taxes for
fiscal year 2009 and 2008 and some New York state taxes for 2009
were offset by utilization of net operating loss carry-forwards.
The Company has approximately $445,532 of net operating loss
carry-forwards to offset certain future New York state taxable
income, expiring in various years through 2013.
The Company had net income of $1,551,298 for the year ended
September 30, 2009 compared to net income of $1,161,967 for the
fiscal year ended September 30, 2008. Net income for our
optics/photonics products and instruments
segment was significantly impacted by the economic recession.
The net income from our contract research segment was strong for
fiscal year 2009.
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Liquidity and Capital Resources
Net cash as of September 30, 2009 was $3,104,778 which was a
decrease of $778,177 as compared to $3,882,955 at September 30,
2008.
Net cash provided by operating activities was $2,380,435 for
fiscal year 2009 versus $960,950 for fiscal year 2008. Net
income was $1,551,298, depreciation/ amortization added back
$946,932, accounts receivable increased by $727,443, inventory
decreased by $538,214, and accounts payable and accrued expenses
decreased by $81,944.
Cash flows used in investing activities were $445,646 for fiscal
year 2009 compared to $13,323,756 for fiscal year 2008. Cash
paid for the RMD acquisition including acquisition costs totaled
$12,801,151 and cash paid for the Precision Optics product line
acquisition was $250,000 during fiscal year 2008. Capital
expenditures to purchase machinery and equipment of $445,646 for
fiscal year 2009 compared to $272,605 for 2008. The increase
came primarily from the addition of the RMD businesses.
Cash flows from (used in) financing activities were ($2,712,966)
for fiscal year 2009 and $15,748,813 for fiscal year 2008. Cash
used in financing activities for fiscal year 2009 was mainly to
pay down $1,691,202 of long term debt and $490,117 of short term
debt as well as paying $589,740 of preferred stock dividends.
Cash from financing activities for fiscal year 2008 came largely
from the sale of $5,256,000 of Preferred Stock, $2 million from
a note from RMD Instruments, LLC and $9,000,000 of proceeds from
bank financing that were completed as part of the RMD
acquisition. Cash from 2009 and 2008 issuance of common stock
was $58,093 and $177,928 respectively which came primarily from
the exercise of stock options and warrants.
Management believes that its current cash and cash equivalent
balances, along with the net cash generated by operations and
credit lines, are sufficient to meet its anticipated cash needs
for working capital for at least the next 12 months. As of
September 30, 2009, the Company had cash of $3,104,778 and
available bank line of credit borrowings of $1,215,000.
However, the current worldwide economic slow-down has
significantly impacted the Company's revenues and profits so
that a worsening recession could cause a cash shortage. The
Company has a $2 million note to RMD Instruments, LLC which is
scheduled to be repaid by October 1, 2010. There are currently
plans for capital expenditures of $687,000 in the next twelve
months. Any major business expansions or acquisitions likely
will require the Company to seek additional debt and/or equity
financing.
DYNASIL'S STRATEGY
Dynasil's strategy is to continue to grow profitably through
acquisitions and organic growth that are driven by our
profitable research business in order to deliver exceptional
stockholder returns.
Dynasil's sensors and instruments enable intelligent decision-
making in critical applications including:
- Medical products such as probes to help surgeons determine
which lymph nodes to remove during breast cancer surgery.
- Commercial products such as handheld x-ray florescence
(XRF) instruments to determine whether there is lead in paint
within buildings or toys.
- Homeland security products such as improved sensors for
detecting nuclear materials or dirty bombs at ports and borders.
- Defense products such as handheld XRF instruments to detect
counterfeit electronics.
We have the following strengths that we believe make Dynasil
unique:
- A track record of consistent growth and profitability -
growing from $2 million revenues in fiscal year 2004 to $35
million in fiscal year 2009 - a 72% compound annual growth rate
while being profitable every quarter since fiscal year 2004.
-10-
- A profitable research business developing advanced
technology to provide significant upside opportunity where we
typically get to retain the commercial rights to the technology.
- A plan to continue to grow aggressively through
acquisitions and technology commercialization.
Our competitive advantage comes from effective execution as well
as new technology from our profitable research operation.
- Dynasil has a proven track record for delivering results by
bringing focus to businesses and improving their execution. The
acquisitions of Optometrics, EMF, the Precision Optics filter
product line and RMD have been completed since March 2005 and we
have significantly improved operational execution and results in
these businesses.
- Management expects the profitable research at RMD to drive
our internal growth of commercial products as well as to lead to
acquisitions where RMD technology can provide a competitive
advantage.
Mission
Dynasil's mission is to deliver exceptional returns to its
stockholders, to achieve financial results which are
consistently superior to those of its peers and to be regarded
by its employees as an outstanding place to work.
Financial Objective
Dynasil's goal is to perform in the top 25% of peer group
companies with respect to the total return to shareholders.
Ethics Policy
Dynasil has a Code of Conduct which requires adherence to the
highest ethical standards in all its dealings with customers,
vendors, employees and stockholders. Ethical behavior includes
the principles of integrity, fairness, respect, openness, and
obeying all laws.
Operations Strategy
The Company is organized into strong business units which are
focused on customers and meeting key business goals. Each
business unit is led by a General Manager with overall
responsibility for their unit results as well as responsibility
to manage the interfaces with other business units and the
corporate staff. The Company seeks to foster a high level of
employee involvement, motivation, and profit-sharing
participation.
A small central corporate staff focuses on adding value by
centralizing a few selected activities and by developing key
competencies within the business units which include:
- Providing overall corporate leadership and coordination.
- Implementing key corporate competencies in the business units to
support organic growth by teaching and consulting to include:
- Clear focus by defining a few, key business objectives;
prioritizing the projects to best meet those objectives;
setting individual goals; consistently communicating
updates; and sharing in the profits;
- Disciplined manufacturing, sales and business processes;
- Market understanding, strategy process, and
identification of a few high growth projects; and
continuous revenue growth and operational improvements
- Providing cost effective financial reporting, tax
compliance, investor relations, SEC compliance,
legal support, and fund raising to support growth.
- Identifying, structuring, and coordinating acquisition
activities to support growth objectives.
- Facilitating cooperation and coordination between business
units such as working together to maximize overall
effectiveness of sales and marketing.
-11-
- Identifying transferable skills within the business units
and using them to help other business units.
- Purchasing shared items, such as insurance, where
consolidated purchasing delivers savings.
- Coordinating Human Resource policies, high level recruiting,
and supporting business units with HR issues.
Acquisitions
The Company plans to aggressively pursue additional acquisitions
to enhance growth. A goal of one acquisition per year is
targeted using the following criteria:
a) Acquisitions that can quickly add to financial results.
Target companies are product companies serving related markets
that can be purchased on attractive financial terms. Of
particular interest are companies where a combination with
Dynasil offers increased customer access, complementary
capabilities that can expand revenues, cost savings or where
companies have developed capabilities that can be rapidly
brought to market given access to Dynasil's existing
infrastructure, growth capital and/or leadership assistance.
Our business model has proven to be an attractive exit option
for long term owners who want to see their business continue to
prosper and grow.
b) Acquisitions that create strategic competitive advantage
through technology leadership where RMD has developed technology
that can quickly create value.
Strategy Summary
In summary, the key elements of our strategy are to:
- Continue to grow organically and through opportunistic
acquisitions
- Use profitable research to springboard growth and upside
opportunities
- Internal growth by commercializing RMD technology
- Acquisitions aimed at capitalizing on RMD technology
- Maintain strong business units focused on key goals
- Have a small corporate staff that drives execution,
builds
competencies and provides services
"Off Balance Sheet" Arrangements
The Company has no "Off Balance Sheet" arrangements.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1, "Summary of Significant Accounting Policies" in the
Notes to Consolidated Financial Statements for a full
description of recent accounting pronouncements, including the
respective dates of adoption or expected adoption and effects on
our consolidated financial position, results of operations and
cash flows.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America and pursuant
to the rules and regulations of the SEC. The preparation of
these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses
during the reporting period. We have identified the following as
the items that require the most significant judgment and often
involve complex
-12-
estimation: revenue recognition, valuation of long-lived assets,
intangible assets and goodwill, estimating allowances for
doubtful accounts receivable, stock-based compensation and
accounting for income taxes.
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
consists 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.
Government funded services revenue from cost plus contracts are
recognized as costs are incurred on the basis of direct costs
plus allowable indirect costs and an allocable portion of the
fixed fee. Revenues from fixed-type contracts are recognized
under the percentage of completion method with estimated costs
and profits included in contract revenue as work is performed.
Revenues from time and materials contracts are recognized as
costs are incurred at amounts represented by agreed billing
amounts. Recognition of losses on projects are taken as soon as
the loss is reasonably determinable. The Companies have no
current accrual for potential losses on existing projects.
The majority of the Companies' contract revenue is derived from
the United States government and government related contracts.
Such contracts have certain risks which include dependence on
future appropriations and administrative allotment of funds and
changes in government policies. Costs incurred under United
States government contracts are subject to audit. The Companies
believe that the results of such audits will not have a material
effect on its financial position or its results of operations.
Valuation of Long-Lived Assets, Intangible Assets and Goodwill
We assess the impairment of long-lived assets, intangible assets
and goodwill whenever events or changes in circumstances
indicate that the carrying value of such assets may not be fully
recoverable or that their useful lives are no longer
appropriate. Reviews are performed to determine whether the
carrying values of the assets are impaired based on comparison
to the discounted expected future cash flows identifiable to
such long-lived and amortizable intangible assets. If the
comparison indicates that impairment exists, the impaired asset
is written down to its fair value. We have determined that
there is no indication of material impairment to our long-lived
and intangible assets. Goodwill is tested for impairment on an
annual basis and between annual tests in certain circumstances,
and written down when impaired. No impairment of goodwill was
identified based on the annual impairment review during the
fourth quarter of fiscal year 2009.
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.
-13-
Stock-Based Compensation
We account for stock-based compensation using fair value.
Compensation costs are recognized for stock options granted to
employees and directors. Options and warrants granted to
employees and non-employees are recorded as an expense at the
date of grant based on the then estimated fair value of the
security in question, determined using the Black-Scholes option
pricing model.
Income Taxes
As part of the process of preparing our consolidated financial
statements, we are required to estimate our income tax provision
(benefit) in each of the jurisdictions in which we operate.
This process involves estimating our current income tax
provision (benefit) together with assessing temporary
differences resulting from differing treatment of items for tax
and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included within our
consolidated balance sheets. 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 these
carryforwards will be realized, and has adjusted the valuation
allowance accordingly.
Forward-Looking Statements
The statements contained in this Annual Report on Form 10-K
which are not historical facts, including, but not limited to,
certain statements found under the captions "Description of
Business," "General Business Overview," "Results of Operations,"
"Dynasil's Strategy," and "Liquidity and Capital Resources"
above, are forward-looking statements that involve a number of
risks and uncertainties. The actual results of the future events
described in such forward-looking statements could differ
materially from those stated in such forward-looking statements.
Among the factors that could cause actual results to differ
materially are the risks and uncertainties discussed in this
Annual Report on Form 10-K, 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.
-14-
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Stockholders
Dynasil Corporation of America and Subsidiaries
Berlin, New Jersey
We have audited the accompanying consolidated balance
sheets of DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES (the
"Company") as of September 30, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of DYNASIL CORPORATION OF AMERICA AND
SUBSIDIARIES as of September 30, 2009 and 2008 and the results
of their operations and their cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States of America.
We were not engaged to examine management's assessment of
the effectiveness of Dynasil Corporation of America and
subsidiaries internal control over financial reporting as of
September 30, 2009 and 2008, included in the accompanying
management's report on internal control over financial reporting
and, accordingly, we do not express an opinion thereon.
HAEFELE, FLANAGAN & CO., p.c.
Moorestown, New Jersey
December 22, 2009
F-1
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2009 and 2008
ASSETS
2009 2008
---------- ----------
Cash and cash equivalents $3,104,778 $3,882,955
Accounts receivable, net of allowance for doubtful
accounts of $123,853 for 2009 and $70,165 for 2008
and sales returns of $18,916 for 2009 and $8,200 4,053,742 3,390,703
for 2008
Inventories 2,371,516 2,909,730
Deferred tax asset 290,100 233,500
Prepaid expenses and other current assets 306,848 259,896
---------- ----------
Total current assets 10,126,984 10,676,784
Property, Plant and Equipment, net 2,744,724 2,694,290
Other Assets
Intangibles, net 7,232,035 7,767,258
Goodwill 11,054,396 11,054,396
Deferred financing costs, net 64,637 81,136
Other assets -0- 8,360
---------- ----------
Total other assets 18,351,068 18,911,150
---------- ----------
Total Assets $31,222,776 $32,282,224
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short term note payable $ -0- $ 490,117
Current portion of long-term debt 1,749,524 1,649,101
Accounts payable 773,837 877,525
Accrued expenses and other current liabilities 1,171,790 1,620,692
Income taxes payable 507,122 36,476
Dividends payable 149,150 149,150
---------- ----------
Total current liabilities 4,351,423 4,823,061
Long-term Liabilities
Long-term debt, net 6,386,796 8,178,420
Note payable to related party 2,000,000 2,000,000
---------- ----------
Total long-term liabilities 8,386,796 10,178,420
Stockholders' Equity
Common Stock, $.0005 par value, 40,000,000 shares
authorized, 12,250,257 and 12,142,849 shares issued,
11,440,097 and 11,332,689 shares outstanding
for 2009 and 2008, respectively 6,125 6,072
Preferred Stock, $.001 par value, 10,000,000
Shares authorized, 5,966,000 issued and outstanding
for 2009 and 2008, 10% Cumulative, Convertible 5,966 5,966
Additional paid in capital 16,364,388 16,122,185
Retained earnings 3,094,420 2,132,862
---------- ----------
19,470,899 18,267,085
Less 810,160 shares of treasury stock, at cost (986,342) (986,342)
---------- ----------
Total stockholders' equity 18,484,557 17,280,743
---------- ----------
Total Liabilities and Stockholders Equity $31,222,776 $32,282,224
=========== ===========
The accompanying notes are an integral part of these
consolidated financial
statements.
F-2
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2009 and 2008
2009 2008
------- ------
Net revenues $34,363,674 $17,116,341
Cost of revenue 20,629,501 11,307,034
----------- -----------
Gross profit 13,734,173 5,809,307
Selling, general and administrative expenses 10,891,096 4,359,493
----------- -----------
Income from operations 2,843,077 1,449,814
Interest expense, net 735,317 214,090
----------- -----------
Income before income taxes 2,107,760 1,235,724
Income tax expense 556,462 73,757
----------- -----------
Net income $ 1,551,298 $1,161,967
========== ===========
Basic earnings per common share $ 0.08 $ 0.12
Diluted earnings per common share $ 0.08 $ 0.12
F-3
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2009 and 2008
Additional
Common Common Preferred Preferred Paid-in
Shares Amount Shares Amount Capital
--------- ------ --------- --------- ---------
Balance,
October 1, 2007 6,926,683 $3,464 710,000 $ 710 $2,983,980
Issuance of shares
of common stock
under employee
stock purchase
plan 9,537 5 -0- -0- 17,978
Issuance of shares
of common stock in
lieu of compensation
to directors 7,142 4 -0- -0- 14,248
Compensation costs
recognized in
connection with
stock options -0- -0- -0- -0- 159,950
Issuance of shares
of common stock
under stock
warrant plan 613,627 307 -0- -0- 137,759
Issuance of shares
of Series C
preferred stock net -0- -0- 5,256,000 5,256 5,250,744
Stock based
compensation 3,860 1 -0- -0- 7,717
Stock issued
in connection with
the purchase
of RMD 4,582,000 2,291 -0- -0- 7,549,809
Preferred stock
dividends paid -0- -0- -0- -0- -0-
Net income -0- -0- -0- -0- -0-
--------- ------ --------- --------- -----------
Balance,
September 30, 2008 12,142,849 $6,072 5,966,000 5,966 $16,122,185
========== ====== ========= ========== ===========
Issuance of shares
of common stock
under employee
stock purchase
plan 3,333 2 -0- -0- 3,541
Issuance of shares
of common stock in
lieu of compensation
to directors 40,075 20 -0- -0- 50,145
Issuance of shares
of common stock
under stock
option plan 53,000 26 -0- -0- 27,024
Compensation costs
recognized in
connection with
stock options -0- -0- -0- -0- 133,998
Issuance of shares
of common stock
in lieu of
Series C
Preferred Stock
dividends 11,000 5 -0- -0- 27,495
Preferred stock
dividends paid -0- -0- -0- -0- -0-
Net income -0- -0- -0- -0- -0-
--------- ------ --------- --------- -----------
Balance,
September 30, 2009 12,250,257 $6,125 5,966,000 $5,966 $16,364,388
========== ====== ========= ========== ===========
F-4
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2009 and 2008
(continued)
Treasury Stock Total
Retained ----------------------- Stockholders'
Earnings Shares Amount Equity
-------- --------- ---------- -------------
Balance,
October 1,
2008 1,174,396 810,160 $(986,342) $3,176,208
Issuance of shares
of common stock
under employee
stock purchase
plan -0- -0- -0- 17,983
Issuance of shares
of common stock in
lieu of compensation
to directors -0- -0- -0- 14,252
Compensation costs
recognized in
connection with
stock options -0- -0- -0- 159,950
Issuance of shares
of common stock
under stock
warrant plan -0- -0- -0- 138,066
Issuance of shares
of Series C
Preferred Stock -0- -0- -0- 5,256,000
Stock based
compensation -0- -0- -0- 7,718
Stock issued
in connection with
the purchase
of RMD -0- -0- -0- 7,552,100
Preferred stock
dividends paid (203,501) -0- -0- (203,501)
Net Income 1,161,967 -0- -0- 1,161,967
-------- --------- ---------- -------------
Balance,
September 30,
2008 2,132,862 810,160 $(986,342) $17,280,743
========= ========= ========== =============
Issuance of shares
of common stock
under employee
stock purchase
plan -0- -0- -0- 3,543
Issuance of shares
of common stock in
lieu of compensation
to directors -0- -0- -0- 50,165
Issuance of shares
of common stock
under stock
option plan -0- -0- -0- 27,050
Compensation costs
recognized in
connection with
stock options -0- -0- -0- 133,998
Issuance of shares
of common stock
in lieu of
Series C
Preferred Stock
dividends -0- -0- -0- 27,500
Preferred stock
dividends paid (589,740) -0- -0- (589,740)
Net income 1,551,298 -0- -0- 1,551,298
-------- --------- ---------- -------------
Balance,
September 30,
2009 3,094,420 810,160 $(986,342) $18,484,557
========= ========= ========== =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2009 and 2008
2009 2008
--------- ----------
Cash flows from operating activities:
Net income $1,551,298 $1,161,967
Adjustments to reconcile net income to net cash
provided by operating activities
Stock compensation expense 184,163 159,950
Provision for doubtful accounts and sales returns 64,404 (51,288)
Depreciation and amortization 946,932 504,836
Deferred taxes (56,600) (31,900)
(Increase) decrease in:
Accounts receivable (727,443) (1,318,826)
Inventories 538,214 (368,969)
Prepaid expenses and other current assets (38,589) (70,856)
Increase (decrease) in:
Accounts payable and accrued expense (552,590) 937,680
Income taxes payable 470,646 38,356
--------- ----------
Net cash provided by operating activities 2,380,435 960,950
--------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (445,646) (272,605)
Cash paid for acquisition of RMD -0- (12,500,000)
Cash paid for acquisition costs -0- (301,151)
Cash paid for acquisition of filter equipment -0- (250,000)
--------- ----------
Net cash used in investing activities (445,646)(13,323,756)
--------- -----------
Cash flows from financing activities:
Issuance of common stock 58,093 177,928
Issuance of preferred stock -0- 5,256,000
Proceeds from short-term debt -0- 415,631
Proceeds from related party note -0- 2,000,000
Proceeds from long-term debt -0- 9,000,000
Repayment of long-term debt (1,691,202) (841,243)
Repayment of short-term debt (490,117) -0-
Deferred financing costs incurred -0- (56,002)
Preferred stock dividends paid (589,740) (203,501)
---------- ----------
Net cash provided by (used in) financing
activities (2,712,966) 15,748,813
--------- ----------
Net increase (decrease) in cash and
cash equivalents (778,177) 3,386,007
Cash and cash equivalents, beginning 3,882,955 496,948
--------- ----------
Cash and cash equivalents, ending $3,104,778 $ 3,882,955
========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
The Company is primarily engaged in the development, marketing
and manufacturing of optical products and optical instruments as
well as contract research. The Company's products and services
are used in a broad range of application markets including the
medical, industrial and homeland security/defense sectors. The
products and services are sold throughout the United States and
internationally.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Dynasil Corporation of America and its wholly-owned
subsidiaries: Optometrics Corporation, Dynasil International
Incorporated, Hibshman Corporation, Evaporated Metal Films Corp,
RMD Instruments Corp ("RMD Instruments"), and Radiation
Monitoring Devices, Inc.("RMD Research"). RMD Instruments and
RMD Research are referred to, together, in these financial
statements as "RMD." All significant intercompany transactions
and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Acquisition of Optical Filter Equipment and Customer List
On January 18, 2008, Optometrics acquired the optical filter
equipment and customer list of Precision Optics Corporation,
Inc. of Gardener, MA. The purchase price was $250,000 in cash
plus a 25% royalty on annual revenues exceeding $300,000 from
the purchased customer list for a three year period.
Business Acquisition - RMD
On July 1, 2008, the Company completed its acquisition of all of
the outstanding capital stock of RMD Research and the specific
assets and liabilities of RMD Instruments in transactions that
were accounted for as purchases. Total cost of the acquisitions
was $20,353,251 of which a total of $12.5 million was paid to
the seller in cash, $7,552,100 was paid to the seller in stock
and $301,151 represented acquisition costs incurred. The cash
paid to the seller came from the $5,256,000 of proceeds from the
issuance of 5,256,000 shares of Series C Preferred Stock as well
as bank financing. Also on July 1, 2008, in a concurrent bank
transaction, Dynasil borrowed $10,000,000 of which $425,460 was
used to retire Dynasil debt, $468,620 was used to retire
Optometrics debt, $8,500,000 was paid directly to the seller at
settlement, and the remaining funds of $605,920 were used for
working capital purposes. The total purchase price of
approximately $20,353,251 has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed
on the basis of their estimated fair values. The results of
operations of RMD have been included in the consolidated
financial statements from July 1, 2008, the effective date of
acquisition. The allocation of the purchase price is summarized
below:
F-7
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (continued)
Business Acquisition - RMD (continued)
Purchase price:
Total consideration to seller $20,052,100
Acquisition costs incurred $ 301,151
-----------
$20,353,251
Purchase price allocation:
Cash and cash equivalents $297,923
Accounts receivable 742,512
Inventories 696,123
Prepaid expenses and other current assets 12,789
Intangibles and goodwill 18,964,563
Property and equipment 89,657
Current liabilities assumed (450,316)
-----------
Net fair value of assets acquired $20,353,251
===========
The following is the proforma financial information of the
Company for the year ended September 30, 2008, assuming the
transaction had been consummated at the beginning of the year
ended September 30, 2008 (i.e., October 1, 2007):
For the year ended
September 30, 2008
(Unaudited)
Statement of Operations:
Revenues $34,293,615
Cost of sales 19,836,804
----------
Gross profit $14,456,811
Operating Expenses 10,788,272
----------
Income from operations 3,668,539
Interest and other expense (575,036)
----------
Income before taxes 3,093,503
Income taxes (1,002,752)
----------
Net Income $2,090,751
==========
Earnings per share:
Basic $ 0.13
Diluted $ 0.13
Revenue Recognition
The Company records sales revenue upon shipment to customers as
the terms are generally FOB shipping point at which time title
and risk of loss have been transferred to the customer, pricing
is fixed or determinable and collection of the resulting
receivable is reasonably assured. Returns of products shipped
are and have historically not been material. Optometrics and
EMF, however, provide an allowance for sales returns based upon
historical experience. The Company also provides an allowance
for doubtful accounts based on historical experience and a
review of its receivables.
Revenues from research and development activities consists of up-
front fees, research and development funding and milestone
payments. Non-refundable up-front fees are deferred and
amortized to revenue over the related performance period.
Periodic payments for research and development activities and
government grants are recognized over the period that the
Company performs
F-8
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
the related activities under the terms of the agreements.
Revenue resulting from the achievement of milestone events
stipulated in the agreements is recognized when the milestone is
achieved.
Government funded services revenue from cost plus contracts are
recognized as costs are incurred on the basis of direct costs
plus allowable indirect costs and an allocable portion of the
fixed fee. Revenues from fixed-type contracts are recognized
under the percentage of completion method with estimated costs
and profits included in contract revenue as work is performed.
Revenues from time and materials contracts are recognized as
costs are incurred at amounts represented by agreed billing
amounts. Recognition of losses on projects are taken as soon as
the loss is reasonably determinable. The Companies have no
current accrual for potential losses on existing projects.
The majority of the Companies' contract revenue is derived from
the United States government and government related contracts.
Such contracts have certain risks which include dependence on
future appropriations and administrative allotment of funds and
changes in government policies. Costs incurred under United
States government contracts are subject to audit. The Companies
believe that the results of such audits will not have a material
effect on its financial position or its results of operations.
Shipping and Handling Costs
The Company includes some shipping and handling fees billed to
customers in sales and shipping and handling costs incurred in
cost of revenues.
Research and Development
The Company expenses research and development costs as incurred.
Research and development costs include salaries, employee
benefit costs, department supplies, direct project costs and
other related costs. Research and development costs incurred
during the years ended September 30, 2009 and 2008 were
$18,310,315 and $3,914,847, respectively. Substantially all of
these research and development costs relate to research
contracts performed by RMD Research, and are in turn billed to
the contracting party.
Patent Costs (principally Legal Fees)
Costs incurred in filing, prosecuting and maintaining patents
are expensed as incurred. Such costs aggregated approximately
$285,139 and $9,241 for the years ended September 30, 2009 and
2008, respectively.
Inventories
Inventories are stated at the lower of average cost or market.
Cost is determined using the first-in, first-out (FIFO) method.
Inventories consist primarily of raw materials, work-in-process
and finished goods. The Company evaluates inventory levels and
expected usage on a periodic basis and records adjustments for
impairments as required.
Property, Plant and Equipment and Depreciation and Amortization
Property, plant and equipment are recorded at cost or at fair
market value for acquired assets. Depreciation is provided
using the straight-line method
F-9
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment and Depreciation and Amortization
(continued)
for financial reporting purposes and accelerated methods for
income tax purposes over the estimated useful lives of the
respective assets
The estimated useful lives of assets for financial reporting
purposes are as follows: building and improvements, 8 to 25
years; machinery and equipment, 5 to 10 years; office furniture
and fixtures, 5 to 10 years; transportation equipment, 5 years.
Maintenance and repairs are charged to expense as incurred;
major renewals and betterments are capitalized. When items of
property, plant and equipment are sold or retired, the related
costs and accumulated depreciation are removed from the accounts
and any gain or loss is included in income.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to discounted
future net cash flows to be generated by the assets. If these
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Based
on these reviews, no asset impairment charges were made to the
carrying value of long-lived assets during the years ended
September 30, 2009 and 2008.
Goodwill and Other Intangible Assets
Goodwill consists of the cost in excess of the fair value of the
acquired net assets of the Company's subsidiaries. The
Company's other intangible assets consist of an acquired
customer base of Optometrics, LLC, acquired customer
relationships and trade names of RMD Instruments, LLC and
acquired backlog and know how of RMD, Inc. Intangible assets
are carried at cost less accumulated amortization. Amortization
is computed using the straight-line method over the economic
life of the respective asset. As of September 30, 2009 and
2008 the Company had approximately $11,054,396 and $11,054,396
of goodwill and $7,232,035 and $7,767,258 carrying value related
to other intangible assets.
Goodwill and intangible assets which have indefinite lives are
subject to annual impairment tests. Impairment tests require
the comparison of the fair value and carrying value of reporting
units. Measuring fair value of a reporting unit is generally
based on valuation techniques using multiples of earnings or
discounted cash flow. The Company assesses the potential
impairment of goodwill and other intangible assets annually and
on an interim basis whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Upon
completion of such annual review, if impairment is found to have
occurred, a corresponding charge will be recorded. As a result
of the Company's annual test to determine whether goodwill and
other intangible assets have been impaired as of September 30,
2009 and 2008, the Company did not identify any indication of
goodwill impairment of its reporting units or intangible assets.
F-10
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (continued)
Other Assets
Other assets include deferred financing costs which are
amortized on a straight-line basis over the term of the related
debt, or five years.
Advertising
The Company expenses all advertising as incurred. Advertising
expense for the years ended September 30, 2009 and 2008 was
$219,275 and $161,024.
Deferred Rent
Deferred rent consists of the excess of the allocable straight
line rent expense to date as compared to the total amount of
rent due and payable through such period. Deferred rent is
amortized as a reduction to rent expense over the term of the
lease. Deferred rent was $70,770 and $15,658 as of September
30, 2009 and 2008.
Income Taxes
Dynasil Corporation of America and its wholly-owned subsidiaries
file a consolidated federal income tax return.
The Company uses the asset and liability approach to account for
income taxes. Under this approach, deferred income taxes
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes
and net operating loss and tax credit carryforwards. The amount
of deferred taxes on these temporary differences is determined
using the tax rates that are expected to apply to the period
when the asset is realized or the liability is settled, as
applicable, based on tax rates, and tax laws, in the respective
tax jurisdiction then in effect. Valuation allowances are
provided if it is more likely than not that some or all of the
deferred tax assets will not be realized. The provision for
income taxes includes taxes currently payable, if any, plus the
net change during the year in deferred tax assets and
liabilities recorded by the Company.
The Company adopted the updated authoritative provisions related
to accounting for uncertainty in income taxes on October 1,
2007. As required by these provisions, the Company recognizes
the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax
positions meeting the more-likely-than-not threshold, the amount
recognized in the financial statements is the largest benefit
that has a greater than 50 percent likelihood of being realized
upon ultimate settlement with the relevant tax authority. At
the adoption date, the Company applied these provisions to all
tax positions for which the statute of limitations remained
open. There was no impact on the Company's consolidated
financial position, results of operations, or cash flows as of
September 30, 2009 and 2008. As of the adoption date and as of
September 30, 2009, the Company had no unrecognized tax
benefits. The Company's practice is to recognize interest
and/or penalties related to income tax matters in income tax
expense. As of September 30, 2009 and 2008, the Company had no
accrued interest or penalties related to income taxes. The
Company currently has no federal or state tax examinations in
progress.
F-11
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (continued)
Earnings Per Common Share
Basic earnings per common share is computed by dividing the net
income applicable to common shares after preferred dividends
paid if applicable, by the weighted average number of common
shares outstanding during each period. Diluted earnings 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, 983,897
and 660,124 common share equivalents were assumed to be
outstanding for the years ended September 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 earnings per
common share is as follows:
Calculation of Net Income for Basic Earnings per Share
2009 2008
--------- ----------
Net income $ 1,551,298 $1,161,967
Less: Preferred stock dividends $(589,740) (203,501)
--------- ----------
Net Income allocable to common shareholders $ 961,558 $ 958,466
========= ==========
Calculation of Net Income for
Diluted Earnings per Share
Net income $ 1,551,298 $1,161,967
Less: Preferred stock dividends $(518,740) (132,501)
--------- ----------
Net Income for Dilutive Earnings per Share $ 1,032,558 $1,029,466
========== ==========
Weighted average shares outstanding
Basic 11,373,837 7,752,809
Effect of dilutive securities
Stock Options 10,124 84,714
Stock Warrants -0- -0-
Convertible Preferred Stock 944,300 944,300
--------- ----------
Diluted average shares outstanding 12,328,261 8,781,825
========== ==========
Basic earnings per common share $ 0.08 $ 0.12
Diluted earnings per common share $ 0.08 $ 0.12
Stock Based Compensation
Stock-based compensation cost is measured using the fair value
recognition provisions of the FASB authoritative guidance, which
requires the measurement and recognition of compensation expense
for all stock-based awards made to employees and directors,
including employee stock options, based on estimated fair
values.
We elected to use the modified prospective application
transition method as provided by the FASB authoritative
guidance. In accordance with the modified prospective
transition method, compensation cost is recognized in the
consolidated financial statements for all awards granted after
the date of adoptions.
F-12
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (continued)
Financial Instruments
The carrying amount reported in the balance sheets for cash and
cash equivalents, accounts receivable and accounts payable
approximates fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amount for
long-term debt approximates fair value because the underlying
instruments are primarily at current market rates.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. In the normal course of business, the Company
extends credit to certain customers. Management performs initial
and ongoing credit evaluations of their customers and generally
does not require collateral.
Concentration of Credit Risk
The Company maintains allowances for potential credit losses and
has not experienced any significant losses related to the
collection of its accounts receivable. As of September 30, 2009
and 2008, approximately $1,035,288 and $1,106,442 or 26% and 44%
of the Company's accounts receivable are due from foreign sales.
The Company maintains cash and cash equivalents at various
financial institutions in New Jersey, Massachusetts and New
York. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $250,000. At September 30,
2009, the Company's uninsured bank balances totaled $3,071,711.
The Company has not experienced any significant losses on its
cash and cash equivalents.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB)
issued authoritative guidance to establish the FASB Accounting
Standards Codification (ASC) as the source of authoritative
accounting principles and the framework for selecting the
principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with
generally accepted accounting principles in the United States.
This guidance is effective for the Company in the fiscal year
reporting period ended on September 30, 2009 and only impacts
references for accounting guidance.
In May 2009, the FASB issued a standard on subsequent events.
This standard requires companies to recognize in their financial
statements the effects of subsequent events that provide
additional evidence about conditions that existed at the date of
the balance sheet, including the estimates inherent in the
process of preparing financial statements. An entity shall
disclose the date through which subsequent events have been
evaluated, as well as whether that date is the date the
financial statements were issued. This statement applies
prospectively for interim and annual financial periods ending
after June 15, 2009. The implementation of this standard did
not have a material impact on the Company's financial condition,
results of operations or cash flows.
In April 2009, the FASB issued authoritative guidance to address
application issues on initial recognition and measurement,
subsequent measurement and accounting and disclosure of assets
and liabilities arising from contingencies in a business
combination. The Company is required to adopt this guidance in
the first annual reporting period beginning on or after
F-13
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements (continued)
December 15, 2008. Accordingly, the Company has adopted this
guidance effective at the beginning of fiscal 2010, although it
will only impact the Company if it is involved in a business
combination as an acquirer.
In April 2009, the FASB issued a standard on interim disclosures
about fair value of financial instruments. This standard
requires fair value disclosures in both interim as well as
annual financial statements in order to provide more timely
information about the effects of current market conditions on
financial instruments. This standard was effective for interim
and annual periods ending after June 15, 2009. The
implementation of this standard did not have a material impact
on the Company's financial condition, results of operations or
cash flows.
In April 2008, the FASB issued authoritative guidance amending
the factors that should be considered in developing the renewal
or extension assumptions used to determine the useful life of a
recognized intangible asset. The intent of this guidance is to
improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows used to
measure the fair value of the asset as provided for under
separate accounting guidance topics. This guidance is effective
for fiscal years beginning after December 15, 2008 and for
interim periods within those years with early adoptions
prohibited. Accordingly, the Company will adopt this guidance
in fiscal 2010 and it will only impact the Company if the
Company acquires assets for which it needs to develop renewal or
extension assumptions to determine the useful life of a
recognized intangible asset.
In December 2007, the FASB issued authoritative guidance
retaining the purchase method of accounting for acquisitions,
but requiring a number of changes, including changes in the way
assets and liabilities are recognized in purchase accounting.
It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair
value, and requires the expensing of acquisition-related costs
as incurred. This guidance applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008 and early adoption is prohibited.
Accordingly, the Company will adopt this guidance in the first
quarter of its fiscal 2010 and the guidance will only impact the
Company if it is involved in a business combination as an
acquirer.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company
generally considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Reclassifications
Certain amounts as previously reported have been reclassified to
conform to the current year financial statement presentation.
F-14
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 2 - Inventories
Inventories at September 30, 2009 and 2008 consisted of the
following
2009 2008
---------- ---------
Raw Materials $1,374,134 $2,110,138
Work-in-Process 550,151 467,590
Finished Goods 447,231 332,002
---------- ---------
2,371,516 $2,909,730
========== ==========
Note 3 - Property, Plant and Equipment
Property, plant and equipment at September 30, 2009 and 2008
consist of the following:
2009 2008
---------- ---------
Land $ 40,450 $ 40,450
Building and improvements 1,812,658 1,704,492
Machinery and equipment 5,163,255 4,896,556
Office furniture and fixtures 278,135 216,616
Transportation equipment 60,828 60,828
---------- ---------
7,355,326 6,918,942
Less accumulated depreciation 4,610,602 4,224,652
---------- ---------
$2,744,724 $2,694,290
========== ===========
Depreciation expense for the years ended September 30, 2009 and
2008 was $395,210 and $354,492.
Note 4 - Other Assets
Other assets at September 30, 2009 and 2008 consist of the
following:
2009 2008
---------- ---------
Deferred financing costs $ 98,356 $ 98,356
Intangible assets 7,909,475 7,909,475
Goodwill 11,054,396 11,054,396
Other assets -0- 8,360
---------- ---------
19,062,227 19,070,587
Less accumulated amortization 711,159 159,437
---------- ---------
$ 18,351,068 $18,911,150
============ ===========
Amortization expense for the years ended September 30, 2009 and
2008 was $551,722 and $150,344.
Note 5 - Debt
EMF has a Mortgage Note and Line of Credit Note Agreement with
Tompkins Trust Company ("TTC") which are guaranteed by Dynasil.
The guaranteed loans include (a) a $1,050,000 principal amount
commercial mortgage (the "EMF Mortgage") and (b) a $215,000
principal amount line of credit facility (the "EMF Line of
Credit"). The EMF Mortgage requires repayment over a 20 year
period at a fixed annual interest
F-15
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 5 - Debt (continued)
rate of 7.80% for the first 5 years, resetting to a fixed annual
interest rate of 2.80 percentage points over the Federal Home
Loan Bank of New York Advance Rate for five-year maturities at
five year intervals. The EMF Mortgage is secured by a first
mortgage on EMF's real estate as well as Dynasil's guarantee.
The EMF Line of Credit has a term running until December 22,
2010 and carries an annual interest rate of one-half percent
over the Wall Street Journal's Prime Rate of interest, which is
adjusted monthly. It is secured by EMF's real estate as well as
Dynasil's guarantee.
On July 1, 2008, in conjunction with the RMD acquisition,
Dynasil entered into a Term Note and Line of Credit Agreement
with Susquehanna Bank ("Susquehanna"). The loans include (1) a
$9,000,000 term loan ("Susquehanna Term Loan") and (b) a
$1,000,000 line of credit facility ("Susquehanna Line of
Credit"). Proceeds of the Susquehanna Term Loan were used to
repay certain debts of Optometrics and Dynasil, to pay for part
of the acquisition of RMD and for working capital purposes. The
applicable borrowing documents were entered into on commercial
lending terms and conditions, including acceleration rights,
events of default, Susquehanna's rights and remedies and similar
provisions that Dynasil believes are customary for commercial
loans of this sort. In connection with the transaction, Dynasil
executed and delivered to Susquehanna customary forms of notes,
mortgages, security agreements and similar documents. The
Susquehanna Term Loan requires repayment over a five year period
at a fixed annual interest rate of 6.0%. The Susquehanna Term
Loan is secured by a first mortgage on Dynasil's real estate and
equipment and fixtures, with the exception of EMF real estate.
The Susquehanna Line of Credit has a term running until January
31, 2010 and carries an annual interest rate at the Wall Street
Journal's Prime Rate of interest, which is adjusted monthly. It
is secured by the Dynasil group companies' assets except for EMF
real estate. The Company is subject to various financial
covenants associated with the Susquehanna Term Loan and the
Susquehanna Line of Credit. The Company believes it is in
compliance with all covenants as of September 30, 2009.
The Company expects to renew and potentially increase the
Susquehanna Line of Credit at the end of its term.
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 carries 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 amended to be 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.
Notes Payable to Banks
Dynasil has a note payable to Susquehanna Bank that represents
borrowings under the Susquehanna Line of Credit, which bears
interest at a variable rate equal to Susquehanna Bank's prime
rate which is adjusted monthly (3.25% at September 30, 2009 and
5% at September 30, 2008). The amount available under this
agreement is $1,000,000. The outstanding balance at September
30, 2009 and 2008 was $0 and $280,000, respectively. It is
secured by substantially all of Dynasil and subsidiary assets
except for EMF's real estate.
EMF has a note payable to Tompkins Trust Company that represents
borrowings under the EMF Line of Credit which carries an annual
interest rate of one-half percent over the Wall Street Journal's
Prime Rate of interest, which is adjusted monthly (3.75% and
5.0% as of September 30, 2009 and September 30, 2008). The
amount available under this agreement is $215,000. The
outstanding balance at September 30, 2009 and 2008 was $0 and
$210,070, respectively. It is secured by EMF's real estate, as
well as Dynasil's guarantee.
F-16
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 5 - Debt (continued)
Long-term Debt
Long-term debt at September 30, 2009 and 2008 consisted of the
following:
2009 2008
------ ------
Note payable to bank in monthly installments of
$8,727 including interest of 7.8% through October 2011
(after October 2011, the interest rate will adjust every
five years to the Federal Home Loan Bank of NY Advance
Rate plus 2.8%), maturing on October 1, 2026, secured by
a mortgage on the Ithaca, New York real estate $979,187 $1,005,344
Note payable to Ithaca Urban Renewal Agency for
Lease of land in Ithaca, New York for 99 years
with the option to purchase said land for $26,640
after May 2008 16,389 18,535
Note payable to bank in monthly installments of $174,359
including interest at 6.0%, through June 2013, secured
by substantially all Dynasil and subsidiary assets
except EMF real estate. 7,140,744 8,743,620
Note payable to a related party in which the former
owners of RMD and current officers of RMD have a
financial interest, bears interest at 8% through
September 30, 2009, increased to 9% effective
October 1, 2009, due October 1, 2010, unsecured. 2,000,000 2,000,000
Note payable to former owner of EMF in connection with
EMF acquisition, bears interest at 7.8% - repaid in
2009 -0-* 60,022*
--------- ----------
$10,136,320 $11,827,521
Less current portion 1,749,524 1,649,101
----------- ----------
$8,386,796 $10,178,420
=========== ===========
* Interest expense of $8,315 was accrued and included in the
outstanding balance as September 30, 2008.
The aggregate maturities of long-term debt, as of September 30,
2009 are as follows:
For the year ending:
September 30, 2011 $ 3,842,174
September 30, 2012 1,958,084
September 30, 2013 1,734,971
September 30, 2014 38,709
Thereafter 812,938
-----------
Total $ 8,386,876
===========
F-17
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 6 - Income Taxes
The Company's income tax expense (benefit) for the years ended
September 30, 2009 and 2008 are as follows:
2009 2008
---- ----
Current
Federal $ 479,600 $274,300
State 178,662 98,700
Utilization of NOL carryforwards ( 45,200) (282,300)
-------- --------
$613,062 $ 90,700
-------- --------
Deferred
Federal (67,500) 28,200
State 10,900 (45,143)
-------- --------
(56,600) (16,943)
-------- --------
Income tax expense $556,462 $ 73,757
======== ========
The reasons for the difference between total tax expense and the
amount computed by applying the statutory federal income tax
rates to income before income taxes at September 30, 2009 and
2008 are as follows:
2009 2008
---- ----
Taxes at statutory rates applied to income
before income taxes $716,600 $400,400
Increase (reduction) in tax resulting from:
Depreciation (39,500) (115,300)
Amortization (251,700) (62,900)
Accounts receivable 18,700 (19,300)
Inventories 70,200 113,400
Vacation pay 1,400 (24,200)
Unfunded pension liability (9,700) 12,300
Deferred compensation 3,700 (6,100)
Other 12,500 6,900
State income taxes 136,062 (129,820)
Benefit of net operating loss carryforwards (45,200) (292,700)
Deferred income taxes (56,600) 191,077
--------- --------
$556,462 $ 73,757
======== =========
Deferred income taxes (benefit) reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes, and the tax effects of net
operating losses that are available to offset future taxable
income. Significant components of the Company's deferred tax
assets (liabilities) at September 30, 2009 and 2008 are as
follows:
F-18
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 6 - Income Taxes (continued)
2009 2008
---- ----
Inventories $ 335,400 $ 253,000
Vacation pay 102,000 100,400
Unfunded pension liability 26,100 37,600
Deferred compensation 4,400 -0-
Accounts receivable 57,100 49,800
Depreciation (268,300) (107,300)
Net operating loss carryforwards 33,400 64,000
Amortization of intangibles and goodwill -0- (74,500)
State deferred taxes 20,600 20,600
Less valuation allowance -0- (110,100)
---------- ---------
$290,100 $ 233,500
========== =========
In assessing the ultimate realization of deferred tax assets and
liabilities, management considers whether it is more likely than
not that some or all of them will not be realized. Based on the
Company's history of significant fluctuations in net earnings,
the Company had established a full valuation allowance due to
the uncertainty as to the realization of certain net operating
loss carryforwards. With the asset acquisition of Optometrics,
LLC in March 2005 and RMD in July, 2008 and operational
improvements, the Company now believes that these carryforwards
will likely be realized, and has adjusted the valuation
allowance accordingly.
At September 30, 2009, the Company has no further net operating
loss carryforwards to offset future taxable income for federal
tax purposes. In addition, the Company has approximately
$445,532 of net operating loss carryforwards to offset certain
future state taxable income, expiring in various years through
2013.
Note 7 - Stockholders' Equity
During the year ending September 30, 2008, Mr. Craig Dunham
exercised his remaining 613,627 warrants at $.225 per share for
$138,066.
On February 3, 2009, Dynasil stockholders approved an amendment
to the Company's Certificate of Incorporation to increase the
authorized number of common shares from 25,000,000 to 40,000,000
and the authorized number of preferred shares from 10,000,000 to
15,000,000.
Convertible Preferred Stock
On October 2, 2006 the Company sold 710,000 shares of a Series B
10% Cumulative Convertible Preferred Stock in a private
placement. The stock was sold at a price of $1.00 per share.
Total expenses for the stock placement were $10,000. No
underwriting discounts or commissions were paid in connection
with the sale. Each share of preferred stock carried a 10% per
annum dividend and was convertible to 1.33 shares of common
stock at any time by the holders and was callable after two
years by Dynasil at a redemption price of $1.00 per share.
Proceeds of the preferred stock sale were primarily used to
acquire the capital stock of EMF and for related acquisition
costs. Dynasil called all of these shares for redemption on
November 30, 2009 and all of the shares were converted to common
stock (see Note 14) on November 30, 2009 prior to their
redemption.
On July 5, 2008 the Company sold 5,256,000 shares of a Series C
10% Cumulative Convertible Preferred Stock in a private
placement. The stock was sold at a price of $1.00 per share.
Total expenses for the stock placement were $0. No underwriting
discounts or commissions were paid in connection with the sale.
Each share of preferred stock carries a 10% per annum dividend
and is convertible to 0.40 shares of common stock at any time by
the holders and is callable after two years by Dynasil at a
redemption price of $1.05 per share. Proceeds of the
preferred stock sale were primarily used for the acquisition of
RMD, for related
F-19
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 7 - Stockholders' Equity (continued)
Convertible Preferred Stock (continued)
acquisition costs, and for general working capital.
Stock Based Compensation
The Company adopted Stock Incentive Plans in 1996 and 1999 which
provide for, among other incentives, the granting to officers,
directors, employees and consultants options to purchase shares
of the Company's common stock. The Company's 1999 Stock
Incentive Plan was amended on July 25, 2000, with an effective
date of January 1, 1999. Options are generally exercisable at
the fair market value or higher on the date of grant over a
three to five year period currently expiring through 2012.
The Plans also allow eligible persons to be issued shares of the
Company's common stock either through the purchase of such
shares or as a bonus for services rendered to the Company.
Shares are generally issued at the fair market value on the date
of issuance. The maximum shares of common stock which may be
issued under the Plans are 3,750,000 shares, of which 1,400,729
shares of common stock are available for future purchases under
the Plan at September 30, 2009 in addition to outstanding stock
options.
The Company will be presenting a new Stock Incentive Plan to
stockholders for approval at the February 3, 2010 Annual
Meeting. The maximum number of shares of common stock which may
be issued under the new Plan is 6,000,000.
A summary of stock option activity for the years ended September
30, 2009 and 2008 is presented below:
Exercise Price
Shares Per Share
--------- --------------
Options outstanding at October 1, 2007 281,459 $0.40 - $2.00
-------
Granted in 2008 562,266 $2.00 - $4.00
Exercised in 2008 -0-
Cancelled in 2008 -0-
-------
Options outstanding at September 30, 2008 843,725 $0.40 - $4.00
-------
Granted in 2009 707,116 $1.40 - $2.65
Exercised in 2009 (53,000) $0.40 - $0.85
Cancelled in 2009 (147,000) $0.85 - $2.89
---------
Options outstanding at September 30, 2009 1,350,841 $0.51 - $4.00
Options exercisable at September 30, 2009 1,047,509 $0.51 - $4.00
=========
During the year ended September 30, 2009, 707,116 stock options
were granted at prices ranging from $1.40 to $2.65 per share and
53,000 options were exercised. Of the options granted in 2009,
121,666 of the granted stock options could not be exercised
until 2010 and 111,666 of the granted stock options could not be
exercised until 2011, therefore the stock-based compensation
expense will be recognized at that time. Of the exercised
options, 13,000 options had an exercise price of $0.85 per share
with $11,050 paid in cash, and 40,000 options had an exercise
price of $0.40 per share with $16,000 paid in cash. During the
year ending September 30, 2009, 147,000 options were cancelled,
with prices ranging from $0.85 to $2.89 per share.
During the year ended September 30, 2008, 562,266 stock options
were granted at
prices ranging from $2.00 to $4.00 per share and -0- options
were exercised. Of
F-20
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 7 - Stockholders' Equity (continued)
Stock Based Compensation (continued)
the options granted in 2008, 100,000 of the granted stock
options cannot be exercised until October 15, 2009 or later, and
therefore the stock-based compensation expense of $18,043 will
be recognized at that time if they become exercisable. No
options were cancelled during the year ended September 30, 2008.
For the year ended September 30, 2009, total stock-based
compensation charged to operations for option-based arrangements
amounted to $133,998. At September 30, 2009, there was
approximately $71,437 of total unrecognized compensation expense
related to non-exercisable option-based compensation
arrangements under the Plan.
For the year ended September 30, 2008, total stock-based
compensation charged to operations for option-based arrangements
amounted to $159,950. At September 30, 2008, there was
approximately $18,043 of total unrecognized compensation expense
related to non-exercisable option-based compensation
arrangements under the Plan.
During the year ended September 30, 2009, the Company issued
40,075 shares of common stock valued at an average of $1.25 per
share to directors in lieu of Director's Fees totaling $50,165.
During the year ended September 30, 2008, the Company issued
7,994 shares of common stock valued at an average of $1.97 per
share to a director in lieu of Director's fees totaling $15,750.
The Company also issued 4,635 shares of common stock valued
between $2.00 and $2.15 per share totaling $9,386 to employees
as compensation.
The fair value of the stock options granted and warrants issued
were estimated on the date of grant using the Black Scholes
option-pricing model. Based on the list of assumptions
presented below with numbers shown for the most recent grant,
the weighted average fair values of the options granted during
the years ended September 30, 2009 and 2008 is $0.28 and $0.30
per share, respectively.
2009 2008
---- ----
Expected life in years 3 3
Risk-free interest rate 4.02% 4.47%
Expected volatility 29.96% 32.50%
Dividend yield 0.00% 0.00%
The expected volatility was determined with reference to the
historical volatility of the Company's stock. The Company uses
historical data to estimate option exercise and employee
termination within the valuation model. The expected term of
options granted represents the period of time that options
granted are expected to be outstanding. The risk-free interest
rate for periods within the contractual life of the option is
based on the U.S. Treasury rate in effect at the time of grant.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan which permits
substantially all employees to purchase common stock at a
purchase price of 85% of the fair market value of the shares.
Under the Plan, a total of 450,000 shares have been reserved
for issuance of which 159,492 and 156,159 shares have been
issued as of September 30, 2009 and 2008, respectively.
During any twelve month period, employees may not purchase more
than the number of shares for which the total purchase price
exceeds $5,000. During the years ended September 30, 2009 and
2008, 3,755 shares, and 8,759 shares of common stock were issued
under the Plan for aggregate purchase prices of $6,352 and
$16,317, respectively.
F-21
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 8 - Retirement Plans
401(k) Plans
The Company has savings plans available to substantially all
full time employees which are intended to qualify as deferred
compensation plans under Section 401(k) of the Internal Revenue
Code (the "401k Plans"). Pursuant to the 401k Plans, employees
may contribute up to the maximum amount allowed by the 401k
Plans or by law. The Company at its sole discretion may from
time to time make discretionary matching contributions as it
deems advisable. The Company made contributions to the plans
during the years ended September 30, 2009 and 2008 of $55,093
and $64,649, respectively.
Defined Benefit Pension Plan
EMF has a defined benefit pension plan covering hourly
employees. The plan provides defined benefits based on years of
service and final average salary. As of September 30, 2006, the
plan was frozen. Accordingly, accrued benefit costs are
classified as a current liability on the consolidated balance
sheet. The following relates to the Company's defined pension
plan as of September 30, 2009 and 2008:
2008 2007
-------- --------
Pension benefit obligation as of September 30 $369,683 $393,554
Fair value of plan assets as of September 30 (308,350) (296,761)
-------- --------
Excess of benefit obligation over plan assets $ 61,333 $ 96,793
======== =======
Amounts recognized on the balance sheet as:
Accrued benefit costs (in accrued expenses) $ 61,333 $ 96,793
========= =======
Discount rate on the benefit obligation- based 6.01% 5.88%
on 24-month average segmented rates
Rate of expected return on the plan assets 5.00% 5.50%
Pension expense (benefit) ($26,631) $43,410
Company contributions $ 6,093 $ 7,202
Note 9 - Related Party Transactions
During the years ended September 30, 2009 and 2008, building
lease payments of $114,000 and $114,000 were paid to Optometrics
Holdings, LLC in which Laura Lunardo, Optometrics' COO has a 50%
interest.
During the years ended September 30, 2009 and 2008, building
lease payments of $760,985 and $188,055, were paid to Charles
River Realty, dba Bachrach, Inc., which is owned by Gerald
Entine and family, the Company's President of RMD Research.
On September 30, 2008, a loan for $2,000,000 was completed with
a company in which the Company's President of RMD Research, Dr.
Gerald Entine, and Vice-President of RMD Instruments, Mr. Jacob
Pastor, have greater than 90% interest. The loan currently
bears interest at 9% and a balloon payment of all principal is
due on October 1, 2010. Interest expense for the year ended
September 30, 2009 was $160,000.
F-22
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 10 - Leases
The Company has non-cancelable operating lease agreements,
primarily for property, that expire through 2013. One of the
Company's facilities is leased from a company controlled by the
former owner of RMD, who is also currently President of the
Company's RMD Research subsidiary. This lease expires in June
2013. One of the Company's facilities is leased from a company
controlled by the former owners of Optometrics, one of whom is
also currently the Optometrics' Chief Operating Officer. This
lease expires in March 2013. Rent expense for the years ended
September 30, 2009 and 2008 amounted to $874,985 and $305,055,
respectively. Future non-cancelable minimum lease payments
under property leases as of September 30, 2009 are as follows:
Year ending September 30,
2010 $904,132
2011 $935,737
2012 $968,607
2013 $768,263
Note 11 - Vendor Concentration
The Company purchased $397,286 and $1,343,291 of its raw
materials from one supplier during the years ended September 30,
2009 and 2008. As of September 30, 2009 and 2008, amounts due to
that supplier included in accounts payable were $0 and $55,455.
Note 12 - Supplemental Disclosure of Cash Flow Information:
2009 2008
Cash paid during the year for:
Interest $721,343 $241,777
========= =======
Income taxes $142,416 $ 33,040
========= =======
Non-cash investing and financing activities:
Acquisition of Assets of RMD Corporation on July 1, 2008:
Fair market value of current assets acquired $1,749,347
Property, plant and equipment 89,657
Intangibles and goodwill 18,964,563
Fair market value of liabilities assumed (450,316)
---------
Total cost of acquisition 20,353,251
Common stock issued to seller (7,552,100)
----------
Net cash paid for RMD $12,801,151
==========
To partially fund the acquisition of RMD, the Company issued
5,256,000 shares of Series C preferred stock, valued at $1.00
per share and received net proceeds of $5,256,000.
On July 1, 2008, concurrently with the acquisition of RMD,
Dynasil borrowed $10,000,000. The proceeds were used as
follows: (1) repayment of existing bank debt of $894,080, (2)
payment of the balance due seller of $8,500,000 directly by the
bank at closing, (3) payment of transaction costs of $60,967 at
closing, and (4) remaining balance of $544,953 was used for
working capital purposes.
F-23
DYNASIL CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
Note 13 - Segment Reporting
Dynasil's business breaks down into two segments:
optics/photonics products and instruments and contract research.
Within these segments, there is a segregation of reportable
units based upon the organizational structure used to evaluate
performance and make decisions on resource allocation, as well
as availability and materiality of separate financial results
consistent with that structure. The optics/photonics products
and instruments segment manufactures optical materials,
components, coatings and specialized instruments used in various
applications in the medical, industrial, and homeland
security/defense sectors. Our contract research segment is one
of the largest small business participants in U.S. government-
funded research.
Segment Financial Information Optics/
Contract Photonics
Research Products and
Instruments Total
-------- --------- -----
Revenues from external customers $19,968,544 $14,395,130 $34,363,674
Depreciation & Amortization 64,414 882,518 946,932
Operating Income 1,658,231 1,184,846 2,843,077
Interest Expense 202,820 532,497 735,317
Income Tax Expense 492,104 64,358 556,462
Net Income 963,305 587,993 1,551,298
Assets 9,627,634 21,595,142 31,222,776
Capital Expenditures 84,568 361,078 445,646
The contract research segment (RMD Research) was acquired on
July 1, 2008, so there is only one full year of results for this
segment. Therefore, the figures above only reflect information
for the year ended September 30, 2009.
Note 14 - Subsequent Events
The Company has evaluated subsequent events through December 22,
2009, the date the financial statements were available to be
issued.
On November 30, 2009, Dynasil issued an aggregate of 946,431
shares of its Common Stock, $.0005 par value per share, as a
result of the exercise of the conversion rights by holders of
710,000 shares of its Series B 10% Cumulative Convertible
Preferred Stock (the "Series B Preferred Shares"). Dynasil had
previously called all of the Series B Preferred Shares for
redemption on November 30, 2009.
F-24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disputes or disagreements of any nature between
the Company or its management and its public auditors with
respect to any aspect of accounting or financial disclosure.
ITEM 9A. CONTROLS AND PROCEDURES
Not Applicable.
ITEM 9A (T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15(e) under the Exchange Act, our Chief
Executive Officer and Chief Financial Officer, with the
participation of management, carried out an evaluation of the
effectiveness of the design and operation of the Company's
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.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Internal
control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles
generally accepted in the United States of America.
Internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures are being made only in accordance with
authorizations of management and directors of the Company, and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Company's assets that could have a material effect on the
consolidated financial statements. Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
The Company's management, with the participation and supervision
of our Chief Executive Officer and Chief Financial Officer,
assessed the effectiveness of the Company's internal control
over financial reporting as of September 30, 2009. In making
this assessment, the Company's management used the criteria set
forth by the Committee of Sponsoring Organizations ("COSO") of
the Treadway Commission in "Internal Control - Integrated
Framework."
Based upon the Company's assessment, management has concluded
that, as of September 30, 2009, the Company's internal control
over financial reporting is effective based upon those criteria.
This Annual Report does not include an attestation report of the
Company's independent registered public accounting firm regarding
internal control over financial reporting. Management's report
was not subject to attestation by
-15-
the Company's independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in
this Annual Report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the course of the last fiscal year, we evaluated the
internal controls of our recently acquired RMD subsidiaries and
implemented improved controls to be consistent with the rest of
the Company. There has been no other change in our internal
control over financial reporting in connection with our
evaluation that occurred during our last fiscal quarter ended
September 30, 2009 that materially affected, or is reasonably
likely to materially affect our internal control over financial
reporting.
OTHER INFORMATION
There is no additional information required for disclosure on
Form 8-K during the fourth quarter, which was not already
disclosed.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
Our directors were elected to serve for a one-year term at our
Annual meeting of the shareholders held on February 3, 2009.
All directors hold office until their successors are elected at
the next annual meeting of the shareholders, scheduled for
February 3, 2010.
Our executive officers and directors (current and proposed), and
their ages at December 15, 2009, are as follows:
Name Age Position
---- --- --------
Peter Sulick 59 Chairman of Board, Chairman of Audit
Committee
James Saltzman 66 Vice Chairman of Board
Craig T. Dunham 53 President, CEO, Director
Cecil Ursprung 65 Director
Gerald Entine 66 Director, RMD Research
President
Michael Joyner 51 Nominated to be a Director
David Kronfeld 62 Nominated to be a Director
Paul Weaver 58 CFO through December 31, 2009
Richard Johnson 55 CFO beginning January 1, 2010
Laura Lunardo 58 Optometrics COO
K. Paul Tyra 51 Vice President - Commercialization
Bruce Leonetti 56 Vice President - Optical Material Sales
Paul Schulz 49 EMF President
Mark Caldwell 43 RMD Instruments General
Manager
None of the above persons is related to any other of the above-
named persons by blood or marriage.
Craig Dunham, 53, Dynasil President and CEO, invested in Dynasil
and then joined the Company in October 2004 as President, CEO
and a Director. Prior to joining Dynasil, he spent about one
year partnering with a private equity group to pursue
acquisitions of mid-market manufacturing companies. From 2000
to 2003, he was Vice President/General Manager of the Tubular
Division at Kimble Glass Corporation. From 1979 to 2000, he
held progressively increasing leadership responsibilities at
Corning Incorporated in manufacturing, engineering, commercial,
and general management positions. At Corning, he delivered
results in various glass and ceramics businesses including
optics and photonics businesses. Mr. Dunham earned a B.S. in
Mechanical Engineering and an M.B.A. from Cornell University.
-16-
Peter Sulick, 59, Chairman, Audit Committee Chairman, and the
Board's Financial Expert, joined the Board on June 12, 2008.
Mr. Sulick is currently President and CEO of AmeriSite, LLC, a
family-owned real estate development and investment company.
Mr. Sulick's business background includes the founding of
Independence Broadcasting Corporation, PowerFone Inc., SSPCS
Corp. and AmeriSite, LLC. Starting in 1985, Mr. Sulick founded
and led telecommunications companies that were later acquired by
Nextel and T-Mobile. In the early part of his career, Mr.
Sulick was a principal financial officer for Cablevision Systems
and has also held several senior-level financial positions at
the Communications Operations Group of ITT. He began his career
in the audit department at Arthur Andersen & Co, in New York
City following graduate school. He is a certified public
accountant who earned his MBA in finance from the University of
Massachusetts and a B.S. in Business Administration from The
Citadel.
James Saltzman, 66, Vice Chairman, has been a member of the
Board since 1992. From January 1999 until September 2009, Mr.
Saltzman was Dynasil's Chairman. Mr. Saltzman has been involved
in the investment community since October 1969 where he has
invested in both public and private corporations. He helped
found several companies which have been purchased by larger
corporations, most recently Without-a-Box which was purchased by
Amazon.com. In recent years, he has been a key source of
potential acquisitions for Dynasil including Optometrics and
RMD. Mr. Saltzman earned a BA degree from Franklin & Marshall
College.
Cecil Ursprung, 65, Director, has been a member of the Board
since February 1, 2007. Mr. Ursprung is the retired Chairman
and CEO of Reflexite Corporation in Avon, Connecticut, a
manufacturer of reflective products to enhance safety and
optical films used to manage light in LCD displays. He had been
with Reflexite since 1983 and led the revenue growth of that
company from $2.5 million to approximately $100 million. He is
a frequent speaker on topics such as business strategy
development, employee motivation, business ethics, executive
compensation, employee ownership and the effective use of
outside boards. His education includes a degree in Economics
and Finance from Baylor University, an MBA from Washington
University in St. Louis, and post-graduate work at the
University of Michigan.
Dr. Gerald Entine, 66, Director and RMD Research President, is a
founder and former majority stockholder of RMD, Inc and RMD
Instruments, LLC. He was elected to the Dynasil Board of
Directors on June 24, 2009. He has more than 40 years of
experience in both applied and basic scientific research in
optics, nuclear sensors and instrumentation and related physics
or biophysics-based technologies. Dr. Entine received his B.Sc.
in Physics/Biophysics and M.A. in Physics from the University of
Pennsylvania. He received his Ph.D. in physics from the
University of California at Berkeley under the direction of two
Nobel Laureates: Dr. Melvin Calvin and Dr. Owen Chamberlain.
Dr. Entine then joined Tyco Laboratories, a high technology
research center in Boston, and conducted studies in
semiconductor sensors until 1974, when he founded RMD with
technology that RMD acquired from Tyco. Dr. Entine continues to
be involved in research, and has been the Principal Investigator
on numerous research contracts and grants funded both privately
and by government. Dr. Entine is currently an Adjunct Research
Assistant Professor in the Department of Neurology at the Bowman
Gray School of Medicine. His publications include works in
Physics and Instrumentation (48), Basic Chemistry (22), and
Medicine and Biophysics (51).
Dr. Michael Joyner, M.D., 51, nominee for Director, serves as the
Associate Dean for research at Mayo Clinic and is the current
Deputy Director for Research at Mayo Clinic in Rochester,
Minnesota, as well as the associate program director of Mayo's
Center of Translational Science Activities and a consultant in
the Department of Anesthesiology. Dr. Joyner is recognized with
the distinction of a named professorship, the Frank R. and Shari
Caywood Professorship. He received his undergraduate and medical
degrees from the University of Arizona. Dr. Joyner's work has
been funded continuously by the NIH since the early 1990s. He
held important editorial positions for key
-17-
journals, served as an NIH study section member, and he received
numerous national and international awards for his work on
muscle blood flow and human physiology. A number of Dr.
Joyner's former fellows now direct independent research programs
in the United States, Canada, Europe and Japan.
David Kronfeld, 62, nominee for Director, founded JK&B Capital
(JK&B), a venture capital firm focused in the software,
information technology and communications markets with over $1.1
billion of cumulative capital under management. Mr. Kronfeld is
an experienced venture capital investor and telecommunications
industry executive with over 30 years of experience. Prior to
forming JK&B, Mr. Kronfeld was a General Partner at Boston
Capital Ventures (BCV) where he focused on making venture
capital investments in telecommunications and software
companies. Before joining BCV, Mr. Kronfeld was Vice President
of Acquisitions and Venture Investments with Ameritech where he
was responsible for directing their venture capital investments
in a broad array of telecommunications-related companies and all
of Ameritech's mergers and acquisitions activities. In
addition, Mr. Kronfeld was a Senior Manager at Booz Allen &
Hamilton and a Systems Analyst at Electronic Data Systems
(E.D.S.). He has been on four public company boards, and
currently sits on the board of directors of NeuLion, Inc. In
addition, he has served on over 30 private company boards of
directors. Mr. Kronfeld earned a Bachelor of Science in
Electrical Engineering with high honors, a Master of Science in
Computer Science from Stevens Institute of Technology and a
Master of Business Administration from The Wharton School of
Business.
Laura Lunardo, 58, General Manager of Optometrics Corporation
and Dynasil CFO until December 15, 2008, has been with Dynasil
since the March 2005 acquisition of Optometrics. Previously,
she had been a partner in Optometrics LLC with primary
responsibilities for Sales & Marketing, Accounting, Finance and
Administration, and was the CFO of Optometrics USA, Inc., the
predecessor corporation to Optometrics LLC, since 1984. Ms.
Lunardo earned her B.S. degree in Business and Accounting from
Boston University in 1976.
Paul Schulz, 48, has been President of EMF since November 19,
2007. He had previous General Management experience at Midland
Materials and Electro-Tech Machining. He delivered results for
a total of 15 years at Morgan AM&T in Pennsylvania as Global
Vice President of Operations, Vice President/General Manager of
Pure Carbon Company, Plant Manager, and Engineering Manager.
Mr. Schulz has a B.S. in Chemical Engineering from Bucknell
University.
Paul Weaver, 58, has been Chief Financial Officer since December
15, 2008 and will continue in that role until December 31, 2009.
Previously, he was employed as a consultant for Thomas Group on
a project to improve the readiness process of the U.S. Navy.
His corporate experience includes senior financial positions in
manufactured consumer products, aviation service, and industrial
packaging industries. He spent 22 years with Tyco Toys, Inc.
where he was a member of the executive committee which took the
company public and grew the business through both organic growth
and acquisitions from a $33 million domestic company to a $750
multi-national. Mr. Weaver is a CPA and has a B.A. in
Accounting from Rutgers University.
Mark Caldwell, 43, became General Manager of RMD Instruments on
October 20, 2008. Prior to joining Dynasil, he was CEO of
Gefran, Inc. in Winchester, MA, a leading manufacturer of
process sensors and instrumentation for machine controls, where
he spent fourteen years in various capacities including General
Manager, Operations Manager, Engineering Manager, and Quality
Assurance Manager. He also worked at Raytheon and Atlantic-
Tracy in engineering and sales roles. Mr. Caldwell holds a MMS
in Manufacturing Engineering from the University of
Massachusetts and a BS in Industrial Technology from the
University of Lowell.
Richard A. Johnson, 55, joined the Company on November 30, 2009
to start his training and will become Chief Financial Officer on
January 1, 2010. Most recently, Mr. Johnson, 55, served as
Chief Financial Officer for Tejas
-18-
Research and Engineering, an engineering and manufacturing firm
in the oil and gas industry, from January through September of
2009. He served as COO at Mondrian-Hall, Inc., Canada's leading
supplier of imaging equipment, supplies and service to the
technical, display graphics and photo marketplace, from 2006 to
2007. From 1989 until 2006, he held numerous financial
positions of increasing responsibility, including Treasurer, VP
Finance, and CFO at Charrette Corporation, a firm that serviced
the printing and design industries. In those positions, Mr.
Johnson helped to increase that company's annual revenues from
approximately $40 million to $130 million. Over the course of
his career, Mr. Johnson has been involved in or led more than 20
acquisitions in all aspects of the acquisition process. He also
has significant experience with a wide range of financing
activities and structures. Mr. Johnson has a B.S. and an M.B.A.
in Finance.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of filings with the Securities and Exchange
Commission and written representations that no other reports
were required, the Company believes that all of the Company's
directors and executive officers complied during fiscal 2009
with the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 except for two Form 4 filings
for Mr. Cecil Ursprung, one Form 4 Filing for Mr. James
Saltzman, and two Form 4 filings for Mr. Peter Sulick which were
late due to administrative oversights and included a total of
5,103 shares paid for Directors compensation, 19,000 shares
gifted by Mr. Ursprung, 41,871 options awarded to Mr. Sulick and
10,000 shares purchased by Mr. Saltzman in an option exercise.
Code of Ethics
The Company adopted a revised Code of Conduct for all employees
on December 23, 2008. The Company will provide a copy to any
person without charge upon request in the manner set forth under
item 1 on page 3 and it is posted on the Company website -
www.dynasilcorp.com.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
--------------------------
Summary Compensation Table
Name and Stock Option All Other
Position Year Salary ($) Bonus ($) Awards ($) Awards ($) Compensation($) Total ($)
------------ ------ ----------- ---------- ----------- ----------- ---------------- ----------
Craig Dunham 2009 175,000 175,000
President 2008 150,000 63,000 213,000
and CEO
Gerald Entine 2009 325,000 19,312 344,315
RMD Research 2008 81,250 4,828 86,078
President
Laura Lunardo 2009 118,076 10,488 3,931 132,495
COO- 2008 115,931 41,928 12,492 170,351
Optometrics
Executive Compensation
Executive Compensation Philosophy
Dynasil's current executive compensation philosophy is outlined
below. When companies are acquired, we typically do not
immediately change existing salary and benefits so there may be
significant differences versus our compensation philosophy for
extended periods of time. We prefer employees to be "at will"
in general but employment agreements are utilized where the
Board sees it as advisable. The Board will deviate from these
philosophies when necessary to attract and retain strong
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people. An equity compensation plan for employees and executives is
currently being investigated. Here are the key points of our
current executive compensation philosophy:
- Moderate base pay where the midpoint of the Company's salary is
typically set at 90%-100% of the median salary for
comparable companies from a national
salary survey. Adjustments may also be made for differences in
regional salary costs. National salary survey data
is routinely used for annual executive compensation
reviews. The current salary survey being used is the
National Executive Compensation Survey by The Management
Association of Illinois in cooperation with nineteen other Employer
Association Group members. This survey provides
data according to company size.
- Excellent incentive compensation to offset the moderate base
pay and provide strong rewards for strong performance.
- Competitive benefits.
- No perquisites or "perks".
In order to ensure that stockholders get a reasonable return on their
investment prior to the payment of corporate executive bonuses,
the current corporate bonus plan includes a formula approved by
Dynasil's Board each year to determine the maximum allowable
bonus payout. For fiscal year 2009, the maximum allowable
"corporate bonus pool" payout was limited to 15% of Dynasil's
net profits before taxes after subtracting an amount equal to a
12% annual return on Dynasil's stockholders' equity (using the
average stockholders' equity based on quarterly balance sheets).
For fiscal year 2010, the maximum allowable "corporate bonus
pool" payout will be limited to 12% of Dynasil's operating
income (before interest and taxes) after subtracting an amount
equal to a 12% annual return on Dynasil's stockholders' equity
(using the average stockholders' equity based on quarterly
balance sheets). In the event that the sum of individual
bonuses exceeds the maximum allowable bonus payout, all bonus
payouts are be reduced by the same percentage required to not
exceed the maximum bonus payout. For fiscal year 2009, Dynasil
profitability equaled the 12% return to stockholders but did not
exceed that level. Therefore, no corporate bonuses were or will
be paid for fiscal year 2009. Each corporate executive has a
targeted bonus percentage with a "balanced scorecard" set of
objectives which includes 25% to 50% of the bonus calculation
based on corporate profitability. The objectives for each
executive are mostly numerical objectives such as profit and
revenue dollars, but they may also be based on completion of
milestone objectives. Corporate bonus payouts are made on an
annual basis after audited financial results are completed and
must be approved by the Board prior to payout. The current
corporate participants in this bonus plan are the CEO, CFO and
Controller.
The employment agreement with Craig T. Dunham, President and CEO,
commenced on October 1, 2004 for an initial three-year period,
after which it automatically renews for one-year terms, unless
terminated by either party upon ninety days written notice prior
to the end of any term or for cause. Under the terms of the
employment agreement, Mr. Dunham works full time for the Company
and if Dynasil terminates the agreement for any reason other
than "cause" (as defined), he is entitled to receive 30% of his
base salary at the time of termination plus continued health
care benefits for six months. Effective October 1, 2007, the
Compensation Committee increased Mr. Dunham's base salary to
$150,000 and modified his bonus plan. In view of the Company's
significant growth is fiscal year 2008, the Compensation
Committee increased Mr. Dunham's base salary to $175,000, which
the Board believed was equivalent to 90% of the median salary
for chief executive officers of comparably sized entities. For
Fiscal Year 2009, Mr. Dunham's bonus was targeted at 60% of his
base pay but there were no corporate bonuses paid as described
above. For Fiscal Year 2010, Mr. Dunham's bonus is again
targeted at 60% of base pay with 50% weighting on operating
profits and the remainder calculated based on revenue,
acquisitions and commercialization results.
An employment agreement with Laura Lunardo, Chief Financial Officer
of the Company through December 15, 2008 and Chief Operating
Officer of its Optometrics Corporation subsidiary
("Optometrics"), commenced on March 9, 2005 and ended on March
10, 2008 when she became an "at will" employee consistent with
the Company's current executive compensation philosophy. On
March 10, 2008, Ms. Lunardo's salary
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was increased from $100,000 to $125,000 and her individual bonus
remained at 5% of Optometrics' net profits before taxes. In
order to be consistent with the Company's executive compensation
philosophy, perquisites that were previously provided to Ms.
Lunardo are being phased out. In accordance with that
philosophy, a 6% extra contribution to Ms. Lunardo's 401(k)
pension plan and health club benefit were eliminated effective
March 2008 and her company car benefit was eliminated when the
car lease ended in April 2009. Otherwise, Ms. Lunardo has
standard Optometrics benefits. For fiscal year 2008, the Board
of Directors awarded Ms. Lunardo an additional $10,000 cash
bonus for her contributions as its interim Chief Financial
Officer and role in implementing the Company's management
controls project pursuant to the Sarbanes-Oxley Act of 2002.
As part of the Company's acquisition of RMD, employment agreements
were entered into with RMD's former owners that maintained their
compensation at then current levels. Dr. Gerald Entine's Former
Owner Work Continuation Agreement provides for Dr. Entine's
employment as RMD's President for a period of 18 months starting
July 1, 2008, extendible by mutual agreement for an additional 6
months thereafter. Under that agreement, Dr, Entine receives a
base salary of $325,000 per year, business expense
reimbursements (including reimbursement for home office
expenses) and standard RMD employee benefits. The agreement
also requires Dr. Entine to maintain confidentiality and not
compete with Dynasil or RMD for a five year period. If Dynasil
or RMD terminates the agreement for any reason other than
"cause" (as defined), Dr. Entine is entitled to receive 20% of
his base salary at the time of termination. The terms of the
agreement are similar to Dr. Entine's pre-transaction
compensation package, although it is not consistent with
Dynasil's current executive compensation philosophy.
Mr. Jacob Paster's Former Owner Work Continuation Agreement provides
for Mr. Paster's employment as Vice President of RMD Instruments
for a period of 24 months starting July 1, 2008. Under that
agreement, Mr. Paster receives a base salary of $250,000 per
year, vested options exercisable for a 3 year period starting
July 1, 2008 to acquire 100,000 shares of Dynasil common stock
at an exercise price of 33% above market price, options
exercisable for a 3 year period starting July 1, 2008 to acquire
an additional 20,000 shares of Dynasil's common stock at an
exercise price of 33% above market price which were cancelled on
October 15, 2009 because RMD Instruments did not meet certain
revenue objectives, customary business expense reimbursements,
reimbursement for apartment rental expense of $2,625 per month
through October 2008 and customary employee benefits. The
agreement also requires Mr. Paster to maintain confidentiality
and not compete with Dynasil or RMD for a five year period. If
Dynasil or RMD terminates the agreement for any reason other
than "cause" (as defined), Mr. Paster will be entitled to
receive 20% of his annual base pay at the time of termination.
The base compensation in the agreement is similar to Mr.
Paster's pre-transaction compensation package, although it is
not consistent with Dynasil's current executive compensation
philosophy.
Mr. Richard A. Johnson will become Chief Financial Officer on January
1, 2010 and has an Employment Agreement with a twenty-four (24)
month term. Mr. Johnson's compensation package includes an
annual salary of $150,000, eligibility for a target bonus payout
of 33% of base pay per fiscal year based on accomplishment of
specific goals and he receives standard Dynasil benefits and
expense reimbursements.
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Outstanding Equity Awards at Fiscal 2009 Year-End
Option awards Stock awards
------------- ------------
Number of Market Value of
Number of Securities Shares or Units Shares or Units
Underlying Unexercised Option Option of Stock That of Stock That
Options(#) Exercise Expiration Have Not Have Not
Name Exercisable Unexercisable Price($) Date Vested(#) Vested
---- ----------- ------------ -------- -------- ---------- ---------
Craig
Dunham 0 0 0 0 0 0
Gerald
Entine 0 0 0 0 0 0
Laura
Lunardo 0 0 0 0 0 0
At this time, none of the Company's Named Executive Officers have
unexercised Option Awards or non vested Stock Awards.
Directors' Compensation
According to a policy begun in July 2008, each non-employee Director
is paid $36,000 per year, with at least 50% of that amount to be
paid in the form of stock options. Directors are required to
attend regularly scheduled quarterly Board Meetings, as well as
additional special meetings. In addition, in view of their
additional responsibilities and obligations, the Chairman
received an additional $9,000 per year and the Audit Committee
Chairman and Board's Financial Expert received an additional
$5,000 per year. The July 2008 change was initiated to provide
competitive directors' compensation commensurate with the
tripling of Dynasil's revenues resulting from the July 1, 2008
acquisition of RMD. Prior to making that change, and during
multiple board meetings, Dynasil's Directors reviewed directors'
compensation data from the National Association of Corporate
Directors ("NACD") and Silicon Valley companies and engaged in
extensive discussions regarding the appropriate level of
directors' compensation. This data was used to revise the
Directors' compensation to a level that Dynasil's Directors
believed was comparable to that paid by similar companies.
Further, one of the best practices recommended by the NACD data
was to pay at least half of directors' compensation in stock or
stock options. Accordingly, the Dynasil Directors revised their
board compensation package to pay 50% of Directors' fees in
stock options which are issued on an annual basis following the
election of Directors at the annual meeting. For the remaining
50% of Directors' fees, each Director has the choice to be paid
in any combination of monthly cash payments, quarterly stock
payments (at the quarter's average market price) and/or annual
stock options. The terms for the stock options generally include
a three to five year exercise period from the initial issue
date, an exercise price set at a 33% premium to the market price
at the time of issue and the value is determined based on Black-
Scholes methodology. In addition, all reasonable expenses
incurred in attending meetings are reimbursed by the Company and
Directors are eligible for other stock options and grants.
In July 2009, First Niagara Consulting, an independent compensation
consulting firm, was engaged to review the Company's Board and
Chair compensation program as compared to the programs offered
by comparable companies. The analysis was based on 2008/2009
ECS and NACD Director Compensation Surveys and showed that
Dynasil's overall directors' and audit 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 analysis of Dynasil's Board chair compensation
level indicated a significant shortfall relative to comparable
companies. The Company's disinterested directors unanimously
concluded that the then current Chairman, Mr. James Saltzman,
had
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recently and was continuing to provide 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 annual fees paid to Mr.
Saltzman for his services as the Company's Chair were increased
from $9,000 to $44,000 to equal total compensation of $80,000.
In recognition that past Directors' fees paid to Mr. Saltzman
had not adequately reflected the value to the Company of the
services provided and responsibilities handled by Mr. Saltzman
as Chair of the Company, the Company's disinterested directors
also authorized a one-time equity grant of $85,000 to Mr.
Saltzman. Fifty percent (50%) of that one time grant to Mr.
Saltzman was paid in the form of common stock and the remainder
was in the form of stock options at a strike price of $2 per
share that shall vest over a three year period.
On September 11, 2009, Mr. Peter Sulick was unanimously elected
Chairman of the Dynasil Board of Directors, with an increase in
his total annual compensation rate from $41,000 to a total of
$65,000 per year, which approximates the median market
compensation of board chairs for similar sized public companies.
In addition, on October 13, 2009, in recognition of the
significant time commitment expected as Chairman, Mr. Sulick was
granted options to acquire 400,000 at an exercise price of $4.00
per share that vest quarterly over a four year period. At that
time, Mr. Saltzman assumed the newly created position of Vice
Chairman without any change in his compensation.
Additional details of the comparable company data used to revise
Director's compensation as well as additional details regarding
the plan is available in the Company's Periodic Report on Form 8-
K dated July 15, 2008. These fees are in addition to fees paid
or stock or option awards that may be paid or granted to induce
an individual to join Dynasil's Board of Directors.
Directors' Compensation For Fiscal Year Ending September 30, 2009
Fees earned or
Paid in Stock Option All other
Name cash($) awards($) awards($) compensation($) Total ($)
------------- --------- --------- ---------- --------------- ---------
James Saltzman
(1)(4) 23,834 26,416 85,585 $135,835
Cecil Ursprung
(1)(2) 18,000 18,000 36,000
Peter Sulick
(1)(3) 5,750 53,000 58,750
(1) On March 1, 2009, stock options were issued to all three outside
Directors to cover their standard stock option portion of
Directors' fees plus the cash, stock or options portion of their
fees which they elect to receive in stock options through
February 2010. These options were issued at $1.58 per share,
which was 33% above the market price of $1.19 per share with a
three year term. A total of 290,246 options were issued with a
total Black-Scholes value of $86,000.
(2) Mr. Ursprung elected to receive 100% of the cash, stock or
options portion of his Directors' fees in shares of Dynasil
common stock which was issued at quarter average market prices
which ranged from $1.06 to $1.65 per share. A total of 12,578
shares of common stock were issued with an aggregate market
value of $18,000 at time of issue and for an average price per
share of $1.43 per share.
(3) Since March 1, 2009, Mr. Sulick has elected to receive 100% of
the cash, stock or options portion of his Directors' fees, as
well as his compensation for chairing the Audit Committee in
options. During the period from October 1, 2008 to February 28,
2009, Mr. Sulick's 2008 Director's compensation was paid in
options previously issued in July of 2008 and the remaining
$5,750 in the form of Dynasil common stock issued at quarter
ending market prices which ranged from $1.06 to $1.65 per share.
A total of 3,725 shares of common stock were issued with an
aggregate market value of $5,750 at time of issue and for an
average price per share of $1.54 per share. Mr. Sulick was
granted 41,871 stock options on September 30, 2009 as payment
for 6 months of chairing the Board of Directors. At that time,
the most recent market price was $1.99 per share, the option
exercise price was $2.65 per share, the options granted had a
three year exercise period, and were valued at $12,000.
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(4) Mr. Saltzman elected to receive 100% of the cash, stock or
options portion of his Directors' fees in cash for basic Board
fees. Mr. Saltzman elected to receive the $9,000 for being
Chairman of the Board of Directors in options. Effective August
1, 2009, the annual fees paid to Mr. Saltzman for his services
as the Company's Chair were increased from $9,000 to $44,000.
Additionally, in recognition that previous directors' fees paid
to Mr. Saltzman had not adequately reflected the value to the
Company of Mr. Saltzman's services and responsibilities as Chair
of the Company, a one-time equity grant of $85,000 was made to
Mr. Saltzman. This grant was in the form of 22,772 shares of
common stock, which at the then market price of $1.16 per share
had a value of $26,415 at the time of issue, with the remainder
in the form of options to acquire 200,000 shares of stock at an
exercise price of $2 per share stock options (60% above the then
current market price) that vest over a three year period, with a
Black-Sholes value of $58,585.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of the
Common Stock of the Company as of September 30, 2009 by each
person who was known by the Company to beneficially own more
than 5% of the common stock, by each director and required
executive officers who owns shares of common stock and by all
directors and executive officers as a group:
Title Name and Address No. of Shares and nature of Percent of
of Class of Beneficial Owner Beneficial Ownership(1) Class
-------- ------------------- --------------------------- ----------
Common Craig Dunham (4)(8) 3,115,715 26.7%
385 Cooper Road
West Berlin, NJ 08091
Common Gerald Entine (7) 4,363,098 38.1%
44 Hunt Street
Watertown, MA 02472
Common James Saltzman (1)(2)(3)(8) 643,490 5.4%
257 Stanford Place
Newtown, PA 18940
Common Peter Sulick (1)(6)(8) 629,502 5.3%
3295 Ft. Charles Dr.
Naples, FL 34102
Common Cecil Ursprung (1)(5) 293,617 2.5%
27 Walbridge Road
West Hartford, CT 06119
Common Laura Lunardo 156,391 1.4%
8 Nemco Way
Ayer, MA 01432
All Officers and Directors
as a Group (1) 9,240,067 71.6%
--------------
(1)The numbers and percentages shown include shares of common
stock issuable to the identified person pursuant to stock
options that may be exercised within 60 days. In calculating the
percentage of ownership, such shares are deemed to be
outstanding for the purpose of computing the percentage of
shares of common stock owned by such person, but are not deemed
to be outstanding for the purpose of computing the percentage of
share of common stock owned by any other stockholders. The
number of shares outstanding on September 30, 2009 was
11,440,097.
(2)James Saltzman disclaims beneficial ownership of 243,206
shares owned by Saltzman Partners.
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(3)Includes options to purchase 144,648 shares of the Company's
common stock at $4.00 per share, options to purchase 54,873
shares of the Company's common stock at $3.06 per share, options
to purchase 91,124 shares of the Company's common stock at $1.58
per share, options to purchase 66,667 shares of the Company's
common stock at $2.00 per share, shares of Series B Preferred
Stock that are convertible into 19,995 shares of common stock,
and shares of Series C Preferred Stock that are convertible into
40,400 shares of common stock.
(4)Includes shares of Series B Preferred Stock that are
convertible to 231,276 shares of common stock and Series C
Preferred Stock that are convertible to 20,000 shares of common
stock. Also includes 1,000,000 shares of common stock held in
the Dunham Family Limited Liability Company of which Mr. Dunham
is the sole managing member and over which he has sole
dispositive and voting power.
(5)Includes options to purchase 80,000 shares of the Company's
common stock at $2.00 per share, options to purchase 31,356
shares of the Company's common stock at $3.06 per share, options
to purchase 60,749 shares of the Company's common stock at $1.58
per share, and shares of Series C Preferred Stock that are
convertible into 100,000 shares of common stock.
(6) Includes options to purchase 80,000 shares of the Company's
common stock at $3.08 per share, options to purchase 51,389
shares of the Company's common stock at $3.06 per share, options
to purchase 138,373 shares of the Company's common stock at
$1.58 per share, options to purchase 41,871 shares of the
Company's common stock at $2.65 per share, shares of Series B
Preferred Stock that are convertible to 86,645 shares of common
stock and shares of Series C Preferred Stock that are
convertible into 100,000 shares of common stock.
(7) Includes shares held in the names of his family and
children's trusts.
(8) As a subsequent event, all Series B Convertible Preferred
Stock was converted to common stock on November 30, 2009.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Financial Statement Note 9 of this 10-K is hereby incorporated
by reference.
The opinion of the Board is that all three current outside
Directors and the two nominees for Director are considered to be
independent as per the independence standards applicable to
Dynasil.
ITEM 14. Principal Accounting Fees and Services
(a) Audit Fees
The aggregate fees billed or to be billed for
professional services rendered by the Company's
principal accountant for the audit of the Company's
annual financial statements for the fiscal years ended
September 30, 2009 and 2008 and the reviews of the
financial statements included in the Company's Forms 10-
Q during those fiscal years are $121,320 and $93,750,
respectively.
(b) Audit Related Fees
The aggregate fees billed or to be billed for
professional services rendered by the Company's
principal accountant for audit related fees for the
fiscal years ended September 30, 2009 and 2008 were $0
and $63,220, respectively. The fiscal year 2008 fees
related to due diligence fees of $28,220 for the RMD
acquisition and RMD audit fees of $35,000.
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(c) Tax Fees
The Company incurred fees of $14,500 and $12,000 during the last
two fiscal years for professional services rendered by the
Company's principal accountant for tax compliance, tax advice
and tax planning.
(d) All Other Fees
The Company incurred fees of $1,440 for Sarbanes Oxley
consultations by the Company's principal accountant
during fiscal year 2009 and $1,800 during fiscal year
2008.
(e) Pre-approval Policies and Procedures
The Board of Directors has adopted a pre-approval policy
requiring that the Audit Committee pre-approve the audit and non-
audit services performed by the independent auditor in order to
assure that the provision of such services do not impair the
auditor's independence. All auditor fees were pre-approved
during fiscal years 2009 and 2008.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed pursuant to Item 601 of
Regulation S-K:
Page
----
1. Financial Statements following 14
Report of Independent Registered Public Accounting Firm F-1
Consolidated Financial Statements:
Balance Sheet as of September 30, 2009 and 2008 F-2
Statements of Operations for the years ended
September 30, 2009 and 2008 F-3
Statements of Stockholders' Equity for the years ended
September 30, 2009 and 2008 F-4
Statements of Cash Flows for the years ended
September 30, 2009 and 2008 F-6
Notes to Consolidated Financial Statements F-7
2. Exhibits
Exhibit
Number
2.01* Lease Agreement, dated March 8, 2005 between Dynasil
Corporation of America and Optometrics Holding LLC,
filed on Form 8-K on March 8, 2005.
2.02* Asset Purchase Agreement, dated January 18, 2008
between Precision Optics Corporation and Optometrics
Corporation, filed on form 8-K dated January 22,
2008.
2.03* Asset Purchase Agreement, dated July 1, 2008 by and
between Dynasil Corporation of America, RMD
Instruments Corp, RMD Instruments LLC, Gerald Entine
1988 Family Trust, Fritz Wald and Doris Wald, and
Jacob H. Paster, filed on Form 8-K dated July 7, 2008.
2.04* Plan of Merger, dated July 1, 2008 by and among
Dynasil Corporation of America, RMD Acquisition Sub,
Inc., Radiation Monitoring Devices, Inc.,
Gerald Entine 1988 Family Trust, Fritz Wald and
Doris Wald, and Jacob H. Paster, filed on Form 8-K
dated July 7, 2008.
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2.05* Lease Agreement, dated July 1, 2008 between RMD
Instruments, Inc and Charles River Realty, filed on
Form 8-K on July 7, 2008.
2.06* Lease Agreement, dated July 1, 2008 between Radiation
Monitoring Devices, Inc. and Charles River Realty,
filed on Form 8-K on July 7, 2008.
3.01* Articles of Incorporation, as amended in the Proxy
Statement filed January 4, 2008.
3.02* Bylaws of the Corporation, as amended in the Proxy
Statement filed January 4, 2008.
3.03* Amendment to the Audit Committee Charter, filed with
Form 10-KSB on December 23, 2008.
3.04* Post Effective Amendment No. 2 to the Corporation
Registration Statement on Form S-8 filed March 6, 2009.
10.01* Amendment to Craig T. Dunham employment agreement,
filed on Form 8-K dated November 13, 2007.
10.02* Employment agreement of Gerald Entine, filed on Form 8-
K dated July 7, 2008.
10.03* Employment agreement of Jacob H. Paster, filed on Form
8-K dated July 7, 2008.
10.04* Loan agreement dated July 1, 2008 with Susquehanna
Bank for a $9,000,000 term loan and a $1,000,000
line of credit, filed on Form 8-K dated July 7, 2008.
10.05* Loan agreement dated September 30, 2008 with RMD
Instruments, LLC for $2,000,000, filed on Form 8K on
October 6, 2008.
10.06* Amendment dated December 19, 2008 to $2,000,000 note
with RMD Instruments, LLC which extends the
maturity date by six months, filed with Form 10K-SB
on December 23, 2008.
10.07* Amendment dated May 8, 2009 to $2,000,000 note with
RMD Instruments, LLC which extends the
maturity date to October 1, 2010, filed with Form
10-Q on May 15, 2009.
10.08* Employment agreement of Richard Johnson, filed on Form
8-K dated November 30, 2009.
14.01* Code of Conduct revised and approved on December 23,
2008 filed with Form 10-KSB on December 30, 2008.
31.1(a) Rule 13a-14(a)/15d-14(a) Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.1(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)
99.01 Press release, dated December 23, 2009, issued by
Dynasil Corporation of America announcing its financial
results for the fourth quarter ending September 30, 2009.
* Incorporated herein by reference
Reports on Form 8K: The following reports on Form 8-K were filed
during the last quarter of the period covered by this report:
- On July 1, 2009, a current report announcing the appointment
of Paul Tyra as Vice President of Commercialization.
- On September 11, 2009, a current report announcing the
election of Peter Sulick to Chairman of the Board of Directors
and James Saltzman as Vice Chairman of the Board of Directors.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BY: /s/ Craig Dunham
------------------
Craig Dunham, President, CEO
DATED: December 23, 2009
------------------
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
BY: /s/ Peter Sulick Chairman of the Board of December 23, 2009
---------------- Directors, Chairman of -----------------
Peter Sulick the Audit Committee
BY: /s/ Cecil Ursprung Director December 23, 2009
------------------ -----------------
Cecil Ursprung
BY: /s/ James Saltzman Director December 23, 2009
------------------ -----------------
James Saltzman
BY: /s/ Gerald Entine Director, President December 23, 2009
------------------- RMD Research -----------------
Gerald Entine
BY: /s/ Craig T. Dunham President and CEO December 23, 2009
------------------- -----------------
Craig T. Dunham
BY: /s/ Paul Weaver CFO and Principal December 23, 2009
--------------- Accounting Officer -----------------
Paul Weaver
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