XML 39 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
Basis of Presentation
9 Months Ended
Jun. 30, 2012
Accounting Policies [Abstract]  
Business Description and Basis of Presentation [Text Block]

Note 1 - Basis of Presentation and Liquidity

 

The accompanying consolidated balance sheet as of June 30, 2012, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended June 30, 2012 and 2011, changes in stockholders’ equity for the nine months ended June 30, 2012 and cash flows for the nine months ended June 30, 2012 and 2011 of Dynasil Corporation of America and subsidiaries (the “Company”), and the related information contained in these notes have been prepared by management and are unaudited. In the opinion of management, all adjustments (which include normal recurring and nonrecurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles for the periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.

 

The preparation of our unaudited consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's September 30, 2011 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission.

 

As disclosed in the Company’s quarterly report on Form 10-Q for the period ended March 31, 2012, the Company had experienced an increase in accounts receivable due to delayed collections and a decrease in borrowing capacity due to high selling, general and administrative (“SG&A”) expenses for commercialization and research and development (“R&D”) activities for product improvements. This, added with an obligation to repurchase stock from a former owner of RMD Investments, LLC (see Note 11 for additional information) caused the Company to believe that it would not satisfy its financial covenants under the Sovereign Bank Loan Agreement as of June 30, 2012. Accordingly, the Company had reclassified the $8,028,688 of debt to Sovereign Bank as a short-term liability.

 

The Company has completed certain transactions to improve its liquidity position. First, on June 7, 2012 the Company satisfied the obligation to repurchase stock by issuing three separate promissory notes in the aggregate principal amount of $1,857,546. This preserved cash and removed uncertainty regarding the ability to satisfy the obligation. The three year promissory notes were issued with a 10% interest rate.

 

Second, on June 29, 2012, the Company entered into a letter agreement (the “Waiver Letter”) as well as Amendment No. 3 to the Original Loan Agreement with Sovereign Bank, N.A. (“Sovereign” or “Sovereign Bank”). Under the Waiver Letter, the Lender agreed to waive non-compliance by the Company with certain financial covenants under the Original Loan Agreement as of June 30, 2012, subject to the Company’s compliance with the terms of the Amendment, which includes, among other things, the requirement of the Company to raise, on or before September 30, 2012, at least $2,000,000 in gross proceeds from the sale of its capital stock and/or the incurrence of new indebtedness which is subordinated to the indebtedness in favor of Sovereign and repaying the obligation to repurchase stock by September 30, 2012. The Amendment also made certain other changes to the Original Loan Agreement, including certain financial covenants to be maintained commencing on September 30, 2012, limitations on capital expenditures and the termination of the Company’s acquisition line of credit. The Amendment did not change the interest rates on outstanding indebtedness under the Original Loan Agreement.

 

Third, on July 31, 2012, the Company entered into a Note Purchase Agreement with Massachusetts Capital Resource Company (“MCRC”) in the amount of $3,000,000. The note with MCRC has a five year term with an interest rate of 10% per annum with interest-only payments to be made for the first three years. The MCRC note is subordinated to the existing debt of Sovereign. The $3,000,000 proceeds from the MCRC note were used on August 1, 2012 to pay off the $1,857,546 in promissory notes which arose from the obligation to repurchase stock from a former owner of RMD Instruments, LLC. The remaining $1.1 million will be used for working capital purposes.

 

Fourth, Days Sales Outstanding (“DSO”) improved by 3.5 days during the three months ended June 30, 2012 to 57.0 days compared with March 31, 2012 and selling, general and administrative costs (“SG&A”) declined by $350,951 from March 31, 2012 to June 30, 2012 improving operating results and borrowing capacity.

 

As a result of the actions, the Company expects to be in compliance with its various debt financial covenants and has classified $7,555,446 of debt to Sovereign as a long-term liability. This reclassified amount is debt to Sovereign in excess of amounts required to be repaid in the next twelve months.

 

We consider events or transactions that have occurred after the unaudited consolidated balance sheet date of June 30, 2012, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Form 10-Q, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure, as applicable. Subsequent events have been evaluated through the date of the filing of this Quarterly Report on Form 10-Q with the SEC.