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Basis of Presentation and Ability to Continue as a Going Concern
6 Months Ended
Mar. 31, 2013
Disclosure Text Block [Abstract]  
Nature of Operations [Text Block]

Note 1 - Basis of Presentation and Ability to Continue as a Going Concern

 

The accompanying consolidated balance sheet as of March 31, 2013, the consolidated statements of operations and comprehensive loss for the three and six months ended March 31, 2013 and 2012, changes in stockholders’ equity for the six months ended March 31, 2013 and cash flows for the six months ended March 31, 2013 and 2012 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, 2012 Annual Report on Form 10-K previously filed by the Company with the Securities and Exchange Commission, as amended on February 14, 2013.

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. However, the Company has failed to comply with the financial covenants set forth in the terms of its outstanding loan agreements and sustained a substantial loss from operations for the year ended September 30, 2012. The Company has continued to sustain losses from operations for the six months ended March 31, 2013. These factors raise substantial doubt over the Company’s ability to continue as a going concern.

 

The Company continues to be in default of the financial covenants set forth in the terms of its loan agreements for its fiscal second quarter ended March 31, 2013. These covenants require the Company to maintain specified ratios of earnings before interest, taxes, depreciation and amortization (EBITDA) to fixed charges and to total/senior debt. A default gives the lenders the right to accelerate the maturity of the outstanding indebtedness. Furthermore, Sovereign Bank, N.A, the Company’s senior lender, may, at its option, impose a default interest rate with respect to the senior debt outstanding, which is 5% higher than the rate otherwise in effect. To date, the lenders have not taken any such actions. However, the Company cannot predict when or whether a resolution of this situation will be achieved.

 

The Company has accrued but not remitted interest payments for February and March 2013 to its subordinated lender. The Company is current with all principal and interest payments due to its senior lender through May 15, 2013, the date of this filing. Management has provided a revised forecast to its lenders and is engaged in discussions with its senior lender to address the financial covenant situation. Because of the uncertainty of any resolution of the covenant violations and possibility of an acceleration of the indebtedness by the lenders, the Company reclassified all of its outstanding indebtedness as a current liability in the accompanying consolidated balance sheets.

 

The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and positive cash flows and/or to obtain the necessary financing from shareholders or other sources to meet its outstanding obligations and repay its liabilities arising from normal business operations when they become due.

 

In view of the matters described in the preceding paragraphs, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon the continued operations of the Company. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

The Company has taken and will continue to take actions to improve its liquidity, including the implementation of a number of initiatives designed to conserve cash, optimize profitability and right-size the cost structure of its various businesses. The Company has retained Argus Management Corporation and Mirus Capital as financial advisors to assist it in evaluating strategic and restructuring alternatives, including the potential sale of product lines and/or a Company division. While the Company is actively considering such strategic alternatives, there can be no assurances that any such transaction will occur, or, if a transaction is completed, it will be on terms favorable to the Company. The Company does not currently have cash available to satisfy its obligations under its indebtedness if it were to be accelerated or payment demanded. If the Company is not able to resolve its current defaults under its outstanding indebtedness and improve its liquidity through the actions described above, it may not have sufficient liquidity to meet its anticipated cash needs for the next twelve months.

 

We consider events or transactions that have occurred after the unaudited consolidated balance sheet date of March 31, 2013, 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.